Dynamic Capabilities and the Multinational Enterprise

Abstract

Contemporary theories of the MNE have made limited progress in explaining interfirm heterogeneity. A fuller explanation should account for the uncertainties that firms face about market demand and about the costs of competing organizational alternatives. One approach is to allow a role for entrepreneurial managers who assess uncertainties on an ongoing basis and make non-routine decisions that create unique paths for the organizations they lead. This paper presents the dynamic capabilities framework, a multidisciplinary approach to analyzing the characteristics of individual firms and the sources of firm-level competitive advantage. Dynamic capabilities encompass the non-routine actions of entrepreneurial managers and the creative output of a firm's expert talent. These capabilities are also embedded in "signature" organizational routines and processes rooted in an organization's unique history. A dynamic capabilities approach supports a richer understanding of the distinctive characteristics of MNEs. A case study is presented that shows how the exploration division of a large multinational oil firm introduced capability awareness into the management of its global staff of geophysicists.