1

Ambrosini, V., Bowman, C. & Collier, N. 2009, 'Dynamic capabilities: An exploration

of how firms renew their resource base', British Journal of Management, vol. 20, no.
S1, pp. S9-S24.


Dynamic capabilities:
An exploration of how firms renew their resource base
1


Vronique Ambrosini
Cardiff Business School
Cardiff
CF10 3EU
ambrosiniv@cardiff.ac.uk


Cliff Bowman
Nardine Collier
Cranfield School of Management
Cranfield
Bedford
MK43 0AL
n.collier@cranfield.ac.uk


1
An earlier version of this paper was presented at The Practice of Dynamic Capabilities: Theory
Development and Research Workshop, Lancaster 2006. We would like to thank the workshop
participants for their useful comments concerning our research, and Mark Jenkins and Richard
Schoenberg for their contribution to earlier drafts. We would also like to thank Professors
Easterby-Smith, Lyles and Peteraf and three anonymous reviewers for their insightful comments.
Thanks to their help we have been able to develop a clearer and more elaborated argument.

2
Dynamic capabilities:
An exploration of how firms renew their resource base


Abstract
The aim of this paper is to extend the concept of dynamic capabilities. Building on
prior research, we suggest that there are three levels of dynamic capabilities which
are related to managers perceptions of environmental dynamism. At the first level
we find incremental dynamic capabilities: those capabilities concerned with the
continuous improvement of the firms resource base. At the second level are
renewing dynamic capabilities, those that refresh, adapt and augment the resource
base. These two levels are usually conceived as one and represent what the
literature refers to as dynamic capabilities. At the third level are regenerative
dynamic capabilities, which impact, not on the firms resource base, but on its current
set of dynamic capabilities i.e. these change the way the firm changes its resource
base. We explore the three levels using illustrative examples and conclude that
regenerative dynamic capabilities may either come from inside the firm or enter the
firm from outside, via changes in leadership or the intervention of external change
agents.

Key words
Dynamic capabilities; Environmental dynamism; Managers; Resource-based view

3
Dynamic capabilities:
An exploration of how firms renew their resource base

Introduction
The concept of dynamic capabilities (Eisenhardt and Martin, 2000; Teece et
al., 1997) has evolved from the resource-based view (RBV) of the firm (Barney,
1986, 1991; Wernerfelt, 1984). RBV proponents argue that simultaneously valuable,
rare, inimitable and non-substitutable resources can be a source of superior
performance, and may enable the firm to achieve sustained competitive advantage
(Barney, 1991). Dynamic capabilities have lent value to the RBV arguments as they
transform what is essentially a static view into one that can encompass competitive
advantage in a dynamic context (Barney, 2001a, b). Dynamic capabilities are the
capacity of an organization to purposefully create, extend or modify its resource
base (Helfat et al., 2007, p. 1) and over the last few years the concept has received
much attention in the form of publications (e.g. Eisenhardt and Martin, 2000; Helfat
and Peteraf, 2003; Teece et al., 1997; Zollo and Winter, 2002) and conference
presentations (e.g. Academy of Management meeting 2004-2006; Strategic
Management conference 2004-2006). However, as highlighted in the British Journal
of Management Special Call for Papers on The Practice of Dynamic Capabilities:
Theory Development and Research and by Helfat et al. (2007) the concept is still in
need of theoretical and empirical development.
In this paper we aim to develop the notion conceptually. Specifically we build
on the work of Teece et al. (1997), Eisenhardt and Martin (2000) and Helfat et al.
(2007) concerning what constitutes a dynamic capability and on the suggestions
from Collis (1994), Danneels (2002), Winter (2003), and Zahra et al. (2006) that
4
there are hierarchies of capabilities. We begin by explaining dynamic capabilities as
they are currently understood. Then, adapting the extant work on hierarchies of
capabilities, we propose that there are three distinct types of dynamic capabilities.
First, starting with Eisenhardt and Martins (2000) argument that dynamic capabilities
may also be used in stable environments, we suggest that the generic concept of
dynamic capabilities can be decomposed into two distinct levels: incremental
dynamic capabilities and renewing dynamic capabilities. Then building on Winters
(2003) paper where he mentions that dynamic capabilities may need to be refreshed,
we propose that the firm may also need regenerative dynamic capabilities. We
explain that the resulting effect of a regenerative dynamic capability is that it renews
the firms current set of dynamic capabilities. We also propose that each level of
dynamic capability will be applied according to managerial perceptions of
environmental dynamism i.e. that the trigger to use different levels of change
capability is a function of managerial perceptions of the need for change. Clearly, the
degrees of organizational change associated with each level of capability vary from
minor, where incremental capabilities are being applied, through to major where
regenerative capabilities are introduced. Moreover, we would expect incremental
changes to the resource base to be an almost continuous process, renewal of
dynamic capabilities to be applied periodically, and regenerative capabilities to be
infrequently experienced. This raises interesting questions about the extent to which
regenerative and indeed renewing capabilities can be viewed as repeated
performances, or routines. We take up this issue later in the paper.
We also take into account managerial perceptions of both the internal and
external environments that impact on their decisions to use different levels of
dynamic capabilities (Stimpert and Duhaime, 1997; Weick, 1979). Managerial
5
perceptions affect managerial behaviour and specifically their behaviour towards the
renewal of their firms resource base (Adner and Helfat, 2003; Helfat et al., 2007).
We take the position that the current beliefs managers hold about whether their
organization is successful, and their perceptions of the firms environment, should be
a primary focus of inquiry. This argument has been well rehearsed in the literature
(see for instance Anderson and Paine, 1975). This perspective allows us to adopt a
contingency approach to our analysis as we discuss different levels of dynamic
capability in different environmental states. Aragon-Correa and Sharma (2003) also
take this stance and like them here we are answering the call from many RBV
authors for a contingency perspective on the RBV (Barney, 2001a; Priem and Butler,
2001a, b). Hence, we take the view that what counts is the perceived environment
and perceived resources (Crotty, 1998; Weick, 1979), and that managers
perceptions, as suggested by Adner and Helfat (2003), are critical determinants of
the decisions to develop and deploy different forms of dynamic capability. It also
means, following from Helfat et al. (2007, p. 20), we recognise that managers have
particular importance for dynamic capabilities and that to fully understand dynamic
capabilities we need to consider what they perceive and act upon in terms of their
environment and resources. Expressed differently, it also means that we are
essentially taking a micro perspective of organizations; we acknowledge that it is
individuals and what they do that matters (Felin and Foss, 2005; Orlikowski, 2002).
After the description of the three levels of dynamic capabilities we discuss
whether dynamic capabilities necessarily lead to advantage, and then consider some
managerial implications of these ideas. We conclude with some areas for future
research and a summary.

