Dynamic Capabilities and Manufacturing Automation: Organizational Learning in the Italian Automobile Industry

The search for competitiveness in automobile assembly is tendingtowards more cautious and selected investment in flexible automationtechnology. During the 1980s a number of car makers were luredby the myth of computer-integrated manufacturing, but recentsurveys show that approaches to automation (especially in finalassembly) have changed. This longitudinal study illustrates,on the basis of a plant survey, the automation strategy of FiatAuto, one of the world’s largest auto producers, tracingits evolution from the experiments of the 19 70s driven by industrialrelations pressures, to the ‘pan-technologist’ philosophyunderlying the ‘highly automated factory’ of the1980s, to the more realistic concepts inspiring the ‘FabbricaIntegrata’ organizational model of the 1990s. The papershows that the implementation of automation techniques and thedevelopment of related know-how have a cumulative and path-dependentnature. Furthermore, it is argued that the technologies usedin a firm's plants result from a non-linear learning process,based on the internal development, external acquisition, imitation,analogical replication, combination and selection of capabilities.The knowledge incorporated into technologies becomes an integralpart of a firm's repertoire of capabilities. Parts of this knowledgecan be retrieved over time, to become modules of original technologicalsolutions. Similarly, the necessity to imitate competitors whohave successfully implemented organizational paradigms basedon lean manufacturing in order to respond to the ‘regimeof variety’ can cause a mismatch between the existingand the desired technological trajectory of a firm.     

The Internet: a Paradigmatic Rupture in Cumulative Telecom Evolution

The paper investigates the impact the Internet may have in theevolution of telecommunications networks. First, we show whythe Internet, emerging from a different cognitive perceptionof the data communication problem, has led to a new networkarchitecture based on: (i) the distribution of the ‘networkintelligence’ to the user equipment; (ii) the very cost-effective‘statistical sharing’ of the network resources (i.e. getting the whole bandwidth of the network for short periodsof time); (iii) the establishment of an Internet Protocol (IP)‘gateway’ facilitating interoperability betweenheterogeneous infrastructure facilities—instead of theoperator—controlled homogeneity of the telecom networks;and (iv) an ‘adaptative’ way for open standards—setting.Second, we suggest that two technological trajectories (telecom—‘creative accumulation’ and Internet—‘creativedestruction’) should dynamically co-exist henceforth andcompete for market shares—possibly during later evolutionarystages generating relatively different national or even localized(e. g. local providers) trajectories of evolution (with differinginterfaces and standards). Furthermore, we explore the questionof whether the Internet’s interoperability model may bea useful policy paradigm for future information infrastructures,and we start to discuss the implications of requisite interoperabilityon the comunications industry‘s structure itself. Overall,our preliminary observations raise questions about the possibilitiesof two ‘technological trajectories’ co-existing,and the relationship between the interoperability and learningconditions in the network industries.     

Understanding the emergence of 'open science' institutions: functionalist economics in historical context

This essay exposes the limitations of the ‘logical origins’approach that has found favour among economists who seek tounderstand the workings of institutions in the past present.It pursues a different approach, applying functionalism in historicalcontext to explain the emergence of the characteristic ethosand institutions of ‘open science’. The emergenceduring the late sixteenth and early seventeenth centuries ofthe idea and practice of ‘open science’ representeda break from the previously dominant ethos of secrecy in thepursuit of ‘Nature’s secrets’. It was a distinctiveand vital organizational aspect of the scientific revolution,from which crystallized a new set of norms, incentives and organizationalstructures that reinforced scientific researchers’ commitmentsto rapid disclosure of new knowledge. To understand how thiscame about, it is necessary to examine the economics of patronageand the roles of asymmetric information and reputation in theearly modern reorganization of scientific activities. The riseof ‘cooperative rivalries’ in the revelation ofnew knowledge is seen as a functional response to heightenedasymmetric information problems posed for the Renaissance systemof court patronage of the arts and sciences; pre-existing informationalasymmetries had been exacerbated by increased importance ofmathematics and the greater reliance upon sophisticated mathematicaltechniques in a variety of practical contexts of application.Analysis of the court patronage system of late Renaissance Europe,within which the new natural philosophers found their support,points to the significance of the feudal legacy of fragmentedpolitical authority in creating conditions of ‘commonagency contracting in substitutes’. These conditions areshown to have been conducive to more favorable contract terms(especially with regard to autonomy and financial support) forthe agent–client members of western Europe’s nascentscientific communities. Some lessons may be drawn for contemporary scienceand technology policy debates, in which the open science modeof pursuing knowledge often seems to be viewed a robust concomitantof the power of scientific research techniques—whereasit is a fragile cultural legacy of western Europe’s history,upon which rests the ascendancy of modern science as a driverof long-term economic growth.     

