Three simple guidelines to make the dynamic capabilities paradigm actionable in international business research

INTRODUCTION

Mainstream international business (IB) and international entrepreneurship (IE) theories have been highly effective in explaining which types of internal company strengths, when matched with specific location characteristics and attuned to broader environmental conditions, are needed to succeed in international markets (Narula et al., 2019; Narula & Verbeke, 2015; Verbeke & Ciravegna, 2018). In the classic IB and IE analytical frameworks, entrepreneurial actors use resources at their disposal to craft firm-specific advantages (FSAs). FSAs are not created in a vacuum but depend upon the location advantages of the home and host environments. Location advantages can also be viewed as resources, but are at least partly external to the individual firm and not always easily accessible. Sound entrepreneurial judgment and efficiency-driven governance choices (including those involving outside actors with complementary resources) are critical to turn supposed internationally deployable FSAs and the accessible location advantages abroad into firm-level growth and profitability across borders. The above elements: combining resources into FSAs (both location-bound and non-location-bound ones); capitalizing upon accessible location advantages at home and abroad; making sensible, i.e., economizing governance choices; mobilizing complementary resources in foreign markets; and exercising sound entrepreneurial judgment in the orchestration of resources can all be considered preconditions to achieving economic success across borders.

The dynamic capabilities (DC) paradigm, as a lens to analyse firm-level behaviour and outcomes, is largely consistent with this IB intellectual heritage and usefully adds to it by focusing on the processes of orchestrating both internal resources and externally available ones. As a result of these processes, described at a relatively high level of abstraction and representing what supposedly occurs in an adaptive and entrepreneurial organization, the firm should – according to Teece and several authors who have adopted the DC lens – be equipped with enduring strengths vis-à-vis rivals in industry, both present and future ones; see Teece (2007) for one of the foundational articles in this realm. However, the DC paradigm does not itself include detailed predictions or prescriptions that are actionable for researchers, and especially not in terms of causal linkages between independent variables that describe a firm’s DC and any desirable-outcome variable(s). To establish such causality, further detailed knowledge of a firm’s internal circumstances and its external context are required.

The paradigm also does not suggest generally applicable proxies to measure DCs. It simply attempts to capture the need for a judicious entrepreneurial focus when firms engage in resource orchestration in new or changing markets, or when they co-create such markets. In this paradigm, three interrelated base-processes, namely sensing, seizing and transforming, are put forward as concepts which are helpful to assess whether the firm commands a DC. Sometimes, direct observation or analysis of the actual DC is beyond reach empirically. For example, Petricevic & Verbeke (2019) limited their analytical focus to identifying ‘dynamic sub-capabilities’ in both sensing and seizing, with the sub-capabilities viewed as preconditions for better firm-level innovation outcomes. The authors did not even measure these sub-capabilities directly as process features of sensing and seizing, but used indirect proxies for firm-level strengths in performing these two sets of activities

When adopting this perspective and carrying out serious empirical research, the DC itself can be viewed as a relatively abstract meta-process overarching the three base-processes where dynamic sub-capabilities might be observed. The DC is supposedly responsible for how the base-processes are structured, and how they interact and reinforce each other towards fostering desired outcomes or averting undesired ones. The DC is the visible hand of senior management intervention (including here intervention by a variety of senior leadership profiles both past and present, such as CEOs, company founders, shareholders, Board members, etc.) in guiding the firm’s sensing, seizing and transforming. This visible hand can consist of several types of purposive interventions, formal and informal ones, unique to the firm.

Zahra et al. (2022) have made a commendable effort to illustrate how DC thinking can be made more actionable for managers in IB contexts. In contrast, we suggest one avenue to make the DC paradigm more actionable for IB researchers, and especially for practice-oriented scholars, deeply engaged with firms. We put forward three simple guidelines for sound empirical research design and for increasing confidence that the empirical results obtained are meaningful to scholars and practitioners in industry. The first guideline addresses the need to define ex ante the scope inside the MNE (or in any other type of internationally operating firm) of the three base-processes to be analysed. The second guideline suggests adequate contextualization of any linkages explored or hypothesized between a specific structure and functioning of the meta-process and the three base-processes on the one hand, and particular outcome variables on the other. The third guideline calls for credible measures or assessments of the meta-process and base-processes through usage of proxies that fit the chosen scope of the study (see the first guideline), and the context within which the study is performed (see the second guideline).