6
Theoretical background
Dynamic capabilities have been defined as the capacity to renew competencies so
as to achieve congruence with the changing business environment by adapting,
integrating, and reconfiguring internal and external organizational skills, resources,
and functional competencies (Teece et al., 1997, p. 515). More recently, Helfat et al.
(2007, p. 1) have defined a dynamic capability as the capacity of an organization to
purposefully create, extend or modify its resource base. It is this definition that we
have adopted to facilitate the development of our argument. In line with Helfat et al.
(2007) we use the term resource in its broad sense (Barney, 1991), and hence it
includes activities, capabilities, etc., which allow the firm to generate rents.
Danneels (2002) argues that it is essential for the RBV to have a dynamic
perspective, so as to understand how firms evolve over time, through their
deployment and acquisition of resources, and because firms must continuously
renew and reconfigure themselves if they are to survive (see also Zahra et al., 2006).
Our paper attempts to further the understanding of how firms reconfigure themselves
by unpacking the notion of dynamic capability into three levels, one of which
addresses the renewal of firms extant dynamic capabilities.
Dynamic capabilities are built rather than bought in the market (Makadok,
2001). They are organizational processes in the most general sense (Helfat et al.,
2007) or routines (Zollo and Winter, 2002) which may have become embedded in the
firm over time, and are employed to reconfigure the firms resource base by deleting
decaying resources or recombining old resources in new ways (Simon and Hitt,
2003).
This means that dynamic capabilities are viewed to be essentially path
dependent (Dierickx and Cool, 1989), as they are shaped by the decisions the firm
7
has made throughout its history, and the stock of assets that it holds (Eisenhardt and
Martin, 2000; Zollo and Winter, 2002). Path dependency not only defines what
choices are open to the firm today, butalso puts bounds around what its internal
repertoire is likely to be in the future (Teece et al., 1997, p. 515). Path dependency
could be grounded in knowledge, resources familiar to the firm (Monteverde and
Teece, 1982), or influenced by the social and collective nature of learning (Teece et
al., 1997).
This suggests that learning plays a significant role in the creation and
development of dynamic capabilities. This is illustrated, for instance, by Eisenhardt
and Martin (2000) and Zollo and Winter (2002) who explain that learning is at the
base of dynamic capabilities, and guides their evolution (for a fuller discussion on the
genesis and evolution of dynamic capabilities, see Zollo and Winter, 2002). Learning
is also considered as a dynamic capability itself, rather than an antecedent of it. As
such, learning as a dynamic capability has been identified as a process by which
repetition and experimentation enable tasks to be performed better and quicker
(Teece et al., 1997, p. 520). Zollo and Winter (2002, p. 339) attempted to meld these
two positions by explaining that dynamic capabilities are shaped by the co-evolution
of learning mechanisms.
Helfat and Peteraf (2003) emphasise that to qualify as a dynamic capability, a
capability not only needs to change the resource base, but it also needs to be
embedded in the firm, and ultimately be repeatable. Those are key issues in the
dynamic capability conversation, and we have addressed these criteria in our
following theoretical development of the dynamic capability construct.
Dynamic capabilities are argued to comprise of four main processes:
reconfiguration, leveraging, learning and integration (Bowman and Ambrosini, 2003
8
based on Teece et al., 1997). Reconfiguration refers to the transformation and
recombination of assets and resources, e.g. the consolidation of manufacturing
resources that often occurs as a result of an acquisition. Leveraging refers to the
replication of a process or system that is operating in one area of a firm into another
area, or extending a resource by deploying it into a new domain, for instance
applying an existing brand to a new set of products. As a dynamic capability,
learning allows tasks to be performed more effectively and efficiently, often as an
outcome of experimentation, and permits reflection on failure and success. Finally,
integration refers to the ability of the firm to integrate and coordinate its assets and
resources, resulting in the emergence of a new resource base.



Hierarchies of dynamic capabilities
As discussed in the introduction our aim is to extend the dynamic capabilities
argument and propose that there are three main orders or levels of dynamic
capabilities, including dynamic capabilities that not only change the resource base,
but which can also change a firms extant set of dynamic capabilities. Before going
further we explore the current literature on the subject of hierarchies or orders of
dynamic capabilities.
Collis (1994) first proposed that there might be distinct levels of dynamic
capability. He suggested four categories of capabilities, the first being the resource
base itself. The second and third categories, which Collis (1994) explains are closely
related and difficult to distinguish, are both dynamic capabilities in terms of both
Teece et al.s (1994) and Helfat et al.s (2007) definitions given earlier (Winter (2003)
9
takes a similar line). In broad terms both Collis (1994) and Winter (2003) distinguish
between the modification of the resource base and the creation and extension of the
resource base. The fourth category is what Collis (1994) labels higher order or
meta-capabilities and it relates to learning-to-learn capabilities. He also states that
meta-capabilities can go on ad infinitum, there is a kind of infinite wave of capability
to renew the capability that renews the capability etc. Thus dynamic capabilities that
impact upon current dynamic capabilities can be seen to be, to use Collis (1994)
term, meta-capabilities. Danneels (2002) is one of a few authors to develop Collis
(1994) ideas. He proposed two competency types: first-order competencies, which
constitute the ability to achieve an individual task; and second-order competencies:
the firms ability to renew itself through creating new first-order competencies. These
contributions hint at circumstances similar to those we consider here, however we
would view Danneels (2002) first order capabilities as being the firms extant
resource base, the resources that allow the firm to directly earn a living (Winter,
2003), and his second order capabilities refer to dynamic capabilities that enable the
creation of new resources. Danneels (2002) does not explicitly consider the issue of
how dynamic capabilities themselves might be changed.
Winter (2003) further progressed the idea of a capability hierarchy. His
hierarchy begins with operating capabilities or zero-level capabilities which allow
firms to earn a living in the present (in other words, these are the resource base). He
then describes firstorder capabilities that allow for a change in zero-order
capabilities to occur, for example they effect changes to the production process.
Finally he considers higher-order capabilities that are the outcome of organizational
learning which result in creating or modifying a firms dynamic capabilities. However,
like Collis (1994), he does not discuss this capability in great depth.
10
In other research, Brady and Davies (2004) posit that fundamental changes in
the environment, or shifts in the firms position, must be responded to innovatively,
by exploring unknown alternatives and renewing capabilities, and Zahra et al. (2006,
p. 947) advocate that an infinite spiral of capabilities to renew capabilities could be
conceived. They further comment that these capabilities would have the ability to
change how the firm solves its problems: a higher-order dynamic capability to alter
capabilities (Zahra et al., 2006, p. 921).
Hence, we build on the work of Danneels (2002), Winter (2003), and Zahra et
al. (2006) to aid us in developing a better understanding of dynamic capabilities. It is
worth noting that the notions of orders or hierarchies of change have been explored
in other literature, particularly in the fields of organizational learning (Argyris and
Schon, 1974, 1978; Bateson, 1972) and organizational change (Watzlawick et al.,
1974). While, within the confines of this paper, we will not review such literature, we
acknowledge that these complementary fields have influenced the dynamic
capability literature and the work on orders of dynamic capabilities.
Argyris and Schon (1974), who draw on Batesons (1972) research, explain
that single-loop learning permits the correction of errors by making changes to
routine behaviour and therefore allowing the organization to continue along its
current course. Argyris and Schon (1978) explain that with single-loop learning
individuals react to changes in their internal and external environment, yet the only
learning that occurs is consistent with what is already known in the organization, and
the only change that takes place is within the norms of the organization.
In contrast, organizations have difficulty with double-loop learning, where
errors are corrected for by examining the fundamental state of the organization, and
making modifications to, for example, its norms, values and objectives (Argyris and
11
Schon, 1974, 1978). They explain that change must happen to the organizations
norms because the usual error-correction methods are not sufficient to counter the
change in the internal or external environment. Individuals recognise that they
cannot correct it (an error) by doing better what they already know how to do
(Argyris and Schon, 1978, p. 22). To progress they must instead restructure the
organizational norms i.e. learning must take place (Argyris and Schon, 1978).
The change literature also discusses changes that alter existing change
processes. Watzlawick et al. (1974) explain that there are two types of change: first-
order change that occurs within a given system which itself remains unchanged,
and second-order change whose occurrence changes the system itself (Watzlawick
et al., 1974, p. 10). The authors explain second-order change as a type of reframing
of a problem, because first-order change only explicates the problem further, as it is
not enough of a change to alter the situation or develop a solution. In broad terms we
can see how Winters (2003) second order of dynamic capabilities can be associated
with single loop learning and first-order change as they effect changes to the
resource base, but the way that these changes are performed do not change.
Winters (2003) higher order of dynamic capabilities can be related to double loop
and second-order change as they are transformational in nature.
In what follows we extend this literature by first considering managerial
perceptions of environmental dynamism, and by proposing three distinct levels of
dynamic capabilities: incremental dynamic capabilities, renewing dynamic
capabilities and regenerative dynamic capabilities.

