Unpacking the micro-foundations of dynamic capabilities in retail banking: the roles of strategic alignment, leadership, and organisational structure

Purpose This study aims to examine the micro-foundations of dynamic capabilities in the Irish retail banking sector, focusing on strategic alignment, leadership and organisational structure. It investigates how banks navigate regulatory constraints while sustaining competitiveness in a rapidly evolving financial landscape. Using Institution Omicron as a case study, the research identifies structural rigidities, risk-averse leadership and resource gaps that hinder dynamic capability development. To address these challenges, the study introduces two novel frameworks: the Capability Development Framework, which aligns strategic goals with regulatory compliance, and the Capability Implementation Framework, which ensures structured execution and continuous adaptation. Design/methodology/approach This qualitative case study integrates 14 semi-structured interviews with senior banking executives and financial data analysis to explore the operation of dynamic capabilities within a regulated financial institution. Thematic analysis identifies key constraints, including strategic misalignment, conservative decision-making and digital skills shortages. Findings The study reveals that regulatory constraints reinforce organisational inertia, limiting banks’ ability to reconfigure resources and enhance adaptability. While dynamic capabilities are often linked to agility, this research demonstrates that in compliance-driven sectors, they require structured adaptation rather than unrestricted flexibility. Practical implications The proposed frameworks offer actionable insights for financial institutions and other regulated industries, such as healthcare and telecommunications, to enhance strategic adaptability while ensuring compliance. Key recommendations include fostering leadership agility, embedding cross-functional collaboration and developing internal expertise in digital innovation. Originality/value This study extends dynamic capability theory by demonstrating that in heavily regulated environments, competitive advantage depends not solely on agility but on structured adaptation within institutional constraints. The introduced frameworks provide a novel approach to balancing compliance with innovation, offering transferable insights for strategy execution in regulated industries.