Multinational teams (MNTs) have traditionally consisted of members from different nationalities, and such teams have attempted to capitalise on the diversity of the members to create innovative solutions. Currently, dynamic capabilities, by which is meant the ability to integrate, coordinate and upgrade capabilities to respond to environmental changes and dynamic demands, have been urged on multinational companies. However, very limited attention has been paid to how functional MNT leaders utilise team capabilities, including the diversity of the members, to enhance team effectiveness in organisational processes. To address that research gap, this study investigates functional MNT leadership skills aligned with dynamic capabilities and McGrath’s Input–Process–Output (IPO) model. First, it explores organisational processes and roles of functional MNT leaders from a perspective of dynamic capabilities. Second, it examines the mediation effect of functional MNT leadership skills by testing the proposed IPO model, and investigates similarities and differences between functional MNTs in two locations, Japan and Germany. The findings show that the right combination of functional MNT leadership skills – intra-team and extra-team relational skills, communication skills, setting clear goals, managing differences of national cultures, and technical competences – is required depending on the type of functional MNT and the location.
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