12
Environmental states and dynamic capabilities
The initial rationale for developing the concept of dynamic capabilities derived
from a concern that the RBV appeared to apply primarily to firms in essentially static
environments (Priem and Butler, 2001a). Resource advantages that may have been
built up over many years through path dependent development processes would
have enduring rent generating potential only if the environments the firms compete in
did not undergo significant change, i.e. if the environment was stable. In stable
environments there are external changes, but these changes are largely predictable
and incremental, and the rate of change is low, relative to that experienced by other
firms in other environments (Duncan, 1972; Mintzberg, 1979). In these
circumstances we would presume that the resource stock remains essentially stable.
In contrast, where firms are facing fast paced change, unpredictable events and
unanticipated discontinuities in dynamic environments (DAveni, 1994), resource
advantages are likely to be rapidly eroded. In such a context the firms ability to
create, adapt and reconfigure resources, i.e. its dynamic capabilities, is critical; firms
need to refresh their resource stock to have an advantage. In the following section,
building first on Eisenhardt and Martins (2000) argument that dynamic capabilities
are at play in both stable and dynamic environments we explain that the current
notion of dynamic capabilities can be decomposed into two distinct types:
incremental dynamic capabilities and renewing dynamic capabilities. Then, building
upon Winters (2003) higher-order capabilities we argue how a third type of dynamic
capability (regenerative dynamic capabilities) are necessary for the renewal of
dynamic capabilities.
Before embarking upon this elaboration we explain our cognitive approach to
the notions of a stable or dynamic environment. As we have discussed the RBV and
13
dynamic capability literature implicitly or explicitly distinguishes between these two
broad states of the environment. The RBV explains what the sources of sustained
advantage are in stable environments, and the dynamic capability view offers an
explanation as to how firms can sustain resource-based advantages in dynamic
environments. However as highlighted in the introduction, and reported by Anderson
and Paine (1975), there is a large body of evidence which shows that realised
strategies reflect managerial perceptions rather than objective characteristics (Child,
1972; Duncan, 1972). Hence when considering environmental dynamism it is critical
to do so in terms of, firstly, whether managers perceive that there are changes in
their external environment, and secondly if they perceive their firm needs to change.
In other words, we have two types of change: external and internal. Managers may
perceive that environmental conditions are stable or changing. Externally perceived
changes might include competitors introducing new products, shifts in government
legislation, or changes in customer needs. Managers may also decide to instigate
internal changes independent of any perceptions that the external environment is
changing. These changes might be triggered by dissatisfaction with current
performance, the imposition of budgeting restrictions, or may reflect the desire of a
new manager to make an impact. So following Helfat et al.s (2007) definition that
dynamic capabilities are purposefully applied, managerial perceptions of the need to
change are critical triggers for the performance of dynamic capabilities. To
summarise, we would argue that to understand dynamic capabilities we need to
consider managerial perceptions of the need for change, which are functions of their
perceptions of their external and internal (firm) environments (e.g. see Hambrick and
Mason, 1984). These perceptions may or may not act as triggers to either change
the resource base, or to change the way the resource base is changed. Thus it is
14
entirely possible for managers in objectively dynamic environments, to mis-perceive
the need for change and hence fail to apply appropriate dynamic capabilities (we
develop this issue later on in the discussion section). Alternatively, managers may
trigger change where they are driven by internal pressures for enhanced
performance.
Taking all this into account means that a perceived stable environment is an
environment where external or internally triggered changes are largely seen by
managers to be predictable and incremental, with a low rate of change. A perceived
dynamic environment is an environment where managers perceive fast paced
change, and even unpredictable changes and unanticipated discontinuities.

Incremental dynamic capabilities
Where an essentially stable environment is perceived there would still be some
requirement to adapt the resource stock of the firm. Although the pace of change is
slow and the extent of change is limited, requirement for incremental adjustments
and improvements to the resource stock of the firm would remain. Thus, even in
stable environments there is likely to be a need for continuous improvement, but the
resource stock would not be transformed through these change processes, it would
be incrementally adjusted and adapted. Continuous improvement is sufficient to
ensure that the resource stock maintains its value in this relatively stable context.
Continuous improvement relates to the continual and often small adjustments that a
firm makes to its products or operations (Bessant and Caffyn, 1997). This form of
dynamic capability describes processes that effect changes, albeit incremental
changes, to the resource base of the firm. Thus we label this first level of dynamic
capability as incremental. An example might be that of e2v, and the companys
15
constant improvement of their waste management and energy use. To ensure
maximum energy usage they keep reconfiguring their processes and systems so that
they reduce energy consumption; they work on being able to recycle more and more
waste in terms of quantity e.g. tonnes of cardboard and types e.g. paper, oils,
solvents, etc. This suggests that dynamic capabilities do not only happen in a rapidly
changing environment (Teece et al., 1997), but that our argument is in line with
Eisenhardt and Martin (2000) who explain that in more stable market contexts
dynamic capabilities are simple and iterative, and rely on the incremental and
continuous improvement of extant resources. Moreover, these incremental dynamic
capabilities are likely to be repeatable and embedded in the firm (Helfat and Peteraf,
2003; Helfat et al., 2007). Thus these processes of continual improvement would be
stable patterns of the firm (Zollo and Winter, 2002). Hence although this type of
dynamic capability brings an adaptive change to the resource base, the ways these
changes are effected do not change.

