Discontinuity in the Environment, Firm Response, and Dynamic Capabilities

Technological innovations, regulatory reforms, institutional overhauls, and socio-cultural developments create discontinuities in a firm's environment. They deny resources that it had depended on for its functioning, thus challenging its sustenance, or provide new paths for growth. The firm needs to respond to these discontinuities by anticipating them well in advance, creating options for change, choosing an appropriate option, and implementing it by reconfiguring its resources. The demands from the management in responding to discontinuities are unique. The response engages the management in processes like unlearning what is redundant, learning what is required in the new situation, and leveraging on whatever is relevant from the past. Such capabilities of ‘sensing’, ‘seizing’ and ‘reconfiguring’ have been referred to as ‘dynamic capabilities’ in the literature on strategic management. In this perspective, the authors propose a framework of interrelations among discontinuity in the environment, firm responses, and dynamic capabilities. The framework is illustrated by presenting the experiences of two companies: (a) R R Donnelley & Sons – from the printing industry, where the old heavy iron-based printing technology was giving way to digital printing and (b) Gramophone Company of India Limited (GCIL) – from the entertainment industry, where PVC as a medium for recording music and playing back. The two cases demonstrate: the need for the firm to challenge its own sources of success and be prepared to face discontinuities the need for sensing the change, seizing the opportunity, and shaping the responses (re-configuring). the adaptive response through capabilities of sensing scenarios and preparing for the response. This perspective not only urges managers to explore the relevance of the proposed interrelations framework but also to think through the possible sources of discontinuities in their environment, and develop capabilities to visualize the implications and accordingly engage in the reshaping process to make itself relevant to the environment once again.