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.     

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.     

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.     

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.     

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 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.     

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.     

Uneven (and Divergent) Technological Accumulation among Advanced Countries: Evidence and a Framework of Explanation

We present evidence for the advanced OECD countries of unevenand divergent patterns of technological accumulation. We showthat ‘global’ firms will not smooth out the differences,since their technological activities are strongly influencedby conditionsin their own countries. We suggest that—in addition to diversity in cumulative technological trajectories7— the divergent patterns reflect international differencesin the capacities of management, financial and training institutionsproperly to evaluate— and exploit— the learningbenefits of technological investments. For these reasons, weconclude that technological gaps among the advanced OECD countriesare here to stay.     

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.     

Institutions and Progress

An insistent theme in Richard Nelson's work is that of ‘capitalismas an engine of progress’. In this paper I explore thisidea through a sequence of his writing, distinguishing progressas outcome from progress as instituted process. This leads toa deeper issue within this Nelsonian theme, namely the incompatibilitybetween progress and equilibrium. I argue that evolving systemsare ordered and coordinated but they are never in equilibrium.Capitalism is restless—it always generates change fromwithin and the proximate source of this progressive tendencyis the uneven accumulation of knowledge. Capitalism is restlessbecause knowledge is restless.     

The Red Queen in organizational creation and development

We synthesize organization learning theory and organizationalecology to predict systematic patterns in the founding and growthof organizations over time. Our central argument is that competitiontriggers organizational learning, which in turn intensifiescompetition that again triggers an adaptive response. We modelthis self-exciting dynamic—sometimes referred to as the‘Red Queen’ in general evolutionary theory—toexplain organizational founding and growth rates among the thousandsof retail banks that have operated in Illinois at any time from1900–1993. We find strong evidence that Red Queen evolutionled some organizations to grow quickly and to place strong competitivepressure on rivals. Red Queen evolution also helped establishbarriers to entry. However, this same evolutionary process appearsto make organizations more susceptible to ‘competencytraps’, ultimately slowing their growth rates and invitingnew market entry. Organizations confronted by a widely varyingdistribution of competitors grow more slowly and are more likelyto face new entrants. Overall, the results suggest that processesof organizational creation and growth emerge from ecologiesof learning organizations. More generally, we discuss the useof ecological theory and models to study the empirical consequencesof organizational learning.     

Response to Letter to the Editor

Sir, Response to ‘Are all photon radiations similar in largeabsorbers?—A comparison of electron spectra’ byA. M. Kellerer and H. Roos When the ICRP adopted a quality factor—and subsequentlya radiation weighting factor—that gives equal weight todifferent photon radiations, it did not, necessarily imply thatequal     

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.     

Hierarchies, Markets and Power in the Economy : An Economic Perspective

This paper adopts the transaction cost economics perspectivefor purposes of examining hierarchies, markets, and power inthe economy. Transaction cost economics works out of an economizingperspective in which markets and hierarchies are alternativemodes of governance and the object is to ascertain which transactionsgo where and why. The role of power in this setup is strictlylimited—partly because power tends to be myopic (transactionsare not examined ‘in their entirety’) and partlybecause it is tautological. Power needs to be optrationalized,whereupon the refutable implications that accrue to this perspectivecan be derived.     

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.     

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.     

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.     

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.     

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.     

Contractual hazards and long-term contracting: a TCE view from the petroleum industry

We use the tools of transaction cost economics (‘TCE’)and economic analysis more generally to analyze the provisionsof a long-term multi-million-dollar contract in the petroleumindustry, the 35 year Field Contractors Agreement signed in1965 for the development of a major oil field just offshorefrom Long Beach, California. There is a substantial public recordregarding the deliberations that ultimately led to the choiceof contract terms. That record makes it possible to identifyhow various TCE-based and related economic concerns—aboutdealing with information impactedness and restricting the scopefor opportunistic behavior— affected the choice of contractualprovisions. As such, this case study provides useful insightsinto the relevance of TCE.