By Bryan Leach, P. Eng.
Consulting engineers address need to adapt to changing timesBusiness & Professional consulting engineering management
In today’s dynamic business environment, an organization’s dynamic capabilities are the source of its competitive advantage. In a paper published in the Strategic Management Journal, researchers from Stanford University define dynamic capability as a “firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments.”
In a knowledge-based economy, an organization’s competencies that are valuable, rare, impossible to copy and non-substitutable form the basis of a sustainable competitive advantage in the market place.
These competencies (intellectual capital) are made up of the organization’s human capital (the skills and knowledge of its people), its structural capital (patents, processes, databases, networks, etc.) and its customer capital (relationships with customers and suppliers).
Accordingly, the potential for an organization’s competitive advantage lies in it using its dynamic capabilities more quickly, more astutely, or more fortuitously than the competition to create configurations of its competencies that have advantage.
In another Journal article, eight dynamic capabilities listed under three major categories (Integration of Resources; Reconfiguration of Resources; and Gain and Release of Resources) are identified.
In an exercise to review the application of these organizational dynamics within the consulting engineering industry, a preliminary assessment of the performance of the Canadian arm of an international consulting engineering company has been undertaken with respect to its use and application of the eight dynamic capabilities.
Nine senior members of staff, all with an excess of 30 years of service in the company’s operations, were asked to rate the company’s performance with respect to each of the eight dynamic capabilities on a five-point Lickert Scale (very poor, poor, fair, good and very good).
Their collective experience had encompassed management and technical leadership roles at local, regional, national and international levels.
In aggregate they rated the company as good overall with respect to all eight dynamic capabilities. The average rating for specific capabilities ranged from fair to good.
However, individual ratings of specific capabilities ranged from very poor to very good reflecting dramatically different perceptions of the company’s performance with respect to that specific capability.
Below, selected participant comments representing the upper and lower ratings for each of the eight dynamic capabilities reviewed are presented:
A. Integration of Resources
A-1. Product Development Processes (senior staff combining their varied skills and functional backgrounds to create new revenue-producing products and services, e.g. the development of specialized software/computer model(s).)
“The ‘right’ champion is needed to lead the initiative and then usually strongly supported by company. Long lead times are sometimes experienced. Effect on business can be rapid.” (very good)
“We tend not to make new products to sell, but rather follow the marketplace. We are very cautious about extending our service offerings.” (fair)
A-2. Strategic Decision-making (senior staff pool their various business, functional and personal expertise to make the choices that shape the major strategic direction of the firm, e.g. decision to move into a new market, technical or geographic area.)
“This has always been done in the company and resulted in its diversity and growth. The ‘right’ champion is needed to lead the initiative and then be strongly supported by company. Must be ‘core’ to the overall business.” (very good)
“We have struggled with execution of other strategic initiatives (detailed design) – perhaps because we have not been effective at pooling the right senior staff in planning and executing this and other strategic initiatives.” (fair)
B. Reconfiguration of Resources
B-1. Transfer Processes (senior staff use processes to replicate, broker, copy, transfer, and recombine resources, especially knowledge-based ones, within the firm, e.g. move personnel with specific skills to a different office/region to develop new business.)
“The process of transferring technical knowledge is part of the DNA of our organization. During last years, we started to share also organizational knowledge (how to do things) and commercial knowledge (who to sell what), but operational borders limit this.” (good)
“In terms of transferring people to effectively support the strategy and grow business we need to do better and are actively working to improve this. There appears to be a social trend that makes employees more reluctant to move for work.” (fair)
B-2. Coevolution Processes (senior staff connects webs of collaborations among different businesses, e.g. promote discussion between two or more technical disciplines to exploit new business opportunity.)
