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.     

Structural reforms, technological gaps and economic development: a Latin American perspective

This paper explores the impact that recent structural reformshave had upon macro-to-micro linkages, as well as upon the patternof production specialization, the entry and exit of firms duringthe adjustment process, and the ‘sources’ of technicalchange in the present more open and deregulated Latin Americanmacroeconomic scenarios. From this exploration a major questionemerges: is the new ‘market-oriented’ developmentparadigm sustainable in the long run? The interpretation presentedin this paper suggests that the present pattern of productionspecialization—strongly biased in favour of industriesfeaturing low domestic knowledge generation and value-addedcontent—and the inhibition of local R&D and engineeringactivities resulting from the rapid expansion of internationallyintegrated production systems are pushing Latin American economiesinto a ‘low development trap’ from which it mightprove extremely difficult to escape on the basis exclusivelyof free market principles.     

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.     

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.     

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.     

The Incidental, Accidental Deregulation of Data ... and Everything Else

Existing regulatory codes for telephone, cable and broadcasttreat ‘data’ services as largely beneath ot outsideofficial attention. ‘Enhanced servuces’ have beenexclided from the ambit of ‘basic’, regulated telephony.They are exempt from access charges and almost completely freeof most other forms of common-carrier regulation. Data servicesprovided over mobile radio, cable, terrestrial broadcast andDirect Broadcasting Satellite likewise are excused from mostforms of rate, content and carriage regulation. Data has longbeen the ‘incidental’ service tagged onto somethingelse order and more important. As such, data has been the fotunatebeneficiary of regulatory accident, inattention, neglect andindifference. Wires and radios alike will all soon be digital,and bandwidth is increasing rapidly in every medium. ‘Data’traffic is growing far faster than analog voice or video. Andon broadband digital channels ‘data’ encompasseseverything. The data inmates ate taking over the regulatoryasylum.     

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.     

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.     

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.     

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.     

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.     

Horndal at Heathrow? Capacity creation through co-operation and system evolution

At Europe's most congested airports demand for take-off andlanding slots has exceeded the available supply for many years.Yet, in the face of persistent growth in air traffic activities,these airports have achieved remarkable increases in their capacitiesto handle flights, despite retaining the same basic infrastructures.This paper investigates this growth of capacity as a ‘problemcentred innovating system’, in which the roles of proceduralchange and co-operation between teams are highlighted. ‘Systemevolution’ is also observed, as over time new agents withdifferent knowledge bases have been brought into ‘thesystem’ to assist with the search for additional capacity.     

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.     

'Old Economy' Inputs for 'New Economy' Outcomes: Cluster Formation in the New Silicon Valleys

This paper discusses the results of a two-year research projecton the sources of success in regional clusters of entrepreneurshipand innovation like Silicon Valley. Our project has studieda number of locations, most of which have shown spectacularrates of growth of information and communcations technology-relatedactivities during the 1990s. Our case studies comprise someemerging regions, notably in Ireland, India, Israel and Taiwan,along with more advanced areas like Northern Virginia in theUS, Cambridge, UK, the Scandinavian countries and the SiliconValley 40 years ago by way of the memory of one of its ‘fatherfounders’, Gordon Moore. Through visits, interviews andother materials, we uncovered some regularities about the determinantsof success of these entrepreneurial-led models of economic growth.We find that the economic factors that give rise to the startof a cluster can be very different from those that keep it going.Agglomeration economies, external effects and ‘socialincreasing returns’ of any sort arise almost naturallyafter a cluster has taken off. But the most difficult and riskypart is to get the new clusters started. At that stage, ‘oldeconomy’ factors like firm-building capabilities, managerialskills, a substantial supply of skilled labor and connectionto markets were crucial for the take off of these ‘neweconomy’ clusters (including Silicon Valley 40 years ago).     

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.     

European Integration and the Changing Structure of EU Manufacturing, 1987-1993

This paper reports the results from a project designed to trackthe evolution of industrial and corporate structure of EU manufacturingalongside the ongoing European integration process. At the heartof the work is the construction of an ‘EU market sharematrix’ for 1993. This includes estimates of the turnoversof a set of 300 leading manufacturing firms, disaggregated acrossnearly 100 industries and then, in turn, across the individualmember states. This allows us to estimate the extent of diversificationand intra-EU multinationality for each of the firms, and theconcentration of producers and measures of geographical concentrationfor each of the industries. When coupled with a similar matrixfor 1987, this provides a rich and detailed mapping of how thesestructural dimensions have changed with the final stage (sofar as the legislation is concerned) of the European singlemarket programme. Our main ‘headline’ findings arethat, on average, (i) concentration has remained stable; (ii)multi-nationality has increased rapidly—both the intra-EUmultinationality of European firms and the inward multinationalityof non-EU firms; and (iii) diversification has decreased slightly.     

Worldwide Wait? How the Telecom Act's Unbundling Requirements Slow the Development of the Network Infrastructure

The Telecommunications Act of 1996 instructs some local exchangetelephone companies to provide components of their networkson an ‘unbundled’ basis to other local exchangecompanies. The unbundling requirement means that the receivingcompanies can serve a market either by self-providing theirown infrastructure or by leasing the unbundled network elements.The Act therefore confers on receiving companies an ‘option’in the form of the build-versus-buy decision. This paper describeshow the existence of an option affects the development of anew and advanced infrastructure. The discussion also considerswhether the impact is socially optimal.     

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.     

The evolution of regulatory relationships; regulatory institutions and firm behaviour in privatized industries

The radical changes instituted in the regulation of privatizedpublic utilities in the UK in the 1980s and early 1990s havebeen the subject of extensive discussion, and have been partlyinstrumental in the development of ‘regulatory economics’more widely. In this paper we argue that the conventional economicsof regulation, based on principal-agent and related perspectives,treat the issue too narrowly and statically. Drawing on organizationalsociology and cooperative game theory, we contend that it isessential to understand the process by which the interactionbetween the regulator and the regulated firms evolves. Usinginterview and documentary data, the paper describes the evolutionof this relationship in three sectors in the UK. The growthof cooperative informal relationships between regulators andregulatory functions within firms involves the emergence anddevelopment of ‘regulatory expertise’. This generatesadvantages for both sides, which are examined in terms of differentregulatory games involving different levels of trust. The implicationsboth for institutional design and for the economic theory ofregulation are assessed.