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Dynamic Capabilities

A multiple case study on successful entrepreneurs in South Africa

Authors:

Clara Olovsson Elin Lundstr?m

Supervisor: Per Nilsson

Student Ume? School of Business Spring semester 2010 Bachelor thesis, 15 hp

Dynamic Capabilities 2010

Acknowledgements

This thesis would not have been completed without the contributions, encouragement and support from many individuals and organizations.

Because of this, we would certainly like to express our gratitude and appreciation to all those who supported us in writing this thesis. First we would like to thank you our supervisor Dr. Per Nilsson of Ume? School of Business (USBE) for the help, suggestions and encouragement during discussions at Ume? University as well as fast responds by email during our time abroad.

We are also grateful to the University of Mannheim, and particularly Dr Varthuhi Tonoyan that from the beginning helped us to came up with the bright idea to choose the topic dynamic capabilities and during the entire process has encourage us to work hard and accomplish this undertaking in the shortest possible time. We appreciate that she so willingly gave of her time and shared insights during the stop in Mannheim on our way back to Sweden from South Africa.

We say big thank you to Selwyn who organized the tour to the township, provided us with many valuable contacts and introduced us to many nice people during our stay in Cape Town. Selwyn also gave us the opportunity to see the coins from two sides in a country that otherwise mostly sees things as black or white. This study would not have been possible without the cooperation of the enterprises that participate in the interviews. Many thanks to all the firms in the tourism sector that in one way or another have been involved in the empirical part of the thesis.

We express our gratitude to Thaddeus, Laurence and Mats who took their valuable time to read the thesis and correct spelling mistakes. We thank Alexander and Helena, who joined us for many nice adventures and dinners during our five weeks in Cape Town.

Last but not least, we would like to thank our beloved families and friend who always support us and tell us to stay safe. Their understanding, tolerance and support enabled us to accomplish this thesis.

At last, we remain fully responsible for any shortcomings and errors found in this thesis.

Clara Olovsson Elin Lundstr?m Ume? School of Business (USBE)

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Dynamic Capabilities 2010

Abstract

This thesis applies the dynamic capabilities framework to identify and examine the dynamic capabilities creating sustainable competitive advantage in the context of a developing economy. The attempt to explain sustainable competitive advantage by reacting to environmental changes has at all times been a highly discussed topic for research. The globalized and unstable environment often found in developing areas increases the need for more dynamic models when analyzing how to gain competitive advantage. To meet this demand, the dynamic capability framework introduces a very promising effort to better understand superior enterprise performance over time.

This thesis intends to increase the understanding of the role of dynamic capabilities and analyze the knowledge of successful entrepreneurs in small and medium enterprises effectively can outperform competition in the unstable South African environment. More specific, the focus is mainly on strategic decisions and the empirical study consists of qualitative case studies of four successful entrepreneurs. This data is collected through semi-structured interviews in Cape Town. The strategic decisions are first analyzed within each case ? applying selected parts of an existing framework ? and thereafter a cross-sectional analysis is done in order to find both the similarities and differences between entrepreneurs. The findings suggest that all entrepreneurs in the analysis have the characteristics and skills to create dynamic capabilities within the process of sensing, seizing and reconfiguring opportunities. Furthermore, three main factors ? maintaining a consistent long-term vision, placing the customer need in focus, and using the competence and resources wisely ? are identified as features, which made these four entrepreneurs successful and helped them sustain the superior firm performance over time. In addition, these three factors must be adaptable to rapid and unexpected changes. Overall the findings suggest that when analyzing competitive advantage, the sensing, shaping and reconfiguration of opportunities must be seen as constant. Lastly, the complete process containing different fundamental classes of dynamic capabilities should not be separated.

The study demonstrates the relevance of the dynamic capabilities approach in identifying competitive advantage, which is based on the firm's dynamic capabilities. The fact that small and medium enterprises are important for the economic growth in developing countries makes this study an important field for research.

KEYWORDS: Competitive advantage, dynamic capabilities, entrepreneurship, small and medium enterprises, strategic management.

