Operationalizing Dynamic Capabilities and Market Orientation: Empirical Insights for Startups in Dynamic Environments

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Recent research in marketing emphasizes that aptly aligning a company's Market Orientation (MO) with its Dynamic Capabilities (DC) positively influences performance.Implementing both OM and DC can guide organizations in volatile environments to establish and sustain market presence (Correia et al., 2021;Randhawa et al., 2020;Wilden et al., 2019).
Given the observations, this study aims to explore the alignment of MO and DC in companies within dynamic settings.The objective is to propose a practical framework anchored in Dynamic Capabilities and Market Orientation, offering a foundation for long-term competitive advantage in such contexts.
Existing literature offers limited insight into DC's role in fostering innovation, especially in smaller firms (Randhawa et al., 2020).Recognizing which Dynamic Capabilities most effectively address environmental shifts remains a gap (Tabares et al., 2015).While the integration of MO and DC is critical to company performance, research in this domain remains in its early stages (Correia et al., 2021;Randhawa et al., 2020;Wilden et al., 2019).
There is also great interest from governments, policymakers, and researchers on how to facilitate the growth of new businesses in knowledge-intensive industries (Jones et al., 2013a;Urbano et al., 2019), as is the case with startups.However, although there is a vast body of knowledge about small and medium-sized companies and their marketing strategies, startups have not received the same level of attention in the literature (Ahmadi & O'Cass, 2016).

Market Orientation
MO is a strategic orientation of organizations coined in the late eighties, which became known mainly through the seminal works of Kohli and Jaworski (1990) and Narver and Slater (1990) (Ashwin & Hirst, 2015).Kohli and Jaworski (1990, p. 6) define WM, from a behavioral perspective, as "…is the organization-wide Generation of Market intelligence about current and future customer needs, dissemination of the intelligence across departments, and organization-wide responsiveness to it".

MO as culture
An organizational culture fosters activities that create exceptional customer value, thus allowing companies to sustain superior performance (Narver & Slater, 1990).

MO like behavior
Generation of market intelligence across the organization regarding current and future customer needs, dissemination of intelligence across departments, and responsiveness across the organization (Kohli & Jaworski, 1990).

MO as a resource or capabilities
A capability at the company level that connects it to its external environment allows the organization to compete by anticipating market requirements before competitors and creating lasting relationships with customers, channel members, and suppliers (Day, 1994).
Source.Prepared by the authors (2021).Narver et al. (2004) also introduced a way to explain MO through two dimensions: a proactive dimension and a responsive dimension.
The Proactive Market Orientation (PMO) aspect of MO zeroes in on forthcoming markets with a long-term view (Cai et al., 2015a).Through PMO, a company endeavors to anticipate and address the unexpressed or latent needs of consumers.While these needs are genuine, they may not be overtly stated or even recognized by the consumer (Cai et al., 2015b;Herhausen, 2016;Jaeger et al., 2016;Kocak et al., 2017;Lamore et al., 2013;Narver et al., 2004).
Based on the literature descriptions about the PMO and RMO presented, Chart 2 was prepared with the main attributes of each dimension and the corresponding theoretical support.Exploitation refers to activities aimed at enhancing and fine-tuning existing competencies and methods, while exploration targets potential markets and forthcoming trends (Chen, 2017;Herhausen, 2016).
A well-coordinated interplay between MO dimensions and Dynamic Capabilities can enable companies to sharpen their strategies and adapt effectively in fluid environments (Correia et al., 2021;Randhawa et al., 2020;Wilden et al., 2019).

