Entrepreneurship and Dynamic Capabilities: Modeling an Elusive Interrelationship

There is no clear conceptual model for the interrelationships between dynamic capabilities, entrepreneurship, innovation and economic growth. In this paper, we take a holistic approach to bringing together these concepts into a quantifiable model. In order to do this, we first examine the different perspectives taken in the literature as well as in existing indices that analyze and attempt to quantify dynamic capabilities and entrepreneurship. This forms the basis for developing a new model that incorporates different elements into a single framework for analysis.Aim of Study: To develop a model that brings together the interrelationships between dynamic capabilities, entrepreneurship, innovation and economic growth. Some researchers (Lei-Yu 2007 ) suggest that entrepreneurial activities are antecedents of dynamic capabilities while other researchers identify dynamic capabilities as a moderating variable for developing innovations (Zahra, Sapienza and Davidsson 2006). However the distinction between dynamic capabilities and entrepreneurship is not always straightforward. We believe that dynamic capabilities are responsible for the implementation of innovative practices as well as new knowledge and concept development through learning while entrepreneurship provides impetus to apply new knowledge and concepts through experimentation and institutionalization of innovations. Together, they result in a double loop for organizational learning.Methods Used: First we summarize the existing literature and assess global indices for entrepreneurship and innovation. Second, we review quantitative research studies measuring dynamic capabilities. We critically assess the approaches taken and develop our own model that combines entrepreneurship, innovation and dynamic capabilities into a single model.Results obtained: Through reviewing the current literatures and approaches used to quantitatively measure and rank entrepreneurship and dynamic capabilities, we construct a new three-level model that incorporates the elements that influence entrepreneurship, innovation and dynamic capability development. The first level of our model focuses on Macro-level factors such as the institutional and regulatory environment, business risk and stability. The second level of our model address 'Dynamic Capabilities' at the firm level adapting the 5x5 matrix approach proposed by Mattson & Fuglsang (2011). The third and final level of our model focuses on 'Entrepreneurship' development in terms of individual level factors such as opportunity recognition, willingness to start, skill-level, etc.Conclusions: In this paper, our goal was to explore the different approaches for quantifying entrepreneurship, innovation and dynamic capabilities. Based on a review of the existing literature, we identified the key methodologies used to measure, and in the case of entrepreneurship and innovation, to compare rank and score countries according to a set of designated criteria. Most studies on dynamic capabilities focus on firm-level attributes and have not been incorporated in cross-country analysis. As a result, we believe that a quantitative model that addresses all three areas: entrepreneurship, innovation and Dynamic capabilities also needs to include three dimensions for analysis: macro-level, firm-level and individual-level conditions and characteristics. We propose and present a model and variables that incorporates this tri-level approach for analysis.