Dynamic capabilities between firm organization and local development: a critical survey

Riccardo Leoncini , Sandro Montresor , Giovanna Vertova Abstract: This paper aims to explore the nature and the determinants of the dynamic capabilities of the firm: a notion that, while increasingly more fashionable, remains still conceptually diffuse. Through a critical review of the massive and heterogeneous literature that refers, either explicitly or implicitly, to dynamic capabilities in explaining the firm’s dynamics, the paper detects a certain gap between an organizational and an environmental kind of approach to the issue. The nature of the firm and that of the firm environment, especially geographical, are in fact focused on alternatively, thus implying a dynamic capabilities analysis that turns out to be biased. The pros and the cons of a combined approach, which tries to integrate the two, are shown and contrasted to a possibly more satisfactory approach, dealing with the firm as a system operating within an institutional setting of techno-economic relationships. Keywords: dynamic capabilities; firm organization; firm environment; technological systems. JEL Classification: D23, L22, 033

University of Bologna and CERIS/DSE-CNR, Milan, e-mail: leoncini@dse.unibo.it

University of Bologna, e-mail: montreso@spbo.unibo.it

University of Bergamo and CERIS/DSE-CNR, Milan. Corresponding author: Giovanna Vertova, Department of Economics “Hyman P. Minsky”, University of Bergamo, Via dei Caniana 2, 24127 Bergamo, Italy. Tel: 035.2052566, fax: 035.2052549, e-mail: giovanna.vertova@mail.unibg.it

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1. Introduction

Germinated in searching for the origin of competitive advantage (Teece and Pisano 1994),

the concept of ‘dynamic capabilities’ has progressively flourished in other areas of

investigation of the firm1. For example, it has stimulated alternative explanations of the

different fortune established and new entrant firms exhibit in front of the technological

discontinuities that shake their industries (Henderson 1993). More in general, dynamic

capabilities seem to have become a further candidate — although nor unchallenged neither

unquestioned2 — to the micro-foundation of the evolutionary literature on technological

change. Indeed, they try to link the advent of new technological paradigms to the evolution

of the firm knowledge base (Dosi et al. 2000).

The dynamics of the firm capabilities is deeply rooted in the firm knowledge base3.

In adapting their existing capabilities over time, in acquiring or in developing new ones,

firms actually engage themselves in a process of learning something new. This argument

has made the theory of organization the ‘shelf’ where to search the toolbox for investigating

the dynamic capabilities issue. Its analysis has actually become an application to the theory

of organizational learning. Indeed, the investigation of the process of ‘organizational

knowledge creation’ (Nonaka 1994: 15) has cast new light on the different ways and

effectiveness with which firms/organizations deal with their changing environment.

Organizational learning has offered several important tools that made the dynamic

capabilities issue to became less ‘black-boxed’: the role of the managerial cognition and

mental representation of the firm’s dynamics is just one of them (Garud and Rappa 1994).

This is for sure an extremely important result in addressing the epistemological and

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the ontological foundations of dynamic capabilities. However, as the paper aims to argue at

first, organizational learning has also entailed a certain focalisation-bias in the analysis of

dynamic capabilities. By centring upon the internal organization of the firm, it has in fact

somehow neglected the relational and contextual aspects affecting the creation and

development of dynamic capabilities. On the one hand, concepts of interactive and

environmental nature are often called forth in the organizational account of learning (e.g.

Levitt and March 1988, March 1991) and of dynamic capabilities themselves (e.g. Iansiti

and Clark 1994). On the other hand, however, their relevance is generally hidden by

relegating them within a generic setting, mostly depicted as an aseptic ‘diamond’ of firms,

suppliers and users (Porter 1990), whose relationships are almost exclusively of formal

nature.

In trying to recover the role of relations and context in shaping firms’ learning

processes one might turn to a different strand of literature, focusing on a geographical,

rather than an organizational kind of environment. Although without an explicit reference to

dynamic capabilities, the literature on the so–called ‘local systems of production’ in fact

stresses the relevance, in adjusting and building up firms’ capabilities, of factors such as, for

example: the localisation in a Marshallian ‘industrial district’ (Marshall 1890, Becattini

1979, 1987), the embeddedness in an ‘innovative milieu’ (Aydalot 1986, Camagni 1991a),

and the firm setting in a ‘regional system of innovation’ (Braczyk et al. 1998, Cooke et al.