FIRST GUIDELINE: DETERMINE THE SCOPE OF DCs WITHIN THE FIRM

The DC approach can help IB scholars understand how firms achieve success internationally, in terms of profitability, growth or any other desired outcome variable, by distinguishing between three separate but interrelated processes that constitute the heart of resource orchestration, namely seizing, sensing and transforming, and by describing the meta-process overarching these three base-processes. Despite their likely non-negligible costs and the potential risks associated with them, these processes are hypothesized as (or shown to be) instrumental to improved outcomes in environments requiring micro-level adaptation, at least as compared to the situation whereby these processes would be absent or fundamentally different. It is therefore important to define ex ante and in unambiguous, detailed terms what these three-plus-one processes include in any proposed empirical study, and to determine the boundaries of – and interactions between – these processes.

Sensing, as a ‘preparatory’ and diagnostic activity, is primarily related to gathering and analysing business intelligence: it is about identifying and assessing the magnitude and loci of international business opportunities and threats. It also involves articulating this intelligence in some tangible fashion, such as a strategic plan or a business model, or a series of scenarios, and then helping the collective mindset of the firm debate, perhaps fine tune and ultimately absorb these intelligence elements, thereby sharpening the firm’s preparedness for the future. What is clearly important in any sensing process is to determine an adequate level of scrutiny and selectivity. A firm could let a thousand flowers bloom in terms of sensing, but one question to be answered in any empirical study is how to put appropriate boundaries around the sensing activity and its direct outcomes, as an input for the related seizing process. For instance, there must be boundaries on searches and analysis regarding external technological trends, the evolution of supply- and demand-side opportunities and threats in various markets, the evolving industry structure, etc. Selectivity is needed when determining which key external drivers should be sensed and the level of resources and managerial effort devoted to this activity. Selectivity is also important when determining which business opportunities identified as the result of the sensing activity should find a subsequent ‘home’ in the firm, namely when moving to seizing and transforming.

As a side note, superior sensing could also lead to abstaining from particular types of foreign involvement, and, in the case of mature firms, even trigger divestment decisions and restructuring. So, it is important in empirical studies to determine from the outset the precise internal context addressed: is it, for instance, one of international expansion with business opportunities abroad waiting to be identified and engaged with or is it one that would involve mainly repositioning resources and divesting existing international activities.

Seizing in international markets, assuming that new business opportunities or threats are identified, is going a step further. This process can turn valuable ideas from the sensing process into pilot projects and prototypes abroad (or, alternatively, into divestment and restructuring projects), but it can also simply add products and services to the firm’s portfolio (or discard some of these) or change the features of the existing portfolio.

Finally, transforming suggests structural adaptation, such as establishing and solidifying new organizational units, new routines and managerial practices, new relationships, and perhaps new stand-alone FSAs (or abandoning existing ones in each of the former categories), thereby altering – at least for specific activities – how the firm is structured or how it operates. The changes proposed, except in the absence of resource constraints (meaning that all resources involved would be new), will entail reassigning resources and decision-making rights inside the organization, and sometimes reassigning the resources and decision rights shared with external stakeholders.

The above three base-processes do not unfold randomly, but result from an overarching mega-process, namely the visible hand of senior management that has decision rights to influence these processes. The content of this meta-process represents the essence of a firm’s DCs, at least if a positive relationship can reasonably be established or hypothesized between the presence of this content and outcomes considered relevant. The one generally agreed upon principle, when adopting the DC lens, is that a DC should facilitate achieving a better ecological fit between the firm and its environment(s), as compared to the situation whereby this DC would be absent. In IB research, a DC can be viewed as critical, especially in dynamic settings that change at a rapid pace or in markets very different from the home environment. Both in dynamic and high-distance environments, extant FSAs and proven resource orchestration routines cannot be taken for granted, in the sense of automatically conferring outcomes desired by senior management.

At the same time, any adaptive change in the firm’s main production activities driven by the three-plus-one processes will necessarily need to take place in production units that are influenced by perhaps mundane but nevertheless non-trivial concerns related inter alia to logistics feasibility, product reliability, scaling-up potential, risk of cannibalization with existing product lines, and a variety of internal and external impediments to change.

