Dynamic capabilities refer to a firm's ability to adapt and respond to changes in its environment in order to achieve sustained competitive advantage. These capabilities involve the firm's ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing market conditions. Dynamic capabilities are considered essential for firms to innovate, improve processes, and effectively respond to new opportunities and challenges. Research in this area focuses on understanding how firms can develop and deploy dynamic capabilities to drive long-term success and competitive advantage.