Showing papers in "Industrial and Corporate Change in 2002"

The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spin‐off companies

Abstract: This paper explores the role of the business model in capturing value from early stage technology. A successful business model creates a heuristic logic that connects technical potential with the realization of economic value. The business model unlocks latent value from a technology, but its logic constrains the subsequent search for new, alternative models for other technologies later on—an implicit cognitive dimension overlooked in most discourse on the topic. We explore the intellectual roots of the concept, offer a working definition and show how the Xerox Corporation arose by employing an effective business model to commercialize a technology rejected by other leading companies of the day. We then show the long shadow that this model cast upon Xerox’s later management of selected spin-off companies from Xerox PARC. Xerox evaluated the technical potential of these spin-offs through its own business model, while those spin-offs that became successful did so through evolving business models that came to differ substantially from that of Xerox. The search and learning for an effective business model in failed ventures, by contrast, were quite limited.

Modular production networks: a new American model of industrial organization

Abstract: This paper uses the case of contract manufacturing in the electronics industry to illustrate an emergent American model of industrial organization, the modular production network. Lead firms in the modular production network concentrate on the creation, penetration and defense of markets for end products—and increasingly the provision of services to go with them—while manufacturing capacity is shifted out-of-house to globally operating turn-key suppliers .T he modular production network relies on codified inter-firm links and the generic manufacturing capacity residing in turn-key suppliers to reduce transaction costs, build large external economies of scale and reduce risk for network actors. Itest the modular production network model against some of the key theoretical tools that have been developed to predict and explain industry structure: Joseph Schumpeter’s notion of innovation in the giant firm; Alfred Chandler’s ideas about economies of speed and the rise of the modern corporation; Oliver Williamson’s transaction cost framework; and a range of other production network models that appear in the literature. Iargue that the modular production network yields better economic performance in the context of globalization than more spatially and socially embedded network models. Iview the emergence of the modular production network as part of a historical process of industrial transformation in which nationally specific models of industrial organization co-evolve in intensifying rounds of competition, diffusion and adaptation.

The birth of capabilities: market entry and the importance of pre-history

Abstract: We analyze the birth of capabilities and resources within organizations and within industries, and their historical antecedents, at the time of market entry. We find a consistent theme: the greater the similarity between pre-entry firm resources and the required resources in an industry, the greater the likelihood that a firm will enter that particular industry, and the greater the likelihood that the firm will survive and prosper. In addition, resource gaps affect the likelihood, speed and mode of entry.

The institutional environment for infrastructure investment

Abstract: The empirical evidence that links political institutions to economic outcomes has grown dramatically in recent years. However, virtually all of this analysis is undertaken using data from the past three decades. This paper extends this empirical framework by performing a two-century long historical analysis of the determinants of infrastructure investment in a panel of over 100 countries. The results demonstrate that political environments that limit the feasibility of policy change are an important determinant of investment in infrastructure. Copyright 2002, Oxford University Press.

The capabilities of new firms and the evolution of the US automobile industry

Abstract: Firms that diversify into new and existing industries typically outperform de novo entrants, but in some new industries diversifying firms are displaced by later-entering de novo firms. Little is known about when and how new firms can overcome the advantages of diversifying firms. This is investigated for one industry, automobiles, where new firms had considerable success. All the entrants into the industry from its inception in 1895 through 1966 are identified. The heritage of every entrant into the industry is traced, including the founders of de novo entrants, to explore how time of entry and pre-entry experience affected firm survival. While diversifying firms on average outperformed de novo entrants, de novo entrants founded by individuals that worked for the leading automobile firms outperformed all firms and dominated the industry. This is attributed to the novel organizational challenges faced by automobile firms, which made the leading firms ideal training grounds for new entrants. The implications of these findings for firm capabilities, industry competition and regional economic development are discussed. Copyright 2002, Oxford University Press.

Why all this fuss about codified and tacit knowledge

Abstract: This paper starts with a critical assessment of the recent paper by Cowan, Foray and David. It also provides the authors' own assessment of why the tacit-codified distinction is important in relation to economic analysis and knowledge management practice. The criticism of Cowan, Foray and David centres on three points. Firstly, it is argued that the discussion on codification must make the fundamental distinction between knowledge about the world (know-what) and knowledge in the form of skills and competence (know-how). Secondly, it is argued that the dichotomy between codifiable and non-codifiable knowledge is problematic since it is rare that a body of knowledge can be completely transformed into codified form without losing some of its original characteristics and that most forms of relevant knowledge are mixed in these respects. Thirdly, we contest their implicit assumption that codification always represents progress. We conclude that for these reasons their intellectual exercise of extending definitions of what is codified and possible to codify, while in principle addressing very important issues related to innovation policy and knowledge management, ends up having limited practical implications for these areas. Copyright 2002, Oxford University Press.

