How Do Firms Develop New Capabilities? Leica’s Rocky Road from Analog to Digital Imaging

Abstract

Organizational capabilities are generally considered one of the major sources for the generation of competitive advantages. But due to environmental dynamics, competitive advantages happen to dissolve, thereby challenging firms to reconfigure their capability architecture and to develop completely new capabilities. Empirical evidence from various industries however shows that these attempts in many cases fail. More has to be learned about successful capability renewal. By exploring an extraordinary case of an impressive capability renewal, we try to shed light on the underlying mechanisms and drivers. It is the case of Leica Camera, a classic analog photography firm that successfully managed to become a different type of company during the digital photography revolution. The Leica story highlights the role of implanting external capabilities, powerful entrepreneurial intervention, and overcoming path dependencies in building new capabilities. In conclusion, the paper makes the case for an alternative theoretical explanation beyond dynamic capabilities and the idea of resource reconfiguration. Thus, this study contributes to a better understanding of how firms can develop new capabilities in dynamic, possibly competence-destroying business environments.