Innovation as Collective Action: Conventions, Products and Technologies

This article argues that specific products evidence demand forspecific innovation systems. Economies must therefore supplydifferent innovation systems according to their trade specializationsand output compositions. Products (or product-based subsectors,the equivalent of five-digit SIC sectors) are the basic unitsaround which innovative action can be ‘supplied’.Understanding and promoting innovation requires understandingof both the demand and supply sides. A system of innovationrefers to the interaction of demands, attached to products,and supplies, attached to these organizational structures ofthe economy, as dual sequential processes ‘out of equilibrium’and involving reciprocal selection. The approach used in thispaper reflects the ‘economics of conventions’, anemerging school of economic thought which holds that economiescan be conceived as sets of rules, largely implicit in nature,which actors generate and by which they coordinate themselvesunder conditions of uncertainty. The task of analysis is tounderstand the cognitive and efficiency properties of functioningsytems of conventions, as well as their emergence and transformationover time.     

Organizational Integration and Competitive Advantage: Explaining Strategy and Performance in American Industry

This paper proposes an analytical framework that can comprehendhow and to what extent the interaction of institutions, industries,and enterprises has contributed to the decline of US competitiveness.The analytical framework builds on the notion that, ultimately,competitive advantage depends on the strategies and structuresof the business enterprises on which Americans rely for mostof the nation's productive investments. We argue that, overtime, to gain sustained competitive advantage, business enterprisesin the USA and elsewhere have had to achieve increasingly higherdegrees of ‘organizational integration’. We arguethat, as a general rule, the USA's prime competitors, and particularlythe Japanese, have gained competitive advantage by becomingmore organizationally integrated than their American rivals.For some industries, moreover, organizational integration ismore important than others; hence the variation in the extentto which certain American industries have been affected by foreigncompetition. And even within the more vulnerable industriessuch as electronics and automobiles, some American companieshave responded to the competitive challenge more quickly andeffectively than others. The organizational integration hypothesisargues that an important determinant of differences among Americancompanies in the same industry in the quickness and effectivenessof their strategic responses — whether they are ‘firstmovers’, ‘fast movers’, ‘slower movers’,‘no movers’, or ‘removers’ — tocompetitive challenges is the extent to which these companiesare organizationally integrated.     

Routines and Other Recurring Action Patterns of Organizations: Contemporary Research Issues

This paper reports and extends discussions carried out duringa workshop held at the Santa Fe Institute in August 1995 bythe authors. It treats eight major topics: (i) the importanceof carefully examining research on routine, (ii) the conceptof ‘action patterns’ in general and in terms ofroutine, (iii) the useful categorization of routines and otherrecurring patterns, (iv) the research implications of recentcognitive results, (v) the relation of evolution to action patterns,(vi) the contributions of simulation modeling for theory inthis area, (vii) examples of various approaches to empiricalresearch that reveal key problems, and (viii) a possible definitionof ‘routine’. An extended appendix by Massimo Egidiprovides a lexicon of synonyms and opposites covering use ofthe word ‘routine’ in such areas as economics, organizationtheory and artificial intelligence.     

