Dynamic Capabilities and Designing the Foresight-Driven Enterprise
In turbulent times, managers cannot assume that tomorrow will be an extension of today - Peter Drucker
While successful businesses have always adapted, today's unprecedented pace of change renders periodic reinvention insufficient; constant sensing and adaptation are now essential for survival, demanding new organisational capabilities.
Studies show that technological advancement is accelerating exponentially: for instance, in 2018, IDC projected that the global datasphere would reach 175 zettabytes by 2025¹. According to Statista, the total amount of data created, captured, and consumed worldwide has increased. In 2010, the estimate was about 2 zettabytes; by 2028, global data creation is projected to exceed 394 zettabytes². Internet usage has surged from approximately 361 million users in 2000 to over 5.5 billion today³, and the number of IoT-connected devices was estimated to reach nearly 19 billion in 2024⁴.
This explosion in technology adoption and data creation has drastically shortened business cycles, intensified competition, and raised the stakes for innovation and agility.
What are the implications for how we design our enterprises?
Simply having strong products or efficient processes and formulating annual strategies every December is no longer sufficient for sustained success. Enterprises must master capability management in a new way, including developing dynamic capabilities; the organisational routines and strategic processes that enable them to sense environmental shifts, seize emerging opportunities, and reconfigure their resources effectively and repeatedly.
While the concept is widely referenced in strategic management, many organisations struggle to translate it into tangible actions and outcomes. In this edition, I explore the definition of dynamic capabilities from literature, clarify how they differ from capabilities within the enterprise and business architecture field, highlight the subtle connection to foresight, and illustrate the power of dynamic capabilities through Apple's strategic transformation.
What Are Dynamic Capabilities?
Introduced by David Teece and colleagues in the 1990s⁵, the dynamic capabilities framework distinguishes between routine operations and adaptive prowess. According to Teece, ordinary (or operational) capabilities enable a firm to perform its day-to-day activities efficiently, including making, selling, and servicing. Dynamic capabilities, in contrast, are higher-order, strategic capabilities that empower the enterprise to shape its future by:
Sensing: Identifying and assessing changes, threats, and opportunities in the external environment (markets, technology, competition, regulation).
Seizing: Mobilising resources to capture value from these opportunities through new products, services, business models, investments, and strategic positioning.
Reconfiguring: Continuously transforming, renewing, and orchestrating the enterprise's tangible and intangible assets, including its operational capabilities, to maintain alignment with the changing environment and strategic direction.
In essence, dynamic capabilities are the engine of adaptation, innovation, and sustained competitive advantage, particularly crucial in uncertainty, ambiguity, and rapid technological change⁶.
However, despite its academic prominence, operationalising dynamic capabilities remains a challenge. A key reason is an unclear definition; the term is often used loosely as a synonym for general adaptability. In organisational theory, routines are defined as "repetitive, recognisable patterns of interdependent actions carried out by multiple actors⁷." Meta-routines are higher-level, standardised procedures explicitly designed to change existing routines or create new ones⁸. Think of dynamic capabilities as "Meta-routines", i.e., "routines for changing routines," enabling organisations to systematically improve, adapt, or transform their standard ways of working.
It's vital to understand dynamic capabilities as the higher-order processes - sometimes described as meta-routines - that enable organisations to orchestrate change in their other (business) capabilities purposefully⁹.
Dynamic Capabilities vs. Business Capabilities
Within enterprise and business architecture, the focus is often on business capabilities: stable, abstracted representations of what a business does to achieve its current objectives (e.g., "Customer Relationship Management," "Supply Chain Management," "Product Development," and so on). These represent the firm's current 'stock' capabilities for operational excellence and strategy execution.
Often visualised in stratified maps (e.g., Strategic, Core, Supporting), these capabilities might be assessed or 'heat-mapped' for effectiveness. Business capabilities are fundamental for operational excellence, providing structure, process design, and technology investment clarity. They represent the firm's current operational logic. However, they are typically optimised for stability and efficiency within a given business model.