When MNEs engage with new opportunities and threats, for instance by diversifying internationally, it is therefore of utmost importance to assess whether the critical sensing, seizing and transforming processes have been deliberately and competently established through the visible hand of senior management to foster desired outcomes. Here, researchers must assess whether the necessary governance steps have been taken, not only to guarantee the intended unfolding of these activities but also to link them efficiently with the extant, ‘proven’ routines and managerial practices in the organization, that by necessity thrive on repeatability and reliability rather than on novelty. In many established MNEs, especially those with large and successful quasi-autonomous units in their portfolio, a ‘parallel track’ (next to that prevailing for the main operations) is introduced for radically new products and services and for highly distant markets. In this parallel track, organizational adaptation can be guided by entrepreneurship-driven sensing, seizing and transforming. However, for the established firm in its entirety, structuring these three interrelated base-processes and the visible hand guiding them for continuous radical adaptation across the board, is not necessarily the panacea for success (Verbeke & Kenworthy, 2008).

Our first guideline for empirical researchers in IB is to decide carefully upon the scope of their study covering internationally operating firms. They should make explicit whether the sensing, seizing and transforming processes investigated, as well as the overarching meta-process that constitutes the essence of any internationally operating firm’s DC, will be investigated for the firm in its entirety or rather for subsets of the overall activity. To state it differently: is the positive relationship between these processes and specific outcome variables applicable to the whole firm or to only a part of it? If the scope of the investigation covers only part of the firm and its activities, clear ‘boundaries’ of the analysis should be established. In the realm of IB research, the question should be answered from the outset whether the analysis of the three-plus-one processes will be restricted to particular international activities and initiatives. If the analysis covers the entire firm, the observed or hypothesized linkages between the three-plus-one processes and outcome variables will supposedly hold for the firm in its entirety, and firm-level variables, rather than more fine-grained and targeted parameters, should then be utilized in the study.

SECOND GUIDELINE: CONTEXTUALIZE FULLY THE HYPOTHESIZED LINKAGES BETWEEN A DC AND (DESIRED) OUTCOMES

Researchers must distinguish between the explanatory power of the DC framework in generic terms versus in specific contexts, and they should emphasize the latter in their empirical work. At the generic level, systemic radical change in the business environment may require an unrelenting focus on highly entrepreneurial sensing, seizing and transforming, meaning that ‘more is always better’, perhaps subject to some broad qualifications. However, in focused empirical work and in the usual narrow empirical contexts within which IB scholarship is conducted, usage of the DC framework will ordinarily be driven by a well-defined technological or societal trend, or a specific demand-side change, or a significant pattern in industry evolution, or a particular type of external crisis, etc. This means that all recommendations on designing the three base-processes underlying DCs (sensing, seizing and transforming) and the overarching meta-process should be properly contextualized, whereby the principle of equifinality should also be recognized. Different expressions of the visible hand of senior management could lead to equivalent performance outcomes.

In this realm, an empirical study based on DC theorizing cannot solely be a study of explaining past success, whereby any observed success is interpreted as a firm commanding a DC, whereas failure almost by definition reflects the absence of a DC. Such an approach will invariably lead to ex post rationalization, a type of ailment that has unfortunately infected much contemporary research in strategic management, especially since the rise of the resource-based view of the firm. Credible causal mechanisms must be described, and boundaries must be established ex ante, as to why and where it would be both efficient and effective to invest in specific processes of sensing, seizing and transforming, in order to achieve particular actionable outcomes. Such observed or hypothesized outcomes could include becoming a dominant market player in a foreign region of the world, achieving superior growth or financial returns abroad over prolonged periods of time, gaining access to coveted strategic inputs in a foreign market to launch a novel end-product, etc. As we will discuss later, the desired outcome that researchers focus on can in some studies be very specific, such as achieving a better balance between global integration and national responsiveness, preserving requisite stability when expanding internationally, or becoming a ‘greener’ MNE.

The DC framework should thus not be used to compare two firms or sets of firms, one having been clearly successful and the other clearly unsuccessful in terms of an outcome variable viewed as important, and then to rationalize ex post this differential performance outcome as the ‘obvious’ result of the presence or absence of a DC (or strength of such DC). Such an approach would amount to circular or tautological reasoning.

