The most important factor is the integration of intellectual property with the overall corporate strategy. In most companies, the general counsel and the top strategy people don’t talk much to each other—but they should.
S+B: How can dynamic capabilities be scaled up throughout a large company?
TEECE: I may be the only economist who is a strong believer in corporate culture; I explain corporate culture to my economist friends as “control on the cheap.” Corporate culture is about getting people to do things without necessarily having to bribe or threaten them. [Using] dynamic capabilities requires that you infuse this entrepreneurial culture throughout the organization. Only then does top management have a chance of actually making the organization robust.
Corporate culture is about getting people to do things without necessarily having to bribe or threaten them.
S+B: Is there a reliable theory that tells you how to build dynamic capabilities?
TEECE: Not yet. I can give corporate leaders a sense of what they need to do, but dynamic capabilities theory is not tightly predictive. That’s in part because the theory is not falsifiable in the Karl Popper sense: You can’t disprove, for example, that a company built dynamic capabilities without doing any sensing.
It’s very hard to figure out which capabilities are most important, which aspect of “the way things are done around here” is the one that leads to superior performance. Sometimes people in an organization don’t know why their own capability is successful. They attribute their success to the wrong factors. In the early 1980s, many U.S. industries went down a lot of blind alleys trying to reverse engineer the reason for Japan’s success. First, they thought it was Japan’s lower cost of capital, then it was government subsidies, or possibly even robotics. Then maybe it was their calisthenics at lunchtime. If you’re going to copy something, as Dick Rumelt says, you have to understand how the underlying system works.
That’s the contribution we make with dynamic capabilities. A useful theory is one with some descriptive validity that helps integrate and relate disparate ideas that you know are important. The dynamic capabilities theory does that. It provides an intellectual structure for businesspeople to start thinking systematically about why companies succeed—or fail.
- Art Kleiner is editor-in-chief of strategy+business.