Renewing dynamic capabilities
This is the situation most commonly referred to in the dynamic capability literature,
notably by Teece et al. (1997), Eisenhardt and Martin (2000) or Helfat et al. (2007) (it
also refers to Winters (2003) first order capabilities). These dynamic capabilities are
utilised to sustain a rent stream in changing environments, they refresh and renew
the nature of the resource stock, rather than incrementally adapt it. They are needed
as resource-based advantages in dynamic environments may well be rapidly eroded.
Examples of such dynamic capabilities would, for instance, include brand extension
such as those undertaken by Virgin, or process replication as performed by Sony.
Virgin has generated new resources by deploying its valuable brand into new
16
domains e.g. airlines, mobile phones, cosmetics, bridal wear, cola, railways. As far
as Sony is concerned they have applied their know-how in miniaturization to all their
products e.g. radio, hi-fi, computers or personal navigation.
As the environment shifts, resource advantages can become disadvantages if
no attempts are made to refresh the resource stock. As Leonard-Barton (1992)
explains, valuable resources can become core rigidities if they are not modified,
combined with different equipment or extended for new use, such as to produce new
product lines. These renewing dynamic capabilities are of a different order to
incremental dynamic capabilities. They are not merely about continual, incremental
changes; they are concerned with modifying the resource stock in such a way that its
utility is altered so that rent generation is sustained. So we could differentiate
incremental dynamic capabilities from renewing capabilities as follows. Where
incremental capabilities are applied the resource stock remains essentially the same,
but the resources undergo continuous development or evolution. For example, a
successful brand might be continually updated to keep its value over time e.g. the
KitKat chocolate bar that has been around for seventy years has undergone periodic
adjustments and enhancements, but the basic brand remains essentially stable. In
contrast, where renewing capabilities are employed new resources are either
created, introduced, or resources are combined in new ways. Hence a renewing
capability would be the introduction of new product lines, or the extension of a brand
into a new product application e.g. a KitKat lunch box.
These second level dynamic capabilities are developed and embedded within
the firm as they progress through time, via the accumulation of experience and
specific investments (Makadok, 2001; Maritan 2001; Zollo and Winter, 2002).
Sustaining these dynamic capabilities is an essential requirement for any firm to
17
continue having a resource base which allows them to earn a living (Winter, 2003),
thus the costs of sustaining dynamic capabilities is most likely inevitable for any firm
in a dynamic environment (Bowman and Ambrosini, 2003). Some firms may try to
avoid incurring these costs, but they take a risk of not being able to appropriately
renew their resource base.
The current literature tends not to distinguish between incremental dynamic
capabilities and renewing dynamic capabilities, they are usually described as one:
they are explained as being dynamic capabilities. Both of these levels are used for
changing the resource base. However whilst incremental dynamic capabilities are
about adjusting, and incrementally improving the current resource base in the
direction of more of the same (Helfat et al., 2007, p. 1), renewing dynamic
capabilities are concerned with the capacity of an organization to purposefully
create, extend, or modify its resource base (Helfat et al., 2007, p. 1) to sustain a
rent stream. Without such renewing of dynamic capabilities the organization would
not be able to survive and prosper under conditions of change (Helfat et al., 2007,
p. 1).
In this section we have elaborated upon the concept of dynamic capabilities:
first we have highlighted that while dynamic capabilities are necessary to face
environmental changes, we need to consider managerial perceptions of
environments, rather than purely objective environmental measures, as perceptions
impact upon realised strategies and the deployment of dynamic capabilities.
Secondly we argued that dynamic capabilities can be understood at two distinct
levels. We now turn our attention to the way firms can change, not their resource
stock, but their extant set of dynamic capabilities, i.e. we now consider how firms
18
might modify and extend their current dynamic capabilities. We call these higher
level capabilities regenerative dynamic capabilities.

Regenerative dynamic capabilities
When current dynamic capabilities are perceived to be insufficient to impact
appropriately upon a firms resource base the dynamic capabilities themselves need
to be renewed. In other words, the firm needs to change the way it purposefully
creates, extends or modifies its resource base (Helfat et al., 2007). In these
circumstances a firm needs a set of dynamic capabilities to act upon the extant set of
currently embedded dynamic capabilities, thus allowing it to change its resource
base in new ways. These regenerative dynamic capabilities allow the firm to move
away from previous change practices, towards new dynamic capabilities.
Regenerative dynamic capabilities are likely to be deployed by firms whose
managers perceive that the environment is turbulent, where external changes are
non-linear and discontinuous (DAveni, 1994). As Zahra et al. (2006) explain in
volatile environments such as in high-technology industries firms need to repeatedly
reconfigure their set of valuable resources and as a corollary they need to be able to
have the capacity to modify their current dynamic capabilities. The presence of these
regenerative dynamic capabilities can be inferred, as it may help explain why some
firms find success in the face of environmental turbulence, whilst their competitors
fail (Danneels, 2002). Indeed many firms facing a discontinuous environment are not
able to overcome their own organizational inertia and have failed (Gilbert, 2005), as
they have not changed internally themselves (Miller and Friesen, 1980; Tushman
and Romanelli, 1985). Gilbert (2005) reports that part of the problem is a failure to
alter the processes that use the resources (Leonard-Barton, 1992; Nelson and
19
Winter, 1982), we argue here that firm failure could be attributed to managers using
the extant set of dynamic capabilities, when these are not appropriate for the new
environment.
If an environment is perceived to be novel or rapidly changing, firms may
need to move away from previous dynamic capabilities towards new ones suitable to
the new environment (Brady and Davies, 2004). This means that the purpose of
regenerative dynamic capabilities would be to embed new, or to improve extant,
dynamic capabilities. Regenerative dynamic capabilities like any other dynamic
capabilities come in many forms, but they may be very similar to the renewing
capabilities e.g. they might involve restructuring, learning, leverage, but the key
difference is that whereas renewing capabilities operate directly on the resource
base, regenerative capabilities impact on the renewing or incremental dynamic
capabilities. As such they have an indirect impact on the resource base. Thus the
regenerative capability would impact the extant renewing capabilities at t1, leading to
changes in these renewing capabilities in t2, which ultimately lead to new resources
being created in t3.
This leads to the question of the extent to which regenerative dynamic
capabilities can be considered to be in any way repeated performances; one of the
requirements for an activity or process to be labelled a capability (Helfat et al., 2007).
We address this issue in a following section. In figure 1 we summarise how the three
levels relate to each other and to the resource base, and in table 1 we show how
these levels relate to the previous literature.
Insert Figure 1 about here
Insert Table 1 about here

20
If we consider the four main dynamic capabilities of reconfiguration,
leveraging, learning and integration
2
(Bowman and Ambrosini, 2003), where a firm
currently uses only the leveraging capabilities a regenerative dynamic capability
would allow it to develop, for instance, a reconfiguration dynamic capability, e.g. to
develop the ability to identify and integrate appropriate acquisitions. Alternatively,
they may develop an integration dynamic capability allowing it to develop a culture
encouraging collaboration, experimentation and hence facilitating innovation.
Therefore the regenerative dynamic capability would act to change dynamic
capabilities by either changing the form of the dynamic capability (e.g. from leverage
to reconfiguration) or altering the mix of capabilities (adding leverage to and existing
reconfiguration capability). For example, an SBU may have the extant dynamic
capabilities of leveraging best practices within its boundaries; the regenerative
dynamic capability would extend the leveraging processes to encompass other
related SBUs in the corporation. In what follow we offer two case examples.
Founded in 1979, International Greetings (IGR) is one of the world's leading
manufacturers of greetings products (International Greetings, 2007). In the early
years, IGR renewed its resource base essentially through learning which led to new
product developments (e.g. in new types of greetings card; gift wrapping, crackers,
stationery and accessories) and leverage, notably through the acquisition of
character licenses e.g. Shrek, The Simpsons, Harry Potter. It also focused on the UK
market. Recently, to avoid pressures on margins IGR moved production to Eastern
Europe and China whilst still creating products and leveraging licenses very
successfully. Then to achieve growth IGR embarked on a series of acquisitions in
the US, Netherlands, and Germany. This suggests that IGR, having grown through

