Strategic Business Leader · The internal resources, capabilities and competences of an organisation

Dynamic Capabilities and Organisational Knowledge in SBL

Updated 11 October 2026 · Fact-checked

Dynamic capabilities are an organisation's ability to sense change, seize opportunities and reconfigure its resources and competences as markets shift. Organisational knowledge and learning feed this process. In SBL, you identify the capability, show how it renews advantage, then apply it to the case with a recommendation.

Understand Dynamic Capabilities and Organisational Knowledge

A resource is something an organisation owns or can use, such as plant, brands or people. A competence is the ability to use resources well. A core competence is one that gives advantage and is hard to copy. These are the building blocks of strategic capability.

The problem is that a strong competence can go stale. Markets, technology and customer needs change. An organisation that relies on yesterday's strengths can lose its edge. This is sometimes called a core rigidity: a strength that becomes a weakness because it blocks change.

Dynamic capabilities answer this problem. The idea comes from David Teece and colleagues. They are higher-order capabilities that let an organisation change its other capabilities over time. Teece describes three groups of activity:

Sensing: scanning the environment to spot opportunities and threats early.
Seizing: committing resources, making investment decisions and building the structures to exploit what you sensed.
Transforming (or reconfiguring): renewing and realigning assets, structures and culture so the organisation stays fit.

Dynamic capabilities differ from ordinary (operational) capabilities. Operational capabilities help you do today's work well. Dynamic capabilities help you change what that work is. Advantage from them tends to last longer because the organisation keeps renewing itself, rather than relying on one fixed strength.

Organisational knowledge is a main input. Explicit knowledge is written down and easy to share, such as manuals, databases and procedures. Tacit knowledge sits in people's heads and experience, and is hard to codify. Nonaka and Takeuchi describe knowledge creation as a spiral that converts knowledge between tacit and explicit forms, through socialisation, externalisation, combination and internalisation.

A learning organisation (Senge) keeps adapting by learning. Its features include systems thinking, personal mastery, shared vision, team learning and challenging mental models. Learning builds the knowledge that sensing, seizing and transforming depend on. Knowledge that is shared and embedded in routines is also harder for rivals to copy, which supports advantage.

Key rules to remember

Teece's three dynamic capabilities: Sensing → Seizing → Transforming; Sense opportunities and threats, seize them through investment and structure, then reconfigure the asset base. Use these as your answer headings.
Knowledge types: Tacit knowledge (personal, experience-based) vs Explicit knowledge (codified, documented); Tacit knowledge is harder to copy and to transfer. Explicit knowledge is easier to share but also easier for rivals to copy.
Nonaka and Takeuchi knowledge conversion: Socialisation (tacit→tacit), Externalisation (tacit→explicit), Combination (explicit→explicit), Internalisation (explicit→tacit); Use it to show how knowledge is created and spread inside the organisation.
Senge's five disciplines of a learning organisation: Systems thinking, Personal mastery, Mental models, Shared vision, Team learning; Pick the ones that fit the case rather than listing all five with no application.

How to solve Dynamic Capabilities and Organisational Knowledge questions

Use this method for any question on dynamic capabilities, knowledge or learning. It keeps your answer tied to the requirement and the scenario.

1Read the requirement and note the verb: explain, assess, advise or recommend. This sets the depth and the form of the answer.
2Identify the current capabilities and competences in the case. Note which ones give advantage and which might be ageing.
3Find evidence of change in the environment: technology, customer needs, regulation or competitor moves.
4Apply the right model. For adaptation, use sensing, seizing and transforming. For knowledge, use tacit versus explicit, the knowledge spiral, or the learning organisation.
5Judge the organisation's current position with case evidence. Say what it does well and where it is weak, such as slow decisions, knowledge held by a few people or a culture that resists change.
6Make specific recommendations: systems to capture knowledge, scanning processes, training, cross-team working, or changes to structure and incentives.
7Add limits and risks, such as cost, loss of key staff or change resistance, then close with a clear conclusion that answers the requirement.

Quickest way: Sense-Seize-Transform with a knowledge check

When to use it: Use it when time is short and you need a structured answer fast, especially for 8 to 12 mark requirements.

Write three short headings: Sense, Seize, Transform.
Under each, give one case fact showing strength or weakness, then one action.
Add one line on knowledge: is it tacit or explicit, and who holds it?
Add one line on learning: does the culture share knowledge or protect it?
End with a one-sentence conclusion on whether advantage is likely to last.

