Dynamic Capabilities and their Indirect Impact on Firm Performance

This paper investigates the relationship between dynamic capabilities and firm performance. In particular it addresses the question of whether dynamic capabilities impact directly or indirectly on performance. Using data from manufacturing firms, the paper articulates and measures dynamic capabilities as a multi-dimensional construct with three underlying factors: coordination, learning and strategic competitive response. Then, structural equation modelling is employed to explore the relationships among dynamic capabilities, functional competences and firm performance. Empirical findings suggest that dynamic capabilities are antecedents to functional competences which in turn have a significant effect on performance. Direct effects on performance are found to be insignificant. Furthermore, similar effects seem to hold for both higher and lower levels of environmental dynamism. Theoretical and practical implications are discussed.