Firm Resources and Sustained Competitive Advantage

In this paper, we argue that the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. We label this capability a firm's absorptive capacity and suggest that it is largely a function of the firm's level of prior related knowledge. The discussion focuses first on the cognitive basis for an individual's absorptive capacity including, in particular, prior related knowledge and diversity of background. We then characterize the factors that influence absorptive capacity at the organizational level, how an organization's absorptive capacity differs from that of its individual members, and the role of diversity of expertise within an organization. We argue that the development of absorptive capacity, and, in turn, innovative performance are history- or path-dependent and argue how lack of investment in an area of expertise early on may foreclose the future development of a technical capability in that area. We formulate a model of firm investment in research and development (R&D), in which R&D contributes to a firm's absorptive capacity, and test predictions relating a firm's investment in R&D to the knowledge underlying technical change within an industry. Discussion focuses on the implications of absorptive capacity for the analysis of other related innovative activities, including basic research, the adoption and diffusion of innovations, and decisions to participate in cooperative R&D ventures. **

/pdf/absorptive-capacity-a-new-perspective-on-learning-and-1n1c9gg9x0.pdf

Absorptive capacity: a new perspective on learning and innovation

The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difftcult-to- trade knowledge assets and complementary assets), and the evolution path(s) it has aflopted or inherited. The importance of path dependencies is amplified where conditions of increasing retums exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding intemally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.

/pdf/dynamic-capabilities-and-strategic-management-4iyi34iyh6.pdf

Dynamic capabilities and strategic management

Scholars of the theory of the firm have begun to emphasize the sources and conditions of what has been described as “the organizational advantage,” rather than focus on the causes and consequences of market failure. Typically, researchers see such organizational advantage as accruing from the particular capabilities organizations have for creating and sharing knowledge. In this article we seek to contribute to this body of work by developing the following arguments: (1) social capital facilitates the creation of new intellectual capital; (2) organizations, as institutional settings, are conducive to the development of high levels of social capital; and (3) it is because of their more dense social capital that firms, within certain limits, have an advantage over markets in creating and sharing intellectual capital. We present a model that incorporates this overall argument in the form of a series of hypothesized relationships between different dimensions of social capital and the main mechanisms and proces...

https://www.jstor.org/stable/pdfplus/259373.pdf

Social Capital, Intellectual Capital, and the Organizational Advantage

This paper focuses on dynamic capabilities and, more generally, the resource-based view of the firm. We argue that dynamic capabilities are a set of specific and identifiable processes such as product development, strategic decision making, and alliancing. They are neither vague nor tautological. Although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence, they have significant commonalities across firms (popularly termed ‘best practice’). This suggests that they are more homogeneous, fungible, equifinal, and substitutable than is usually assumed. In moderately dynamic markets, dynamic capabilities resemble the traditional conception of routines. They are detailed, analytic, stable processes with predictable outcomes. In contrast, in high-velocity markets, they are simple, highly experiential and fragile processes with unpredictable outcomes. Finally, well-known learning mechanisms guide the evolution of dynamic capabilities. In moderately dynamic markets, the evolutionary emphasis is on variation. In high-velocity markets, it is on selection. At the level of RBV, we conclude that traditional RBV misidentifies the locus of long-term competitive advantage in dynamic markets, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high-velocity markets. Copyright © 2000 John Wiley & Sons, Ltd.

/pdf/dynamic-capabilities-what-are-they-3cn0mb9rpo.pdf

Dynamic capabilities, what are they?