Dynamic capabilities operate at different levels – capabilities related to managing and changing the firm's capability portfolio. According to Teece, they are the firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments¹⁰. They enable the business to strategically:
Identify which existing business capabilities (across all strata – Strategic, Core, or Supporting) need to evolve, be retired, or be created, perhaps informed by heat maps or strategic reviews.
Prioritise and invest in developing new or enhanced capabilities aligned with future opportunities to create new, distinctive advantages.
Realign, integrate, or even dismantle existing capabilities and resource configurations as strategic priorities shift, adapting the firm's know-how and assets beyond managing existing resources.
Crucially, dynamic capabilities are not typically items on the standard capability map alongside operational or strategic business capabilities. Instead, they allow the organisation to act upon the insights derived from that map (like addressing a weak strategic capability identified via heat mapping) and drive the evolution of the entire capability portfolio.
A key point is that business capabilities optimise the present, enabling the enterprise to "do things right." Remember, it is what the business does. Dynamic capabilities allow the enterprise to "do the right things" by adapting and evolving that capability over time, especially as the definition of "right" changes. They are complementary but serve fundamentally different strategic purposes.
Dynamic Capabilities in Practice: Apple's Ecosystem Evolution
Apple's transformation from a primarily hardware-focused company to a dominant ecosystem orchestrator provides a compelling illustration of dynamic capabilities at work.
Sensing: In the mid-to-late 2000s, Apple's leadership, particularly Steve Jobs, sensed the tectonic shift towards digital content, connectivity, and integrated user experiences. They recognised that long-term value and customer lock-in would depend increasingly on software, services, and the seamless interplay rather than just aesthetically pleasing hardware. They anticipated the limitations of relying solely on device sales in markets prone to commoditisation.
Seizing: Apple acted decisively to capture this opportunity by investing heavily in building entirely new capability sets: launching the iTunes Store (initially for music, later expanding) and the revolutionary App Store, creating new platforms and revenue streams. Apple also developed deep expertise in software engineering for its platforms (initially using the adopted Objective-C language, later developing and adding the Swift programming language). They built a cloud infrastructure (iCloud) to enable seamless integration across devices and services and pioneered subscription models (Apple Music, iCloud, Apple TV+, etc.) to foster recurring revenue and deepen customer relationships beyond individual hardware purchases.
Reconfiguring: This strategic shift required significant internal reorganisation and resource reallocation, strengthening cross-functional collaboration between hardware design, software engineering, and service teams to ensure a unified user experience. They shifted strategic performance indicators (KPIs) beyond mere unit sales to encompass ecosystem health metrics like active installed base, service revenue growth, and customer lifetime value, and they evolved product development roadmaps to prioritise features and integrations that enhanced ecosystem "stickiness" and network effects.
Apple has historically aligned its present decisions with an emerging future, leveraging foresight to drive major technological shifts. Apple's investments in spatial computing (e.g., Vision Pro), healthcare tech, and AI (Apple Intelligence) demonstrate ongoing foresight. Like other foresight-driven enterprises, Apple uses the dynamic capabilities concept—embedding routines for sensing market shifts, seizing opportunities through bold investments, and reconfiguring its internal structure and capabilities, to navigate industry disruption and build one of the world's most valuable and resilient business ecosystems¹¹.
Building Dynamic Capabilities
Building and applying dynamic capabilities shouldn't be an abstract management philosophy; it requires deliberate, integrated design choices and consistent application. This involves shifting focus from pure optimisation towards adaptability, ensuring the enterprise can change easily. To enable this, here is one approach to consider:
1. Embed Sensing Mechanisms:
Invest in strategic foresight: environmental scanning, trend analysis, scenario planning, and competitive intelligence.
Establish formal roles, teams, or practices responsible for monitoring the external environment and translating signals into strategic insights.
