Dynamic Capabilities and Sustainable Supply Chain Management

By: Vera Ndrecaj BA (Hons), MBA. 

It is ongoing debate regarding the application of Dynamic Capabilites (DC) concept in the field of Sustainable Supply Chain Management (SSCM). Current developments in SSCM field have been analyzed particularly from theoretical and economical perspective (Teuteberg and Wittstruck, 2010). The DC concept has barely been taken up in SSCM practice (Beske, 2012). The purpose and effectiveness of resource-based need to be questioned time to time as a market shapes the firm and firm shapes the market (Zollo and Winter, 2002; Helfat et al., 2007). The focus of researchers has shifted towards sustainable environment through application of the concept of DC in SCM, which is complex in nature and required more research because the knowledge is incomplete (Ambrosini et al., 2009; Teuteberg and Wittstruck, 2010; Beske, 2012). Recently, the DC concept has received much attention in form of publication in SSCM (Teece et al., 1997; Eisenhardt and Martin, 2000; Zollo and Winter, 2002; Helfat and Peteraf, 2003). However, according to Helfat et al., (2007) is still need for theoretical and empirical development. The challenge of conceptual research is to develop empirical procedures (Correa and Sharma, 2003; Ambrosini et al., 2009). 

DC in SSCM branch is used interchangeable with other branches of research on dynamics in the supply chain such Supply Chain Dynamics (SCD) and Supply Chain Flexibility (Fisher, 1997) which do not have characteristics of high dynamic environment for which the DC concept is anticipated (Eisenhardt and Martin, 2000; Teece, 2007; Carter and Roger, 2009).  Refreshment of the concept of DC is needed (Winter, 2003) whereas Ambrosini et al., (2009) introduced the third level of DC ‘regenerative dynamic capability’ as a starting point of involvement of holistic management theory – each level will be applied base on management perception in order to achieve long-term competitive advantage. Easterby-Smith et al., (2009) clarified that, there is still matter of debate whether DC can bring long-term competition or not. Other branches of research on dynamics in the SC such Supply Chain Dynamics (SCD) or Supply Chain Flexibility (SCF) viewed DC in SCM as a ability to respond to market changes (Fisher, 1993; and Duclos et al., 2003) whereas DC itself shape the business environment from strategic management perspective (Teece, et al., 1997).

However, the topic of dynamics in SSC has been in the focus of research for while (Hall, 2000) only a few studies applied DC in the field of SSCM. But none of them have explicitly addressed the nature of DC in SSCM (Beske, 2012) and management holistic theoretical foundation has been missing (Beske, 2012).   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 firm’s competitive advantage in complex and volatile external environments has catapulted this issue to the forefront of the research agendas of many scholars (Ambrosini et al., 2008).

4     Boundaries:

Supply chain dynamics is wide broad topic, which appeal for more research in order to distinguish between dynamic concepts such system dynamics and dynamic capability. SC dynamics has been in focus of the research for more than three decades therefore is a rich evidence and it is accepted in theory and practice. Dynamics that exist between firms in SC that cause errors, inaccuracies and volatility, and this increase for operation further upstream in the SC is known as the ‘Bullwhip Effect’ (Lee et al., 1997). The effect will not be on the focus of the research. The research will intend to distinguish between DC and System Dynamic (SD) as briefly shown in the table. 1.  

System Dynamics versus Dynamic Capability
Concepts	System Dynamics	Dynamic Capability
Definition	SD is an approach to understand  the behaviour of the complex system over time (Sterman, 2001). It deals with internal feedback loops and time delay that effect the behaviour of the entire system	“The firms ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environment” (Teece et al., 1997)
Origins	The term originates from Bertalanffy (1995) – General system theory. Established by Forrester (1961) – focus of the research for more than thirty years. Exposed the fluctuation and amplification of demand from downstream to upstream of SC. Based in comparing and contrasting demand and supply	The concept is originated from resource based view (RBV) (Penros, 1959; Wernerfelt, 1984) Established by (Teece et al., (1997) – focus of the research for more than fifteen years. Involved from the resource based. Exploring the capacity of the organization to purposefully create, extend or modify its resource base (Helfat et al., (2007)
Characteristics	Information feedback dominated, non-linear, time delay systems and delay (Robinson, 1985). Its is equation based (Huag et al (2003)	Considered boundaries of resources, adapting, integrating and reconfiguring internal and external organizational skills, resources, and functional competencies (Teece et al., 1997)

Table 1. System dynamics v Dynamic Capability 

The comparison between demand and supply is not in the research schedule. Hence the current situation that leads to the reduction of resource capacity; as a result most of companies are aiming only to survive.  However, the survival cannot be directly related to a DC, nor even to the strategic decision of the company since it may only survived by the chance (Healfat et al., (2007). 

5.  Literature review:

The chapter will indicate wariness what existing knowledge comprise, and what a various debates disagreements and key theories and concerns are in the field (Wisker, 2008). The contribution to knowledge will be constructed in a dialogue with the experts and theories (Johnson, 2007).  The review will be based on SSCM and DC literature focusing on the work of Teece et al., (1997), Eisenhard and Martin, (2000), Zollo and Winter, (2002), Ambrosini et al., (2009), Reuter et al., 2010, Beske (2012). The researcher will critically examine the published work. Literature review will be based in reliable sources such books, journal, websites, magazines. 

