Dynamic Capabilities and Firm Performance: Empirical Evidence from Small and Medium-Sized Accountancy Firms in the UK

Abstract

Background  With continuous change in the business environment in which SMPs operate in the UK, resulting in failure of many such firms, the importance of sustainable improvement in performance of these firms cannot be over emphasized. It is argued in this study that such improvement in performance is engendered by the firms’ dynamic capabilities. Therefore this study was motivated by the need to identify the dynamic capabilities and evaluate how such competencies enable the firms to improve their long-term performance, notwithstanding environmental challenges, thereby filling the gap in the literature. It therefore sought to investigate the direct and indirect relationships between dynamic capabilities and performance as well as the relationships between dynamic capabilities.
A mixed research methods approach was adopted with quantitative data collected from 315 SMPs across the UK through a structured questionnaire, and analysed using SEM. The qualitative data was collected through semi-structured interviews conducted with 10 SMPs. 
Key Findings & ImplicationsThe results demonstrate that strategic leadership does not only have direct influence on ambidexterity of the firm, but that it also has indirect effects through organisational learning, and alliances &networks dynamic capabilities. This extends the results of previous research (e.g. Lubatkin et al. 2006). 
The study also shows that the direct effect of strategic leadership on firm performance is positive but non-significant although its total effects are significantly positive. Theoretically, this implies that although strategic leadership as a first-order dynamic capability is important, it is only with the deployment of the other higher-order dynamic capabilities that the firm will maximise the effects of its dynamic capabilities on its performance. 
Furthermore, SMPs use their alliances & networks primarily to learn and gain new knowledge, than as a direct source of innovativeness. It equally shows that, secondarily, SMPs use the services offered by network partners to diversify their service provision, thus impacting on the firm’s innovativeness and on performance consequently.
The study illustrates that in the accountancy practice industry in the UK, environmental turbulence also includes legislative (regulatory) turbulence. This is important because although SMEs are required to comply with such changes, SMPs as their business service providers and consultants have to act promptly by deploying their DCs in order to address the challenges and seize opportunities brought about such changes. 
In addition, SMPs can be split according to their growth orientation –growth oriented and non-growth oriented SMPs. This distinction is vital in understanding why certain SMPs do not seek new clients and may explain the attitude towards investing in, and deploying dynamic capabilities by firms. This distinction has implication for firms that decide to pursue or not to pursue growth.

Date of Award	2017
Original language	English
Awarding Institution	Coventry University
Supervisor	Kamil Omoteso (Supervisor) & Sina Yekini (Supervisor)