This study develops an evolutionary theory of the capabilities and behavior of business firms operating in a market environment. It includes both general discussion and the manipulation of specific simulation models consistent with that theory. The analysis outlines the differences between an evolutionary theory of organizational and industrial change and a neoclassical microeconomic theory. The antecedents to the former are studies by economists like Schumpeter (1934) and Alchian (1950). It is contrasted with the orthodox theory in the following aspects: while the evolutionary theory views firms as motivated by profit, their actions are not assumed to be profit maximizing, as in orthodox theory; the evolutionary theory stresses the tendency of most profitable firms to drive other firms out of business, but, in contrast to orthodox theory, does not concentrate on the state of industry equilibrium; and evolutionary theory is related to behavioral theory: it views firms, at any given time, as having certain capabilities and decision rules, as well as engaging in various ‘search' operations, which determines their behavior; while orthodox theory views firm behavior as relying on the use of the usual calculus maximization techniques. The theory is then made operational by the use of simulation methods. These models use Markov processes and analyze selection equilibrium, responses to changing factor prices, economic growth with endogenous technical change, Schumpeterian competition, and Schumpeterian tradeoff between static Pareto-efficiency and innovation. The study's discussion of search behavior complicates the evolutionary theory. With search, the decision making process in a firm relies as much on past experience as on innovative alternatives to past behavior. This view combines Darwinian and Lamarkian views on evolution; firms are seen as both passive with regard to their environment, and actively seeking alternatives that affect their environment. The simulation techniques used to model Schumpeterian competition reveal that there are usually winners and losers in industries, and that the high productivity and profitability of winners confer advantages that make further success more likely, while decline breeds further decline. This process creates a tendency for concentration to develop even in an industry initially composed of many equal-sized firms. However, the experiments conducted reveal that the growth of concentration is not inevitable; for example, it tends to be smaller when firms focus their searches on imitating rather than innovating. At the same time, industries with rapid technological change tend to grow more concentrated than those with slower progress. The abstract model of Schumpeterian competition presented in the study also allows to see more clearly the public policy issues concerning the relationship between technical progress and market structure. The analysis addresses the pervasive question of whether industry concentration, with its associated monopoly profits and reduced social welfare, is a necessary cost if societies are to obtain the benefits of technological innovation. (AT)

An Evolutionary Theory of Economic Change

An Evolutionary Theory of Economic Change.by Richard R. Nelson; Sidney G. Winter

Fabio Arcangeli, Paul David, Frank Engelman, Christopher Freeman, Massimo Moggi, Richard Nelson, Luigi Orsenigo, Nathan Rosenberg, Michele Salvati, G. N. von Tunzelman, two anonymous referees, and the participants at the meeting of the Committee on Distribution, Growth, and Technical Progress of the Italian National Research Council (CNR), Rome, November 16, 1985, have helped with various redraftings. A particularly grateful acknowledgment is for the insightful and patient help of Moses Abramovitz. This work has been undertaken at the Science Policy Research Unit (SPRU), University of Sussex, as part of the research program of the Designated Research Centre, sponsored by the Economic and Social Research Council (ESRC). Earlier support to the research that led to this paper by the Italian National Research Council (CNR) is also gratefully acknowledged. The statistical research has been undertaken with the assistance of Stephano Brioschi, Ilaria Fornari, and Giovannu Prennushi.

https://www.jstor.org/stable/info/2726526

Sources, Procedures, and Microeconomic Effects of Innovation

This anthology examines national systems of technical innovation An introductory chapter provides an overview of the principal topics in current discussion of industrial and technology policy Innovation is defined as the processes by which firms master and put into practice product designs and manufacturing processes that are new to them A wide range of factors, organizations, and policies influence the capabilities of a nation's firms to innovate Technology and pure science are distinguished, and the social institutions that play a role in innovation are examined These include industrial and government research laboratories, research universities, and industrial policy agencies These institutions provide the core for the analyses of national innovation systems Individual chapters are devoted to six large high-income countries (France, Italy, Japan, the US, the UK, and West Germany), four smaller high-income countries (Australia, Canada, Denmark, and Sweden), and five lower income countries (Argentina, Brazil, Israel, Korea, and Taiwan) Each chapter is a detailed description of each country's structure and behavior in the development of product and process technologies, and catalogues the innovation strategies of each country, covering topics including historical analysis of technological development, breakdown of industries, and investigation of these institutions in terms of R&D expenditures and their influence Differences in the innovative patterns include size and resource endowments, national security considerations, and historical and social beliefs Factors leading to effective innovative performance include strong core competencies, high-quality education and training, and stable and facilitative economic and trade policies A final retrospective chapter compares and contrasts the various innovation systems It assesses whether identifying an innovation system is useful, considers whether national institutions matter when commerce and technology are becoming transnational, and reflects on the future of national systems in such a world (TNM)

National Innovation Systems: A Comparative Analysis

To HAVE the incentive to undertake research and development, a firm must be able to appropriate returns sufficient to make the investment worthwhile. The benefits consumers derive from an innovation, however, are increased if competitors can imitate and improve on the innovation to ensure its availability on favorable terms. Patent law seeks to resolve this tension between incentives for innovation and widespread diffusion of benefits. A patent confers, in theory, perfect appropriability (monopoly of the invention) for a limited time in return for a public

/pdf/appropriating-the-returns-from-industrial-research-and-1f4rskj2t7.pdf

Richard R. Nelson

Papers

An Evolutionary Theory of Economic Change

An Evolutionary Theory of Economic Change.by Richard R. Nelson; Sidney G. Winter

Sources, Procedures, and Microeconomic Effects of Innovation

National Innovation Systems: A Comparative Analysis

Appropriating the Returns from Industrial Research and Development