2
We used this list for convenience, but any other list of dynamic capabilities could be used (e.g. Eisenhardt and
Martin, 2000; Teece et al., 1997).
21
the 1980s and 1990s by refreshing their resource base via leverage and learning,
found that these dynamic capabilities were insufficient to enable profit growth in the
more competitive environment facing them since 2000. However rather than
abandoning its leverage and learning processes, it augmented these capabilities by
embarking on two forms of reconfiguration: the transferring of production to lower
cost countries, and the acquisition of other firms. This augmenting of dynamic
capabilities is evidence of the exercise of regenerative activity. No dynamic
capabilities have been eliminated, and new capabilities have been introduced. The
regenerative dynamic capabilities can be seen here as being about learning (Teece
et al., 1997) as IGR basically renewed its dynamic capabilities by enhancing existing
capabilities and identifying new opportunities for their use.
GlaxoSmithKline (GSK) also provides an interesting illustration of
regenerative dynamic capabilities in operation (Heller, 2007). Since the 1950s the
resource base of large pharmaceutical companies has consisted of patented drugs
with regulatory approval. This resource stock has been continually refreshed through
R&D activity, which essentially consisted of testing thousands of chemical entities for
their efficacy in treating a range of illnesses. Drug companies had built up learning
dynamic capabilities through the establishment and development of teams of
specialist researchers, and other groups who were skilled in the extensive phases of
testing required for regulatory approval. In the 1980s and early 1990s a series of
major mergers and acquisitions led to consolidation in the industry (e.g. Glaxo
merging with Smith Kline, who earlier combined with Beecham). But in the mid
1990s, GSK acquired hundreds of much smaller firms, many of whom have never
sold any products, and who operate with quite different technologies and science
22
bases e.g. biotech firms. More recently, GSK have embarked on a series of
divestments, and outsourced activities traditionally performed in-house.
So the original learning processes of R&D have been augmented by three
different phases of reconfiguration. The first phase of mega-mergers involved similar
firms combining, the second phase consisted of the acquisition of dissimilar firms
e.g. much smaller businesses, with different technologies, and the most recent
phase consisting of restructuring and outsourcing activities. Again, this is de facto
evidence of regenerative dynamic capabilities triggered by performance problems
caused by the declining value of the existing resource base as products come off
patent. The existing R&D dynamic capabilities were insufficient in and of themselves
to maintain or indeed expand the stock of resources. The shift into biotech
acquisitions was triggered by the realisation that the pipeline of new chemical entities
was drying up, with major pharmas restricted to the introduction of only one or two
new drugs per year. Generally, pharmaceutical companies are operating in a more
challenging environment due to high competitive rivalry, the price sensitivity of
healthcare providers and stricter ethical and efficacy standards.
So we have evidence that dynamic capabilities in IGR and GSK have evolved
over time, and we can infer that the processes which caused these adjustments and
augmentations in capability fit our definition of regenerative dynamic capabilities. To
recap, regenerative dynamic capabilities do not directly create or reconfigure
resources. They work indirectly by embedding new dynamic capabilities into the firm.
Interestingly, this could mean that these regenerative dynamic capabilities
may be more generic than dynamic capabilities, as dynamic capabilities operate
directly on the resource base of the firm and thus need to be sensitive to the
specifics of the firms context and its extant resource stock (Wang and Ahmed,
23
2007). As already stated dynamic capabilities are embedded within the firm, are path
dependent and hence most likely to be firm specific (Teece et al., 1997). While one
can argue that this view is not shared by Eisenhardt and Martin (2000), who state
that dynamic capabilities are equifinal, substitutable and fungible, we would suggest
that if dynamic capabilities are not sensitive and appropriately adapted to the current
resource stock, the specific context, culture and history of the firm, they may not
facilitate in the creation of valuable resources, and there is even a risk that their
inappropriate deployment may actually destroy subtle sources of advantage.
Regenerative dynamic capabilities, changing the way a firm refreshes its resource
base, are one step removed from the resource stock itself and may therefore be
effective across specific firm contexts.
Further, as a firm has developed its dynamic capabilities over time through
learning processes (Zollo and Winter, 2002), which are reinforced and embedded
through repetition (Nelson and Winter, 1982), it may be difficult for the incumbent
management to develop a new set of dynamic capabilities; breaking the path or
culture within the firm may prove to be difficult. Indeed it is arguable that most
organizational learning is often similar to what has been learnt before (Argyris and
Schon, 1978) and managers may find it hard not to rely on existing dynamic
capabilities, to over-generalise from past experience or to rely on their existing
mindset (Argote, 1999; Eisenhardt and Martin, 2000). Managers may need to seek
new ways to operate, to break the old ways and refresh their dynamic capabilities
(Zahra et al., 2006). These two arguments that regenerative dynamic capabilities
may be generic and may also be difficult to develop within the firm (Teece et al.,
1997), leads us to the issue of whether regenerative dynamic capabilities need to be
24
embedded within the firm and if not can they qualify as belonging to the realm of
dynamic capabilities?

Regenerative dynamic capabilities and embeddedness
While it can be argued that regenerative dynamic capabilities, as any
capability, can be developed through time, we may want to address whether, when
there is simply no time for organizational learning and investment processes to take
place to develop and deploy them (Helfat et al., 2007; Zollo and Winter, 2002), these
regenerative dynamic capabilities could not be sourced from outside the firm. If this
were the case then these regenerative dynamic capabilities would not be embedded
within the firm. This raises the issue of whether imported regenerative dynamic
capabilities would qualify as a dynamic capability which must contain some
patterned element (Helfat et al., 2007, p. 5), i.e. that must be repeatable, it cannot
be a one-off incident of ad hoc problem solving (Helfat et al., 2007).
So where might regenerative dynamic capabilities be imported from? In a
corporate, multi-strategic business unit (SBU) structure they could be located at the
corporate centre. Then, as and when regenerative dynamic capabilities are required
within specific SBUs, the centre could appropriately deploy them to assist the SBU in
regenerating its extant dynamic capabilities. These dynamic capabilities could also
come from outside the corporation altogether. For instance a new CEO could be
brought in, who has experience of transforming other firms, or strategic change
consultants could be deployed. While being new to the firm these capabilities, which
would impact on the firms current set of dynamic capabilities, would have been
exercised before by either the incoming leadership, the corporate centre or external
consultants, so for them this would be part of their normal role; this is their day job.
25
The new CEO, for instance, may have successful experience of identifying
acquisition targets, successfully acquiring and integrating them. For this CEO what
they do within the firm is habitual, capabilities that they may have previously honed
in different firms and contexts, and therefore these are not one-off performances. So
for the CEO this is nothing new, only the context is new, but for the firm this would
consist of a change in their dynamic capabilities, i.e. an instance of the exercise of
regenerative dynamic capabilities.
Significantly, even if imported from outside the firm we can argue that these
regenerative dynamic capabilities fulfil the repeatability criteria, as they can be
stable and routinised processes: Feldman and Pentland (2003) argue that an
organizational routine can be decomposed into two components: the ostensive
aspect of the routine, that is the structure or abstract understanding of the routine,
and the performative aspect, that is the actual performance of the routine, it is the
routine in practice (Feldman and Pentland, 2003, p. 101), it is what brings the
routine to life and hence the performance may be novel each time. Taking Feldman
and Pentlands (2003) examples of a firms recruitment process, a firm will recruit
many employees, so at an abstract level the activity of recruitment is routine and is
repeated; however how the hiring process is actually performed, the performative
aspect, may differ on each occasion. Those notions of ostensive and performative
aspects of the routine can also be related to Antonacopoulous (2006) distinction
between practice and practise. Practice relates to the ostensive aspect of the
routine, practise to the performative: the same practice has always the potential to
be both performed and represented in diverse ways (Antonacopoulou, 2006, p. 16).
We can apply this to the regenerative dynamic capabilities construct and as a result
argue that regenerative dynamic capabilities pass the repeatability test. While
26
regenerative dynamic capabilities

