Tacit Knowledge and Dynamic Capability: the Importance of Penrosian ‘image’

Introduction The origins of dynamic capabilities have been neglected. Questions about the balance between the tacit and inimitable elements of capability and the role of intentionality require further exploration. Undoubtedly some of these questions remain open because of This is compounded by the finding of Becker (2001) that there is very little integration of empirical findings back into the theoretical debates, notwithstanding that many of the questions raised are not amenable to being answered by theory alone. This paper attempts to address some of these questions by providing empirical work on the nature and impact of dynamic capability that is explicitly rooted in the existing theoretical literature. Earlier research established the role of organisational capabilities in explaining successful firm adaptation to a changed regulatory environment (Hilliard, 2002, Hilliard and Jacobson, 2003). Significantly the research identified the key role of dynamic capabilities in adaptation; the presence or absence of appropriate static capabilities, either technical or managerial, did not matter if firms possessed dynamic capability. In this paper the focus is on unpacking the nature of dynamic capabilities through a cross case comparison of five firms that display either strong or weak dynamic capabilities. The intention of the case study approach is to gain insight into the evolution of organisational capability without abstracting away from context-specific factors. As well as drawing out the development of capability, the cases also focus on the importance of capability in determining the firm's effectiveness in adjusting to the new regulatory environment. In each case evidence of routines underpinning dynamic capability is examined. I find that the nature of the firm's perception or image has an influence on the presence or absence of reflexive and deliberative processes of learning and change, resulting in the failure or success in developing capability and achieving effective performance. It is therefore argued here that dynamic capability is a function of both the tacit perceptions held by a firm (arising out of past experience and learning) and deliberative, problemsolving processes. This represents a refinement of existing approaches to dynamic capability, and argues for increased importance to be given in research to the role of firm perceptions. The theory of dynamic capabilities Evolutionary economic theory takes the firm as its unit of analysis, with the proposition that organisational capabilities are central to an understanding of firms and industries. Routines define what the firm can do, they are akin to the skills of the …