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Dynamic Capabilities

2010

Table of Content

1. Introduction ...................................................................................................................................... 1 1.1 Problem background .............................................................................................................. 1 1.2 Scope and context of this thesis ......................................................................................... 2 1.3 Problem statement.................................................................................................................. 4 1.4 Purpose........................................................................................................................................ 4 1.5 Delimitation ............................................................................................................................... 4 1.6 Outline.......................................................................................................................................... 5 1.7 Definitions .................................................................................................................................. 5

2. Methodology ..................................................................................................................................... 7 2.1 Choice of subject and research approach ....................................................................... 7 2.2 Research process ..................................................................................................................... 7 2.3 Methodological assumption ................................................................................................ 8 2.4 Research strategy .................................................................................................................... 8 2.5 Research design........................................................................................................................ 9 2.6 Research method .................................................................................................................. 10 2.7 Choice of theory..................................................................................................................... 12 2.8 Choice of sector ..................................................................................................................... 12 2.9 Choice of literature............................................................................................................... 13

3. Frame of reference ...................................................................................................................... 15 3.1 Introduction ............................................................................................................................ 15 3.2 Literature overview ............................................................................................................. 15 3.3 Porter's five forces................................................................................................................ 16 3.4 Resource Based View .......................................................................................................... 17 3.5 Dynamic capabilities ........................................................................................................... 18 3.6 Strengths, shortcomings and the theoretical standpoint ...................................... 19

4. The dynamic capabilities framework................................................................................... 21 4.1. Sensing (and shaping) opportunities........................................................................... 21 4.2. Seizing opportunities ......................................................................................................... 22 4.3. Managing threats and reconfiguration........................................................................ 24

5. Practical methods......................................................................................................................... 25 5.1 Introduction ............................................................................................................................ 25 5.2 Respondent selection .......................................................................................................... 25 5.3 Sampling Techniques .......................................................................................................... 26 5.3 Interview guide...................................................................................................................... 26 5.4 Access problems.................................................................................................................... 27

6. Empirical observations .............................................................................................................. 29 6.1 Introduction ............................................................................................................................ 29 6.2 Entrepreneur "Selwyn"....................................................................................................... 29 6.2.1 Background.......................................................................................................................................29 6.2.2 Strategic decisions.........................................................................................................................30 6.3 Entrepreneur "Lee" .............................................................................................................. 35 6.3.1 Background.......................................................................................................................................35 6.3.2 Strategic decisions.........................................................................................................................36 6.4. Entrepreneur "Kirsten" ..................................................................................................... 40 6.4.1 Background.......................................................................................................................................40 6.4.2 Strategic decisions.........................................................................................................................41 6.5 Entrepreneur "Lily".............................................................................................................. 44 6.5.1 Background.......................................................................................................................................44

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Dynamic Capabilities 2010

6.5.2 Strategic decisions.........................................................................................................................45 7. Empirical analysis within the cases ...................................................................................... 50

7.1 Introduction ............................................................................................................................ 50 7.2 Analysis within the case "Selwyn".................................................................................. 51

7.2.1 Sensing and shaping opportunities ........................................................................................51 7.2.2 Seizing opportunities....................................................................................................................51 7.2.3 Managing threats and reconfiguring opportunities ........................................................52 7.2.4 Firm performance..........................................................................................................................52 7.3 Analysis within the case "Lee" ......................................................................................... 53 7.3.1 Sensing and shaping opportunities ........................................................................................53 7.3.2 Seizing opportunities....................................................................................................................54 7.3.3 Managing threats and reconfiguring opportunities ........................................................54 7.3.4 Firm performance..........................................................................................................................55 7.4 Analysis within the case "Kirsten" ................................................................................. 55 7.4.1 Sensing and shaping opportunities ........................................................................................55 7.4.2 Seizing opportunities....................................................................................................................56 7.4.3 Managing threats and reconfiguring opportunities ........................................................56 7.4.4 Firm performance..........................................................................................................................57 7.5 Analysis within the case "Lily"......................................................................................... 57 7.5.1 Sensing and shaping opportunities ........................................................................................57 7.5.2 Seizing opportunities....................................................................................................................58 7.5.3 Managing threats and reconfiguring opportunities ........................................................58 7.5.4 Firm performance..........................................................................................................................59 8. Empirical analysis cross case .................................................................................................. 60 8.1 Introduction ............................................................................................................................ 60 8.2 Overview .................................................................................................................................. 60 8.3 Cross case analysis ............................................................................................................... 62 9. Conclusion....................................................................................................................................... 65 10. Quality of research .................................................................................................................... 67 10.1 Research quality ................................................................................................................. 67 10.2 Ethics....................................................................................................................................... 68 11. Further research ........................................................................................................................ 69 12. References .................................................................................................................................... 70

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