may look different in action (e.g. the strategy
consultant or hired CEO will apply their capabilities on a different set of dynamic
capabilities each time they move from firm to firm), its structure will likely remain the
same, and therefore it is repeatable as an ostensive routine.

Discussion
Finally, before concluding, we would like to comment on whether dynamic
capabilities are necessarily linked to positive impacts on firm performance. In our
paper, similar to Helfat et al. (2007), we have decoupled the notion of dynamic
capabilities and performance and do not imply that dynamic capabilities
automatically lead to advantage. It is valuable, rare, difficult to imitate and non-
substitutable resources that generate rents and contribute to the firms super normal
profit by being involved either in delivering product advantages perceived by
customers or by conferring process advantages that result in lower unit costs
(Bowman and Ambrosini, 2003). In other words, the resource base is directly linked
to rents, but dynamic capabilities are one step beyond (and regenerative dynamic
capabilities two steps beyond) these rent generating activities. Incremental and
renewing dynamic capabilities impact on the resource base, and regenerative
dynamic capabilities in turn affect incremental and renewing dynamic capabilities.
The impact of dynamic capabilities on ultimate firm performance may be
negative, the dynamic capabilities may change the resource base but this renewal
may not be in line with the environment. This means following Zahra et al. (2006)
that while regenerative dynamic capabilities may allow a firm to change its dynamic
capabilities, it does not ensure that the organization will be successful or even
survive.
27
An example of where using regenerative dynamic capabilities did not result in
success until the firm had experienced several failed attempts to adjust its dynamic
capabilities is Marks and Spencer (M&S). Historically M&S was highly successful,
but in the 1990s it suffered from decreasing profits and market share. M&S had
many problems. Notably it displayed both a lack of understanding of its customers
and lack of reaction to their shifting needs, and it faced a significant challenge from a
number of its competitors. This would suggest that the extant set of dynamic
capabilities which M&S used was no longer appropriate. To counter this, its board
employed a succession of new CEOs. The first three CEOs had similar ways of
changing M&S. Their changes resulted in leveraging the M&S brand, for example the
creation of its Simply Food range or the &More loyalty card. Despite these
changes of leadership the situation worsened.
The M&S board then hired Stuart Rose. In terms of explaining regenerative
dynamic capabilities, here we see that in hiring yet another CEO the board are again
repeating their actions; this is the ostensive aspect of the regenerative dynamic
capability. The performative aspects of the regenerative dynamic capability are
Roses actions. The regenerative dynamic capability level actions that Rose took
were essentially learning and replication. He had gathered knowledge and
experience from the previous positions he held at a series of high-street retailers (for
example, he had transformed the Arcadia group). He also had previously worked at
M&S and had studied the decisions and resulting outcomes of the actions introduced
by past CEOs. All this allowed Rose to create a new mix of dynamic capabilities.
M&S stopped relying on only leverage to refresh its resource base. He changed the
processes of buying, introduced new collaborative practices between M&S buyers
28
their suppliers, and challenged many sacred cows associated with the embedded
incremental dynamic capabilities.
It has been argued that success tends to lead to complacency, and that if
managers perceive their firm to be successful, and believe it has been so for a while,
they are unlikely to change their ways of doing things or change their assumptions
(Johnson, 1988; Smith et al., 2001; Zahra et al., 2006). This may suggest that
regenerative dynamic capabilities are unlikely to be employed in such
circumstances, as managers may not be able to envisage how their current set of
dynamic capabilities could or indeed why they should be changed. it clearly isnt
broke, so why fix it? (Tushman and Romanelli, 1985). Thus the deployment of
regenerative dynamic capabilities will also depend on how often managers perceive
the need for this order of change, and this perception may be based on either
external environmental characteristics, such as competitive rivalry, product life cycles
etc. or on personal characteristics, such as dissatisfaction towards the current level
of performance or a personal propensity towards risk taking. This reinforces Teece et
al.s (1997) framework of processes, position and paths, and Antonacopoulous
(2006) and Feldmans (2004) argument, that there is a constant connection between
micro and macro contexts. Dynamic capabilities are situated. They are situated in
the environment, the paths the firm has followed, what people within the firm have
done and are doing etc. These are all at play in the development of dynamic
capabilities, and history of the firm undoubtedly influences the presence and
performance of activities.
Finally, we have argued that perceptions of the need for change can be
formed from managerial awareness and understanding of the external environment,
and from other internally located stimuli, including perceptions of performance and
29
personal motivations to effect change. Adopting such a perspective enables us to
address circumstances where the appropriate dynamic capabilities have not been
applied i.e. where managers inappropriately diagnosed the type of change needed.
For instance, Johnson (1988) refers to strategic drift as a situation where
managerial perceptions of the pace of change in the environment are out of line with
the actual external changes taking place, leading to insufficient internal adaptation
and declining firm performance. Managers may perceive the need for radical
changes to the firms operations, but acting on it may actually destroy resources. As
such we suggest, along with others (e.g. Mezias and Starbuck, 2003), that managers
may inappropriately diagnose the degree of change required. For instance managers
may incorrectly identify stability in their environment. They may persist in applying
improvement routines, effectively screening out or re-interpreting any signals that
might suggest more radical changes might be required. Managers may prefer the
predictability involved in repeating past behaviours, even where these may be
embedding and creating core rigidities (Leonard-Barton 1992).
As argued regenerative dynamic capabilities are likely to be applied where
managers perceive substantial dynamism in their environments. These perceptions
may well be shaped by perceived discontinuities in the market environment, or by
significant changes to the internal environment, but there may be a disconnect
between the perceived environment and the actual environment, and we could
envisage managerial over- and under-reactions with respect to regenerative dynamic
capabilities. Over-reaction would occur where managers perceive the need for
radical changes to the extant dynamic capabilities that are not actually warranted.
The effects are likely to be the destruction of parts of the resource base, and/or a
significant disturbance to extant change processes that would consume unnecessary
30
resources and energy. Under-reaction would probably lead to slow or rapid decline
depending on the actual degree of turbulence in the external environment.
In summary we can propose that where managers underestimate
environmental dynamism, there is a risk of strategic drift (Johnson, 1988), where the
firm fails to refresh its resource stock at an appropriate pace, or to the required
extent. Alternatively, managers may look to change the resource base at a pace not
warranted by the actual degree of dynamism in the environment. This could have
positive performance outcomes, if, as a consequence of these proactive changes,
the firm gains an advantage over competitors, and possibly re-defines the basis of
competing. However, there is a possibility that excessive change would result in the
destruction of valuable resources, or indeed in the case of regenerative dynamic
capabilities, the destruction of valuable dynamic capabilities.
Whatever the situation they perceive, for managers, knowing how to change
and extend both their resource base and their dynamic capabilities is critical. Hence
we can argue that trying to better understand and develop the notion of dynamic
capabilities matters for both practitioners and academics alike. This leads us to
argue that awareness of the three levels of dynamic capability should provoke
debate within top management teams. Specifically, managers could at least share
their perceptions about the extent of environmental dynamism they perceive, and
where there are differences in perception, this might encourage some important
conversations, and maybe a search for further information to resolve some of these
differences. Managers could also try to identify the nature of the extant dynamic
capabilities, and then determine whether these dynamic capabilities are appropriate
to enable the firm to prosper in the perceived environmental context. Finally, should
31
any adjustment in dynamic capabilities be required, managers could think how to
develop them.

