Dynamic Capabilities in Small Software Firms: A Sense-and-Respond Approach

Small software firms find themselves in highly complex and turbulent environments that require dynamic capabilities to build, integrate, and reconfigure resources. While the literature describes a portfolio of dynamic capabilities that can help the small software firms in adaptation, there are no comprehensive approaches available. We use a sense-and-respond framework as a lens to study the dynamic capabilities in two software firms, Starter Inc. and Mature Inc. The framework integrated the activity- and firm-level capabilities related to input, process, and output of software development. The framework also revealed important variations in sense-and-respond practices as a reflection of differences in maturity between the two firms. We argue that the framework offered a comprehensive and useful approach to understand the dynamic capabilities in the two firms, and on that basis we suggest the principles for how managers can apply the framework to small software firms.