Toward a Prescriptive Theory of Dynamic Capabilities: Connecting Strategic Choice, Learning, and Competition

Gary P. Pisano

Article | Industrial and Corporate Change | October 2017

Toward a Prescriptive Theory of Dynamic Capabilities: Connecting Strategic Choice, Learning, and Competition

Abstract

The field of strategy has mounted an enormous effort to understand, define, predict, and measure how organizational capabilities shape competitive advantage. While the notion that capabilities influence strategy dates back to the work of Andrews (1971, The Concept of Corporate Strategy, Irwin: Homewood), attempts to formalize a “capabilities-based” approach to strategy only began to take shape in the past 20 years. In particular, the publication of Teece and Pisano (1994, Industrial and Corporate Change, 3(3), 537–556), Teece et al. (1997, Strategic Management Journal, 3, 509–533), and Eisenhardt and Martin (2000, Strategic Management Journal, 21, 1105–1121) works on “dynamic capabilities” triggered a flood of debate and discussion on the topic. Unfortunately, the literature on dynamic capabilities has become mired in endless debates about definitions and has engaged in an elusive search for properties that make organizations adaptable. This article argues that the research program on dynamic capabilities needs to be reset around the fundamental strategic problem facing firms: how to identify and select capabilities that lead to competitive advantage. To this end, the article develops a framework that attempts to connect firms’ capability search strategies with their strategies in product markets. It frames firms’ capability search strategies as choices among different types of capability enhancing investments. The key distinguishing feature of capabilities in this framework is their degree of fungibility: capabilities span a continuum ranging from highly general purpose (e.g., quality management) to highly market specific (e.g., knowing how to manufacture an airplane wing). To illustrate the potential of the framework to shed new light on traditional strategy questions, the article applies the framework to explore some unexplained features of Penrosian diversification strategies. The article concludes by suggesting a research agenda for dynamic capabilities.

Keywords: business admnistration; market structure; firm structure; strategy; market efficiency; Competency and Skills; Organizational Structure; Strategy;

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Citation:

Pisano, Gary P. "Toward a Prescriptive Theory of Dynamic Capabilities: Connecting Strategic Choice, Learning, and Competition." Industrial and Corporate Change 26, no. 5 (October 2017): 747–762.

Case | HBS Case Collection | September 2020 (Revised October 2020)

Briscola—Pizza Society: Scaling Affordable Luxury

Gary P. Pisano and Federica Gabrieli

Riccardo Cortese and Federico Pinna were the CEOs of Briscola—Pizza Society, a restaurant chain they had founded in 2014 with a clear ambition: create a distinctive international pizza chain that would combine a fast-casual format with the devotion to quality that characterized family-run Italian restaurants. In 2017, Francesco Trapani, the former CEO of luxury jewelry company Bulgari, had taken a majority stake in the chain, which had switched to a format of "affordable luxury." At the end of 2019, Briscola counted six restaurants in the northern regions of Italy and its founders were grappling with a series of questions: Should they consolidate their position in other Italian regions or expand directly abroad? In which countries would their concept work best? Should they change their direct ownership model? If so, what kinds of partnerships, licensing agreements, and franchise models should they use? Finally, what was the right degree of standardization across their restaurants? Allowing some variations in the menu at the restaurant level would be attractive to target specific segments of their clientele, but would this complicate their operations and potentially hinder their growth?

Keywords: Entrepreneurship; Growth and Development Strategy; Expansion; Geographic Location; Business Model; Ownership Type; Food and Beverage Industry; Europe; Italy;

Citation:

Pisano, Gary P., and Federica Gabrieli. "Briscola—Pizza Society: Scaling Affordable Luxury." Harvard Business School Case 621-031, September 2020. (Revised October 2020.) View Details

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Manufacturing accounts for more than three-quarters of U.S. corporate patents. The competitive shock to this sector emanating from China's economic ascent could in theory either augment or stifle U.S. innovation. Using three decades of U.S. patents matched to corporate owners, we quantify how foreign competition affects domestic innovation. Rising import exposure intensifies competitive pressure, reducing sales, profitability, and R&D expenditure at U.S. firms. Accounting for confounding sectoral patenting trends, we find that U.S. patent production declines in sectors facing greater import competition. This adverse effect is larger among initially less profitable and less capital-intensive firms.

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Toward a Prescriptive Theory of Dynamic Capabilities: Connecting Strategic Choice, Learning, and Competition

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