Dynamic Adaptation as Persistence of Disequilibrium State

This chapter contributes toward a theory of dynamic adaptation by focusing on the conceptualization of dynamic adaptation (i.e., ‘the concept’) and how dynamic adaptation works (i.e., ‘the mechanism’). A coherent theory of dynamic adaptation to underpin the evolutionary theory of dynamic strategy is motivated by the need to explain dynamic adaptation as an intended outcome of dynamic strategy: (a) What does it mean for firms to successively adapt to their dynamic environments or their environments onto themselves? and (b) How does successive adaptation link to enterprise value growth? Albeit limited in scope, the theory of dynamic adaptation featured herein improves the coherence of the theory of economic evolution within Modern Evolutionary Economics (MEE). Dynamic adaptation, which is the sustaining of the firm’s state of specified orderliness in the face of its continuous degradation into disorderliness, is conceptualized as persistence in time of a disequilibrium state. The evolutionary-theoretic literature in Strategy predominantly features one-way adaptation (i.e., firms adapting to their environments) wherein the conventional atomistic firm adopts a mechanistic approach to manage the firm boundary to maintain order inside the firm. A novel explanation of two-way adaptation (i.e., firms adapting their environments to themselves as well) featured herein presents an alternative process-based conception of the extended firm, which adopts a cognitive approach to manage its adaptive boundary to maintain order. That adaptation is either a one-way or a two-way process, as opposed to the one-way process featured in most evolutionary-theoretic accounts of dynamic firm behavior, is the capstone of evolutionary theory of dynamic strategy.