Injecting Dynamic Capabilities Thinking into the New Zealand Primary Sector

Hard Question: How can New Zealand’s current competitive advantage be improved?

Traditional Answer: Incremental progress on better commodity strategies?

Our Answer: Develop dynamic capabilities to sense, seize, and transform/shift

Learn about New Zealand business and economic conditions and opportunities, especially regarding the primary sector, in the context of the dynamic capabilities framework, in this informative and example-filled presentation from Dr. David J. Teece, the founder of dynamic capabilities and the world's most cited scholar in business and management.

David J. Teece is Distinguished Scholar of Strategy and Innovation at the University of South Florida, and Professor of the Graduate School at the University of California, Berkeley. Originally from New Zealand, where he owns Mount Beautiful Winery and several other businesses, Dr. Teece serves as Chairman Emeritus of the Berkeley Research Group, which became majority-owned by Tower Brook partners in February 2025. He is the author of over thirty books and two hundred scholarly papers and co-editor of the Palgrave Encyclopedia of Strategic Management. Dr. Teece has received nine honorary doctorates and has been recognized by Royal Honors. As the world's most cited business and economics professor, his pioneering work on the Dynamic Capabilities Framework has fundamentally shaped how organizations understand competitive advantage in rapidly changing environments.

1. 2015 Stanford Bootcamp
Stanford Business School
David J. Teece
Tusher Center for Intellectual Capital Management
Haas School of Business, University of California, Berkeley &
Berkeley Research Group
July 2, 2015
Copyright David J. Teece 2015 1

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Part 1: Escaping the Low Rent Trap in the
New Zealand Primary Sector
Part 2: “Sensing” Capabilities Require
Abductive Reasoning
Part 3: The Dynamic Capabilities
Framework

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4. Fisheries: How does New Zealand get a 20- 30%
price premium; is New Zealand selling a
high- quality product for a commodity
price; if so, why?
Beef: Does New Zealand beef have brand value
supporting a 20-30% price premium?
Lamb: Does New Zealand lamb have brand value
supporting a 20-30% price premium?
Dairy: Does New Zealand dairy have brand value
supporting a 20-30% price premium?
Wool: Does New Zealand wool have brand value
supporting a 20-30% price premium?
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5. Hard Question: How can New Zealand’s current competitive
advantage be improved?
Traditional Answer: incremental progress on better commodity
strategies?
Our Answer: Develop dynamic capabilities to sense, seize, and
transform/shift
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7. •Strategic “fit” over the long
run (evolutionary fitness)
•Sensing, seizing, shaping
and transforming
•Difficult; inimitable
•Technical efficiency in
basic business functions
•Operational,
administrative, and
governance
•Relatively easy; imitable
Ordinary
Capabilities
Dynamic
Capabilities
Doing things “right”
Doing the “right” things
Purpose
Tripartite
schema
Imitability
7

8. Standard Solution:
Rationalization/Consolidation
Dynamic Capabilities solution:
Product and process innovation employed to enhance open
innovation
Crowd sourcing: Think of all the great ideas you will get
from people suggesting what we can do to improve
matters
Branding: Not sure there is a single strong New Zealand
brand, other than New Zealand itself?
Brand v. Labels: A label is not a brand. A brand is a story,
and a customer relationship/experience is built on trust
that is sufficiently valuable to support a 20- 30% price
premium
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There is little about New Zealand history which suggests the
primary sector is willing and able to transform in the manner
necessary to strengthen its competitive advantage
New Zealand doesn’t have enough cost advantage to be
competitive at the commodity level: Brazil, Argentina,
Canada, Chile, the Ukraine, and the U.S. are likely to win on
that criteria, at least over the next 20 years
Since New Zealand isn't the lowest cost producer, and doesn’t
aspire to be, radical approaches are necessary in order to
enhance New Zealand’s standard of living

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1.Few New Zealand farmers go direct- to-consumer, unless the
consumer is in New Zealand
2.Marketing is accomplished by in-market intermediaries and/or
cooperatives
3.Cooperatives are too fragmented to take major new product concepts
from origination through to market
4.Government spends $400 million a year on R&D in the primary sector;
the private sector should be spending 5x that on R&D; it is not
5.Cooperatives are not particularly entrepreneurial as they need a
collective mandate from the farmers/members
6.Economic “rents” always go to the owners of bottleneck assets
7.New Zealand interests do not have significant control over any
distribution
8.The bottlenecks are rarely in the primary producers control. Absent a
“breakout” strategy. The primary producer gets the “short end of the
stick”
Current Predicament: Underinvestment in innovation and market
development