Dynamic Capabilities
Dynamic Capabilities theory is currently considered one of the most promising approaches in the strategic agenda (Katkalo et al., 2010), having been related to different themes, levels of analysis, and theories (Schilke et al., 2018).
DC is understood as one of the two main types of capabilities of companies, along with Ordinary Capabilities (Kump et al., 2019;Schilke et al., 2018;Teece, 2014;2018a;Vu, 2020) and whose employment is positively associated with the generation of sustainable competitive advantages (Eisenhardt & Martin, 2000;Kump et al., 2019;Schilke et al., 2018;Teece, 2018a).Table 3 presents the main DC concepts.For the present work, the definitions presented by Teece (1997;2007) are considered to define DC as a metacompetence that goes beyond operational competencies and that seeks to understand and adapt to the contingencies characteristic of operations in dynamic environments to generate sustainable competitive advantages over long time horizons.
In this sense, the DC's main activities are a) Detecting environmental changes that may represent threats or opportunities through market and technology research; b) Respond to change by modifying existing capabilities in innovative ways or adding new capabilities through partnerships or acquisitions; c) Select the best arrangement and business model to deliver value to customers and generate superior performance (Kay et al., 2018;Teece, 2007).
Microfoundations are nuanced capabilities characterized by unique routines that are less commonly employed than typical capability routines.These foundations empower organizations to integrate, reshape, augment, or shed resources and ordinary capabilities (Eisenhardt & Martin, 2000;Teece, 2007;2018b).They entail refining, amalgamating, and cultivating new standard capabilities (Teece, 2018a).
On the other hand, higher-order capabilities can alter or discard other capabilities, encompassing both ordinary capabilities and microfoundations (Kump et al., 2019;Teece, 2018b).
These higher-order capabilities are segmented into three activity and organizational process categories: sensing, seizing, and transformation (or reconfiguration) (Bogers et al., 2019;Katkalo et al., 2010;Schoemaker et al., 2018;Teece, 2014;2018b).Sensing and seizing pertain to marshaling resources and strategies to pinpoint and capitalize on opportunities, while transformation emphasizes sustained rejuvenation for maintaining a competitive edge (Katkalo et al., 2010).Figure 1 visually depicts these capability types and the stance of higher-order capabilities.

Methodology
This section delineates the research approach addressing the proposed problem, detailing the methods and techniques for its orchestration and execution (Voss et al., 2002).In light of the literature's concerns, we will embark on a multiple case study focusing on startups.
Some authors argue that scales or measures may not adequately grasp innovative behaviors, often missing the foundational activities, attitudes, and behaviors of a company (Fillis, 2010;Jones et al., 2013a).Adopting a qualitative lens can yield deeper insights and foster a more intimate connection between the researcher and the subject (Fillis, 2010).
In terms of time scope, this study will adopt a longitudinal approach.Analyzing over extended periods offers a heightened probability of observing the sequential nature of events and discerning causative relationships (Miguel, 2007;Voss et al., 2002).Such a temporal approach can enhance the internal validity of the findings and mitigate risks of participants' potential recall biases or forgetting pivotal events (Leonard- Barton, 1990;Trentin et al., 2015;Voss et al., 2002).It remains particularly apt for deciphering how processes distinctly impact companies over time (Jones et al., 2013b;Perez et al., 2013).
This way, qualitative research was conducted based on a study of multiple cases, with an explanatory character and a longitudinal time horizon.In Figure 2, the main activities of this research are presented, each step being detailed in the sequence.

Construction of the Theoretical Model
A bibliographical analysis was conducted in the exploratory phase of the research to understand the state of the art regarding the Marketing of companies such as startups to identify gaps and research opportunities.The results of this analysis (Ribeiro & Lacerda, 2023) were the basis for identifying the problem and defining the objectives of this project.
The Knowledge Development Process -Constructivist (ProKnow-C) method developed by LabMCDA from the Federal University of Santa Catarina -Brazil (Becker et al., 2022;de Lima et al., 2023) was used for this step.

Planning the Cases
For the research, case studies of multiple startups were used to increase external validity, minimize the possibility of observer bias (Voss et al., 2002), and enable greater generalization of results (de Oliveira Lacerda et al., 2017;Eisenhardt, 1989;Miguel, 2007).
For case selection, relevance to the conceptual framework and research questions was considered (Eisenhardt, 1989;Voss et al., 2002).In this way, the criteria defined, based on the definition of startups (Ries, 2011), that the companies in the study should: a) Have up to five years of foundation at the beginning of data collection; b) Present a business model and products based on high technology and some type of engineering, be it electrical, mechanical, or software; c) Have several effective employees below 99, being considered small companies, according to the classification of the Brazilian Micro and Small Business Support Service (Sebrae); d) Be part of a startup incubation, acceleration, or mentoring project that validates it as such; e) Be located or be operated totally or partially in Santa Catarina.
Therefore, the companies described in Chart 4 were defined as research cases.

