Sohvi Leih

Dynamic capabilities and organizational agility: Risk, uncertainty, and strategy in the innovation economy

“Organizational agility” is often treated as an immutable quality, implying that firms need to be in a constant state of transformation. However, this ignores that such transformations, while often essential, come at a cost. They are not always necessary, and may not even be possible. This article explores agility at a more fundamental level and relates it more specifically to dynamic capabilities. It demonstrates that it is first essential to understand deep uncertainty, which is ubiquitous in the innovation economy. Uncertainty is very different from risk, which can be managed using traditional tools and approaches. Strong dynamic capabilities are necessary for fostering the organizational agility necessary to address deep uncertainty, such as that generated by innovation and the associated dynamic competition. This article explores the mechanisms by which managers may calibrate the required level of organizational agility, deliver it cost effectively, and relate it to strategy.

Uncertainty, Innovation, and Dynamic Capabilities: An Introduction:

This special issue draws on a range of intellectual roots—ranging from financial economics to organization theory, to design theory, and to human cognition. The goal of this special issue is to bring scholars from different disciplines together with practitioners who have had success applying the framework so as to help other managers lead their organizations to higher levels of performance.

Dynamic Capabilities and Organizational Agility: Risk, Uncertainty and Entrepreneurial Management in the Innovation Economy

“Organizational agility” is often treated as an immutable quality, where it is implied that firms need to be in a constant state of transformation. But such advice ignores that changes and transformations, while often essential, come with a cost, are not always necessary, and may not even be possible. Our approach is to explore agility at a more fundamental level and relate it more specifically to dynamic capabilities. We find it essential to first understand deep uncertainty, which is ubiquitous in the innovation economy. It is very different from risk, which can be managed using traditional tools and approaches. Strong dynamic capabilities are necessary for fostering the organizational agility necessary to address deep uncertainty, such as that generated by innovation and the associated dynamic competition. We explore the mechanisms by which managers may calibrate the required level of organizational agility, deliver it cost effectively, and relate it to strategy. We provide a set of principles and practices that differ according to whether a firm is managing regular risk or deep uncertainty. These distinctions are critical, as the mistaken use of risk management tools in an environment of deep uncertainty can bring false comfort. Our approach embraces concepts from both financial economics (e.g., hedging and real options) and strategic management theory (e.g., managerial/entrepreneurial asset orchestration). We conclude that strong dynamic capabilities are essential when firms face deep uncertainty, which they frequently do in interdependent economies experiencing rapid technological change and financial disruption.

Sorry to (Not) Burst Your Bubble: The Influence of Reputation Rankings on Perceptions of Firms:

We measure the influence of reputation rankings on individuals’ perceptions of firms. Through experimental design, we vary whether and how participants are exposed to a reputation ranking alongside other information about a firm. We find that rankings influence perceptions when they are negative and congruent with other information about the firm. These findings help explain how a firm’s reputation can change even if its characteristics remain constant and why change in a firm’s characteristics can be slow to produce change in its reputation.

Strategic management theory and universities: An overview of the Special Issue:

There are few theoretical frameworks to address organizational challenges and strategies of research universities. We conjecture that strategic management theory provides an opportunity to examine those challenges, such as increased competition, tight budgetary constraints, and rising stakeholder expectations. More specifically, the dynamic capabilities framework has emerged as a useful tool for universities to better manage important issues such as commercializing their innovations, partnering with industry and promoting economic and social development in their regions. Our essay and the papers in this special issue address these issues.

INTRODUCTION: ANTITRUST, STANDARDESSENTIAL PATENTS, AND THE FALLACY OF THEANTICOMMONS TRAGEDY: LEGAL ANDINDUSTRIAL POLICY CONCERNS

At the turn of the millennium, David Teece noted that fundamental changes in the global economy were changing the basis of competitive advantage.1 These changes strip away traditional sources of competitive differentiation and expose a new foundation for wealth creation: the development, astute deployment, and utilization of intangible assets, of which knowledge, capabilities, and intellectual property are the most significant.2 The development of markets for knowhow and intellectual property has broken the traditional nexus between tangible and intangible assets. Previously, the principal business model firms employed for extracting value from inventive and creative activities was to both create and commercialize new ideas and technology. Firms bundled ideas, inventions, and the results of creative activities into tangible objects and offered them for sale to capture value from the creative idea. In the case of music, for example, a creative entity might sell records or CDs. For quite some time, as intellectual property regimes have strengthened, it has been possible to specialize in what one did well—either the tangible objects or the abstract ideas. In the case of an “idea” generator, the creators and inventors can simply license their ideas to other entities that are better equipped to implement the idea. A system of properly designed and adequately enforced IP rights benefits not simply the creative individuals, groups, and organizations that generate intangible assets, but also consumers. New technologies such as