Prof. Dr. VeitWohlgemuth
of Applied Sciences HTW
THE TENSION BETWEEN DYNAMIC CAPABILITIES AND PATH DEPENDENCE: EFFECTS OF STAKEHOLDER MANAGEMENT
Dynamic capabilities, an organization’s “capacity […] to purposefully create extend or modify its resource base”[15: 1] appear to be highly relevant to maintaining a competitive advantage. The concept of path-dependence can be characterized as complementary, but opposite to dynamic capabilities, namely the firm’s inability to adjust but rather to stabilize processes and routines based on prior events and decisions . Somewhat surprisingly, research focused on dynamic capabilities only rarely draws on insights from the organizational path-dependence literature (e.g. ). This might however be supportive as the concept of dynamic capabilities is not fully developed yet and progress could lead to major breakthroughs in research and practice . We intend to merge the conversations by investigating the purposeful effort of organizations to position themselves in a continuum between the two extremes of total adaptability and a lock-in situation. In our paper, we argue that stakeholders might play a crucial role as they heavily influence organizational sense-making and the goals pursued . Our specific research questions are: 1) How and to what degree does the common purpose, shaped by stakeholders, affect the organization’s position in the continuum between a dynamic or path-dependent direction? and 2) How can an organization purposefully change its positioning through the active stakeholder management?
Our understanding of dynamic capabilities is influenced by Weick’s work on flexibility and common purpose. Following his outline, total flexibility of an organization is unlikely to exist for long as it has a disruptive effect on the organization. Instead, even a generally flexible structure must entail some stable elements that create a sense of continuity and identity needed to maintain the organization and give direction to employees. This might for example be a shared purpose or vision that influences behaviors and preferences . Nevertheless, the common purpose might also be a boundary condition for dynamic capabilities. Everything beyond the common purpose might either be a strategic blind-spot or, in case it is considered, it might risk the organization’s survival by jeopardizing the shared ground. Despite conceptualizations in the literature that point towards a more or less universal adaptability (e.g. ), we therefore hold the view that adjusting to every situation is more of an ideal state at the end of a continuum rather than a real life phenomenon. To be clear, we still argue that an organization can come very close to that ideal. However, instead of attributing dynamic capabilities in empirical research, which has been criticized as unfeasible by Arend&Bromiley, we suggest attributing degrees of proximity to fully effective dynamic capabilities.
The lock-in situation described in the path-dependence literature, whereby an organization becomes unable to change or adjust due to prior specialization and a time-dependent, gradually reduced scope of action , could be placed at the opposite end of this continuum. Ceteris paribus, the common ground arises and is confirmed among all involved actors, and group think could be a consequence . Behavior “outside the box” would be disruptive and the organization is hence “locked in.”
Nevertheless, the purpose of an organization is not necessarily stable itself, but it can be subject to change . What creates and changes the common purpose and the goals of an organization lies therefore at the very heart of the flexibility/rigidity debate. Stakeholders create and give meaning to organizations (e.g.) and might be a crucial driver of an organization’s common purpose. From a stakeholder theory perspective, a firm can be described as "an organizational entity through which numerous and diverse participants accomplish multiple, and not always entirely congruent, purposes” [9: 70]. Thus, objectives that are commonly desired among stakeholders define the purpose of an organization. Stakeholders are however not equally powerful as not all of them provide critical resources to the organization , legitimize their activities , or strongly affect their success (see e.g. ). Powerful stakeholders can serve as facilitators and even as a source for innovation , but might also demand isomorphic behavior .
Our paper is designed as a discussion paper. We plan to first discuss how stakeholders can influence the common purpose resulting in a more or less extended scope of (legitimized) action and how this could be tested empirically. We thereby draw on the path-dependence and dynamic capability literature to merge the research conversations and expose what they respectively might have left unexplored so far. Moreover, we assess how stakeholder management such as the identification of, as well as the communication and negotiation with most relevant groups, might serve as a tool for organizations to influence the common purpose  and navigate internal capabilities into a more dynamic or more path-dependent direction. Both directions are possible. To provide an example: Innovative organizations can use communication tools such as discussion platforms, opinion surveys, or stakeholder dialogues to capture environmental signals early. These inputs can serve as a valuable source for the organization’s sensing . A proactive stakeholder management therefore appears to avoid path-dependence and support dynamic capabilities. However, as interests among stakeholders differ, some might not be willing to adjust and seizing procedures  can become prolonged and complex. Organizations tend to prioritize interests here due to resource-dependence , stakeholder power , or inertia. A consistent prioritization of stakeholders, in turn, limits dynamic capabilities and is more likely to lead to path-dependence.
We seek to contribute to the dynamic capabilities literature by explaining the role of stakeholders as potential drivers for but also possible opponents to the development of dynamic capabilities. Investigating stakeholder management as an instrument to change an organization’s position from being rather path-dependent to being rather dynamic might provide an additional microfoundation to the literature on dynamic capabilities, which desperately seeks studies to resolve debates on the foundations of the construct . A better understanding of the relationship between stakeholder management and organizational purpose might also be valuable for practitioners that are willing to develop dynamic capabilities and stay off the beaten path. Nevertheless, we also emphasize that managers should be aware of the fact that overambitious flexibility may threaten the organization’s survival by jeopardizing the common ground.
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