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The modern resource-based view

As an outgrowth of Penrose’s resource-based model (1959), the dynamic capability model was developed by Teece in 1997.

The dynamic capabilities approach aims to understand and explain the competitive advantage of firms over time, and the firm’s ability to change the resource base to address rapidly changing environments (Teece et al. 1997). An organisation’s ‘dynamic capabilities’ refer to its capability to develop and seek new resources and configurations that match the changing conditions of the market (Eisenhardt and Martin 2000).

The crafting, refinement, implementation, and transformation of business models are dynamic capabilities. Dynamic capabilities are defined as:

Processes that use a firm’s internal and external resources – specifically to integrate, reconfigure, gain and release resources – to match and even create market change.

(Eisendardt and Martin 2000: 1107).

There are two levels to the portfolio of capabilities in an organisation (Winter 2003):

  • Base level: This is the operational level. It comprises ordinary, routine capabilities, such as administration and basic governance, that allow an organisation to pursue a given production program or defined set of activities.

  • Dynamic layer: These dynamic capabilities can be divided into microfoundations and higher order capabilities (Teece 2007). Microfoundations involve the adjustment and recombination of a firm’s existing ordinary capabilities as well as the development of new ones. Higher order dynamic capabilities refers to new product development, expansion into new sales regions, and the assignment of product mandates across divisions in large companies, and other actions that constitute astute managerial decision making under uncertainty.

The resource-based view of the firm emphasises sustainable competitive advantage; the dynamic capabilities view, on the other hand, focuses more on the issue of competitive survival in response to rapidly changing contemporary business conditions.

Dynamic capabilities theory concerns the development of strategies to help senior managers of successful companies adapt to radical, discontinuous change while maintaining minimum capability standards to ensure competitive survival. Scholars believed that the architecture of HRM (Becker and Gerhart 1996) may serve as a central means of capturing the managerial intent informing how dynamic capabilities can be built and innovation outcomes realised (Barney and Felin 2013).

Your task

The resource-based view focuses on the internal resource (including employees) that can provide competitive advantage to organisations, but it has been criticised for paying insufficient attention to the external environment.

To what extent do you agree with this view?


Barney, J. and Felin, T. (2013) ‘What are Microfoundations?’. Academy of Management Perspectives 17 (2), 138-155

Basiouni, A., Hafizi, A., Akhtar, N., and Alojairi, A. (2019) ‘Assessing Canadian Business IT Capabilities for Online Selling Adoption: A Net-Enabled Business Innovation Cycle (NEBIC) Perspective’. Sustainability. 11 (13)

Becker, B., and Gerhart, B. (1996) ‘The Impact of Human Resource Management on Organisational Performance: Progress and Prospects’. Academy of Management Journal 39 (4), 779-801

Ludwig, G., and Pemberton, J. (2011) ‘A Managerial Perspective of Dynamic Capabilities in Emerging Markets: The Case of the Russian Steel Industry’. Journal of East European Management Studies 16 (3), 215–236

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This article is from the free online course:

Introduction to International Human Resources Management

Coventry University