Dynamic capability and organizational performance: Evidence from mutual funds

Understanding the processes enabling effective adaptation in dynamic markets, i.e. firms' dynamic capability, is a question of great interest and significance to strategy scholars and practitioners alike. Yet, in spite of considerable research effort, there is still substantial disagreement about the nature of firms' dynamic capabilities and their performance impact. This study examines whether superior performance in dynamic markets is achieved through highly routinized resource allocation processes or rather through less routinized processes designed to leverage managerial cognition and judgment. It further investigates whether the relative effectiveness of the former versus latter view of dynamic capability is contingent on the uncertainty of the environment organizations operate in. Analyzing the performance of U.S. diversified equity mutual funds in different environments, this study finds that highly routinized resource allocation processes do not lead to improved performance in relatively stable (low uncertainty) environments, yet substantially degrade performance in highly uncertain environments.