Furthermore, the three-plus-one processes do not unfold in a vacuum but need to be considered in the environmental context at hand. The possibility should be considered that too much investment in – or strategy focus on – the radical change in the base-processes by the visible hand of senior management, if unwarranted, could lead to disaster. For instance, an extraordinarily weak performer in terms of the evolution of the market price of its stock could have, at least on paper, a strong DC with highly change-oriented three-plus-one processes, as illustrated by the case of General Electric (GE) during the tenure of Jeff Immelt as of 2001, when the firm lost 80% of its market capitalization. In that era, GE’s senior management largely continued the firm’s prior trajectory of systematically adding new assets and businesses, and shedding other ones, to maintain an optimal ecological fit at the global level. Several proclamations by the CEO during this period, including in prestigious business outlets, suggested an unrelenting focus on entrepreneurial change through sensing, seizing and transforming, and the heralding of this approach as the sole viable path towards sustained success, whereby even strategy scholars were taken in, see for instance Immelt et al. (2009). However, the visible hand of senior management promoting continuous radical change across the board proved catastrophic for this company with businesses active in very different industry environments. There was a meta-process in place with the CEO traveling around the world to sell his vision of the company, both internally and externally, but the firm’s DC, if viewed from the perspective of the equity shareholder, ultimately proved to be an illusion, because the net of systemic radical change was cast too wide, as demonstrated by the disastrous financial outcomes for the company. A DC stands or falls with execution, and effective execution presupposes proper contextualization, whereby in this case continuous adaptation should have been balanced with much-needed stability in some of the firm’s businesses.

Processes that facilitate continuous organizational adaptation may thus not always be recommendable across the board, e.g., in more stable environments where a large number of the firm’s activities may be residing (cf. the units viewed as ‘cash cows’ in conventional strategy portfolio analysis or logistics activities aimed to ensure cost-efficient and reliable supply at the input and output sides). Hence, even the capacity to engage in radical innovation is not intrinsically a DC. Such capacity must be deployed judiciously, not indiscriminately, and could be important primarily for risk mitigation purposes, meaning: ‘just in case’ or ‘deploy if everything else fails', a context in which such capacity could then be hypothesized to reflect a DC.

Our second guideline is therefore that IB empirical research should describe accurately or hypothesize ex ante, and in an unambiguous fashion, specific relationships between the presence of clearly identifiable three-plus-one processes on the one hand, and particular outcome variables on the other. Such observation or hypothesizing should always occur for well-defined technological, industry, demand-side and institutional contexts, and given both a well-understood reservoir of initial resources available to the firm and a series of broader environmental conditions. The deployment of particular three-plus-one processes, arguably leading to better outcomes for the firm than in the absence of such processes, can then be credibly analysed within the well-defined context at hand.

THIRD GUIDELINE: ‘MEASURE’ CREDIBLY THE DC INVESTIGATED AND ITS SUB-CAPABILITIES

The processes underlying an MNE’s DC may be more difficult to measure than stand-alone FSAs, such as patents, brand names, or features of the top management team and Board of Directors, etc. Stand-alone FSAs of the valuable, rare, inimitable, and non-substitutable (VRIN) type as well as bundles of VRIN-type FSAs have often been measured in IB research, but these measures do not explicitly cover the processes underlying or representing a DC. The same holds for the many studies that have measured the impact on desired outcomes of higher-order FSAs, such as idiosyncratic ownership and governance structures, the organization’s systems and culture, and more narrowly circumscribed managerial practices, routines, institutional linkages, and relationships.

It is more challenging to measure the core features of a meta-process overarching the entirety of a series of sensing, seizing and transforming processes considered relevant, and to establish the precise causal mechanisms between these three-plus-one processes and some observed or hypothesized outcome effects in international markets. Even a best-practice-in-industry does not necessarily equate to a DC and to an ecological fit with a changing environment. A large body of research in IB, spanning several decades, has demonstrated that pure repeatability plays are the exception when doing business across borders, and that some form of resource recombination beyond an extant best practice is typically required to be successful.

Perhaps paradoxically, a Williamsonian approach, comparing discrete structural alternatives in the realm of sensing, seizing and transforming, and comparing especially discrete meta-process features that guide these three base-processes and drive outcomes, may be more productive than attempts at measuring in a marginalist fashion the impact of small differences in the three-plus-one processes on outcome variables (Willliamson, 1996).

