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Keywords:

  • capabilities;
  • strategic entrepreneurship;
  • public organizations

Public organizations are relatively understudied in the strategic entrepreneurship literature. In this article, we submit that public organizations are usefully analyzed as entities that create and capture value in both the private and public sectors and that a capabilities lens sheds important new insights on their behavior. As they try to create and capture value, public organizations can act entrepreneurially by creating or leveraging bundles of capabilities, which may then shape subsequent entrepreneurial action. Such processes can involve complex interactions among public and private actors. For example, public organizations often partner with private firms to produce existing products, create new products, and establish new markets which, in turn, generate new capabilities for both public and private actors. Yet such coevolutionary processes are not guaranteed to create value, and capabilities acquired in the pursuit of public interests may, over time, enable activities that damage those same interests. We show how a capabilities approach helps explain the nature and evolution of public organizations and we apply this approach to a series of cases on the growth and diversification of public organizations, the private provision of public goods, and related issues. Copyright © 2013 Strategic Management Society.