Wisdom from an Innovation Master

Prof. David Teece outlines how firms build competitive advantage

Prof. Teece

In a new book, Professor David Teece builds on his research on “dynamic capabilities” to create a framework for understanding how firms develop and maintain competitive advantage in global markets.

“This is a capstone that can pull together the intellectual grit that constitutes what every business school tries to teach,” Teece says of his new book, titled Dynamic Capabilities & Strategic Management: Organizing for Innovation and Growth.

Teece, an authority on the theory of firm and strategic management, coined the term “dynamic capabilities” more than a decade ago. The focus: how firms innovate in the global marketplace and how they need to be managed in order to survive in rapidly changing business contexts.

Capabilities refer to a business enterprise’s ability to mold assets to respond to changing technologies and markets. Teece’s seminal paper on the topic, “Dynamic Capabilities and Strategic Management,” published in 1997 in Strategic Management Journal, has been recognized by ScienceWatch as the single most cited article in the business and economics category from 1995 to 2005.

In his new book, Teece introduces readers to three classes of capabilities, which he describes as sensing, seizing, and managing threats/transforming. The framework identifies mechanisms by which entrepreneurially managed firms can sense or identify opportunities; seize these opportunities and capture value from innovation; and have the capacity to transform internally not only to survive but to thrive.

Teece’s work focuses on managing assets and building capabilities within firms. He maintains that building the organization’s capabilities, rather than the individual’s, is the key to competitive advantage.

One premise behind Teece’s 25 years of research is the need to study competition in the ecosystem. Teece purports industry is not the only unit of analysis, but it is also necessary to observe the role of government, educational institutions, and other players in the ecosystem.

In his book, Teece integrates multiple disciplines to give his readers a framework for thinking about top management decisions. He draws on economics, finance, organizational behavior, marketing, strategy, and decision theory.

“I’m trying to do for the firm what Adam Smith tried to do for the nation,” Teece says, referring to Adam Smith’s book The Wealth of Nations. “Believe it or not, nobody is really trying to build a comprehensive framework to explain wealth creation and maintenance by firms, despite the importance of the subject. I’m trying to explain the essence of what it takes to build and sustain competitive advantage in a highly competitive world.”