Strong ties, weak ties and islands: structural and cultural predictors of organizational innovation

Abstract: How does the tendency of entrepreneurs to engage in innovation relate to their structural and cultural embeddedness? Using micro-data on entrepreneurial teams and the organizational innovations they attempt to develop, this article presents a predictive model of creative action to address this question. Capacity for creative action is seen to be a function of the ability of entrepreneurs to (i) obtain non-redundant information from their social networks; (ii) avoid pressures for conformity; and (iii) sustain trust in developing novel—and potentially profitable— innovations. Probit analyses of over 700 organizational startups suggest that these mechanisms exercise effects on innovation via the network ties and enculturation of entrepreneurs.

A firm as a dialectical being: towards a dynamic theory of a firm

Abstract: Today, firms are facing many contradictions: efficiency versus creativity; exploitation versus exploration; speed versus time-consuming resource building. This paper argues that a firm's capability to synthesize such contradictions is the key to understanding why a firm can be more efficient at producing knowledge than market. A firm can create new knowledge and capability that go beyond the balancing point in the existing frontier with its synthesizing capability, which is embedded in its knowledge vision, its ba, its creative routines, its incentive systems and its distributed leadership. Copyright 2002, Oxford University Press.

Foundations of a Theory of Social Forms

Abstract: Sociologists frequently invoke the concept of form when analyzing organizations, collective action, art, music, culture and other phenomena. Nonetheless, the form concept has not received careful theoretical analysis, either generally or in specific context. Using the tools of formal logic and set theory, we propose a language for defining social forms that is sufficiently general to incorporate feature-based, position-based and boundary-based approaches to defining forms. We focus on organizational forms although we intend our conceptualization to be general. We define forms as a type of socially coded identity. We define identity in terms of social codes that specify the properties that an entity can legitimately possess. These codes can be enforced by insiders or outsiders. We claim that one knows that a social code exists when one observes that departures from the codes after periods of conformity cause a devaluation of the entity by relevant insiders and/or outsiders. This construction allows us to define a population as the set of entities with a common minimal external identity in a bounded system in a period of time. The minimal property ensures that we localize to the most specific socially enforced identities. The reliance on identities instead of forms allows us to define populations that never achieve form status and to extend population definitions back to the period of early legitimation. Research design implications follow.

Disruption, disintegration and the dissipation of differentiability

Abstract: This paper proposes a deductively derived model to help managers who preside over decisions to integrate or outsource to assess ex ante whether, when and why it might be strategically and competitively important to develop internal capabilities to perform certain activities in-house, and when it would be sensible and safe to outsource elements of value-added Among the paper’s conclusions are that the competitive advantage from vertical integration is strongest in tiers of the market where customers are under-served by the functionality or performance available from products in the market Vertical integration tends to be a disadvantage when customers are over-served by the functionality available from products in the market Vertically integrated firms will therefore often dominate in the most demanding tiers of markets that have grown to substantial size, while a horizontally stratified, or disintegrated, industry structure will often be the dominant business model in the tiers of the market that are less demanding of functionality

Market Force, Ecology, and Evolution

Abstract: In financial markets an excess of buying tends to drive prices up, and an excess of selling tends to drive them down. This is called market impact. Based on a simplified model for market making, it is possible to derive a unique functional form for market impact. This can be used to formulate a nonequilibrium theory for price formation. Commonly used trading strategies such as value investing and trend following induce characteristic dynamics in the price. Although there is a tendency for self-fulfilling prophesies, this is not always the case; in particular, many value investing strategies fail to make prices reflect values. When there is a diversity of preceived values, nonlinear strategies give rise to excess volatility. Many market phenomena such as trends and temporal correlations in volume and volatility have simple explanations. The theory is both simple and experimentally testable. Under this theory there is an emphasis on the interrelationships of strategies that makes it natural to regard a market as a financial ecology. A variety of examples show how diversity emerges autmatically as new stategies exploit the inefficiencies of old strategies. This results in capital reallocations that evolve on longer timescales, and cause apparent nonstationarities on shorter timescales. The drive toward market efficiency can be studied in the dynamical context of pattern evolution. The evolution of the capital of a strategy is analogous to the evolution of the population of a biolgoical species. Several different arguments suggest that the timescale for market efficiency is years to decades.