Conducting the Pilot Case
The company Rentou, already part of the case studies, was used as a pilot case.The pilot case aims to verify the adequacy of data collection and provide improvements and adjustments in application procedures (Miguel, 2007).Furthermore, it enables the first empirical verification of the theoretical model, which can also be adjusted when necessary.

Collecting the Data
This research relied on multiple secondary and primary data sources to ensure triangulation.Institutional documents of the companies, data from participant observation, and semi-structured interviews were considered.Secondary data come from the UFSC Integration Laboratory between Research and Entrepreneurial Practices database (LIPPE/UFSC).

Analyzing the Data
Once the body of research data was formed, considering the multiple sources of evidence, the analysis phase began with the ATLAS's help.ti®software.Interview transcripts, participant observation notes, and document analysis were inputted into the software, facilitating the coding and visualization processes to support comprehensive analysis.
Post-coding, panels were constructed to present codes and scrutinize event sequences for each case (Miguel, 2007;Voss et al., 2002).These panels were utilized for cross-analysis, highlighting alignment or disparity across evidence sources, as well as discerning patterns and interrelationships among codes (Miguel, 2007;Voss et al., 2002).Findings were then juxtaposed with existing literature to align the results (Miguel, 2007).

Generating the Report
Finally, the report was generated, presenting the theoretical implications -with the theoretical model -and the practical implications -with the practical framework.The Framework's structure was inspired by the project management guide PMBOK (Project Management Institute -PMI, 2008).

Theoretical Model
In the theoretical model construction, MO is proposed as a strategic direction that the organization pursues.
Adopting MO activates DCs, serving as unique and invaluable resources that ensure MO's objectives are met.The dimensions that characterize MO include proactive (PMO) and responsive (RMO), while DC encompasses Sensing, Seizing, and Transformation practices.Both concepts collaboratively function when firms engage with dynamic environments.
DC and MO equip firms with processes to pinpoint both overt and latent market demands in fluctuating environments.Once informed, MO ensures company-wide information dissemination, aiding in decision-making.Subsequently, the organization determines which demands to cater to and how to deploy its DC.Consequently, DCs play a pivotal role in detecting (sensing) and capitalizing on novel opportunities by reshaping resources (transformation).
In our proposed model, DC dimensions correlate with the two MO dimensions, albeit differently.With RMO, DC assists in market scanning for existing opportunities (sensing) related to consumers' explicit demands.Capitalizing on these opportunities (seizing) ties in with routine operations.Meanwhile, alterations in products and business blueprints (transformation) target customer loyalty, addressing immediate demands, and ushering in incremental innovations derived from customer requests.
Regarding the PMO, DCs engage in activities related to creating new opportunities.In this sense, market scanning (sensing) is linked to identifying latent demands, new technologies, and information supporting decisions related to radical innovations.Seizing and transformation actions will aim to materialize these radical innovations in favor of the identified latent demands.Figure 3 illustrates these relationships.DC acts in an interrelated way with the two dimensions of MO but favors decision-making with different objectives.
In the RMO, the DC assists in carrying out incremental innovations and taking advantage of existing opportunities, while in the PMO, the DC looks for radical innovations and the creation of new market opportunities.

Practical Framework
The first point of construction of the Framework was the definition of the areas of knowledge involved.These areas were based on DC and MO theories.Chart 6 demonstrates the areas and their provenance related to CD theory.The second step consisted of defining the process groups, which were defined based on the MO dimensions.Table 7 shows the resulting groups.Based on these definitions, knowledge areas intersected with process groups, determining the Framework's component processes.These were assessed in case studies to empirically identify them through longitudinal analyses.The integration of Dynamic Capabilities (DC) with Market Orientation (MO) in startups within dynamic settings was scrutinized via their everyday activities aiming for competitive edges.
This unveiled a clear link between MO and DC in these entities, pinpointing 23 specific processes.Supported by compelling evidence from the case studies, these processes account for roughly 80% of the processes initially spotted in the systemic review, as detailed in Table 8.Examples of the evidences and codes from cases to legitimate the framework are presented in Table 9.The full list of evidences can be found in supplementary material.
Table 9. Examples of evidence considered in the construction of the framework

