Helping SMEs Go Global (Part 3): Building Dynamic Capability
Loading ...Some preliminary lessons from my research on internationalizing emerging companies relates to dynamic capability which refers to, according to experts Connie Helfat and colleagues, “the capacity of an organization to purposefully create, extend, or modify its resource base”. And of course, organizational capabilities are an important part of that resource base.
Consider the case of HMD, a start-up IT company in Edinburgh which targets improvements in the efficiency of large-scale clinical drug trials. The venture worked closely with Sun Microsystems resulting in a productized offering combining its own domain expertise with RFID capabilities of Sun and a third partner.
The partnership enabled the firm to modify or develop capabilities – in other words to build its own dynamic capability. Networks have a potentially powerful role to play in capability development, which can be a more enduring benefits that one-off trade leads and business opportunities.
What the HMD case study illustrates is that bridging ties – by virtue of the novel information, ideas and opportunities that they potentially provide – can be an important source of not only valuable information and opportunities, but also of capability development.
In particular, this seems to arise when companies are intimate enough to undertake joint problem-solving – in other words, when they work closely in order to jointly come up with solutions to specific pre-agreed issues or to deal with problematic situations as they arise. This is in direct contrast to arm’s-length relationships that are primarily transaction-oriented.
Social capital – the goodwill in the relationship and the resources that can be derived from it – is key in fostering trust and reducing barriers to the exchange and combination of resources, over time (see also Part 1 of this series).
Such close dealings allowed HMD to improve existing capabilities or to develop new capabilities – both of which are the hallmark of dynamic capability – in the realm of technology and business. The technology and business capabilities could, in turn, facilitate the venture’s own internationalization.
For HMD, technology capabilities primarily concerned new product development which resulted in a prototype being developed. And of course, the development of globally mobile offerings is often at the heart of the accelerated internationalization witnessed in knowledge-intensive firms.
Business capabilities included the capacity to build and manage alliances. If HMD were to enter into another such partnership, chances are it would do some things differently – for instance, obtain commitment from all partners on paper and identify objectives more clearly at the outset.
The greater the capacity to improve or build capabilities is internalized, the greater becomes the firm’s dynamic capability. This notion, in turn, leads to at least a couple of implications.
The first is that there is often a need for small – and especially new – firms to move beyond its initial set of network ties to develop new ones, especially bridging ties. It should be recognized that this capacity to replenish social capital is itself a dynamic capability because it leads to the modification of the firm’s resource base, of which network relationships ought to be recognized as an integral part.
This is a dynamic capability that like many others is likely to improve with use. A key part of this capability is the recognition of valuable network relationships that are available locally¬ (see part 2 of this series) – and potentially, therefore, at considerably lower expense.
The second is that what managers do on an everyday basis can be significant to the development of dynamic capabilities. Indeed, much of HMD’s learning arose from emergent day-to-day activities, not through some grand deliberately planned strategy.
In HMD’s case, day-to-day activities took the form of meetings and other more informal dealings and negotiations with Sun, a prospective client, a trade body and so on. As such, these activities were marked by improvisation, given the diversity of contexts involved. These day-to-day improvisations, in turn, led to dynamic capability.
This is an interesting point because, by contrast, a lot of research depicts dynamic capability development as a rather more formal and deliberate process. For the resource-poor smaller firm in particular, however, it would seem that capability learning achieved through day-to-day routines – both organizational and inter-organizational – is vital. Yet, at this stage, surprisingly little has been done to understand better this possibility. Hopefully, this is something that will be researched further in the days to come. In the meantime, entrepreneurs and managers in internationalizing small firms could usefully reflect upon their day-to-day improvisations and their impact on dynamic capability development.
Also read the Part 1 and Part 2
Post Contributed by: Dr Shameen Prashantham, University of Glasgow Business School, author of ‘The Internationalization of Small Firms: A Strategic Entrepreneurship Perspective’ (2008, Routledge).
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Comments
These are interesting comments – and thank you for reiterating the importance of dynamic capabilities. In my research I certainly have come across some dire failures and often the problem has been the inability to learn and adapt effectively. For emerging companies, learning from others – which I have empasized in Parts 1, 2 and 3 of my piece – is critical.
To summarize, here are three key lessons that I have articulated in my recent book ‘The Internationalization of Small Firms’ (2008, Routledge):
1. “…social capital can facilitate the creation and acquisition of market and technological knowledge, thereby leading to useful innovation and internationalization outcomes” (page 10).
2. “…the value of local network relationships ought not to be overlooked. There may be a tendency to do so, however, in the context of internationalization…” (page 11).
3. “…the leveraging of social capital is likely to yield useful learning outcomes …social capital fosters trust and decreases barriers to the exchange and combination of new knowledge” (page 10).
Most important lesson for Emerging IT cos to go global is to do following
1. Make the organization flat, not so much as infosys or TCS but somewhere in that direction
2. Bosses should be mentors or bring in experienced consultants on board to provide out of box ideas/mapping or perspective
3. benchmark and benchmark–do not be in your own world comprising of the internal thought leaders/bosses/opinion makers/ project managers
4. Dynamic capability building is most important as author says in this article. It is more critical for SMEs in the competitive market place full of bigger players
5. Of course as author says learning and development called as L&D subject comes from daily learning….that is daily benchmarking …..for that you must have humility to test yourself out of your co with friends, mentors or critics….but that is mots difficult part
6. Deliberate grad strategy is also essential if the management had recruited some experts from oustide to get wisdom alongside…you can not make any orgn successful on management practice issues without out of box or non linear thoughts to compare and benchmark
7. With no deleiverate startegy on some key issues like Quality and Process Management, the orgn will take extended time period exposing to vulnerability
May be the author should now look at studying some others orgn who have burnt themselves up for want of better widsom and new thoughts……that is important