DYNAMIC CAPABILITIES AND THE EMERGENCE OF INTRA-INDUSTRY DIFFERENTIAL FIRM PERFORMANCE: INSIGHTS FROM A SIMULATION STUDY∗ By

This paper explores how the dynamic capabilities of firms may account for the emergence of differential firm performance within an industry. Synthesizing insights from both strategic and organizational theory, four performance-relevant attributes of dynamic capabilities are proposed: timing of dynamic capability deployment, imitation as part of the search for alternative resource configurations, cost of dynamic capability deployment, and learning to deploy dynamic capabilities. Theoretical propositions are developed suggesting how these attributes contribute to the emergence of differential firm performance. A formal model is presented in which dynamic capability is modeled as a set of routines guiding a firm’s evolutionary processes of change. Simulation of the model yields insights into the process of change through dynamic capability deployment, and permits refinement of the theoretical propositions. One of the interesting findings of this study is that even if dynamic capabilities are equifinal across firms, robust performance differences may arise across firms if the costs and timing of dynamic capability deployment differ across firms.