Apple and IBM Show the Power of Dynamic Capabilities

Some companies manage to profitably reinvent themselves over and over again. But for every firm that succeeds in growing through transformation, many more are simply not able to adapt. Their failure to thrive may result from a lack of specific capabilities in areas that allow them to adapt to and promote change, such as research and development or the ability to acquire other firms. Strategy scholars refer to these as “dynamic capabilities,” and in today’s era of rapid technological change they are absolutely critical to a firm’s long-term success.

Apple and IBM are examples of two companies whose dynamic capabilities have enabled them to evolve with rapid change. Apple is a unique case. The company isn’t a technological leader, but it has proven masterful at marketing technologically-based products to consumers and developing features that people value.

IBM, meanwhile, is a true technological innovator, both internally and in the markets in which it participates. IBM successfully transitioned from electromechanical tabulating machines to mainframe computers,  and today has a very successful IT-based services, software and cloud computing business.

Part of Apple and IBM’s success has been their ability to overcome the downside of what researchers call “path dependence” — the role that prior experience and history play in what a company is capable of doing and what it chooses to do. Companies with high path dependence have a difficult time changing what they do, even when the world around them has changed. They head down the same path over and over again, regardless of what is going on in the environment.

Fortunately for Apple and IBM, past has not been prologue. Neither company’s path dependence has been as strong as it has for others. Although the two companies boast different strengths and are managed differently, they have both been able to successfully enter new businesses and reinvent themselves.

Part of what has enabled them to adapt to change has been their leadership, different though it might be at each company. Leadership generally has a very important role in determining which types of dynamic capabilities firms try to develop and whether firms implement necessary policies and procedures in conjunction with those capabilities. As a rule, that push is going to come from the top. In my research, I have called this sort of leadership “dynamic managerial capabilities.”

There is no such thing as a generic ability to adapt to change. It simply doesn’t exist. But for companies that develop specific, dynamic capabilities that allow them to move more nimbly in times of rapid change, the odds are better that they will succeed.

Constance Helfat is the J. Brian Quinn professor in technology and strategy at the Tuck School of Business at Dartmouth.