Innovation and market structure in the dynamics of the pharmaceutical industry and biotechnology: towards a history‐friendly model

Abstract: This paper is a first attempt at modelling the long-term dynamics of market structure and innovation in the pharmaceutical industry in a history-friendly way. The model examines the relationships between the nature of the search space, demand, the patterns of competition, and industry evolution in the age of random screening and in the age of molecular biology, and shows that concentration in the pharmaceutical industry is shaped by lack of cumulativeness in innovative activities and market fragmentation. The model conforms to our appreciative understanding and responds to changes in parameters concerning demand, costs, economies of scale, opportunity conditions and the relative advantages of new biotechnology firms (NBFs) vis-a-vis incumbents. With the exception of cost increases, the model is quite robust to these changes in its essential features: it is quite difficult to raise substantially concentration and to have NBFs displacing incumbents.

Near decomposability and the speed of evolution

Abstract: This paper proposes an explanation for a fundamental property that appears to be shared by all multicelled organisms. Such organisms consist of a hierarchy of components, such that, at any level of the hierarchy, the rates of interaction within components at that level are much higher than the rates of interaction between different components. Systems with this property are called nearly completely decomposable, or more briefly, nearly decomposable (ND). The explanation for the ubiquity of the ND property is that, under the usual conditions of mutation and-or crossover and natural selection, ND systems will increase in fitness, and therefore reproduce, at a much faster rate than systems that do not possess the ND property. Copyright 2002, Oxford University Press.

Developing innovative competences: the role of institutional frameworks

Abstract: The recent development of the biotechnology and computer industries has highlighted the variety of ways in which firms in different countries and sectors can develop innovative competences. Four aspects are particularly important: the degree of involvement in the public science system, involvement in industry collaborations, reliance on specialist skills of individuals, and the ability to change collective competences radically. National and regional variations in these result from differences in dominant institutional frameworks. In addition to the organization of capital and labour markets and the structure of inter-firm relations, these frameworks include the nature of the public science system. Particularly important features of these systems include: the organization of research training, the flexibility of researchers and organizations in developing novel goals and approaches, the organization of scientific careers, and the prevalent science and technology policies of the state. Distinct combinations of these institutional features have become established in different market economies and led to contrasting styles of innovative competence development being adopted. These in turn help to explain continuing variations in patterns of technological change between countries.

The Red Queen in organizational creation and development

Abstract: We synthesize organization learning theory and organizational ecology to predict systematic patterns in the founding and growth of organizations over time. Our central argument is that competition triggers organizational learning, which in turn intensifies competition that again triggers an adaptive response. We model this self-exciting dynamic--sometimes referred to as the 'Red Queen' in general evolutionary theory--to explain organizational founding and growth rates among the thousands of retail banks that have operated in Illinois at any time from 1900--1993. We find strong evidence that Red Queen evolution led some organizations to grow quickly and to place strong competitive pressure on rivals. Red Queen evolution also helped establish barriers to entry. However, this same evolutionary process appears to make organizations more susceptible to 'competency traps', ultimately slowing their growth rates and inviting new market entry. Organizations confronted by a widely varying distribution of competitors grow more slowly and are more likely to face new entrants. Overall, the results suggest that processes of organizational creation and growth emerge from ecologies of learning organizations. More generally, we discuss the use of ecological theory and models to study the empirical consequences of organizational learning. Сopyright 2002, Oxford University Press.

Finding the organizational sources of technological breakthroughs: the story of Hewlett‐Packard's thermal ink‐jet

Abstract: Which firms are more likely to invent technological breakthroughs, such as Hewlett-Packard’s invention of the thermal ink-jet? I induct theory for this question by interpreting the history of the breakthrough as a recombinant and boundedly rational search process. The firm increased its odds of success by generating many high-variance inventive trials; it mixed and juxtaposed diverse technologies, professions and experience, managed by objective and collocated. The firm exploited this variance with effective selection processes, strong socialization norms, deep experience with the components of invention, rapid prototyping and testing, and scientific knowledge and method.

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

Abstract: This work analyses the properties of corporate growth in a large longitudinal sample of Italian manufacturing firms. In particular, it focuses on the statistical properties of growth rates and on the influence of proxies for relative efficiency upon relative growth. In line with previous work, the emergence of ‘fat tails’ in growth rate distributions and the idiosyncratic nature of autocorrelation coefficients confirm the existence of a structure in the growth process richer than the one normally assumed by the ‘Gibrat Law’ hypothesis and suggest the presence of firm-specific drivers of growth. At the same time, there is a remarkable puzzle concerning the absence of any negative relationship between size and growth variance and only weak influences of relative efficiencies upon growth dynamics.

Innovating routines in the business firm: what corporate tasks should they be accomplishing?

