The Concepts of Management Practices and Dynamic Capabilities

The Concepts of Management Practices and Dynamic Capabilities

Does the utilization of updated management practices lead to enhanced organizational productivity? The current debate revolving around this question is imperative in both research and academic circles. While some scholars attribute these activities to sustained growth, others believe that they sometimes lead to an organizational decline or failure (Brito & Sauan 2016, p. 3). These divergent opinions highlight the disproportionate influence of different operationalization practices and non-controlled content on performance. In essence, they underscore the need for further empirical studies to comprehend the correlation between updated management practices and productivity. At the same time, the theoretical discourse has been intensifying over the years, thus challenging the significance of the resource-based model in accounting for performance heterogeneity at the organizational level (Brito & Sauan 2016, p. 3). Therefore, a critical review of the existing literature is necessary to comprehend the relationship between management practices and an entity’s output potential, growth, and decline or failure. The present paper contributes to this discourse by drawing on existing research papers to explore the association between these variables. [THIS IS NOT A THESIS. YOU MUST INCLUDE A THESIS STATEMENT]

The Concepts of Management Practices and Dynamic Capabilities

Evidence from financial data collected from various companies across the world highlights the critical role of management practices in determining a corporation’s competitiveness. Organizations differ significantly in practices such as setting targets and grooming talents. These disparities have been attributed to varying performance levels, with firms implementing innovative managerial processes reporting better outcomes on high-level metrics such as productivity, profitability, and longevity (Sadun, Bloom, & van Reenen, 2017, p. 122). From an analytical purview, this correlation can be linked to the conceptualization of management practices as dynamic capabilities. Management scholars have offered varied definitions for the term “capability.” Winter (2000) views an organizational capability as “a high-level routine (or a collection of routines) that, together with its implementing input flows, confers upon an organization’s management a set of decision options for producing significant outputs of a particular type” (p. 983). This definition indicates multiple aspects that require further consideration and discussion.

Firstly, it suggests that capability must be relevant to the organization. Secondly, a capability denotes a certain degree of visibility and attention. Thirdly, organizational routines require specific resources to yield the anticipated outcomes. Moreover, Winter’s conceptualization suggests the existence of multiple levels of capability. Consequently, heterogeneity may result from diverse capabilities as well as different degrees of these capacities (Brito & Sauan, 2016, p. 4). Overall, the concept of dynamic capabilities has increasingly become a significant area of focus in organizational management circles.

The concept of management practices has also gained popularity in contemporary organizational operations discourse. Management practices delineate a set of practices geared towards achieving better outcomes. They include aspects such as quality management, market orientation, and strategic management (Brito & Sauan 2016, p. 4). In principle, the implementation of specific management practices is a complex process that entails multiple steps. Worth noting is that the application of management practices is not straightforward; it involves adaptation as well as new learning and innovation (Jacobides & Winter 2012). The complexity notwithstanding, such exercises play a critical role in an organisation’s performance. When an entity implements these practices, they are considered as capabilities at the initial level of growth with varying degrees of specificity (Brito & Sauan 2016, p. 4). Thus, management practices entail all the critical attributes of a capability.

The Impact of Management Practices and Capabilities on Firm Performance

Management practices and capabilities have been shown to be essential in sensing opportunities and addressing potential threats. In the current highly competitive global business environment, consumer needs, technological possibilities, as well as competitor activities, constantly change (Teece 2007, p. 1322). When opportunities arise, they open up for both existing firms and newcomers, hence threatening the profitability streams of the former. Projecting potential trajectories and responding apppropriately is critical to gaining a competitive advantage. While some opportunities are easily recognized, others are hard to discern (Teece 2007, p. 1322). Therefore, firms that successfully identify and capitalize on new opportunities early than others are likely to gain the upper hand.

Corporations detect opportunities through two broad channels. Firstly, they can sense emerging trajectories through existing information and, secondly, through new information and knowledge (Teece 2007, p. 1322). Collectively, these alternatives underline the need for constant scanning, searching, and exploration of multiple sources of information to identify trends that may improve or undermine organizational performance. Opportunity identification not only entails investment in research activity and the probing of customer demands, but requires organizations to comprehend the latent demand, structural evolution of sectors, and the prospective responses by competitors and suppliers (Teece 2007, p. 1322). Undoubtedly, the ability to spot an opportunity is vital in designing appropriate interventions. While rivals may equally sense a chance, they might not calibrate it consistently. For this reason, an organization can outperform its competitors, provided it invests accordingly in various opportunity detection technologies available in the market.

Scholars have also linked dynamic capabilities to opportunity seizing. The detected fortuities must be adequately exploited to gain a competitive edge. Optimizing on opportunities entails maintaining and improving technological competences and complementary assets as well as investing heavily in specific technologies and designs that have the potential to augment marketplace acceptance (Teece 2007, p. 1327). Alternatively put, early market entrance is paramount, especially in cases where network externalities are present. Maintaining a market lead ensures that an organization establishes itself as the favourite brand among consumers. Nevertheless, achieving this milestone requires entities to develop specific capabilities, notably, strategizing around investment decisions, getting the timing right, and leveraging offerings (Teece 2007, p. 1327). However, enterprises face numerous uncertainties when making decisions. Besides determining where, when, and how much to invest, they must also create a specific business model that describes the core commercialisation approach as well as the investment priorities (Teece 2007, p. 1327). Overall, the efficient exploitation of new opportunities requires companies to embrace innovative approaches.

The available evidence depicts a correlation between organizational performance and innovation. At the enterprise level, the invention and implementation of business success require the development and adoption of physical technologies (Nelson 2005). In the practical business world, an enterprise may sense an opportunity but still fail to invest accordingly. This prospect is likely in instances where the management lacks an appropriate business model and fails to embrace innovative strategies. Particularly, decision-makers’ tendency to avoid uncertainty often leads to missed opportunities. As posited by Teece (2007, p. 1328), a majority of policy-makers tend to discount outcomes that are probable as compared to those they perceive as guaranteed. In effect, this scenario contributes to excessive risk aversion, especially in situations where choices entail prospective losses. However, this decision-making approach can undermine innovation since it encourages firms to invest heavily in low or negative return projects. Thus, investing in appropriate capabilities enables businesses to take advantage of new opportunities.

Scholars have further linked management practices and dynamic capabilities with threat management. As a firm continuously identifies and exploits opportunities, it achieves enhanced organizational growth and profitability (Teece 2007, p. 1335). Nonetheless, to attain sustainable development, managers ought to adequately respond to emerging threats, both within and outside the enterprise. Effective management leadership qualities are required to sustain dynamic capabilities, especially semi-continuous asset orchestration and corporate renewal (Teece 2007, p. 1335). These capabilities are critical in augmenting profitability. Achieving enhanced levels of profitability require semi-continuous efforts to create, manage, and adjust the complementarity of a company’s products (Teece 2007, p. 1335). In this sense, firms are expected to equip themselves with relevant capabilities to respond to challenges in specific business segments. For instance, emerging trends in the market may render a company’s systems obsolete. Hence, such threats require a swift managerial response to ensure survival.