A Decision Model for Dynamic Capabilities Based on Learning Effects

The innovation-based competition becomes the mainstream in time of the new economy. Under this form of competition, conducts of rivals, changes of environments, or emergences of new technologies all can erode the heterogeneous competencies of the target company very quickly. There are two ways for companies to adapt to the changing environment, the ad hoc problem solving mode and the dynamic routine mode. This paper discussed how to choose the proper change mode by comparing their cost structures. We found that the slope of the cost curve of the dynamic routines would decline with the increase of the frequency of changes because of the learning effects. Moreover, every company has its special turning point based on the cost structure and learning efficiency. Then we deduced a equation to find such turning point, and discussed the methods to calculate the key parameters in the decision model and its typical uses under two special scenarios