If the DC paradigm is to have distinct value added in empirical research beyond that provided by mainstream IB theories, which also predict linkages between an internationally operating company’s FSAs and a variety of outcome variables, it must almost by definition account for discrete features of the three-plus-one processes that drive observed or hypothesized impacts on outcomes, as compared to processes with different discrete features. The DC lens must also highlight how features of the meta-process guide the functioning of – and interactions between – the three base-processes, and it must credibly predict some impact on outcomes.

Three recent empirical contributions in IB shed light on this ‘measurement’ issue. Grøgaard et al. (2022), in their study of a Norwegian telecom MNE with a legacy of decentralized operations (though lacking strong location-bound FSAs in subsidiaries), observed the need for more global integration to achieve an ecological fit with the rapidly evolving industry environment after 2000. Given this external context, the study’s scope did not cover the firm’s overall strategy and structure, but focused instead on within-firm interactions and especially the tensions between the head office and foreign subsidiaries. It competently captured the meta-process overarching the three base-processes of sensing, seizing and transforming within this relatively narrow internal context, and the ways in which these three base-processes were orchestrated by the visible hand of senior management. Here, head office managers first legitimized the types of sensing activities, and thus dynamic sub-capabilities, that would serve global integration. They did so through motivating subsidiary managers, tangibly through introducing new incentives, a narrative consistent with the classic process model of organizational change in MNEs (Verbeke & Lee, 2021). The broader implication for measuring the meta-process itself is that incentives are required to stimulate those types of sensing hypothesized to have positive effects on outcomes. Economic actors inside the organization will only engage in ecosystem-fit hypothesized sensing if they can be convinced that tangible benefits can materialize as a result, including benefits for themselves that are related to the improved outcomes.

The sensing activity itself could thus be measured directly as a dynamic sub-capability by the investment or effort in gathering pre-determined types of intelligence viewed as instrumental to positive outcomes in the international business sphere. In the external and internal contexts described in detail by the authors, a good proxy to measure the overarching meta-process, i.e., the actual DC that drives sensing, consisted of the incentives that the head office introduced in the MNE to achieve the desired sensing. Such incentives can simultaneously also redirect the importance attached to seizing particular opportunity categories, i.e., those supposedly most aligned with achieving an ecological fit. In this case, the desired seizing, as a dynamic sub-capability, was measured on the one hand by asking foreign subsidiary managers about their responsiveness to customer needs, and on the other by inquiring with customers about the MNE’s responsiveness to their needs. As to transformation, the existing organizational structure and managerial practices did not require a wholesale adaptation, and, with the correct incentives in place, these organizational features could apparently even be leveraged to contribute simultaneously to global integration and more effective national responsiveness. However, as a complement to such leveraging, the meta-process included launching targeted organizational interventions, such as introducing new units aimed at achieving international synergies, the filling of key positions in subsidiaries with knowledgeable expatriates, and a range of narrowly focused integration initiatives. Impediments to rapid change in the existing organization included legacy practices and systems (such as a ‘patchwork’ of IT systems across borders) and limited managerial capabilities at the head office. This last point highlights that substantial variation can exist as to the strength of a firm’s DC, and that there is no ‘present’ versus ‘absent’ (or 1 vs. 0) dichotomy.

Overall, the study showed the presence of a higher-order meta-process in this well-contextualized setting of a telecom MNE that drove the three base-processes and the dynamic sub-capabilities found in them. This DC could be assessed qualitatively as a configuration of relatively simple variables injected in the three base-processes, especially the incentives to legitimize specific types of sensing and seizing, the better utilization of the existing organizational structure and managerial practices, and the launch of narrow, targeted interventions to drive transforming where considered useful. As to performance outcomes, this exploratory study focused primarily on creating over time an organization with features hypothesized to better match its new business environment. Quantified performance outcomes, e.g., in terms of improved international growth, market share, or profitability were not the focus of this study.

A large-scale quantitative empirical study focused on such outcomes would likely require a prior exploratory and highly contextualized analysis, such as the one that Grøgaard et al. (2022) conducted, to determine which relationships could reasonably be hypothesized between the visible-hand interventions measuring the MNE’s DC, i.e., the meta-process affecting each of the three, interrelated base-processes on the one hand, and the chosen outcome variables on the other. It is this overarching meta-process guided by senior management, and not individual variables, that ultimately determines outcomes. If a smaller-sample study were undertaken, the adoption of research methods such as qualitative comparative analysis, would be appropriate. Such a configurational approach would permit a more fine-grained description of the need for clusters of interventions in the sensing, seizing and transformation processes, consistent with Teece (2014).

