Second-Order Dynamic Capabilities: How Do They Matter?

Similar to the fairly well-established distinction between substantive capabilities and dynamic capabilities, a further distinction can be made between first-order dynamic capabilities (which have been the subject of much interest and debate over the past two decades) and second-order dynamic capabilities (which have received considerably less attention thus far). Based on a large-scale survey study in the context of strategic alliances, this paper empirically examines second-order dynamic capabilities in two ways. First, I find that, for the most part, the performance effect of second-order dynamic capabilities is indirect and mediated by first-order dynamic capabilities. Second, results show a negative interaction between first- and second-order dynamic capabilities, suggesting that they function as substitutes in affecting performance outcomes. These findings contribute to a better understanding of the interplay between levels of the dynamic capabilities hierarchy.