“This process is alive and kicking in our organization and with time from technical communities separated from sectors of clients we move toward ‘secunities’.” (very good)
“Improvement is required, though there has been significant progress. A silo (single discipline service) mentality is gradually being torn down. Success relies on people understanding the complete spectrum of what the company does and whom to contact.” (fair)
B-3. Patching Processes (senior staff realign the matchup of businesses (combine and split up) and their related resources to changing market opportunities, e.g. establish a multi-disciplinary group to focus on servicing the needs of a major client.)
“There is much discussion about the company’s operating model at the moment. This point suggests that any operating model ought to be an adaptable one.” (good)
“Our organization is very rigid in its structure and realignment of resources very difficult. Even today we do not have an enterprise system to manage resources.” (poor)
C. Gain and Release Resources
C-1. Knowledge Creation Processes (senior staff and others build new thinking within the firm, e.g. develop new approaches to business development, client relationship building or project management.)
“New thinking is quite developed, but the culture is based on an old model – where everyone needs to or can decide on everything, because engineers are born knowing everything. This creates an obstacle in the implementation of new thinking.” (very good)
“Everything is a struggle – Microsoft Dynamics, Project Management. Senior people tend not to be receptive to new processes.” (poor)
C-2. Alliance and Acquisition Processes (senior staff bring new resources into the firm from external resources, e.g. purchase a company with specialty skills, or set up an alliance with a company with complementary skills.)
“We have had some great successes, and some failures. Acquisition X is the best. But our main growth strategy is more though organic growth than acquisitions.” (good)
“The equation technical quality = technical excellence, technical excellence = superiority, superiority = arrogance, arrogance = isolationism, is well spread and damaging our organization. If I ignore enough, I can think I am good enough, and therefore it is hard for me to conceive that I can get 30% of a large opportunity if I team with others. Better to aim to have a 100%, even if the risk is to get 100% of nothing.” (very poor)
C-3. Exit Processes (senior staff jettison resource combinations that no longer provide competitive advantage as markets undergo change, e.g. close down and lay off people in a group for which there is no longer a market for their services.)
“Generally slow to respond in adjusting to changing conditions. However, during a recent downturn in a couple of operating regions there has been fast response. The company strives to keep ‘good’ people and relocate them to other regions that require staff resources.” (fair)
“I sometimes think we are much too quick to jettison some of our initiatives. We spend a lot on them, don’t support them well enough, and then consider them unsuccessful.” (fair)
A thematic analysis of the participants’ comments revealed four dominant themes:
- a strong tradition and track record of ‘bottom up’ approach to respond to changes in the marketplace;
- the need for more senior staff and management support for initiatives;
- operational and technical discipline silos are a barrier to the development and implementation of dynamic capabilities; as are
- the general conservatism and resistance to change of senior staff.
The three senior members of staff in a global role gave the company the lowest overall ratings (fair). In contrast, the three senior members in local technical discipline roles gave the company the highest overall ratings (good to very good).
This difference may reflect the challenges of applying dynamic capabilities across technical disciplines and across geographic boundaries. For a firm to maintain its competitive advantage in today’s rapidly changing environment leadership and management support are required to affect the exercise of a firm’s dynamic capability.
This support requires the leadership and management to articulate: 1) the purpose of integrating, building, and reconfiguring internal and external competences; 2) the picture of what the end product of this process will look like; 3) the plan of how it will be achieved; and 4) the part that senior individuals will be required to play.
How effective (good) is your firm’s dynamic ability to integrate, build, and reconfigure internal and external competences to maintain its competitive advantage in today’s rapidly changing environment? What barriers, if any, need to be overcome to improve your firm’s dynamic capability?
Bryan Leach is a Calgary-based retired P.Eng. (Alberta) and C. Eng. (UK), who now pursues his passions for “Helping Organizations Learn’ through his personal practice, Imparando Consulting.
- Eisenhardt, K. M. and Martin, J. A. (2000). Dynamic capabilities: what are they? Strategic Management Journal, 21, pp. 1105-1121.
- Teece, D. J., Pisano, G. and Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18/7, pp. 509-533.