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Seeing around Corners: Developing Dynamic Capabilities in the Enterprise and Its Leaders

Tuesday, November 7, 2017
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This is part of a special advertising section featuring case studies offering strategies for what's ahead for the human resource profession in 2018.

Globalization and technical advance have thrust companies into volatile, uncertain, complex, and ambiguous (VUCA) marketplaces. Many firms struggle to adapt to the resulting perpetual disruption, let alone deliver it to others. Leaders who came of age during more stable times are seldom equipped to respond with agility and speed. Many senior leaders have been trained to manage risks and costs instead of managing for today's demands around deep uncertainty and disruptive headwinds.

Uncertainty is characterized by unknown unknowns and cannot be calibrated in the manner that risk is calibrated. Deep uncertainty requires entrepreneurial leaders who can architect new organizational capabilities that stimulate innovation in tough competitive circumstances far more complex than one where process perfection, cost discipline, and diligent resource accumulation will carry the day. Today's competition involves battles where the weapons are ideas and intangible assets, technologies, designs, data, and deep customer and public awareness.

The auto industry serves as a good example. Industry is at a monumental inflection point. Smartphone platforms on wheels? Fully autonomous highway and urban travel? Drivable luxury hotel suites? Individual ownership surrendering to the shared-ride economy? To incumbents, emerging opportunities seem like gusty headwinds. They are not yet trade winds. These disturbances have significant implications, requiring both technological and business model innovation and new levels of functional integration across mobility modalities. Corporations and their HR functions need to be intensely focused on obtaining unique talent and developing dynamic, entrepreneurial leaders able to embrace change, lead, and transform.

The primary role of strategic HR today is to develop the next generation of talented leaders who "see around corners," are agile and entrepreneurial, and can relentlessly focus on "doing the right things," not just "doing things right." These leaders are being called upon to manage two competing and sometimes conflicting objectives. First, they must continue to manage efficient operations to remain competitive. This will primarily involve continuing to refine technology, people, and process (i.e., "ordinary capabilities") to meet revenue and profit projections.

Second and most important, they must be vigilant and agile to recognize and address unanticipated threats and emerging opportunities. Meeting this objective requires the ability to recognize early marketplace developments, mobilize resources, and fight inherent organizational complacency to restructure and transform where necessary.

The Dynamic Capabilities framework is an integrative and iterative forward-looking approach to tackling significant business challenges. Properly applied, the framework allows managers to deliver rather than receive marketplace disruption. Specifically, the framework draws out from the management team the intelligence to coalign strategy, innovation, and organizational capabilities, including critical talent and human capital. Dynamic Capabilities–based approaches prioritize decisions and the investment required to succeed in VUCA environments. The framework serves as the bridge between the present and future. Without it, an organization will be stuck in the past, will likely be deeply disrupted, and may ultimately become irrelevant.

The Dynamic Capabilities framework has been developed and discussed since its introduction by David J. Teece and colleagues in 1997.1 Dynamic Capabilities are defined as "the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments." It is a systems perspective that helps integrate engineering, business, social, and economic perspectives.

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Dynamic Capabilities can be understood in terms of three interactive, interrelated, and nonlinear activities. Sensing involves continuously scanning the horizon, performing deep analyses of internal and external resources, and exploring how ecosystems can be developed or strengthened to increase strategic competitive advantage. It includes having superior ability to notice and make sense of incipient change -- "seeing around corners." Seizing includes testing and trialing new business activities, enabling leaders to effectively manage decision-making, capital deployment, asset acquisition or disposal (tangible and intangible), strategic alliances, joint venture formation, IP management, and business model design and adoption. Truly dynamic, strategic, and entrepreneurial leaders help firms seize opportunities before the competition does. Shifting (Transforming) is the "directional gyro" (navigating the many changes arising from sensing and seizing) that defines, sources, and modifies strategic execution.

The more disruptive and uncertain the environment, the less likely that the strategy and business models working today will be viable tomorrow. Leaders must be both classical musicians, following a tight script for the part of the strategy deemed robust, as well as jazz performers, improvising around key themes necessitated by unexpected change. It will be critical for HR executives to reformulate leadership development and talent management strategies as change becomes more disruptive. HR's strategic position at the executive level is enabled by the Dynamic Capabilities framework, which can empower a new generation of leaders better able to see around corners, make sense of what they see, combine the new and the old, and develop and implement the next big thing -- while not being undone by it.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions, position, or policy of Nissan Motor Corporation or Berkeley Research Group, LLC.

 

1"Dynamic Capabilities and Strategic Management" (with Gary Pisano and Amy Shuen), Strategic Management Journal 18:7 (August 1997), 509–533.

 

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