10:3
The initial product is software for property customizations.The problem we were solving was the difficulty for construction companies to offer customizations in properties.(With the product) They had a reduction of up to 80% in management costs and an increase of up to 20% in revenue.
Perform diagnostics on current products 10:5 First year we earned R$75,000.Second year we earned R$275,000.The projection with this product this year was to earn R$855,000.Because we have already managed to solve the pain of several construction companies.
So you start to have patterns like that.It is important to point out that not observing the processes in the research, leading to their exclusion from the framework, does not eliminate their existence or importance.This may indicate that new studies should be conducted with other companies to validate their presence.
The processes presented in Table 8 structure the practical Framework set out in Annex A.
Practical Framework serves as an invaluable resource for startups.Designed explicitly for entrepreneurs aiming to navigate the complexities of dynamic landscapes, this tool underscores the necessity to both harness a company's dynamic capabilities and to adopt a resolute market focus to remain competitive.
Anchored in the tenets of Dynamic Capabilities and Market Orientation, and further reinforced through empirical field validation as detailed in the third chapter's methodology, the Practical Framework stands as a strategic guide for startups in fluid market conditions.

Conclusion
Focusing on the theoretical constructs of DC and MO, this study uses a systemic analysis based on Sensing, Seizing, and Transformation (for DC) and Proactive and Responsive Market Orientation (for MO).We propose a theoretical model connecting these constructs, tailored for startups in dynamic settings.Analyzing the practical implementation of MO and DC in startups adds value to literature.The collective impact of these processes on company performance remains an under-researched topic (Correia et al., 2021;Randhawa et al., 2020;Wilden et al., 2019).
Following this, we construct a practical framework based on the theoretical model and empirical evidence from various case studies.This aids startups in dynamic settings to cultivate long-term competitive advantages.In the companies examined, practical operationalization and routine activities embody elements of both MO and DC.These practices intertwine the two constructs, leveraging principles from both to capture and innovate market opportunities.Consequently, companies exercise MO as a capability to secure sustainable competitive edges over time.
This provides economic value to society, as standard marketing paradigms fall short in capturing startup marketing dynamics (Whalen et al., 2016).Given startups navigate swiftly evolving markets, they require specialized tools.
Future studies might replicate this methodology across various regions in Brazil and globally, including new company profiles and expanded samples, contributing to generalizations.A deeper dive into the Transformation aspect of DC is recommended, given its limited evidence in our findings.This paves the way for richer insights into the interplay between DC and MO within startups in dynamic settings, and how this relationship manifests in diverse contexts and growth stages.
We anticipate our proposed framework will serve as a roadmap for startups and can be adjusted to enhance its usability.It aims to help them navigate dynamic market challenges, maintaining long-term competitiveness.By aligning Dynamic Capabilities with Market Orientation, startups are better positioned to recognize and capitalize on evolving market opportunities.

Figure 1 .
Figure 1.Types of Capabilities

Figure 3 .
Figure 3. Relationship between DC and MO in dynamic environments Source.Prepared by the authors (2021).

Table 1 .
Main perspectives in the MO literature

Table 2 .
PMO and RMO attributes

Table 4 .
Research cases

Table 5 .
Research data sources

Table 6 .
Practice framework knowledge areas

Table 7 .
Framework process groups Source: Prepared by the authors (2021).

Table 8 .
Processes considered in the construction of the framework Source: Prepared by the authors (2023).
Minimum Viable Product, or in Portuguese, minimum viable product is a way to validate a product or service.It could be a prototype, a presentation, a survey, a graphic representation, etc. Conducting market experiments, A/B tests and trial and error sessions based on hypotheses.Minimum Viable Product, or in Portuguese, minimum viable product is a way to validate a product or service.It could be a prototype, a presentation, a survey, a graphic representation, etc.Minimum ViableProduct, or in Portuguese, minimum viable product is a way to validate a product or service.It could be a prototype, a presentation, a survey, a graphic representation, etc.