Foster collective intelligence by encouraging broad participation in sensing across functions.
→ Implement these mechanisms by embedding strategic reviews into core governance, planning, and portfolio management processes.
2. Build Agility for Seizing Opportunities:
Develop agile strategy processes for rapid evaluation, investment decisions (including divestment), and initiative launches.
Ensure tight alignment between business, technology, and financial planning using adaptive funding models for swift resource allocation.
Cultivate experimentation capabilities with safe spaces for testing new ideas, i.e., innovation hubs, R&D.
→ Apply this agility by prioritising adaptiveness when making architectural and operational choices, constantly asking: "How does this design enhance our ability to change later?"
3. Design for Fluid Reconfiguration:
Build modularity and composability into the operating model (processes, systems, organisational structures) for easier rearrangement.
Foster resource fluidity, leveraging organisational design best practices, enabling rapid redeployment of people and capital.
Cultivate an adaptive culture that treats change as the norm, values learning from setbacks, and continuously refines its approach.
→ Operationalise this design principle by linking technology and business roadmaps to dynamic capability development goals (e.g., "Reduce reconfiguration time).
The Adaptive Imperative
Building dynamic capabilities requires leaders to move beyond optimising the present and intentionally design enterprises capable of sensing change early, seizing opportunities decisively, and continually reconfiguring assets and capabilities. Success also hinges on developing leading indicators to measure adaptiveness, moving beyond traditional performance metrics.
Ultimately, survival and success belong not merely to the strongest or most efficient but to the most adaptable. Corporate foresight can be regarded as a specific dynamic capability enabling firms to detect the need to renew their resource portfolios. Understanding the relevance of both foresight and dynamic capabilities and integrating them effectively with enterprise design is crucial for achieving superior firm performance¹².
Further Reading
Coughlin, T. (2018, November 27). 175 zettabytes by 2025. Forbes. https://www.forbes.com/sites/tomcoughlin/2018/11/27/175-zettabytes-by-2025/
Statista. (2024, November 21). Volume of data/information created, captured, copied, and consumed worldwide from 2010 to 2023, with forecasts from 2024 to 2028 (in zettabytes). https://www.statista.com/statistics/871513/worldwide-data-created/
Visual Capitalist. (2024, April 18). Visualised: The growth of global internet users (1990–2025). https://www.visualcapitalist.com/visualized-the-growth-of-global-internet-users-1990-2025/
4. IoT Analytics (Number of connected IoT devices): IoT Analytics. (2024, December 5). Number of connected IoT devices growing 13% to 18.8 billion globally. https://iot-analytics.com/number-connected-iot-devices/
Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509-533. * Pisano, G. P. (2015). You need an innovation strategy. Harvard Business Review.
Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350.
Feldman, M. S., & Pentland, B. T. (2003). Reconceptualising organisational routines as a source of flexibility and change. Administrative Science Quarterly, 48(1), 94–118. https://doi.org/10.2307/3556620
Camisón, C., & Villar-López, A. (2015). Dynamic capabilities, human resources and operating routines: A new product development approach. SSRN Electronic Journal. https://ssrn.com/abstract=3876109
Teece, D. J. (2012). Evolutionary economics, routines, and dynamic capabilities. University of California, Berkeley. https://haas.berkeley.edu/wp-content/uploads/Evolutionary-capabilities-final.pdf
Teece, D. J. (n.d.). Dynamic capabilities. Retrieved May 6, 2025, from https://www.davidjteece.com/dynamic-capabilities
Teece, D. J. (2011, March/April). Dynamic capabilities: A guide for managers. Ivey Business Journal. https://iveybusinessjournal.com/publication/dynamic-capabilities-a-guide-for-managers/
Semke, L., & Tiberius, V. (2020). Corporate Foresight and Dynamic Capabilities: An Exploratory Study. Forecasting. https://doi.org/10.3390/forecast2020010 .
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