Conclusion
Before we conclude our paper we highlight a few areas for future research. As noted
by many authors (see for example Aragon-Correa and Sharma, 2003) the challenge
of any conceptual research is to develop empirical measures. We believe this is the
next logical step for the ideas set out in this paper. We propose that the three levels
of dynamic capability could be researched empirically to find evidence to give them
greater depth and allow for more understanding of the concepts. It would be
interesting to study the use of regenerative dynamic capabilities for instance in
younger versus more established firms, whether managerial perceptions of
dynamism varies across industries or if the use of different types of dynamic
capability varies across industries. In addition we also think there is value in
conceptually developing the paper, for example by extending it further into the
learning or change literature, this should help build on our descriptions of the
constructs we have developed.
In closing, we have argued that there were three main levels of dynamic
capabilities, based on managerial perceptions. These three levels have allowed us to
further open the black box associated with comprehending dynamic capabilities.
If, as argued, firms must adapt to and exploit changes in their business
environment and even to provoke change (Eisenhardt and Martin, 2000; Helfat et al.,
2007) it is vital that we place managers at the centre of the discussion on dynamic
capabilities. We have done so by considering managerial perceptions of
environmental dynamism, as managers base their decisions on their perceptions.
32
Also, with the notable exception of Eisenhardt and Martin (2000), the dynamic
capability construct has only been applied to a dynamic environment. By
distinguishing between incremental dynamic capabilities, which are used to
continually improve the resource base, and renewing dynamic capabilities, which are
used to adjust the mix of the extant resource stock, we have shown that the basic
concept of dynamic capability could be decomposed into two levels, according to
perceptions of stability or dynamism in the environment. Then, following Winters
(2003) higher order argument and Helfat et al.s (2007) comment that some dynamic
capabilities can modify dynamic capabilities, we have proposed that firms may
require a third level of dynamic capabilities: regenerative dynamic capabilities. Those
are applied to regenerate the current set of dynamic capabilities and would be used
when managers perceive a disruption to their environment that renders the current
set of capabilities inappropriate. A firm needs regenerative dynamic capabilities

