Reading the initial chapters of David Teece’s “Dynamic capabilities and strategic management”, I can’t help getting the feeling that the author has got something slightly wrong. I know my credibility in case weighs lightly against the words of the distinguished professor Teece, but let me explain what I feel is wrong with his reasoning.
First, I must state that I agree in principle with the dynamic capability view which assumes that firms compete through “selecting and developing technologies and business models that build competitive advantage through assembling and orchestrating difficult-to-replicate assets, thereby shaping competition itself”.
Business models do not come first…
My main issue with this book so far is its view of how business and innovation emerge. Teece seems to assume that a business model must come first, and that a solid business model is a prerequisite for any successful business. I would argue that this is not the case. Many businesses succeed without an explicit business model, although those with poor (explicit or implicit) business models may eventually fail. Yet, a mediocre or even a hopeless business model (according to the expertise) will sometimes turn out to be highly successful because of superior operational capabilities and follow through.
Evidence from Sweden shows that most companies are started by craftsmen and –women; people who know their trade and decide to make it on their own. In most cases innovation is based on technical capabilities and an entrepreneurial mindset. On the contrary, it turns out that university education does not sport increased entrepreneurship. Rather ironically, the contrary seems to be the case.
Teece claims that “the function of a business model is to ‘articulate’ the value proposition, select the appropriate technologies and features, identify targeted market segments, define the structure of the value chain, and estimate the cost structure and profit potential.” If this description of the innovation process was correct, it would likely have yielded an opposite situation compared to what we observe in reality: namely that people with university degrees would be more entrepreneurial than others because of their superior analytical skills. In practice this is not so.
…technological innovation does
My own view is that technological innovation comes first, and that, in most cases, business models are after constructs that are used mainly as evidence to convince internal or external investors. In this respect formulation of an explicit business model is both useful and valuable. It can also be useful to hone operations in the initial phases. But in practice, much industrial innovation even in large firms take place as “skunk works” where individual engineers and/or departments use their skills and imagination to develop products that they think are useful or merely interesting. If the result is commercially viable the new technology or product may become officially endorsed by firm management. The result is “emergent strategy”, which plays an immensely important role in the real world.
Judging from my first impressions, I find it unlikely that many real industrial managers or entrepreneurs that I know of will read this book. Most are already fully occupied with turning their ideas into business or improving their existing operations as best as they can, and have little time to contemplate their “value proposition”. Also, I believe that the style and language of this book is too complex. Despite that I normally read English next to fluently, and that I have a PhD relevant to the topic, I frequently find myself forced to re-read sections several times before I fully comprehend their meaning. Normally this rarely happens even when I read scientific articles on the subject.
(A generally accepted prejudice about Swedes is that we over estimate our proficiency in English. Maybe you as native English speaking find reading this book to be a breeze?)
That said, I still find the book interesting and will keep reading. Who knows, perhaps these comments based on my first impressions will prove to be hastened?