Dynamic Capabilities Framework

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Strategy hasn’t stood still. It has evolved alongside industries, shifting from static competitive positioning to a more fluid, adaptive approach. Early Strategy models focused on industry forces and market positioning. Then came the Resource-Based View (RBV), arguing that sustained success comes from leveraging unique internal resources rather than just reacting to market dynamics.

RBV, dominant in the 1980s, shifted the conversation inward. It said firms win by developing capabilities that are valuable, rare, inimitable, and non-substitutable (VRIN). Think Coca-Cola’s secret formula or Google’s search algorithm—strategic assets that competitors can’t easily replicate.

But RBV had a blind spot. It assumed that leveraging existing resources was enough. In fast-changing markets, yesterday’s strengths can become tomorrow’s liabilities. Enter the Dynamic Capabilities perspective, developed in the 1990s by David Teece, Gary Pisano, and Amy Shuen. Instead of focusing on what firms already have, this approach emphasizes how they adapt, transform, and reconfigure their capabilities to stay relevant.

The Dynamic Capabilities Framework 

Dynamic capabilities aren’t about static strengths. They’re about Continuous Innovation—detecting shifts, making decisive moves, and reshaping internal structures to align with a changing landscape. The Dynamic Capabilities Framework (DCF) breaks this down into 3 core activities:

1. Sensing – Identifying opportunities and threats in the external environment.
2. Seizing – Acting quickly to capture value from those opportunities.
3. Reconfiguring – Transforming capabilities and structures to sustain competitive momentum.

This isn’t theoretical. Organizations like Netflix, Tesla, and Amazon apply these principles daily, sensing trends, acting decisively, and reshaping their capabilities before the competition catches up.

Why Organizations Need Dynamic Capabilities 

DCF provides a playbook for staying relevant in markets where customer preferences shift overnight and technology disrupts entire industries. Here’s why it matters:

• Prevents obsolescence – Firms relying on static advantages (think Kodak or BlackBerry) get left behind. DCF forces organizations to evolve.
• Balances Innovation and efficiency – Companies need both. DCF ensures resources are allocated not just to Operational Excellence but also to future growth initiatives.
• Accelerates Decision making – In high-velocity industries, slow responses can be fatal. DCF enables quick pivots and bold strategic moves.
• Encourages cross-functional collaboration – Sensing, seizing, and reconfiguring require breaking silos—Marketing, R&D, and operations must align.

Let’s break down the first two core components of DCF, for now.

Sensing

Great organizations don’t just respond to change—they anticipate it. Sensing is about scanning markets, tracking emerging trends, and understanding shifting consumer behavior. Companies that fail at this stage—think Nokia underestimating smartphones—rarely recover.  Key elements of sensing include:

• Market Intelligence – Identifying demand shifts before they become mainstream.
• Technology Scanning – Spotting disruptions early, like AI or Blockchain.
• Customer Insights – Understanding evolving needs through data and direct engagement.
• Competitive Awareness – Tracking industry moves and potential market entrants.

Apple sensed the mobile revolution before competitors. It recognized that a touchscreen interface and mobile internet access would redefine the industry—years before others acted.

Seizing

Recognizing an opportunity is worthless if an organization doesn’t act. Seizing is about making strategic bets, allocating resources, and executing swiftly. Key elements of seizing include:

• Resource Allocation – Investing in emerging opportunities instead of just maintaining legacy operations.
• Strategic Decision making – Acting on trends rather than waiting for certainty.
• Innovation – Developing new products, services, or Business Models.
• Organizational Coordination – Aligning teams to capitalize on identified opportunities.

Sensing the shift to cloud computing wasn’t enough. Amazon rapidly seized the opportunity by pouring resources into AWS, launching it well before competitors like Microsoft or Google caught on. Today, AWS accounts for a massive share of Amazon’s profitability.

Case Study

Netflix offers a master-class in applying DCF.

Sensing:

• Saw broadband expansion as a signal that streaming would overtake DVDs.
• Monitored consumer frustration with scheduled programming and limited rental choices.

Seizing: 

• Invested heavily in streaming infrastructure before others saw the opportunity.
• Secured licensing deals and launched a subscription-based model.

Reconfiguring: 

• Pivoted from a content distributor to a content creator (Netflix Originals).
• Built AI-driven recommendation algorithms to personalize the customer experience.

Had Netflix clung to DVDs, it would be a Blockbuster relic. Instead, it continuously sensed, seized, and reconfigured—cementing its dominance in entertainment.

FAQs

How do dynamic capabilities differ from core competencies? 

Core competencies focus on what a company does well today. Dynamic capabilities focus on adapting to ensure those strengths remain relevant tomorrow.

Can small companies develop dynamic capabilities? 

Absolutely. Agility often gives smaller firms an advantage in sensing and seizing opportunities faster than larger, more bureaucratic competitors.

What role does leadership play in developing dynamic capabilities? 

Leaders must champion agility, risk-taking, and strategic adaptability. Without executive commitment, organizations stagnate.

How do you measure dynamic capabilities? 

Unlike financial metrics, dynamic capabilities are assessed through speed of Innovation, Decision making agility, and ability to pivot in response to market shifts.

What are the biggest challenges in implementing DCF? 

Resistance to change, short-term thinking, and rigid structures often prevent organizations from reconfiguring effectively.

Closing Thoughts 

Strategy isn’t about defending a position anymore. It’s about constant evolution. The Dynamic Capabilities Framework isn’t just a consulting buzzword—it’s the operating system for modern organizations.

Companies that master sensing, seizing, and reconfiguring don’t just survive disruption—they create it. Netflix, Tesla, and Amazon didn’t win by protecting their core businesses. They redefined them. Organizations that fail to embrace this mindset will be overtaken by those that do.

Interested in learning more about the components of DCF? You can download an editable PowerPoint presentation on Dynamic Capabilities Framework here on the Flevy documents marketplace.

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