This paper elucidates the underlying economics of the resource‐based view of competitive advantage and integrates existing perspectives into a parsimonious model of resources and firm performance. The essence of this model is that four conditions underlie sustained competitive advantage, all of which must be met. These include superior resources (heterogeneity within an industry), ex post limits to competition, imperfect resource mobility, and ex ante limits to competition. In the concluding section, applications of the model for both single business strategy and corporate strategy are discussed.

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The microfoundations of dynamic capabilities have assumed greater importance in the search for factors that facilitate strategic change. Here, we focus on microfoundations at the level of the individual manager. We introduce the concept of "managerial cognitive capability," which highlights the fact that capabilities involve the capacity to perform not only physical but also mental activities. We identify specific types of cognitive capabilities that are likely to underpin dynamic managerial capabilities for sensing, seizing, and reconfiguring, and explain their potential impact on strategic change of organizations. In addition, we discuss how heterogeneity of these cognitive capabilities may produce heterogeneity of dynamic managerial capabilities among top executives, which may contribute to differential performance of organizations under conditions of change. Finally, we propose possible directions for future research.

"Organizational agility" is often treated as an immutable quality, where it is implied that firms need to be in a constant state of transformation. But such advice ignores that changes and transformations, while often essential, come with a cost, are not always necessary, and may not even be possible. Our approach is to explore agility at a more fundamental level and relate it more specifically to dynamic capabilities. We find it essential to first understand deep uncertainty, which is ubiquitous in the innovation economy. It is very different from risk, which can be managed using traditional tools and approaches. Strong dynamic capabilities are necessary for fostering the organizational agility necessary to address deep uncertainty, such as that generated by innovation and the associated dynamic competition. 2We explore the mechanisms by which managers may calibrate the required level of organizational agility, deliver it cost effectively, and relate it to strategy. We provide a set of principles and practices that differ according to whether a firm is managing regular risk or deep uncertainty. These distinctions are critical, as the mistaken use of risk management tools in an environment of deep uncertainty can bring false comfort. Our approach embraces concepts from both financial economics (e.g., hedging and real options) and strategic management theory (e.g., managerial/entrepreneurial asset orchestration). We conclude that strong dynamic capabilities are essential when firms face deep uncertainty, which they frequently do in interdependent economies experiencing rapid technological change and financial disruption.

Theory development in dynamic capabilitiesEmerging and evolving theories develop slowly, over long periods of time. As Williamson (1999: 1094) observes, 'big ideas often take a long time to take on definition'. This was certainly the case for transaction cost economics, which, early on, was viewed as a tautological concept with no testable or practical implications; it took 35 years before scholars were able to operationalize this theory and begin testing it empirically (Williamson, 1993a). The process of developing evolutionary economics took place, likewise, over many years (Nelson and Winter, 1982). Even the comparatively simple concept of bounded rationality, which evolved out of Barnard's (1938) notion of 'intended rationality', took a long time to take shape and take hold (Williamson, 1993b).Theory concerning dynamic capabilities has had little time to develop, in relative terms. As a field of inquiry, it is still in its infancy; the work remains mostly conceptual and focused on foundational level issues, including the definition of the term (see, for example, the bibliographic evidence provided by Di Stefano et al., 2009). As Kuhn (1970) notes, early versions of new theoretical ideas tend to be rough around the edges. Terms that are vague and elastic may offer the advantage of facilitating a more flexible development path (Winter, 1995).A&B fault dynamic capabilities research for its lack of clarity, oversimplified dynamics, unresolved measurement issues and weak empirical support. What they fail to see is that these so-called 'deficiencies' are the tell-tale signs of early-stage development of an area of inquiry. They expect a good deal more of young, emerging fields than we think reasonable. This is evident from their assertion that theories 'need to start with something that looks like a theory or a model'. To us, this seems rather like Athena springing forth from Zeus's forehead fully armed. Their notion of how theories develop seems especially illsuited to management research, which seeks to understand complex, real-world phenomena. Theories that make sense of complexity do not come neatly prepackaged, and often develop slowly.Although dynamic capabilities began as an 'approach' to understanding strategic change (Teece et al., 1997), rather than as a 'theory', there are clearly identifiable theoretical foundations. Chief among these is evolutionary economics (Nelson and Winter, 1982) from which the attention to routines and path dependence derives. Evolutionary economics draws heavily on Simon (1947) and Cyert and March (1963), giving dynamic capabilities a direct behavioral birthright. 2 In contrast to the assertions of A&B, dynamic capabilities directly address concerns rooted in behavioral theory, including organizational growth, routines and processes, organizational learning and managerial decision-making (see, for example, Helfat et al., 2007;Teece, 2007;Zollo and Winter, 2002). Eisenhardt and Martin's (2000) influential treatment explicitly uses an organization theory (and thus behavioral) len...