For entrepreneurs to exploit turbulent market opportunities, firms need entrepreneurial capabilities for the short-run competitive advantage and dynamic capabilities for the long-term sustainability. They go on up.
Empirical evidence shows that the growth of entrepreneurial firms plays a significant role in job creation and economic development. For example, a study conducted by Van Stel et al. (2005) in 36 countries shows that, with different levels of impact, entrepreneurial firms contribute to the national economic development and growth of these countries Tutueanu & Servan (2013).
According to a McKinsey study and the International Finance Corporation the total number of SMEs worldwide amounts to 422 to 510 million of which 440 million are located in emerging markets. In 2013, 721 million SMEs in the nonfinancial business sector employed 88.8 million people and generated 366 trillion in value added. Expressed another way 99 out of every 100 businesses are SMEs as our 2 in every 3 employees and whish is $0.58 in every dollar of added value EU (2014 P. 10).
However, entrepreneurial firms are characterized with volatile business environments subject to rapid and unexpected changes. To succeed in the volatile short term, an entrepreneurial firm needs entrepreneurial capabilities to identify and exploit opportunities in the volatile environment. The changing environment is a source of opportunity and at the same time a source of threat for the firms (Porter, 1985).
The essential distinguishing capability of these firms to recognize opportunities in the volatile marketplace is their ability to scan the environment more effectively and to better interpret and recognize the opportunities lurking in the environment.
Entrepreneurial capability is a firm’s capacity to sense, select, and shape opportunities and synthesize their strategic moves and resources in pursuit of these opportunities. Abdelgawad et al. (2013); Zahra, Abdelegawad, & Tsang (2011)
To survive and gain competitive advantage in the long run, the firm needs dynamic capabilities that enables the firm to protect its existing competencies and resources and create and deploy new competences and resources against rapidly changing environments. Entrepreneurial capabilities are the micro foundations for dynamic capabilities. To exploit these opportunities, firms need entrepreneurial capabilities and to gain long-run competitive advantage, the firm also need dynamic capabilities (See Capability Driven Strategy) at Strategic Research Website
Dynamic capabilities are considered as a “firm’s abilities to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece et al., 1997: 516).
Research findings show that entrepreneurial capabilities have circular and iterative relationship with dynamic capabilities—each reinforces others. Tutueanu & Servan (2013). The greater the repetition takes place, the stronger entrepreneurial capabilities and dynamic capabilities become. (Teece, 2007; Teece et al., 1997). In effect, entrepreneurial capabilities and dynamic capabilities are vital to both short-term success and long-term survival of an entrepreneurial firm.
Changes in the external environment is the compelling reason for creating dynamic capabilities These changes consequently cause the firm to modify its competencies and resources to align them with these changes (see, e.g., Eisenhardt & Martin, 2000; Teece et al., 1997; Wheeler, 2002; Zollo & Winter, 2002). In this view, dynamic capabilities come into existence and coexist with the changes in the environment. In other words, dynamic capabilities are made to align the firm’s competencies and resources with the changes in the environment. However, these external volatile markets influence the creativity of the firm’s internal or ordinary capabilities (called “substantive capabilities”). Winter (2000) argues that “defining ordinary substantive capabilities as those that permit a firm to ‘make a living’ in the short term, one can define dynamic capabilities as those that operate to extend, modify or create long-term sustainable capabilities” (p.991).
As an SME in a volatile changing marketplace we ask the following questions:
(please select your best answer)
You will be emailed a copy of your responses.
Source: M. Aramand, D. Valliere
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