Arikan et al. (2022) shed more light on how to measure DCs in an unusual context, namely that of ‘authentic’ firms. These are typically family-owned businesses that build on strong heritage assets and have a very distinct corporate culture. These companies may have been in business for hundreds of years, and they view their existing structure and managerial practices as worthy of preserving. High-quality products, precision in manufacturing and unique craftmanship characterize these companies. These craft-oriented firms are more interested in stability and long-term survival than in international growth per se.

Here, the firm’s DC was again the overarching meta-process reflecting the visible hand of the firm’s senior management. This DC steers specific sensing, seizing and transforming activities. It guides international expansion and the success thereof, in this study in a somewhat unexpected fashion, unexpected at least for scholars who think that a DC is about unfettered firm-level change in the face of environmental dynamism. The external context of this study was one with little radical change over time, but with potentially salient differences between the domestic and international markets. The study’s scope did not cover the firms in their entirety but focused on their international activities.

As noted above, authentic firms do not value international growth per se, but are willing to engage with it as a low risk complement of extant heritage activities at home. Desirable international growth opportunities that were sensed and seized were those not requiring any fundamental change in the heritage activities that had remained successful over a period of decades or even centuries, with any past change having been largely incremental. In this type of context, the sensing (as a dynamic sub-capability) was narrowly targeted and geared towards international customers very similar to the existing customer base. The seizing of opportunities in terms of international diversification (as another dynamic sub-capability) was also narrow, and included only those expansion options where a demand-pull was present, aligned with the existing high-quality offerings of the companies (as is the case with some luxury goods for which there is global demand). Preference was given to those international locations and investments that could act as a buffer against fundamentally changing the extant organizational structure and managerial practices.

As to transforming and the dynamic sub-capabilities identified there, the authentic firms acted upon a clear preference for internalization of international production activities with the easiest possible transfer of non-location-bound FSAs. In those cases where complementary resources of external actors were required, the authentic firms would prioritize the opportunities permitting the most complete possible ex ante contracting with partners, i.e., contracts with the lowest foreseeable requirements for ex post adaptation. In these types of cases, international growth combined with stability, measured as minimal adaptation internationally and as the absence of volatility in returns, could be viewed as key performance variables.

The case of authentic firms again highlights that the DC held by any of these companies is the visible hand of senior management (past and present) in the form of a meta-process. This meta-process consists of orchestrating three interrelated sub-processes, each with its own dynamic sub-capabilities: a very narrow sensing of international opportunities; an extremely selective and focused seizing of opportunities, limited to those that will buffer existing operations; and ultimately the minimizing of requisite organizational transformation, whereby the extant organizational structure and managerial practices are preserved as much as possible. The performance outcomes of this DC in the narrow domain of international expansion lie paradoxically in firm stability and longevity, i.e., the ability to be successful internationally while reducing where possible requisite adaptation levels, rather than obtaining superior growth or profitability rates, or a maximum level of change.

As in the first study described above, the focus was not on outcomes in terms of conventional performance variables used in the strategy literature. The analysis of authentic firms focused on the nature of international growth patterns. If this exploratory study were used as a platform for larger-scale empirical analyses, one avenue for research would be to hypothesize that authentic firms pursuing the ‘minimal adaptation’ (or ‘maximum preservation’) strategy will perform better on stability and longevity measures than those where senior management engages proactively with broader and more challenging international opportunities. Initial resource reservoirs and conventional FSAs measured in the strategy literature should then also be used as independent variables, or at least as moderators, to assess whether and when a meta-process emphasizing preservation as part of an international growth strategy might lead to significantly better outcomes and therefore could reasonably be viewed as a DC.

In a third study, Maksimov et al. (2022), using a large cross-country sample of MNEs, selected a narrow internal scope for identifying DCs, namely the realm of MNEs’ capacity to execute on reducing their environmental footprint. The external context was that of the 2002–2013 period across multiple industries and countries, when greening was not yet an essential component of most MNEs’ strategic management as compared to the situation a decade later.