Specialized supply firms, property rights and firm boundaries

The proper specification of intellectual property rights (IPRs)is a delicate and controversial matter. In this paper, we considerone specialized context in which IPRs can add to efficiency.We build on contributions of both ‘firm capabilities’scholars (e.g. Teece, Pisano et al.) and ‘property rights’economists (e.g. Hart) to show that IPRs can affect efficiencyby influencing the location of technological innovation. Usinga simple set up, where the key choice is whether a technology-intensiveinput will be supplied by an independent firm or produced in-house,we analyze how the choice is affected by the strength of IPRsand by the existence (and nature) of information spillovers.Specifically, we show that when the supply relationship is likelyto produce new information of value to the supplier, strongerproperty rights favor independent suppliers over vertical integration.An important implication of our model (backed by empirical casestudies) is that strong IPRs therefore encourage investmentsin specialized firms with strong ‘firm capabilities’in the area of innovative input supply. IPRs therefore may playa role—along with multiple other factors—in thelocation of firm boundaries in some cases. This contributionto the viability of small, specialized firms, with their superiorability to innovate in some cases, must be taken into accountin evaluating recent criticisms of over-fragmented IPR ownership(i.e. the ‘anticommons’ problem). It also contributesto an understanding of IPRs in the ‘post-Chandlerian’economy, where smaller, specialized firms play a prominent role.     

Innovation and Entrepreneurship: Schumpeter Revisited

In a large part of the literature on Scbumpeter one finds thatattention is paid to either his early contributions, with referenceto the role of the entrepreneur as the personification of innovation,or to his later contributions, stressing the role of large companiesas main drivers of innovation. This paper complements some recentcontributions to the assessment of the influence of Schumpeteron economics and social sciences in general. It demonstratesthat a careful reading of his writings reveals that there isno simple dichotomy between the ‘old’ and the ‘young’.Entrepreneurial activities play an active role in understandingthe dynamics of innovation throughout Schumpeter's theory.     

Moving base into high-value integrated solutions: a value stream approach

Some of the world’s leading suppliers are developing strategiesto move into the provision of innovative combinations of productsand services as ‘high-value integrated solutions’tailored to each customer’s needs. Rather than simply‘moving downstream’ into services (as much of thebusiness strategy literature assumes), this paper argues thatthe provision of integrated solutions is attracting firms—traditionallybased in manufacturing and services—to occupy a new basein the value stream centred on ‘systems integration’.In addition to an ability to design and integrate systems usinginternal or external sources of product supply, these firmsare developing novel combinations of service capabilities (operations,business consultancy and finance) required to provide completesolutions to each customer’s needs.     

Size, differentiation and the performance of Dutch daily newspapers

We demonstrate how organizational ecology can contribute tostrategic management and managerial practice by using resource-partitioningtheory to make predictions with respect to: (i) the short-runperformance (i.e. growth and profitability) consequences ofbroad (generalist) vis-à-vis focus (specialist) strategies;(ii) the detrimental performance implications of a particularinstance of being strategically ‘stuck in the middle’;and (iii) the performance consequences of organizational sizedifferences. We hypothesize that these effects depend on theposition of the organization in resource space. These predictionsare tested by estimating models of growth and profitability,using data on Dutch generalist (national) and specialist (regional)newspapers from 1968 to 1994. The findings show that resource-partitioningtheory provides a dynamic backbone to understand the performanceconsequences of different generic strategies and organizationalsize positions.     

Corporate strategy and the management of innovation and technology

This paper explores the evolution of corporate organizationwith special attention to the organization of R&D. Morespecifically, the paper addresses the comparative long-termorganizational dynamics of management of innovation and technologyin two different types of technology-based industrial companies:the ‘related diversifier’ pursuing ‘synergisticeconomies’ and the ‘vertical integrator’ pursuing‘vertical economies’. These types of companies areillustrated by case studies of two large Danish manufacturingcompanies. The analysis aligns the strategic management literatureon strategy and structure in large companies with the literatureon management of innovation and technology. It is argued thatthe organizational design for managing innovation and technologyis contingent on both the overall strategy–structure profileand dynamics of the companies, and on key characteristics oftheir particular innovation and technology strategies.     

Strategic Deterrence Among Multipoint Competitors

Theory and methods from organizational ecology and the strategyfield are combined to predict the dynamic consequences of strategicdeterrence. A model is developed to investigate which strategieswill prevail through an industry ‘shake out’ whensome firms compete while others forbear from competing withtheir ‘multipoint’ rivals—those faced in morethan one markes or market segment. Theory predicts that multipointcontact affects competition within but not between strategicgroups, and it is speculated that whether multipoint contactdeters competition depends on strategic objectives. The predictionsare supported by estimates of market exit rates in the customerpremises equipment and service (CPES) sector of the deregulatedAmerican telephone industry. The results show that, due to forbearance,weak competitors can out-survive strong competitors. Evidencealso is found that strategic groups not protected by mobilitybarriers face strong competition from other strategic groups.Implications for the study of strategic evolution are discussed.     