This chapter will intend to provide a precise conceptual framework by exploring different theories related to SCM by analyzing organizational theories such as ‘Resource- Based View’ (Penros, 1959; Wernerfelt, 1984) ‘Knowledge based view’ (Grant, 1996), Core Competencies (Prahlad and Hamel, 1990), ‘Strategic Chose Theory’, ‘Value Chain, ‘Just-in Time’, Collaboration and Relationship (Richey and Autry, 2009), and also  ‘Agile Manufacturing’ (Halldorsson et al., 2003; Ketchen and Hult, 2006; Lavassani et al., 2009), Dynamic Management Theory, and Holistic Management Theory.  

Dynamic and complex global environment emerge the application of Dynamic Management Theory in SSCM practice.  DC concept has been frequently discussed in the theoretical debate (Teece et al., 1997; Eisenhardt and Martin, 2000). Previous studies have defined only two types of strategy that will enable companies to develop DC, Ambidexterity (Tushman and O’Reilly III) and punctuated equilibrium (Brown and Eisenhardt, 1997). The basic assumption of the DC frameworks is that core competencies should be used to create short-term competitive position that can be used to build long – term competitive advantage (Teece, 2004).  Ambrosini et al., (2009) suggested three levels of DC, which are related to managers’ perception of environmental dynamism. At the first level they found incremental dynamic capabilities, which is concerned with the continuous improvement of the firms resource base. At the second level are renewing dynamic capabilities concerning refreshment, adaption and augment the resource base. These two levels are known as DC introduced by Teece et al., (1997) and Eisenhardt and Martin, (2000) explored changing nature of resources in unstable environment. Whereas, the third level of DC regenerative dynamic capabilities is suggested by (Ambrosini et al., 2009), which impact, not on the firms’ resource base, but on its “…current set of dynamic capabilities” (2009: 2).

The concept is introduced by (Teece et al., 1997: Eisenhadt and Martin, 2000) associated with the resource-based view (RBV) of the company (Penrose, 1959: Nelson, 1982: Wermerfelt, 1984: Barney, 1989, 1991: Teece et al., 1997) describing the qualities an organization needed in order to be able to adjust dynamically to frequent environmental changes. Their theory highlighted three elements that shape organizations’ dynamic capabilities as processes, learning (Collins, 1994) and new assets (Barney, 1991). Resources need to meet in order to be a source of sustainable competitive advantage. According to Barney (1991) these resources must be valuable, rare, imperfectly imitated and not easily substituted with other resources. However, the advantages of applying DC concept in SSCM practice Penrose (1959), Nelson (1982), and Barney (1986, 1991) is the explanation on how companies can achieve competitive advantage in dynamic context  (Teece et al., 1997; Eisenhardt and Martin, 2000) thought resources configuration and its capacity “… to purposefully create, extend or modify its resource base” (Helfat et al., 2007: p. 1).  The application of DC is shape by organization processes such architecture and culture, by its strategic resources and its history (Teece et al, 1997). However, Helfat et al., (2007) argued that DC would be applied according to managers’ perception – shaping the business environment from strategic management perspective.

   

The theoretical background of DC is “ 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., 1997:515). The influence of top management in this process is inevitable (Adner and Helfat 2003). For instance, Christensen and Bower (1996) demonstrate that managers can effectively change the strategic course of their firms in order to achieve sustaining innovations. This capability is also referred to as 'dynamic managerial capability' (Adner and Helfat 2003; Helfat et al. 2007). Although, Carter, (2005); Carter and Easton, (2011) explained that, supply chain managers often initiate previous projects without a clear, holistic, and strategic understanding of how these pieces of the puzzle fit together to create sustainable position of their organizations (Carter, 2005). This is identified as a tacit conceptualization that can begin to allowed managers to take tangible actions (Carter and Easton, 2011). 

However, as mentioned in section 4 there are differences between SD and DC.  SD is based in comparing and contrasting supply and demand (Mason-Jones and Towill, 1999; Anderson et al., 2000; Helo, 2000).  The establishment of the system dynamic concept was originated by Forrester (1961) studied the dynamic behaviour of industry, exposed the fluctuation and amplification of demand from downstream to upstream of SC. Since than have been rich evidence and literature analyzing the phenomena (Towill, 1991; Wikner et al., 1991; Towill et al., 1992; Wu and Meixell, 1998; and Helo, 2000). SD concept is based on comparing and contrasting between demand and supply; it is characterized by information feedback and delay (Huag et al (2003). This technique was refined and explained to study SC dynamics (Twill et al., 1992; Stearman, 2000). It is equation-based used as a stimulation approach based in computer program that stimulate the operation of SC (Coyle, 1996; Towill, 1999).

SSCM has received growing attention and has become an increasing research area (Teuteberg and Wittstruck, 2010). The tribulations of globalization, climate change, reduce on price of the assets as a result of financial crises, high global competition as a result of monopolistic market, growing interest in ecology, ensure environment sustainability and energy efficiency; dealing with not only the pressure of environmental legislation but also the mass media and society a as a whole, growing demand for transparency and increasing awareness of the conditions under which products are manufactured and distributed have emerged application of DC concept in SSCM (Teece, 2004).  The strategic challenge for a SCM is to configure and develop holistically all a multi-layered fields of a SC aiming as a whole to a strong alignment with competitive and corporate strategy (Cetinkaya 2000).