Abstract: One challenge in evolutionary economics is to give greater operational content to the notion of 'innovating routines' inside the firm. Historical and contemporary evidence suggests that such routines always have to deal with increasing specialization in knowledge production, increasing depth in knowledge sources and complexity in physical artefacts, and with the continuous matching of specific corporate competencies and organizational practices to the market opportunities offered by specific technologies. As a consequence, some innovating routines have always been important, such as those dealing with the tasks of co-ordination and integration within the firm, and of reducing uncertainty through learning. Others are becoming more so, such as those co-ordinating technological resources external to the firm, coping with systems and simulations, and adapting organizational practices to the requirements of radically changing technological opportunities. Copyright 2002, Oxford University Press.

Is subsidizing entry an optimal policy

Abstract: Public subsidies in support of new firm foundation are among the most frequently used instruments of industrial policy in the Euro zone. This paper analyses their effectiveness and efficiency vis-a-vis some features of the overall process of industry dynamics in Italian manufacturing. To this end, the survival and growth patterns of new small firms are investigated using a unique dataset on electrical and electronic engineering in Italy. As regards survival, our results confirm the findings of other studies, namely that the hazard rates are particularly high in the early stages of firm’s life cycle. As far as growth is concerned, the study’s main finding is that Gibrat’s Law fails to hold in the years immediately following start-up, when smaller firms must ‘rush’ in order to achieve a size large enough to enhance their likelihood of survival; conversely, in later stages of firm’s life cycle the Law cannot be rejected. These results radically question the use of subsidies as an optimal policy for the support of new entries, since the subsidy brings about a major bias in the process of market selection (including substitution and deadweight effects) and hampers the post-entry scale adjustment of newborn firms.

Learning and the sources of corporate growth

Abstract: This paper explores the link between learning and corporate growth by developing different models of learning and showing that they produce observably different models of corporate growth. Using data on the growth of a number of firms in the US automobile industry during the 20th century, we compare these different models of growth in an effort to identify the major sources of learning which these firms seem to have relied on. Although there are interesting differences between growth processes before and after the Second World War, the basic conclusion that we are drawn to is that learning in this sector is largely unsystematic and opportunistic.

Technology and the dynamics of industrial structures: an empirical mapping of Dutch manufacturing

Abstract: This paper explores the empirical link between, on the one hand, innovation and, on the other hand, industrial structure and dynamics in The Netherlands. We use the concept of ‘technological regimes’ as the guiding framework to interpret this relationship. The data are drawn from the Production Statistics and the Business Register of manufacturing firms in The Netherlands and the second Community Innovation Survey. A classification of technological regimes that refines Pavitt’s taxonomy is applied to the data. Our analysis is aimed at identifying the variables that are best able to discriminate between technological regimes for our Dutch case. We find that a mix of innovation related and market structure related variables account for most variability and broad differences across regimes; dynamic market structure variables account for an additional share of variability and finer differences across regimes. Overall, we conclude that the concept of technological regimes provides a useful framework that helps to shed further light on the relationship between innovation and market structure.

Labour market regulation, industrial relations and technological regimes: a tale of comparative advantage

Abstract: In this paper we present comparative evidence from OECD countries concerning the impact of labour market institutions and regulations on technological specialization. The interplay between the degree of labour market flexibility, the system of industrial relations and the knowledge base of different industries determines the viability of different human resource strategies, thereby shaping the patterns of comparative advantage. Our empirical results show that countries with coordinated industrial-relations systems and strict employment protection tend to specialize in industries with a cumulative knowledge base. We argue that two mechanisms explain these patterns. The larger the scope for resorting to internal labour markets, the lower the adjustment costs imposed by labour market regulation. Furthermore, employment protection and coordinated industrial-relations regimes, by aligning workers' and firms' bjectives, encourage firm-sponsored training as well as the accumulation of firm-specific competencies, allowing firms to fully exploit the potential of the internal labour market. Copyright 2002, Oxford University Press.

Capital market development and mass privatization are logical contradictions: lessons from Russia and the Czech Republic

Abstract: The introduction of mass privatization policies in Russia and the Czech Republic depended on the creation of impersonal capital markets to finance the needs of privatized companies and to provide a secondary market for the trading of securities. Yet, mass privatization created the contradictory conditions of generating millions of poorly informed shareholders, with no efficient markets for the sale of the shares. The absence of financial markets created systematic pressures to move assets by illegal or non-transparent means to users who value them more. Privatization created the incentives to destroy the financial markets critical to its success. A comparative case analysis of post-privatization market formation in both these countries demonstrates that the functional necessity for these markets does not engender their own creation. In the absence of institutional mechanisms of state regulation and trust, markets become arenas for political contests and economic manipulation. The irony of these policies is that a principal lesson has been that market reforms cannot create viable markets, only institutional formation can. Copyright 2002, Oxford University Press.

