Strategy literature is replete with isolated contributions to the jigsaw puzzle of building capabilities by firms. The isolation is primarily caused by the way resource-based view and capability literature has developed over time. There is a need to overcome this isolation and build a unified theory of capability building process which takes into account both internal as well as external perspective and explains it for new as well as established firms, successful as well as not so successful firms . We respond to this need with a unified theory that explains deliberate and emergent process of capability building by recognizing the independent and interdependent contributions of the firm and its external environment. The capability building process is characterized as a three phased process with different starting points for different categories of firms. The phases in capability building – Participative, Competitive, and Leadership – reflect the strategic intent of the firm and its position vis-à-vis the environment. Each phase in the process witnesses capability building through an interaction between internal firm dynamics and corresponding external environmental forces. The theory encompasses the evolution of capabilities not only by exploiting the opportunities but also by overcoming the external constraints and the rigidities inherent in the capability. It incorporates context, processes, antecedents and consequences within each stage and across different stages. It answers important questions like why firms are different in terms of their capability building approach. The theory is unique as it unearths the unexplored process of capability building with a holistic and temporal perspective.
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Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number
2008-01-10.