On the Contingent Relationship between Dynamic Capabilities and Competitive Advantage

The relationship between a firm’s dynamic capabilities and competitive advantage has been the subject of much debate in the literature, with relatively little empirical documentation. In this paper, we propose that dynamic capabilities can give the firm competitive advantage, but this relationship is contingent on the level of the dynamism of the firm’s external environment. We test this proposition using data on alliance management capability and new product development capability, two specific dynamic capabilities widely recognized in prior research. Based on longitudinal key informant data from 279 firms and using structural equation modeling, we find that these dynamic capabilities are more strongly associated with competitive advantage in moderately dynamic environments whereas their association is weaker in stable and highly dynamic environments.