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

Abstract: 'Industrial ecology' is one of the most influential perspectives to have emerged in recent years in the wider discourse on 'sustainable development'. The vast majority of industrial ecologists believe that past economic development was characterized by a linear system of extraction, use and disposal. One of their main goals is therefore to find ways to make modern industrial economies mimic ecosystems by transforming the waste of one firm into the valuable input of another. Historical evidence presented in this article, however, demonstrates that inter-firm recycling linkages were a dominant characteristic of past economic development. If this was the case, why do most writers on sustainability believe otherwise? I suggest two broad categories of explanation: a lack of research into the spontaneous formation of inter-firm recycling linkages; and the progressive and cumulative implementation of market distortions and regulatory barriers to resource recovery over the last century. One implication of these findings is that the most important task facing industrial ecologists is probably not the technical challenge of planning resource recovery between firms, but the development of an institutional framework that forces firms to 'internalize their externalities' while leaving them the necessary freedom to develop new and profitable uses for by-products. Copyright 2002, Oxford University Press.

The formation of international innovation networks in the multinational corporation: an evolutionary perspective

Abstract: The Formation of International Innovation Networks in the Multinational Corporation : An Evolutionary Perspective

Corporate strategy and the management of innovation and technology

Abstract: This paper explores the evolution of corporate organization with special attention to the organization of R&D. More specifically, the paper addresses the comparative long-term organizational dynamics of management of innovation and technology in two different types of technology-based industrial companies:the ‘related diversifier’ pursuing ‘synergistic economies’ and the ‘vertical integrator’ pursuing ‘vertical economies’. These types of companies are illustrated by case studies of two large Danish manufacturing companies. The analysis aligns the strategic management literature on strategy and structure in large companies with the literature on management of innovation and technology. It is argued that the organizational design for managing innovation and technology is contingent on both the overall strategy–structure profile and dynamics of the companies, and on key characteristics of their particular innovation and technology strategies.

Advanced technology use and firm performance in Canadian manufacturing in the 1990s

Abstract: This paper investigates the evolution of industrial structure in Canadian manufacturing and its relationship to technological change. It does so by examining the extent to which plants that make greater use of advanced technologies experience higher growth in market share and productivity. Using recent survey data on technology use at the plant level, the study finds that establishments that had adopted advanced manufacturing technologies by the end of the 1990s, particularly network communications technologies, had superior productivity growth throughout the decade. In turn, gains in relative productivity were accompanied by gains in market share. Copyright 2002, Oxford University Press.

The relative importance of international vis-á-vis national technological spillovers for market share dynamics

Abstract: The aim of the paper is to investigate the relative importance of international vis-a-vis national technological linkages for international competitiveness for 19 industrial sectors. We estimate a dynamic model with an autoregressive structure in the dependent variable. In the paper competitiveness is captured both by cost competitiveness and by technological competitiveness. The main result is that while national linkages have a positive impact on the trade balance in several sectors (mostly scale intensive and specialised suppliers), this is not the case for international linkages.

The distinctive patterns of capabilities accumulation and inter-firm heterogeneity: the case of the Spanish pharmaceutical industry

Abstract: This paper examines the extent to which systematic differences in performance across firms can be explained by the different sets of capabilities mastered by firms. Cluster analysis is used to group firms based on the degree of capability accumulation along three dimensions: manufacturing, R&D and marketing. Sixty-seven Spanish domestic pharmaceutical firms are studied, focusing on the period 1990--1997. Our findings indicate that five clusters can be identified. Firms with better performance indicators are those that manage to generate capabilities that are uncommon among competitors--particularly capabilities in product development. Copyright 2002, Oxford University Press.

The problem of market bias in modern capitalist economies

Abstract: Modern societies are presently facing a number of challenging and often contentious issues regarding how to organize and govern a variety of activities that employ a substantial and growing fraction of their resources. In certain cases, to make market organization work satisfactorily will require strong and fine-grained regulation, and perhaps a number of other supplementary non-market elements. For other activities, it would be best to rely centrally on other basic organizational modes, with markets in an ancillary role. In these latter cases, too strong an adherence to a belief in the general efficacy of simple market organization can hinder the achievement of a satisfactory solution. The central purpose of this essay is to call attention to the complexity and variegation of the sectoral or activityspecific governing structures employed by modern capitalist economies, and to argue that such structures need to be tailored to the details of the activities involved. Copyright 2002, Oxford University Press.