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1.Commodity production
2.Centralized marketing (legacy of marketing boards)
3.Fragmented farming sector structure due to the
breakup of the big stations. In 1883 the breakup of
the 84,755 acre Cheviot Estate in North Canterbury
(the first such breakup) led to family farms with weak
balance sheets
High leverage of the New Zealand farm sector means New
Zealand farmers don’t have the capital to invest for the
long run

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1.Embrace science, technology, a more radical
vision, bold innovation, open innovation… along
with the associated entrepreneurship and heavy
investment
2.Polishing New Zealand food security/standards
reputation and track record can help build market
presence
3.Employment of
mobile technology is a place
where New Zealand can differentiate by providing
information on the food chain
4.Vertical integration through to the market
5.Farm consolidation to get requisite scale

13. Creates new opportunities to grow oversees
in niche markets (e.g. Vietnam) where brands
can be built at lower cost (because markets
can’t mature)
Is TPP the catalyst to bring about the
necessary transformation?
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15. The ability to foresee future opportunities and
threats… what Jack Welsh (CEO of GE) once
referred to as the ability to “see around the
corners”
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16. Explanations are developed for surprising or anomalous behavior/phenomenon
Whereas induction & deduction depend on the past, abductive reasoning moves ahead
through “logical leaps of the mind”
In contrast to inductive reasoning, or sense-making, abductive reasoning uses all
available data in a search for patterns
Not used to determine if something is true or false, but to indicate a new path to “deep
truth” about a phenomenon or a situation
Once an abductive hypothesis is established, data is searched to test the hypothesis,
which in turn spurs original thinking
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If an investment option has a deductive logic , then the
options can only ever reflect thinking that started with a
proven template
If an option has an inductive logic
, then “new” options simply
follow an established template
Neither inductive or deductive logic allow one to escape the zero-profit trap
Abductive reasoning is the handmaiden of competitive differentiation and competitive advantage

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In order for companies to grow in dynamic and
changing environments, their executives must develop
sensing capabilities and use abductive reasoning while
suppressing a tendency to apply known rules
CEOs with superior sensing capabilities are more likely
to both identify and create new opportunities
Generative sensing capability can help forge new rules
and create new hypothesis which can lead to new
growth options

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20. 5 Forces
-industry
attractivenessis
thecentralfocus
-externalforces
dominate
-fate= static,
purelycompetitive
markets(low profit)
RBV
-VRINassets
drive value
creation
-barriersto
competi tion
determine
longevity
-all4 VRIN
traitsnecessary
to sustain
advantage
Dynamic
Capab ilities
-Org skills/assets
&decision-making
driveadvantage
-Market sare
dynamicand
competitionis
oftendisruptive
-Reshaping
ecosy stems &biz
modelsiscritical
1980s 1990s 2000+
breathof
orgz’limpac t
TheDynam icCapabi litymodelisonlythethirdsubstantiveframeworkfor
maintaining competitive adv antagetoemergein thelast35years
Market
dynamism&
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21. >“Balance sheet” view of assets
>Little emphasis on flexibility as the key to
success
>Resources, not capabilities, tend to matter
Old approach
>Recognition of “soft” assets
>Heavy emphasis on “orchestrating assets” for
deployment and redeployment
New approach
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22. The British Navy at the
Battle of Jutland, 1916
“There seems to be
something wrong with our
bloody ships today.”
Admiral John Jellicoe
“The real deficiency, however, was the loss of [Vice Admiral Horatio Lord] Nelson’s touch. It was not the bloody ships that were principally at fault. It was the inadequate doctrine of command and control.”
Frank Hoffman, “What we can learn from Jackie Fisher,”
Proceedings of the Naval Institute, April 2004, p. 70.
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23. SEIZE
•Revisepolicies/actions
•Restructureassets
•Reshape bus iness
model s
•Reviewdecisionmaking
SHIFT
•Co-specializedassets
•Governance/structure
•Beyondbest practi ces
•Vision/Mis sionalignment
SENSE
•Scanningprocesses
(continuous)
•Sense-making
(inc’ganalysis)
•Ecosystem
(re)shaping
•R&D/i nnovation
(invest/monitoring)
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24.  Operation, administration and governance
 Routines / standard operating procedures are key to ordinary
capabilities
 Ordinary capabilities reflect technical efficiency
 “Best practices” are strong ordinary capabilities
 Imitation by rivals is enabled by
More information in the public domain
Better business school training
Management consultants
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25. 25
Sensing
Identification of
opportunities &
threats at home
and abroad
Transforming
Continuous renewal
and periodic major
strategic shifts
Seizing Mobilization of
resources to
deliver value and
shape markets
Copyright David J. Teece 2015

