The Key to Business Success – By Phin Upham

By Phin Upham

The business world thrives on competition. But what makes the biggest difference between a successful firm and one that doesn’t make it in the long run? Business owners and top executives would love to know that secret ingredient that contributes to a firm’s success or failure. The problem is that it doesn’t exist, at least not in the way they are hoping. There are, however, several points of view which might explain why some firms have a “sustainable competitive advantage.” One of these views is the dynamic capabilities view.

In their essay “Organizational Capabilities and Behavior” Nelson and Winter (1982) discuss the capabilities point of view for organizations and suggest that there is a conceptual parallel between the micro and the macro as well as a causal link between the actions of individuals in company and the nature and behavior of the capabilities of the firm. In order to clarify their point, Nelson and Winter describe organizational routines that complement organizational and individual motivations. These routines, which are created by the union of individual skills and the organizational physical memory and physical equipment configuration, produce organizational capabilities.
In addition to setting the foundation for the capabilities view, this point of view produces some fascinated consequences. The first interesting consequence is that organizational routines fight change, including ones that are designed to improve the firm. The second consequence is that organizational capabilities are difficult to replicate by outside firms that try to copy a certain skill. Due to this resistance to change, the ability for capabilities is considered a competitive advantage.

However, capabilities that are valuable aren’t of the common garden variety. According to Jay Barney (1991), only a special type of skill can be considered a strategic advantage. In addition to being useful, capabilities must confer a sustained competitive advantage. In order for a resource or capability to be considered a competitive advantage, it has to be prized, unique, imperfectly imitable, and without a matching substitute.

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