DYNAMIC CAPABILITIES, INTER-FIRM NETWORK COMPETENCE AND FIRM PERFORMANCE: A THEORETICAL REVIEW
Abstract
The indication of continuous performance improvement during rapid environmental dynamism where some firms record diminishing returns is a gap in strategic management studies that draws interest among scholars as they seek enduring solutions for performance. Contemporary businesses are run in environments that are faced with an ever accelerating rate of dynamism. Globalisation for instance opens the business floor to an increasing and unusual kind of competition in new technologies, new customer trends and demands and new product innovations. Managers have to search for a combination of fresh strategies which will deliver to new levels of competitive advantage. Dynamic capabilities is a competitive advantage that will deliver superior performance. But what are dynamic capabilities? The discussion by many authors focused on sensing, seizing and reconfiguring firm’s capabilities which are operationalized as distinctive skills, learning, formal and informal relationships, routines, processes and procedures, decision making and disciplines acquired through experience. These capabilities become dynamic when they are transformed or reconfigured to offer solutions in their environments. Sensing, seizing, reconfiguring capabilities is both internal and external to the firm. Firms link with other firms in inter-firm network collaborations to provide expanded products and services to the market and hence to improve on their collective and individual performance. Firms shed off their inadequacies through interacting with other firms and share resources to raise their performance. Firm performance is operationalized as achieving firm objectives. It is both a behavioural process and an outcome. The resource based view (RBV) theory suggests that competitive advantage lies within the company’s resources which are heterogeneous between firms. The dynamic capabilities theory extends the RBV by claiming that competitive advantage lies in the ability of the firm to manage the resources and capabilities that exist both internally and externally. Authors differ on the conceptualization of these constructs depending on their study interests and contexts. Studies done in developed countries cannot be easily generalized to the Kenyan or African context. This study suggested a new localized conceptual model which explains that dynamic capabilities will directly affect the level of firm performance and a firm’s dynamic capabilities determines the inter-firm networks which the firm will form with other firms. Inter-firm networks play a mediating effect between dynamic capabilities and firm performance while industry dynamism plays a moderating effect between dynamic capabilities and firm performance. This study is significant to firms because it addressed the networking strategies that can build dynamic capabilities to steer the firm through turbulent times.
Key Words: Dynamic Capabilities, Inter-Firm Networks, Firm Performance, Industry Dynamism.
CITATION: Ngigi, L., & Kilika, J. (2019). Dynamic capabilities, inter-firm network competence and firm performance: A theoretical review. The Strategic Journal of Business & Change Management, 6 (3), 437 – 453.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i3.1328
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