Strategic renewal and the change of capabilities in utility firms

Purpose: The purpose of this paper is to analyze how strategic renewal affects the reconfiguration of capabilities. In the context of organizational change in a large utility firm, we examine the evolution of the capability structure, and explain the emergence and persistence of capability gaps. Design/methodology/approach: The paper uses an inductive multiple case study methodology to compare four processes of capability reconfiguration at Eskom, South Africa's electricity supplier. Findings: The results show that strategic renewal unfolds through different processes, which vary in their impact. Some processes have an immediate effect in closing capability gaps. The impact of others is with a significant time lag. Most critical, however, are processes that widen capability gaps. As a result, firms may face severe and persistent performance deficiencies. Research limitations/implications: Prior research has only marginally addressed the relationship between strategic renewal and capability reconfiguration, and has largely neglected emerging capability gaps. Practical implications: Strategic renewal may cause unintended crowding out effects of specific capabilities. Managers need to consider these potential implications of strategic renewal. Social implications: Understanding the challenges of how to improve the performance of utility services is crucial for economic development, welfare and social inclusion. Originality/value: This study importantly highlights that the emergence of capability gaps is a common phenomenon rather than an exception in strategic renewal processes. The findings contribute to the strategic renewal literature and to management research in infrastructure sectors.