DYNAMIC CAPABILITIES AND COMPETITIVE ADVANTAGE OF IN NIGERIAN INSURANCE SERVICES
Dynamic capabilities are defined as “the firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments” (Teece et al., 1997). Thus, some types of dynamic capabilities integrate firm resources (e.g., processes/routines involving product development and strategic decision making). Other types involve the reconfiguration of resources within the firm (e.g., knowledge transfer and collaboration). Finally, some are related to the gain and release of resources (e.g. knowledge creation, alliance and acquisition, and exit routines) (Eisenhardt &Martin, 2000). Such processes and routines are considered dynamic capabilities because they enable firms to create, renew, or orchestrate their resources in a manner that creates new value and allows them to compete and evolve.
The study was anchored on Dynamic Capabilities Theory (Teese & Pissano, 1997) and Resource Based Theory (Barney, 1991). As per the RBT, a company is a combination of resources as well as how these resources are aligned would sway the company’s performance and competitive advantage. One of these resources is the way it is strategically oriented.
The dynamic capability theory highlights that a company need to build, incorporate and reconfigure both the inward and outward competitiveness in order to survive in the dynamic atmosphere. This is because the competence of a firm is dependent on efficient and effective integration of external and internal resources. Consequently, as Porrini (2004) suggest, a firm’s manager should consider the competitive environment and the external environment selecting an operational strategy for pulling together the internal and external resources. The capacity of a firm to establish, for example, appropriate alliance capabilities and inter-organizational learning creates necessary competitive advantage in an environment that is characterized by intense competition.
The study is motivated by the realization that the insurance industry in Kenya has witnessed increased level of competition in the last decade and with a low insurance penetration rate of around 3% (IRA, 2016); it has become imperative that firms establish new sources of competitiveness. The insurance firms need to change and align itself to the changing business environment and identify appropriate dynamic capabilities, from both internal and external environment that is a source of competitiveness. Hence the capacity to determine how a firms’ dynamic capabilities influence its level of competitive advantage facilitates streamlining of its operations.