Dynamic Capability as a Theory of Competitive Advantage: Contributions and Scope Conditions

Dynamic capability is a theory of competitive advantage in rapidly-changing global environments. We reconcile this explanation with previous theories of competitive advantage, showing how it informs and complements explanations based on market positions, firm resources and Schumpeterian creative destruction. We examine the scope conditions of dynamic capability; that is, when the theory has more and less explanatory power. We find that dynamic capability has greatest explanatory power when a partially-foreseeable technological change is on the verge of transforming the basis of market competition. The theory has less explanatory power when dynamic capabilities are not undervalued or scarce; when change is unforeseeable; when change is too easily foreseeable; when the effect size of new capabilities is small; in industries subject to repeated technological shifts; and in markets that reward short bursts of extraordinary performance over long-term persistence. We discuss these scope conditions and show how dynamic capability combines with prior theories to explain competitive advantage in different industry contexts