The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difficult-to-trade knowledge assets and complementary assets), and the evolution path(s) it has adopted or inherited. The importance of path dependencies is amplified where conditions of increasing returns exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding internally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing internal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants.

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An expanded paradigm is needed to explain how the competitive advantage of firms is gained and held. Firms resorting to ‘resource‐based strategy’ attempt to accumulate valuable technology assets and employ an aggressive intellectual property stance, but winners in the global marketplace have been firms demonstrating timely responsiveness and rapid and flexible product innovation, along with the management capability to effectively coordinate and redeploy internal and external competences. This source of competitive advantage – dynamic capabilities – emphasizes two aspects: first, it refers to the shifting character of the environment; second, it emphasizes the key role of strategic management in appropriately adapting, integrating, and re‐configuring internal and external organizational skills, resources, and functional competences towards changing environment. Researchers have only recently begun to focus on the specifics of developing firm‐specific capabilities and the manner in which competences are renewed to respond to shifts in the business environment; the dynamic capabilities approach provides a coherent framework within which to integrate existing conceptual and empirical knowledge, and facilitate prescription. This paper (1) argues that the competitive advantage of firms stems from dynamic capabilities rooted in high‐performance routines operating inside the firm, embedded in the firm's processes, and conditioned by its history, and (2) offers dynamic capabilities as an emerging paradigm of the modern business firm that draws on multiple disciplines and advances; industry studies in the Untied States and elsewhere are used as examples.

for feedback on earlier versions of this paper. The comments and suggestions of Joe Porac and three anonymous reviewers greatly improved the paper.This paper reports on a qualitative field study of 16 hospitals implementing an innovative technology for cardiac surgery. We examine how new routines are developed in organizations in which existing routines are reinforced by the technological and organizational context. All hospitals studied had top-tier cardiac surgery departments with excellent reputations and patient outcomes yet exhibited striking differences in the extent to which they were able to implement a new technology that required substantial changes in the operating-room-team work routine. Successful implementers underwent a qualitatively different team learning process than those who were unsuccessful. Analysis of qualitative data suggests that implementation involved four process steps: enrollment, preparation, trials, and reflection. Successful implementers used enrollment to motivate the team, designed preparatory practice sessions and early trials to create psychological safety and encourage new behaviors, and promoted shared meaning and process improvement through reflective practices. By illuminating the collective learning process among those directly responsible for technology implementation, we contribute to organizational research on routines and technology adoption.0 gy adoption process broadly into encompassing temporal stages. Between these two approaches to studying technolo-687/ASQ, Decemnber 2001 * Enroll team practice * Risk censure * Review data sessions * Attempt new * Participate in

This paper examines how two sources of transaction costs, smaM-numbers-bargaining hazards and appropriability concerns, may affect established firnns' choices between in-house and external sources of R8tO when technological change shifts the iocus of R&D expertise from established enterprises to new entrants, and established firms face a make-or-buy decision for R&D projects. The relationships of other organizational characteristics to the R&D procurement decision are also considered. Hypotheses are tested with data on 92 biotechnology R&D projects that major pharmaceutical companies have sponsored either in-house or through external contractual arrangements. The results suggest that small-numbersbargaining problems motivate firms to internalize R&D. Evidence is also found that a firm's R&D experience, its dependence on the pharmaceutical business, and its national origin affect R&D procurement decisions.*