Keeping Pace with Change: International Competition in Printed Circuit Board Assembly

The Organizational and technological basis of production doesnot stand still, even in apparently ‘mature’ industries.Printed circuit board assembly has long been regarded as bestconducted with well-known techniques in low-wage economies.That has steadily changed, based not only on innovations specificto the industry but more importantly on incremental but continuinggeneric progress in manufacturing and design processes. Genericinnovations encompas increased automation, but the key developmentshave been the organizational changes associated with ‘just-in-time’(JIT)manufacturing and the recent extensions of JIT-type principlesto the design process. Through interviews in six countries anddrawing on relevant technical expertise and literature, we developfactory models that simulated production in different settingsand demonstrate the significant production cost savings thataccrue through the adoption of these innovations. Gains accruethrough reduced scrap and inventories, and through better timemanagement of the firm's assets. I As such gains reach theirlimits, product redefinition becomes an important strategy.It follows that the ability to keep pace with ongoing innovationsis a much more powerful determinant of competitiveness thancost advantage due to low wages. Especially in less developedcountries, firms will need to undertake substantial investmentsin human capabilities, including the capacity to tap internationalknowledge flows on a continuing basis.     

Inertia and Change in the Early Years: Employment Relations in Young, High Technology Firms

This paper considers processes of organizational imprintingin a sample of 100 young, high technology companies. It examinesthe effects of a pair of initial conditions: the founders' modelsof the employment relation and their business strategies. Ouranalyses indicate that these two features were well alignedwhen the firms were founded. However, the alignment has deterioratedover time, due to changes in the distribution of employmentmodels. In particular, the ‘star’ model and ‘commitment’model are less stable than the ‘engineering’ modeland the ‘factory’ model. Despite their instability,these two blueprints for the employment relation have strongeffects in shaping the early evolution of these firms. In particular,firms that embark with these models have significantly higherrates of replacing the founder chief executive with a non-founderas well as higher rates of completing an initial public stockoffering. Some implications of these findings for future studiesof imprinting and inertia in organizations are discussed.     

System-on-a-chip integration in the semiconductor industry: industry structure and firm strategies

Miniaturization has spurred ever-increasing on-chip integrationin the semiconductor industry so that large-scale electronicsystems can now be put on a single chip. The proliferation ofsuch ‘systems-on-a-chip’ has important repercussionsfor the structure of the electronics industry, and the strategiesof electronics firms. In a detailed case study, we apply a theoreticalframework developed in Somaya and Teece [‘Combining inventionsin multi-invention contexts: organizational choices, intellectualproperty rights, and public policy,’ SSRN Working Paper(available at: www.ssrn.com) 2001] to understand how system-on-a-chipintegration is altering the balance between integrated approaches,components trading, and the licensing of ‘design modules’(DM) in the semiconductor industry. Consistent with the framework,we observe a burgeoning market for licensed DMs in the industry,along with the primarily in-house design approach being pursuedby large integrated firms. Important technical and institutionalfactors that are shaping industry structure, and the strategiesbeing pursued by different types of firms are documented. Basedon the framework, implications are drawn for firm strategy inresponse to technological shifts of the kind engendered by system-on-a-chipin the semiconductor industry. We extend the Somaya–Teeceframework to include firm strategies that seek to influencethe institutional environment in which they operate, and thusalter the balance between competing organizational modes.     

Search strategy in product innovation process: theory and evidence from the evolution of agrochemical lead discovery process

This paper investigates different problem-solving strategies—hereincalled ‘search strategies’—in the processof product innovation. It takes issue with the basic assumptionof current models of the product innovation process (PIP), whichunrealistically consider that the actors of product innovation—theproduct innovators—are all hyper-rational, homogeneousand non-choice-restricted actors. In order to take into accountthe more realistic view of the product innovators—as boundedrational, heterogeneous and choice-restricted actors—thispaper proposes an alternative model of PIP based on cognitivepsychology. According to this framework, the options of searchstrategy available to each product innovator depend on certain‘problem-solving-related’ capabilities that he orshe is able or not to use. To examine the validity of this theoreticalframework, this paper investigates the phenomenon of the evolutionof discovery methods in the agrochemical lead discovery process.Data for this investigation have been gathered through chronologicalproduct innovation survey of an agrochemical product registrationdatabase as well as a patent and publications index database.Results from this investigation seem to confirm the above argument.     