if the
dynamic capabilities it has in place are no longer relevant, or do not allow the firm to
achieve new resource configurations as markets emerge, collide, split, evolve and
die (Eisenhardt and Martin, 2000, p. 1107).
We have also explained that dynamic capabilities do not have to be
developed internally as asserted by Helfat et al. with Maritan (2007). They can be
sourced from outside the firm. However using Feldman and Pentlands (2003) work
on ostensive and performative routines, we have shown that we have adhered to
Helfat and Peterafs (2003) requirement that dynamic capabilities must be repeatable
and embedded. We have also explained and discussed that managerial perceptions
of their internal and external environment were central to the development and
deployment of all types of dynamic capabilities and that it was plausible that these
perceptions may be sometimes inaccurate and consequently dynamic capabilities
33
may be applied inappropriately. Therefore the performance of dynamic capabilities
would not in itself lead to performance improvements; these improvements would
occur only where there was a matching of perceived dynamism and the real degree
of dynamism, and only where the firm actually had the required order of dynamic
capability, would we expect a positive performance outcome.
Finally, Zahra et al. (2006, p. 917) report that the emergent literature on
dynamic capabilities and their role in value creation is riddled with inconsistencies,
overlapping definitions, and outright contradictions. Yet, the theoretical and practical
importance of developing and applying dynamic capabilities to sustain a firms
competitive advantage in complex and volatile external environments has catapulted
this issue to the forefront of the research agendas of many scholars. We hope this
paper brings us a step closer to clarifying definitions of dynamic capabilities.
34
References
Adner, R. and C. Helfat (2003). Corporate effects and dynamic managerial
capabilities, Strategic Management Journal, 24, pp. 1011-1025.
Anderson, C. and F. Paine (1975). Managerial perceptions and strategic behavior,
Academy of Management Journal, 18, pp. 811-823.
Antonacopoulou, E. (2006). Strategizing as practicing: strategic learning as a source
of connection, AIM research working paper series, London.
Aragon-Correa, J. and S. Sharma (2003). A contingent resource-based view of
proactive corporate environmental strategy, Academy of Management
Review, 28, pp. 71-88.
Argote, L. (1999). Organizational Learning: Creating, Retaining and Transferring
Knowledge. Kluwer Academic, Boston.
Argyris, C. and D. Schon (1974). Theory in Practice. Jossey-Bass, CA.
Argyris, C. and D. Schon (1978). Organizational Learning: A Theory of Action
Perspective. Addison-Wesley, Mass.
Barney, J. B. (1986). Organizational culture: can it be a source of sustained
competitive advantage?, Academy of Management Review, 11, pp. 656-665.
Barney, J. B. (1991). Firm resources and sustained competitive advantage, Journal
of Management, 17, pp. 99-120.
Barney, J. B. (2001a). Is the resource-based view a useful perspective for strategic
management research? Yes, Academy of Management Review, 26, pp. 41
56.
Barney, J. B. (2001b). Resource-based theories of competitive advantage: a ten
year retrospective on the resource-based view, Journal of Management, 27,
pp. 643650.
35
Bateson, G. (1972). Steps to an Ecology of the Mind. Paladin, London.
Bessant, J. and S. Caffyn (1997). High-involvement innovation through continuous
improvement, International Journal of Technology Management, 14, pp. 7-28.
Bowman, C. and V. Ambrosini (2003). How the resource-based and the dynamic
capability views of the firm inform competitive and corporate level strategy,
British Journal of Management, 14, pp. 289-303.
Brady, T. and A. Davies (2004). Building project capabilities: from exploratory to
exploitative learning, Organization Studies, 25, pp. 1601-1621.
Child, J. (1972). Organization structure, environment and performance: the role of
strategic choice, Sociology, 6, pp. 1-22.
Collis, D. J. (1994). Research note: how valuable are organizational capabilities?,
Strategic Management Journal, 15, pp. 143-152.
Crotty, M. (1998). The Foundations of Social Research. Sage, London.
Danneels, E. (2002). The dynamics of product innovation and firm competences,
Strategic Management Journal, 23, pp. 1095-1121.
DAveni, R. (1994). Hypercompetition. Free Press, New York.
Dierickx, I. and K. Cool (1989). Asset stock accumulation and sustainability of
competitive advantage, Management Science, 35, 15041511.
Duncan, R. B. (1972). Characteristics of organizational environments and perceived
environmental uncertainty, Administrative Science Quarterly, 17, pp. 313-327.
Eisenhardt, K. and J. Martin (2000). Dynamic capabilities: what are they?, Strategic
Management Journal, 21, pp. 1105-1121.
Feldman, M. S. (2004) Resources in emerging structures and processes of change,
Organization Science, 15, pp. 295309.
36
Feldman, M. S. and B. T. Pentland (2003). Reconceptualizing organizational
routines as a source of flexibility and change, Administration Science
Quarterly, 48, pp. 94-118.
Felin, T. and N. Foss (2005). Strategic organization: a field in search of micro-
foundations, Strategic Organization, 3, pp. 441-455.
Gilbert, C. (2005). Unbundling the structure of inertia: resource versus routine
rigidity, Academy of Management Journal, 48, pp. 741-763.
Hambrick, D. and P. Mason (1984) Upper echelons: the organization as a reflection
of its top managers. Academy of Management Review, 9, 193-206.
Helfat, C. E. and M. Peteraf (2003). The dynamic resource-based view: capability
lifecycles, Strategic Management Journal, 24, pp. 997-1010.
Helfat, C. E., S. Finkelstein, W. Mitchell, M. Peteraf, H. Singh, D. Teece, and S.
Winter (2007). Dynamic Capabilities: Understanding Strategic Change in
Organizations. Blackwell, London.
Helfat, C. E., S. Finkelstein, W. Mitchell, M. Peteraf, H. Singh, D. Teece, and S.
Winter with C. Maritan (2007). Dynamic capabilities and organizational
processes, in Dynamic Capabilities: Understanding Strategic Change in
Organizations, pp. 30-45 Blackwell, London.
Heller (7
th
November 2007) Global strategy: the rise of Glaxo,
www.thinkingmanagers.com/management/global-strategy.php.
International Greetings (9
th
November 2007), www.international greetings.co.uk.
Johnson, G. (1988). Rethinking incrementalism, Strategic Management Journal, 9,
pp. 75-91.
37
Leonard-Barton, D. (1992). Core capabilities and core rigidities: a paradox in
managing new product development, Strategic Management Journal, 13, pp.
111-125.
Makadok, R. (2001). Toward a synthesis of the resource-based and dynamic-
capability views of rent creation, Strategic Management Journal, 22, pp. 387-
401.
Maritan, C. (2001). A capital investment as investing in organizational capabilities:
an empirically grounded process model, Academy of Management Journal,
44, pp. 513-531.
Mezias, J. and W. Starbuck (2003). Studying the accuracy of managers
perceptions: a research odyssey, British Journal of Management, 14, pp. 3-
10.
Miller, D. and P. Friesen (1980). Archetypes of organizational transition,
Administrative Science Quarterly, 25, pp. 268-299.
Mintzberg, H. (1979). The Structuring of Organizations: A Synthesis of Research.
Prentice Hall, Englewood.
Monteverde, K. and D. Teece (1982). Supplier switching costs and vertical
integration in the automobile industry, Bell Journal of Economics, 13, pp. 206-
213.
Nelson, R. R. and S. G. Winter (1982). An Evolutionary Theory of Economic Change.
Belknap Press, Cambridge, MA.
Orlikowski, W. J. (2002). Knowledge in practice enabling a collective capability in
distributed organizing, Organization Science, 13, pp. 249-273.
38
Priem, R. and J. Butler (2001a). Is the resource-based view a useful perspective for
strategic management research?, Academy of Management Review, 26, pp.
22-40.
Priem, R. and J. Butler (2001b). Tautology in the resource-based view and the
implications of externally determined resource value: further comments,
Academy of Management Review, 26, pp. 57-66.
Simon, D. and M. Hitt (2003). Managing resources: linking unique resources,
management, and wealth creation in family firms, Entrepreneurship, Theory
and Practice, 27, pp. 339-351.
Smith, K., W. Ferrier, and C. Grimm (2001). King of the hill: dethroning the industry
leader, Academy of Management Executive, 15, pp. 59-70.
Stimpert, J. and I. Duhaime (1997). In the eyes of the beholder: conceptualizations
of relatedness held by the managers of large diversified firms, Strategic
Management Journal, 18, pp. 111-125.
Teece, D., G. Pisano, and A. Shuen (1997). Dynamic capabilities and strategic
management, Strategic Management Journal, 18, pp. 509-533.
Tushman, M. and E. Romanelli (1985). Organizational evolution: a metamorphosis
model of convergence and reorientation, in L. L. Cummings and B. M. Staw
(eds) Research in Organizational Behavior, pp. 171-122 JAI Press,
Greenwich.
Wang, C. and P. Ahmed (2007) Dynamic capabilities: a review and research
agenda, International Journal of Management Reviews, 9, pp. 31-51.
Watzlawick, P., J Weakland and R. Fisch (1974). Change: Principles of Problem
Formation and Problem Resolution. W.W.Norton, New York.
39
Weick, K. E. (1979). The Social Psychology of Organizing. Addison-Westley,
Reading, MA.
Wernerfelt, B. (1984). A resource-based view of the firm, Strategic Management
Journal, 5, pp. 171-180.
Winter, S. (2003). Understanding dynamic capabilities, Strategic Management
Journal, 24, pp. 991-995.
Zahra, S., H. Sapienza, and P. Davidsson (2006). Entrepreneurship and dynamic
capabilities: a review, model and research agenda, Journal of Management
Studies, 43, pp. 917-955.
Zollo, M. and S. Winter (2002). Deliberate learning and the evolution of dynamic
capabilities, Organization Science, 13, pp. 339-351.

40
Figure 1: The three levels of dynamic capabilities



Perceived
Environmental
States:
Hyper
environment
Dynamic
Environment
Stable
Environment
Incremental
Dynamic
Capabilities
Resource
Base
Regenerative
Dynamic
Capabilities
Processes may be
internal or external
to organisation
Processes internal
to organisation
Organisational Boundary
Renewing
Dynamic
Capabilities

41
Table 1: Comparing typologies


Collis (1994) Danneels
(2002)
Winter (2003) Zahra et al.
(2006)
Our paper
First category First order
capabilities
Zero level
capabilities
Substantive
Capabilities
Resource base
Incremental
dynamic
capabilities

Second and
third
categories
Second
order
capabilities
First order
capabilities
Dynamic
capabilities
Renewing
dynamic
capabilities
Meta
capabilities
Higher order
capabilities
Regenerative
dynamic
capabilities*
Ad infinitum
meta
capabilities


* Regenerative dynamic capabilities are a form of meta-capabilities but are defined
precisely as being dynamic capabilities impacting on dynamic capabilities, rather
than the more general definition that they are capabilities of the learning to learn
variety (Collis, 1994, p. 143).