The Virtues and Limitations of Dynamic Capabilities

Dynamic capabilities have been identified as a key determinant of competitive advantage. This paper explores the foundations of dynamic capabilities, and the limits to their effectiveness, first theoretically and then through the case of Danaher, the most successful US conglomerate for over three decades. Limitations of dynamic capabilities include that they (a) can be substitutable and (b) embody strategic choices themselves. The Danaher case, an exemplar of dynamic capabilities, illustrates how dynamic capabilities require long-term commitments in order to be effective, involve a set of choices that are closely tied to others made by the firm, and embody tradeoffs that imply that investments in any particular dynamic capability may be inconsistent with acquiring new ones.