Impermanent institutionalization: the duration dependence of organizational rule changes

Organizational rules face competing pressures that can makethem more or less permanent. On the one hand, pressures forreliability, legitimacy and efficiency demand unchanging rulesthat provide lasting guidelines for organizational action. Onthe other hand, changes in the environment and the imperativesof organizational growth demand timely adaptation of organizationalrules. How do organizations respond to such pressures, and whatare the resulting patterns of rule change? Prior explorationsof this question have emphasized either (i) institutional predictions:the likelihood of rule changes should decrease with duration(waiting time between changes); or (ii) obsolescence mechanisms:the likelihood of change should increase with duration. Surprisingly,recent studies on rule change find that in some contexts thelikelihood of radical rule changes (‘suspensions’)increases with duration, while the likelihood of incrementalrule changes (‘revisions’) decreases. In order toexplain this surprising finding, I develop simulation modelthat allows me to explore how rule changes are affected by organizationaltolerance for obsolescence. The findings suggest that the modeloffers a valid explanation for the observed patterns of rulechange. A main implication of this paper is that organizationalrules can become impermanently institutionalized when theirobsolescence is tolerated and they grow obsolete beyond repair.     

Increasing Returns and the Genesis of American Resource Abundance

The USA became the world's leading mineral-producing nationbetween 1870 and 1910, a development paralleled by the risingresource-intensity of American manufacturing. This paper challengesthe premise that resource abundance simply reflected the country'sgeological endowment of mineral deposits. Instead, in the centuryfollowing 1850 the USA exploited its natural resource potentialsto a far greater extent than other countries, and did so acrossvirtually the entire range of industrial minerals. The paperargues that ‘natural resource abundance’ was anendogenous, ‘socially constructed’ condition thatwas not geologically preordained. It examines the complex legal,institutional, technological and organizational adaptationsthat shaped the US supply-responses to the expanding domesticand international industrial demands for minerals and mineralproducts. It suggests that strong ‘positive feedbacks’-evenin the exploitation of depletable resources-were responsiblefor the explosive growth of the American minerals economy.     

Technological Discontinuties, Organizational Capabilities, and Strategic Commitments

Innovations based on radically new technologies are believedto create advantages for entrants over incumbents in the relevantmarkets. Under what circumstances is this true? To what extentdo incumbents' disadvantages stem from their failure to maketimely commitments to new capabilities and new strategies asopposed to their inability to implement those commitments effectively?We explore those questions in relation to recent literaturein economics and organization theory and introduce the conceptof the ‘value network’. Historical evidence suggeststhat entrants find greatest advantage when innovations disruptestablished trajectories of technological progress, a circumstanceassociated with moves to new value networks. The incumbent'sdisadvantage, hence, seems to be associated with an inabilityto change strategies, not technologies.     

Corporate Culture and Shared Knowledge

This paper defines the concept of ‘cultures’ oforganization in economic terms, analyzes it with economic toolsand studies some of its economic consequences. The concept ofcorporate culture is attractive because it may provide somelanguage for speaking about the ‘personalities’of organizations. Actual organizations seem to bave personalitieswhich are fairly stable over time and independent of their actualmembers. This paper focuses on ‘cognitive’ aspectsof corporate culture in terms of the question of why corporateculture is a factor of efficiency in the internal treatmentof information within organizations. The framework used is ‘team-theory’in a pre-Groves (1973) sense. It is assumed that human beingsare perfectly honest and trustworthy but have limited capacityfor processing, receiving and transmitting information. In turn,culture is defined as the stock of knowledge shared by the membersof the organization. The acquisition of this knowledge is aninvestment. The paper is divided into four sections. First,it studies the benefits of this investment. Second, the paperoffers a formal discussion of the concept of culture and someexamples to guide the formal discussion. Third, it presentsa formal model. Finally, it discusses the stability of corporateculture and applies the analysis of the second section to the‘limits on the size of firms’ problem.