1998). However, and this is the second part of the paper’s argument, the focus on local

production systems entails a bias somehow symmetric to that implied by organizational

learning. Indeed, such an ‘environmental’ account inevitably takes some focus out of the

firm as a knowledge creating organization, and even more as an organization managing the

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dynamics of its capabilities. Thus, dynamic capabilities tend to degenerate into

geographically delimited, system-specific capabilities: firms have different individual

(rather than organizational) abilities to benefit from, rather than to build up.

Both ‘organizational’ and contextual/relational (in brief, ‘environmental’) factors

play a crucial role in shaping the dynamic capabilities of the firm. What is more important,

they are strictly interconnected. Accordingly, laying a bridge between the two

correspondent theoretical perspectives becomes an essential task. This appears crucial by

thinking that:

‘dynamic capabilities [...] emphasizes two aspects. First, it refers to the shifting character of

the environment; second, it emphasizes the key role of strategic management in

appropriately adapting, integrating, and reconfiguring internal and external organizational

skills, resources, and functional competencies toward changing environment’ (Teece and

Pisano 1994: 557; authors’ emphasis).

How to integrate the theoretical analysis of these two ‘aspects’ is, however, an

extremely delicate task. Mainly because both the organizational and the environmental

approach encompass several perspectives, drawing on conceptual categories which partially

overlap and providing predictions not entirely differentiating. Their survey and

classification into schematic taxonomies thus becomes essential in order to detect which

elements could be retained for a more interacting study about firm’s dynamic capabilities.

In this vein, the paper reviews both the organizational and the environmental approaches,

but differently. The review of the organizational accounts is conducted by creating an

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original taxonomy. Although counting several and heterogeneous contributions, the relative

literature does not distinguish very clearly among them. In order to build up a useful

taxonomy of them it should be checked, from scratch, how they answer to some basic

questions, relating to the crucial elements of dynamic capabilities. The survey of the

environmental approaches, instead, benefits from more effective schematisation attempts of

the relevant literature and relies more heavily on some pre-definite, well-known approaches

about ‘local production systems’. Yet, even this second survey has some novelty, because it

extracts from each of these approaches the crucial elements of a local production system

and its ability (or inability) to affect firms’ dynamic capabilities.

These two surveys lead to an important conclusion, representing the third part of the

paper’s argument: a satisfactory analysis of dynamic capabilities cannot simply rely on

some kind of integration of the two approaches. A novel ‘system approach’ to dynamic

capabilities appears desirable. Indeed, when firms are considered as open, dynamic systems,

co-evolving in broader technological systems, the analysis of their dynamic capabilities can

be addressed by retaining, simultaneously, both the organizational and the contextual nature

of their learning patterns, the formal and informal characterisation of the relationships they

establish, and the territorial specification of their evolution. In other words, looking at firms

as evolving organizations within evolving systems, would represent a more effective way to

investigate the determinants and the processes of their dynamic capabilities.

The structure of the paper basically follows the logical order of the arguments

presented above. Section 2 critically reviews those contributions that represent the

organizational viewpoint in the analysis of dynamic capabilities. Section 3 provides a

critical survey of the environmental one. In both cases, the focalisation-bias (or de-

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focalisation) they entail will be stressed. Section 4 closes the paper by addressing possible

ways to eliminate, or at least reduce, this bias. An integrated approach, which proposes to

overlap organizational and environmental arguments, is contrasted with the ‘seeds’ of a

novel system approach to dynamic capabilities. The superiority of latter in providing a

comprehensive analysis of dynamic capabilities is sketched .

2. Dynamic capabilities through the organizational lens

The concept of dynamic capabilities has been put forward to account for the different ways

and effectiveness firms face the ‘turbulence’ of their hosting environments. In particular, to

explain why firms show different dynamic performances once their sector has been shaken

by some kind of pervasive technological change. Its inspiring rational lies in the problems

that the neoclassical theory encounters in reducing the issue to a pure question of strategic

incentives to invest in innovation. Even once the nature of the technological shake — i.e.

incremental rather than radical — has been disentangled, predictions based on strategic

arguments are not empirically robust4 (Henderson 1993, Jones 2001). Non strategic-

matching empirical results require to investigate the impact of technological change on the

firm organization (i.e. communication channels, information filters, routines, procedures

and the like) and to consider the different research capabilities of the firms5.

