Identifying, Enabling and Managing Dynamic Capabilities in the Public Sector* Amy L. Pablo, Trish Reay, James R. Dewald and Ann L. Casebeer University of Calgary; University of Alberta; University of Calgary; University of Calgary  In this paper, we examine how a public sector organization developed a new strategic approach based on the identification and use of an internal dynamic capability (learning through experimenting). In response to the need for continual performance improvement in spite of reduced financial resources, this organization engaged in three overlapping phases as they shifted to this strategic approach. First, managers identified appropriate latent dynamic capabilities. Next, they used their leadership skills and built on established levels of trust to enable the use of these dynamic capabilities. Finally, they managed the tension between unrestricted development of local initiatives and organizational needs for guidance and control. INTRODUCTION Public sector managers are increasingly expected to use managerial strategies to improve organizational performance – even in times of decreasing financial resources. Accord- ingly, strategy in the public sector has become an increasingly relevant research topic (Llewellyn and Tappin, 2003). Since public sector organizations exist to meet the needs of particular client groups rather than achieve profits (Collins, 2005), strategic approaches in the public sector typically focus on ways to maximize organizational performance. When external resources are limited, organizations are forced to look internally for potential areas of expertise. This internal focus connects with a growing recognition that organizational performance is strongly influenced by individual actions at multiple levels of a public sector organization (Currie and Proctor, 2005). Therefore, strategy development in public sector organizations must take account of internal resources and a range of key strategic actors. Although the public sector literature is giving increased attention to strategy, there have so far been few explanations about how public sector managers develop and implement new strategic approaches. In studies based on the private sector, the internal Address for reprints: Amy L. Pablo, Haskayne School of Business, University of Calgary, 2500 University Drive NW, Calgary, Alberta T2N 1N4, Canada (amy.pablo@haskayne.ucalgary.ca). © Blackwell Publishing Ltd 2007. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. Journal of Management Studies 44:5 July 2007 doi: 10.1111/j.1467-6486.2006.00675.x