Understanding the use of dynamic capabilities in response to an economic crisis

Abstract

Abrupt, extreme and unpredictable changes in the economic context of a country creates significant uncertainty for businesses. During such periods, corporate leaders must navigate turbulence by implementing response strategies and leveraging internal capabilities. Achieving strategic alignment between the external environment and internal resources becomes essential for sustaining both long and short-term business performance. This study investigates how executive decision makers strategically respond to economic crises, drawing on dynamic capability theory to examine the capabilities leveraged during such periods. A qualitative, explorative research methodology was adopted involving 12 semi-structured interviews with senior executives from nine sectors in Botswana - banking, insurance, consumer finance, specialty finance, hospitality, healthcare, real estate, non-government and mining contracting. Using a combination of inductive and deductive thematic analysis, an integrative model illustrating the interplay between economic crises, firm response strategies and dynamic capabilities was developed. Findings reiterate that crises amplify strategic differences and reward foresight. Economic crises do not uniformly result in firm-level crises and organisational responses. The responses, which are exploitative and/or explorative in nature, are varied and contextually dependent, spanning perseverance, retrenchment, and renewal. Moreover, firms deploy, and leverage scanning, seizing and reconfiguring capabilities in varied combinations depending on their context and resources. These insights underscore the nuanced and context-dependent nature of strategic responses to economic crises.