26. •Strategic “fit” over the long
run (evolutionary fitness)
•Sensing, seizing, shaping
and transforming
•Difficult; inimitable
•Technical efficiency in
basic business functions
•Operational,
administrative, and
governance
•Relatively easy; imitable
Ordinary
Capabilities
Dynamic
Capabilities
Doing things “right”
Doing the “right” things
Purpose
Tripartite
schema
Imitability
26

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28. Ordinary capabilities are widely diffused:
The operations portion of the automobile business has been
thoroughly optimized over many decades, doesn’t vary much from
one automobile company to another, and can be managed with a
focus on repetitive process. It requires little in the way of creativity,
vision or imagination. Almost all car companies do this very well,
and there is little or no competitive advantage to be gained by
“trying even harder” in procurement, manufacturing or wholesale.
Competitive advantage requires dynamic capabilities:
Where the real work of making a car company successful suddenly
turns complex, and where the winners are separated from the losers, is in the long-cycle product development process, where short- term
day-to-day metrics and the tabulation of results are meaningless.


Bob Lutz, former vice chairman at General Motors
Wall Street Journal, June 11, 2011
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29. “ We had a culture in our forces, of excellence. It was
how good can I be at my task? How good can I be at
flying an airplane, dropping bombs, locating an enemy
target? But that’s not as important as how well those
pieces mesh together.”

“The real art is [in] cooperating with civilian agencies,
it’s cooperating with conventional forces, it’s tying the
pieces together. That’s the art of war, and that’s the
hard part.”
-Quotes from General Stanley McChrystal, Foreign Affairs (March/April 2013)
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30. A multidisciplinary framework that draws on numerous
fields, including:
•Business model design •Knowledge management
•Decision analysis •Leadership
•Economic analysis •Marketing
•Entrepreneurship •Operations management
•Finance •Organizational Behavior
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31. “A good strategy is a ‘specific’ and ‘coherent’ response to—and
approach for overcoming—the obstacles to progress.”
“A bad strategy is a list of blue sky goals or a fluff-and-buzzword
infected ‘vision’ everybody is supposed to share.”
- Strategy Kernel (Rumelt, 2009)Diagnosis Guiding
policy
Coherent
action
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32.  Ordinary capabilities involve “tuning
the engine”… a process of
optimization.
 Dynamic capabilities often involves a
change in strategy or in business
models. This allows “pivoting”
32
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33. Organizational and technological capabilities – lie
at
the core of corporate success, and learning is at
the core of capability building
Strong ordinary capabilities (operations,
administration, governance) are necessary but not
sufficient for long-run (financial) success
Strong
dynamic capabilities are both necessary and
sufficient for long-run (financial) success
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34. Ordinary capabilities are not usually enough to
yield sustained competitive advantage. Dynamic
capabilities coupled with a validated strategy
enable an organization to change in a manner that
supports evolutionary fitness and sustainable
advantage.
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Entrepreneurial managers
•excel at interpretation and synthesis
•foster a culture of learning to build
capabilities
•orchestrate (select, integrate, modify)
resources
•devise business models
•develop analyses that support strategy
formulation
•adjust strategy implementation
•keep the organization nimble
Copyright David J. Teece 2015

36. Firm
Performance
Sensing Seizing
Transforming
Perception and
Attention
Problem Solving
and Reasoning
Communication
and Social
Cognition
Opportunity
Recognition &
Creation
Strategic
Investment &
Business Model
Design
Asset Alignment &
Overcoming
Change Resistance
Sample
Managerial
Cognitive
Capabilities
Dynamic
Managerial
Capabilities
Potential
Strategic
Impacts
Copyright David J. Teece 2015
36
Source: Helfat & Peteraf (2015, p.837)

37. “Apple remains ahead of its rivals
in the ability to innovate and
“create magic” despite tougher
competition in key sectors like
smartphones and tablets… Apple
still has strong growth
opportunities because of its
ability to work simultaneously on
hardware, software and services…
Apple has the ability to innovate
in all three of these spheres and
create magic…
This isn’t
something you can just write a
check for. This is something you
build over decades.”
-Tim Cook, Apple CEO (Taipei Times, February 2013)
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