The authors defined sensing that would reflect a dynamic sub-capability in this internal context as gaining knowledge about salient parameters relevant to greening, inter alia environmental regulations, technologies and actions of several stakeholders (customers, suppliers and rivals) to which each firm would then have to respond. Seizing from a dynamic sub-capability perspective was ultimately driven by knowledge permitting the selection of those greening projects and the timing thereof that were most efficient for each firm, given the extant resources reservoir and potential for complementarities between extant resources and new investments. Seizing also involved working with external partners who commanded essential complementary resources. Finally, transforming and the related dynamic sub-capability in this study were about specific paths towards adapting especially organizational structures and systems, given the need for complementarity between existing and new knowledge bundles.

The outcome variable in this case was the extent to which a firm could be considered to have a stronger dynamic capability process in achieving ‘greening’, whereby the largely sequential nature of executing effectively in each of the three base-processes was considered essential. The actual DC in this case could be qualified as the ‘visible hand of learning’ whereby senior management in more internationalized and developed-economy MNEs (as compared to less internationalized firms from emerging economies) was predicted to perform better in green knowledge creation and in the transfer of this knowledge across the three base-processes and across geographic space. Ultimately, the DC was again the meta-process that in this case generated and capitalized on greening in each of the three sequential base-processes. The key measures were all taken from the Thomson Reuters ASSET 4 database, and an instrument variable approach made sure that the sequential linkages between the strengths observed in the three base-processes were not endogenous.

The above analysis leads to our third guideline for IB empirical research, which is that the measurement or assessment of the three-plus-one processes, as well as their impact on outcomes, can take many forms. It may be helpful to first identify what can reasonably qualify as dynamic sub-capability in each of the three base-processes separately. Some empirical studies may limit themselves to just sensing and seizing if the time period considered is too short to observe and assess credibly actual processes of organizational transformation in the firm, or if the transforming itself is secondary to changes in sensing and seizing. The empirical work should be aligned closely with the scope of the analysis in terms of what part of the firm is covered (first guideline), and with the external context considered (second guideline), so that the readership (scholars or practitioners) would understand the difference between one firm commanding a DC and another lacking it, or between one firm with a strong DC and another with a weaker one in those well-defined internal and environmental contexts. In some studies, the DC itself – meaning the meta-process steering what occurs in the three base-processes where dynamic sub-capabilities are located – may only be considered as part of the background narrative, but ideally there should be a direct measure or assessment of senior management’s visible hand driving the three base-processes and the interactions among these processes, and ultimately affecting the outcome variables viewed as relevant.

CONCLUSION

The mainstream IB and DC lenses to analyse international business activities have sometimes been viewed as rivals rather than complements, especially given mainstream IB theory’s partial focus on efficient governance. However, as we have shown in the above analysis, the DC lens could simply be viewed as one more toolbox that IB researchers can deploy when they conduct process-oriented studies. We describe the essence of this toolbox in Figure 1.

Figure 1

Making dynamic capabilities thinking in IB research.

The three-plus-one processes approach advocated by Teece and his co-authors (left side of Figure 1) is clever, at least if the researcher conducting empirical work can avoid circular reasoning and ex post rationalization. This requires special attention to internal scope, external context and acceptable measurement (central part of Figure 1). Especially when focusing on a narrow scope of activities within the internationally operating firm’s overall activity portfolio, and by providing adequate detail about this firm’s environmental context, the likelihood of meaningful analysis substantially increases. What perhaps matters most is to avoid word salads, whereby other researchers and managers ultimately cannot easily understand how and why the processes at hand and their outcomes are measured or assessed in particular ways.

Adopting a simple heuristic can help to avoid this problem (right side of Figure 1): the researcher must carefully define the structure, critical features and boundaries of each of the three base-processes and should also credibly suggest what constitutes a dynamic sub-capability in each of these. The ‘plus one’ process reflects the visible hand of senior management, i.e., the DC that drives the three base-processes, as well as the linkages between them, and the ultimate impact on one or more outcome variables considered relevant. This heuristic will be viewed by some as too modest and lacking in ambition for the DC research agenda. However, the heuristic does provide a distinct and significant contribution to the field of IB studies, and therefore represents a welcome complement to extant theorizing on resource orchestration across borders.