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.     

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.     

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.     

Asset Specificity and Organizational Arrangements: the Case of the New Telecommunications Services Market

This paper uses new institutional economics to support strategicanalysis in industries, where the production of goods and servicesrequires the pooling of the assets of several firms. The typeof assets owned by these firms has an impact on their bargainingpower; this consequently influences the firms‘ abilityto be involved in specific organizational arrangements. Withthe objective of conceiving optimal strategies for firms involvedin these agreements, our study seeks to bring to light the relationshipsbetween the nature of organizational arrangements, the roleof the firms in these arrangements and their competitive positionin the industry in which the cooperation is formed. This analysisuncovers three principal forms of organizational arrangements:core firm with a network of subcontractors, homogeneous allianceand complementary alliance. With the support of various statisticalmethods, this framework is applied to the telecommunicationsindustry.     

Limits to globalization: organizational homogeneity and diversity in the semiconductor industry

This paper provides empirical evidence for the microeconomicexistence of distinctive national modes of organization fortechnology development. Evidence from the semiconductor industryshows that two forms of organization not only arose as the industryexpanded, but that the differences were maintained, or expanded,with neither side ‘converging’ on the other, evenas manufacturing-process development performance converged.Four propositions are tested statistically: (1) the organizationalstrategies employed by a sample of leading firms in the UnitedStates and Japan were significantly different, across a rangeof dimensions important to manufacturing process development;(2) these modes of organization did not converge during the1980s and 1990s, even as technology markets globalized, ratherthey grew increasingly different; (3) these modes of organizationcan meaningfully be described as nationally specific; (4) processdevelopment performance converged over time. The paper suggestsan explanation for the observed divergent organizational pathsby placing these strategies into institutional and culturalcontext.     

Innovation, technological regimes and organizational selection in industry evolution: a 'history friendly model' of the DRAM industry

The paper explores the complex relationship among innovation,technological regimes and selection of the firms of differentorganizational forms in the evolution of an industry. For thispurpose, this paper develops a ‘history-friendly’model for the dynamic random access memory industry that replicatesthe history of the industry by simulation. The shift of industrydominance by small, specialized (SS) firms to large, diversified(LD) firms is explained by the technological regimes of theindustry, characterized by low cumulativeness and strong impactof innovation on productivity increase. The simulation analysisalso found the following causal relationship underlying theevolution of the industry. First, the stronger innovation impactin terms of productivity jump tends to enlarge the productivitydifference among the incumbent firms and increase the speedof productivity catch-up by the LD firms. Second, the possibilityof entry and eventual dominance by the LD firms increase whenthe innovation–productivity linkage is stronger and thereis less cumulativeness in productivity determination.     

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.     

Technological Extinctions of Industrial Firms: An Inquiry into their Nature and Causes

After a buildup in the number of firms, new industries commonlyexperience a ‘shakeout’ in which the number of firmsdeclines sharply. Three theoretical perspectives on how technologicalchange contributes to industry shakeouts are analyzed. The theoriesare used to synthesize predictions concerning technologicalchange and industry evolution. The predictions inform an analysisof four US industries that experienced sharp shakeouts: automobiles,tires, televisions and penicillin. Using data on firm participationand innovation from the commercial inception of the four productsthrough their formative eras, we uncover regularities in howthe products evolved. The regularities suggest that shakeoutsare not triggered by particular technological innovations norby dominant designs, but by an evolutionary process in whichtechnological innovation contributes to a mounting dominanceby some early-entering firms.     

On the Rationales of Corporate Headquarters

This paper addresses the rationales of corporate headquarters(CHQ). In organizational economics, the role of the CHQ is mostlyseen to be limited to monitoring and incentive issues. Howeverit has also long been recognized that the CHQ may assist inexploiting economies of scope and other synergies and in buildingup internal capital markets—that is to say, it may ‘createthe positive’ rather than merely ‘avoid the negative’.This paper links up with the ‘positive’ view ofthe CHQ. but expands substantially on it. Starting from thecapabilities view of the firm, I suggest that an important partof the rationales of the CHQ lies in its ability to (i) peiform‘knowledge-direction’ (i.e. use, blend and directthe initial knowledge endowments of input owners) and (ii) exploitthe flexibility of incomplete contracts, particularly with respectto growing capabilities through coordinated organizational learning.While these functions of the CHQ are recognized within the businesshistory and strategy literature, they are neglected within theliterature on organizational economics. The novelty of the paperlies in giving an economically oriented treatment of these valuecreating capabilities of the CHQ.     

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.     

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.     

Corporate growth and industrial structures: some evidence from the Italian manufacturing industry

This work analyses the properties of corporate growth in a largelongitudinal sample of Italian manufacturing firms. In particular,it focuses on the statistical properties of growth rates andon the influence of proxies for relative efficiency upon relativegrowth. In line with previous work, the emergence of ‘fattails’ in growth rate distributions and the idiosyncraticnature of autocorrelation coefficients confirm the existenceof a structure in the growth process richer than the one normallyassumed by the ‘Gibrat Law’ hypothesis and suggestthe presence of firm-specific drivers of growth. At the sametime, there is a remarkable puzzle concerning the absence ofany negative relationship between size and growth variance andonly weak influences of relative efficiencies upon growth dynamics.     

