Dynamic capabilities in institutionalized public services: managerial microfoundations and direct performance effects in English hospitals

Why do some public service organizations outperform others despite the same institutional constraints? Drawing on dynamic capabilities theory, we examine how dynamic managerial capabilities (DMCs) enable dynamic organizational capabilities (DOCs) influencing performance in institutionalized contexts. Using multi-respondent survey data from 127 English hospitals, combined with independent performance ratings, we test these relationships using PLS-SEM. Findings show DMCs - collective leadership (human capital), internal and external social capital, and bias for action (managerial cognition) - strongly predict DOCs. In turn, DOCs directly affect evolutionary fitness performance. The study makes three contributions. First, it advances the microfoundations agenda by showing how managerial attributes aggregate into organizational adaptation. Second, it clarifies when direct versus mediated capability-performance models are appropriate by linking this to the evolutionary-technical fitness distinction. Third, it demonstrates hierarchical PLS-SEM for modeling multidimensional capabilities. For practice, results suggest investing in relational infrastructure, distributed leadership, risk-tolerant cultures, and stakeholder engagement to enhance adaptive performance.