Pouring new wine into old bottles: A dynamic perspective of the interplay among environmental dynamism, capabilities development, and performance

In order to face increased environmental dynamism (ED), firms are increasingly called on to leverage deliberate learning processes that make dynamic capabilities emerge in a path-dependent way from the conversion of tacit knowledge to explicit knowledge. Moreover, to mitigate the effect that ED can play in eroding a firm’s capabilities and subsequently its performance, managers need to effectively align short- and long-term strategies, which in the literature have been addressed as ‘capability traps’. Although these two processes are strictly interrelated, to date they have been treated in quite an isolated way and usually through the development of linear approaches. To fill this gap, leveraging the knowledge-based view and dynamic capabilities theories, a conceptual system dynamics model was developed in this study to reconstruct the causal intertwined relationships existing between ED, capabilities development, and a firm’s performance. Moreover, by building a stock and flow diagram and simulating different scenarios, it was found that the most effective way to cope with ED is to dedicate efforts in both knowledge stocks’ development and process improvement. The paper thus offers theoretical contributions to each of these three literature streams (i.e., knowledge-based view, dynamic capabilities, and system dynamics) and provides a framework to guide managers and decision-makers into arranging deliberate organisational learning processes and fostering organisational alignment between short- and long-term policies.