Against All Odds: Adapting to Technological and Market Change in the EU Telecommunication Sector

Literature in strategic management highlights many cases of incumbent’s failure, a scenario that verifies when established companies lose their dominant position consequently to a shock of various nature. The European telecommunication industry offers us a quasi-experimental setting that gives a challenging opportunity to analyze a framework where incumbents did not fail, despite potentially disruptive shocks occurred. We claim that dynamic capabilities played a major role here. Telco operators created, maintained, modified and adjusted dynamic capabilities in conjunction with two events: the liberalization of the industry and the advent of over the tops. Our results, which are empirically grounded in 18,367 pages of archival material and 60 in-depth semi-structured interviews conducted to different managers of four former telco monopolists, show support for a theoretical mechanism according to which firms continuously create, adjust, and use dynamic capabilities to survive changes. More specifically, when a shock occurs, firms use previously accumulated dynamic capabilities and, at the same time, develop new ones. Newly generated dynamic capabilities, then, are reshaped and adjusted though various organizational processes, such as acquisitions and employees’ renewal, and become ready to be used consequently to a future shock. Thus, our results show that dynamic capabilities are essential to cope with external shocks, but at the same time these shocks also foster the development of new dynamic capabilities.