Common mistakes in Dynamic Capabilities and Organisational Knowledge

Defining dynamic capabilities but not applying them to the case.
Students learn the theory as a list and write it out from memory.
Fix: Tie every point to a named fact in the scenario. A short definition, then evidence, then a consequence.
Confusing dynamic capabilities with core competences.
Both words describe organisational strengths.
Fix: Say that core competences are what you do well now. Dynamic capabilities are the ability to renew those competences as conditions change.
Treating tacit and explicit knowledge as the same thing.
Students think knowledge simply means information.
Fix: State the difference clearly. Then say which type matters in the case and what risk it creates, such as loss when a key person leaves.
Listing Senge's five disciplines without relevance.
It feels safe to write everything you remember.
Fix: Choose two or three that fit the case and explain what the organisation should do about each.
Assuming learning and knowledge always improve performance.
The topic sounds wholly positive.
Fix: Add balance: cost, time, loss of staff, information overload and the chance of learning the wrong lessons.
Giving generic recommendations such as 'train staff more'.
Students run short of time and fall back on vague advice.
Fix: Name the action, who does it and what it achieves, for example a post-project review to capture lessons for future bids.

Worked examples

Example 1

A long-established camera maker has strong engineering skills and a trusted brand. Sales are falling as customers shift to smartphone cameras. Managers say they will keep improving the optics. Explain, using dynamic capabilities, why this response may be inadequate and what the company should do. (10 marks)

Show the solution

Define the issue: the firm's engineering skill is a core competence, but the environment has changed. Improving optics builds the old capability rather than renewing it.
Sensing: the firm reacted late. It should set up systematic scanning of technology, customer behaviour and rival moves, so threats like smartphone cameras are seen earlier.
Seizing: it should decide where to invest, for example in software, imaging features or partnerships with phone makers, and give these projects funding and clear ownership.
Transforming: it should reconfigure its asset base and structure, for example by creating software and data teams, changing the culture away from hardware-only thinking, and perhaps retiring some old lines.
Link to core rigidity: strong engineering pride may block the change, so leadership must manage resistance.
Conclude that advantage will only last if the firm builds the ability to renew capabilities, not just improve existing ones.

Answer: Improving optics strengthens a competence that customers now value less. The firm lacks dynamic capabilities. It should sense change through formal scanning, seize opportunities by investing in software and partnerships, and transform its structure and culture to support them. Without this, its engineering strength risks becoming a core rigidity.

Example 2

A consulting firm's best methods are known only to a few senior partners. Junior staff learn by chance. Two partners have recently left. Discuss the knowledge issues and recommend how the firm should respond. (8 marks)

Show the solution

Classify the knowledge: the methods held by partners are mostly tacit, based on experience and judgement, and not documented.
Explain the risk: tacit knowledge leaves when people leave. The departures show this risk has already crystallised and may have cost the firm its advantage.
Explain the cost of the current approach: learning by chance is slow and uneven, so quality varies and juniors develop slowly.
Apply the knowledge spiral. Socialisation: pair juniors with partners on live work. Externalisation: have partners document methods, case studies and lessons. Combination: build a central knowledge database. Internalisation: use training and practice so juniors absorb the methods.
Add learning organisation actions: reviews after each engagement, a culture of sharing, and rewards for contributing knowledge.
Balance: documenting takes partner time and could make methods easier for rivals to copy, so keep the most sensitive content restricted and retain key staff through incentives.

Answer: The firm relies on tacit knowledge held by few people, which is a risk now shown by two departures. It should convert tacit knowledge into explicit form through documentation, build a shared database, pair juniors with partners, and run post-engagement reviews. It should also reward sharing and retain key staff, while protecting sensitive content.

Exam tips

Use Sense, Seize, Transform as headings when the requirement is about adaptation. Markers can see the model is being used and applied.
Always anchor theory to a fact from the case. Unapplied theory earns few marks in SBL.
Show professional skills: analyse the situation, show commercial awareness on cost and risk, and give a clear recommendation with a conclusion.
If the requirement asks about sustaining advantage, explain why the capability is hard to copy, for example because it is embedded in routines and tacit knowledge.
Link knowledge and learning to other topics in the case, such as culture, structure and change, to show integrated thinking.

Practice questions from The internal resources, capabilities and competences of an organisation

Dynamic Capabilities and Organisational Knowledge: frequently asked questions

What are dynamic capabilities in simple terms?

They are an organisation's ability to change its own capabilities as the environment changes. Teece describes them as sensing opportunities and threats, seizing them, and transforming the organisation. They help advantage last longer than a single fixed strength.

How do dynamic capabilities sustain competitive advantage?

They stop strengths from becoming outdated. By scanning, investing and reconfiguring, the organisation keeps its resources matched to the market. The renewal routines are also hard for rivals to copy.

What is the difference between tacit and explicit knowledge?

Explicit knowledge is written down and easy to share, such as procedures and databases. Tacit knowledge is held in people's experience and judgement and is hard to put into words. Tacit knowledge is harder for rivals to copy but is lost if people leave.

What is a learning organisation in SBL?

It is an organisation that continuously learns and adapts, as described by Senge. It encourages shared vision, team learning, systems thinking, personal mastery and questioning of assumptions. In answers, apply the disciplines that fit the case rather than listing them all.