Identifying and measuring dynamic capability using search routines

Abstract

Much attention has been paid to the theoretical and empirical difficulties of identifying dynamic capability, given that it is a latent construct that is difficult to observe. There is consensus that dynamic capability should be defined so as to distinguish the capability for change from the change achieved: it is the organisation’s capacity to change its resource base. But operationalising this idea has proven difficult. We propose an empirical representation based on a modest theoretical extension: the accepted definition implies that dynamic capability is constituted in organic engagement with the operating resources it is intended to change. This extension allows us to represent dynamic capability using a widely recognised, observable underpinning of dynamic capability – search routines. Using data on Irish manufacturers’ efforts to adapt to a heightened environmental-regulation regime, we draw from environmental-management research and the evolutionary and behavioural theories of the firm to specify criteria for identifying, categorising and measuring search routines and using this to construct a dynamic capability measure. The contribution is to present a replicable, theory-based protocol for studying dynamic capability and its complex relationship with firm performance and evolutionary fitness.