157 Copyright © 2014, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. Chapter 8 DOI: 10.4018/978-1-4666-4884-5.ch008 Managing Knowledge through Dynamic Capabilities ABSTRACT The aim of this chapter is to provide an insight into the interaction of innovation and learning through an integrative view of knowledge management and dynamic capabilities approaches. Firstly, theoreti- cal foundations of the dynamic capabilities perspective and knowledge management are presented. The chapter further explores the existing theoretical linkages between knowledge management and the dy- namic capabilities approach, as well as their potential impact on organizational performance, within the framework of human resource practices, relevant for achieving successful knowledge transfer. The existing theoretical foundations are used to provide a generalization, leading to an integrative theoreti- cal model, which should serve as a basis for further empirical verifcation. DYNAMIC CAPABILITIES IN AN ORGANIZATION According to Teece, Pisano and Shuen (1997), a dynamic capability refers to an organizational ability Alpha ability to integrate, build and trans- form internal and external competencies. They can help an organization to achieve innovative forms of competitive advantage by responding to changes in the environment. Eisenhardt and Martin (2000) define dynamic capabilities in a similar manner, i.e. in the context of achieving organizational change, aligned to the external pressure: namely, these capabilities are perceived as business processes that use resources – specifi- cally the processes of integrating, restructuring, acquiring and releasing resources – to adapt or create market changes. Dynamic capabilities are especially helpful in explaining the sources of competitive advantage in extremely volatile markets (Macher, Mowery, 2009). Dynamic capabilities are determined by or- ganizational and managerial processes, positions and paths. The organizational and managerial processes refer to routines, i.e. current practices in an organization, such as coordination, integration, Niksa Alfirevic University of Split, Croatia Anita Talaja University of Split, Croatia