The recent financial crisis of 2008 has caused significant turbulence in the financial sector and the strategic direction of a number of banking organizations. To survive situations characterised by adversity and changing institutions, various organisations in the sector needed to renew their legitimacy with diverse groups of stakeholders and to refocus their business models into more sustainable ones requiring change and development in the company’s operational capabilities. Recent scholarly interest in the study of organisational and more specifically dynamic capabilities has focused on exploring the development processes through such capabilities emerge. However, the recent literature has been focused much more on the conceptual nature of capabilities rather than on offering empirically grounded accounts on how a specific type of an organisational capability is developed and transforms in line with the changing institutional contexts, and fluctuating levels of environmental uncertainty. Scant attention has been paid to the relationship between institutional change and the capability development process. In order to shed light on the development of such capabilities, this study specifies the micro-foundations of the capability development process and illustrates the relationships between the development process and the changing institutional context through a multilevel of analysis. Explicitly, it aims to find out how and what micro-foundations participate in the development of a sustainability-banking capability and how the changing institutional and market contexts and its dynamics influence the development process. This work is a phenomenon-driven study, which centres its empirical and theoretical contributions in the exploration of the case of the Royal Bank of Scotland – a particularly interesting case of an organisation, which has survived a near-death experience during times of immense institutional turbulence. The selected company case is special for the richness of organisational changes that assisted in tracing the main events and processes in which dynamic capabilities emerge. Inductively, this research study found ‘sustainability-banking’ capability to be conductive for the explored case company’s adaptation in the rapidly changing context of the financial crisis of 2008. To respond to the research questions and meet the research objectives, the work follows a process research methodology, involving the triangulation of multiple sources of primary and secondary qualitative data, collected both in real-time and retrospectively of the observed longitudinal period 2004-2012. The adopted process analysis revealed three key phases through which sustainability banking capability which emerged in the context of Royal Bank of Scotland, accordingly Phase One: The Philanthropic route (2004-2007), Phase Two: The Responsive engagement route (2008-2009) and Phase Three: The Stakeholder co-creation route (2010-2012). Each one of the charted phases of development pictures diverse set of micro-foundations constituted the company’s capability diachronically (over time) and synchronically (across levels and layers of learning). The research indicates that the capability development process is a complex process moderated by changing market environment and the presence of a number of institutional and market inhibitors and accelerators which moderate the occurring micro-foundational transformations. By illustrating the transformations in the micro-foundations of the explored capability, the research work casts light on the temporal changes that accompany capability learning, which affect the capability nature and unfold into different forms of capabilities – ordinary, transitional and dynamic. The key finding of this study is that the variability in the alignment of micro-foundational constructs defines the form and the function of the observed organizational capability – sustainability-banking capability. Although drawing on macro-institutional perspective to demonstrate the types of institutional pressures, which trigger changes in individual and organizational behaviours and processes, this research study contributes primarily to the organisational capability literature. First, the main contribution of this thesis is the development of a novel process model perspective of sustainability-banking capability in the context of institutional and market changes. The process model indicates the interactions between individual-based, process-based and structure-based micro-foundations and how this interaction, alignment, between their capability micro-foundations changes in the course of social, political and regulatory disruptions in the sector, which either inhibit or accelerate these transformations. Secondly, the observed processes of interaction suggest how an operational capability can escalate to become a dynamic capability, which has not been mapped in the field of study. Previously, scholars (e.g. Helfat and Winter, 2011) have suggested conceptually the possible existence of dual-purpose or multiple variant capabilities where the complication of drawing a line between operational and dynamic capabilities occurs due to the speed of change they enable in organisations. Within the context and content of study – sustainability-banking capability at the Royal Bank of Scotland, this study demonstrates the existence of what is entitled in the thesis as a “transitional capability”, which responds to the recent call for research work in this domain. Scholars have suggested that sometimes the low pace in which changes occur can disguise one capability as operational but in fact it can have a dynamic variant when it is explored longitudinally. The analysis of the findings in the second stage of capability development proves that the contrary can be also true. Although previously the literature has associated radical changes somehow instantly with dynamic capabilities, the analysis suggest that extremely turbulent exogenous shocks can lead to internal disturbances and misalignment in the relationship between some of the micro-foundations composing them which on the other hand can constrain the level of impact that the capability under study has in the process of organisational adaptation and development. The third contribution of this work is methodological which is accomplished by the adoption of a process methodology and a ‘hybrid’ strategy of processual data analysis, which complements the existing variance research stream in the study of organisational capability, which is predominately positivist in nature. Lastly but not the least important, this phenomenon-driven research contributes to the recent call in the strategic management field for exploring “bigger issues”, such as the global financial crisis which are often a “window of opportunity” and lead to relevant knowledge for managerial practice, citizens and policy makers.