Technological Regimes, Industrial Demography and the Evolution of Industrial Structures

The purpose of this paper is to weave together the new theoriesand empirical evidence analyzing firms and industries in motion,or what has been termed ‘industrial demographics’.In particular, the links between the technological regime underlyingan industry and the observed patterns of industry demographyare emphasized. Although a major conclusion of this new literatureis that the structure of industries is perhaps better characterizedby a high degree of fluidity and turbulence than stability,the patterns of industry demographics vary considerably fromindustry to industry. And what apparently shapes the evolutionof firms particular to a specific industry is, as much as anythingelse, the knowledge conditions shaping the technological regimeunderlying that industry.     

Hierarchical Selection and Organizational Adaptation

The paper portrays the firm as a hierarchy of processes, exploringhow interactions among nested dynamics shape the evolution oforganizations. A computer model of intraorganizational evolutionshows how interactions among different process levels withinthe firm lead to the emergence of an ‘adaptation style’,by dynamically tuning explorations efforts and exploitationopportunities. In complex environments, this results in waveformprocesses of discovery and learning, which may be subject tocompetence and memory traps. The model analyzes interactionsbetween innovation and diffusion of organizational competences,showing how different strategies of competence replication arisealong innovation cycles. Furthermore, the paper suggests howthe model can be operationalized, singling out organizations'‘traits’ and tracking their diffusion and modificationover time.     

Industrial ecology and the rediscovery of inter-firm recycling linkages: historical evidence and policy implications

‘Industrial ecology’ is one of the most influentialperspectives to have emerged in recent years in the wider discourseon ‘sustainable development’. The vast majorityof industrial ecologists believe that past economic developmentwas characterized by a linear system of extraction, use anddisposal. One of their main goals is therefore to find waysto make modern industrial economies mimic ecosystems by transformingthe waste of one firm into the valuable input of another. Historicalevidence presented in this article, however, demonstrates thatinter-firm recycling linkages were a dominant characteristicof past economic development. If this was the case, why do mostwriters on sustainability believe otherwise? I suggest two broadcategories of explanation: a lack of research into the spontaneousformation of inter-firm recycling linkages; and the progressiveand cumulative implementation of market distortions and regulatorybarriers to resource recovery over the last century. One implicationof these findings is that the most important task facing industrialecologists is probably not the technical challenge of planningresource recovery between firms, but the development of an institutionalframework that forces firms to ‘internalize their externalities’while leaving them the necessary freedom to develop new andprofitable uses for by-products.     

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 German connection: shifting hegemony in the political economy of the South African automotive industry

Most value chain analyses remain at an abstract level, underplayingpolitical economy issues and the importance of local context.The paper analyses the manner in which global automotive forces(the dominance of the German assemblers and their multinationalcorporation first-tier suppliers) combine with local institutionalinfluences (the government’s automotive industrial policy)to drive, shape, and restructure the trajectory of the SouthAfrican automotive industry under the hegemony of the ‘Germanconnection’. It shows ‘how’ and ‘why’the German corporations, unlike their American and Japanesecounterparts, were able to successfully integrate their globalvalue chains with local institutional and policy conditionsand reap the benefits. Its conclusions both add to a generalunderstanding of how governance (power, command, control) operateswithin producer-driven value chains and illuminate the politicaleconomy dynamics of German control underpinning the South Africanautomotive industry.     

The stock market and innovative capability in the New Economy: the optical networking industry

The purpose of this paper is to analyze the impact of the stockmarket on the innovative capabilities of high-technology companiesthat have been central to what in the last half of the 1990scame to be called the ‘New Economy’. The empiricalfocus is on equipment suppliers in optical networking—anindustry that integrates the bandwidth potential of fiber opticswith the data communications potential of the internet. Thestudy covers the period from 1996 to 2003, during which theoptical networking industry was, first, central to the New Economyboom, and, then from 2001, ensnared by the bursting of the NewEconomy bubble. This paper shows how, responding to the NewEconomy business model brought into the industry by Cisco Systems,three Old Economy companies—Nortel Networks, Lucent Technologies,and Alcatel—sought to use their corporate stock as a currencyto acquire technology companies and compensate talented people,and thus accumulate innovative capability. To understand therelation between the stock market and innovative capabilityin the Cisco ‘growth-through-acquisition-and-integration’model and in the ‘creative responses’ of the OldEconomy companies to the Cisco challenge, we apply an analyticalframework that links four functions of the stock market—control,combination, compensation and cash—with three social conditionsof innovative enterprise: strategic control—the abilitiesand incentives of strategic decision makers to allocate resourcesto uncertain investments in innovative capabilities; organizationalintegration—the structure of incentives that motivatesemployees to apply their skills and efforts to collective learningprocesses; and financial commitment—the availability tothe enterprise of resources to sustain cumulative learning processesuntil, by accessing markets, they can generate financial returns.Using this framework, we show that the ways in which the OldEconomy companies used their stock to accumulate innovativecapability in the New Economy boom of 1998–2000 made themmore vulnerable to the stock market collapse and the slowdownin the optical networking industry in 2001–2003.