The notion of dynamic capabilities tries to respond to such a need, that is ‘[the] need

[of] much better models of heterogeneous capability — its evolution and its role in

competition — […] to fully understand the competitive implications of technological

change’ (Henderson 1993: 268). Indeed, the concept and its rational have attracted

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researchers of the firm from diverse disciplines, both in economics and in other social

sciences. This fact has inevitably entailed a certain ‘terminological soup’ around the issue.

The contributions that fall under the organizational heading are just apparently uniform. In

spite of substantial conceptual and terminological overlapping, relevant differences emerge

among them with respect to the inner nature and functioning of dynamic capabilities. In

disentangling such differences an original taxonomy of four approaches seems applicable.

As it will be shown, the four approaches present some elements of complementarity. Yet

they endorse differences that lead to not entirely aligned predictions.

Insert table 1 about here

2.1 The strategic management approach

The first item of such a taxonomy is occupied by the definition provided by the forerunners

of the concept (Teece and Pisano 1994, Teece et al. 1997). As it was introduced to build up

on it an alternative explanation of competitive advantage, in the following, this position will

be referred to as the ‘strategic management approach’ to dynamic capabilities6. According

to this approach, dynamic capabilities are conceived as a particular ‘firm’s ability’ to

manage its ‘internal and external competencies’ in order to face its ‘changing environment’

more competitively then the rivals (Teece et al. 1997: 516).

Apparently, the definition is purely a functional one. Dynamic capabilities are just

‘higher-order’ capabilities, which differ from ‘lower-order’ ones because of their function.

Indeed, they would serve dynamic firms to break out the rents and the path dependency

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guaranteed to the rivals by their having rare, valuable and inimitable lower-order

capabilities (Collis 1994: 149)7. The inner nature of dynamic capabilities is thus still that of

‘capabilities’, although of a special kind. In this last respect the present approach draws on

some previous works in the field of strategic management, in particular on the seminal

paper by Leonard-Barton (1992). According to her ‘dynamic paradox’, the ‘core

capabilities’ of the firm can turn into ‘core rigidities’ if the firm itself is unable to renew

them.

It should be stressed that in the present approach strategic capabilities, both static

and dynamic, are not always clearly distinguished from ‘individual’ resources, i.e. resources

that are separable from the firm context and thus able to carry a market price. Indeed,

dynamic capabilities take on the nature of a very special kind of resources — i.e.

organizational and non-price-carrying — only when they are related to processes of

organizational learning (Dierickx and Cool 1989). Dynamic capabilities are in fact directly

connected to the ‘organizational processes’ of the firm. Its ‘dynamic role’ is precisely that

of allowing the firm to learn through ‘communication codes and search procedures, which

are rooted in specific organizational settings’ (Teece et al. 1997: 518).

Although the emphasis is on the firm competitive advantage, the role of the firm

organization thus keeps this approach complementary to the other approaches under the

same heading. Two peculiarities should however be remarked. First of all, learning is

indicated as the only truly ‘dynamic concept’. As such, it is clearly distinguished from the

‘coordination/integration’ of the firm competences — instead treated as a ‘static concept’ —

and from their ‘reconfiguration’ — retained as a ‘transformational concept’ (Teece et al.

1997: 518-512). In so doing, the way in which the integration and the coordination of the

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firm capabilities actually help firms learn is not explored. Second, integration and

coordination capabilities are mainly conceived as internal, that is relating tasks and

activities within the boundaries of the firm. The role of external integration is simply

sketched, and always by referring to those formal kinds of relationships (Teece et al. 1997:

519) which feed up processes of ‘inter-organizational learning’. That kind of knowledge

(mainly tacit) firms acquire, often unintentionally, through less formal techno-economic

relationships with other firms and organizations, instead, is not addressed. This last

peculiarity is typical of contributions in the field of strategic management. Although by

placing knowledge at the basis of a sound theory of the firm (e.g. Grant 1996), they still

consider the ‘environment’ in which the firms operate in a quite aseptic way: that is as a set

of competitive relationships among competitors, suppliers and customers.

2.2 The technology approach

A second approach to dynamic capabilities can be identified around those contributions,

mainly of empirical nature, which have focused on the different capabilities that different

firms have to implement and/or use new technologies. This could be actually considered

one the most fruitful field of application of the dynamic capabilities rational. Indeed, its two

constitutive elements — ‘the shifting character of the environment’ and ‘the role of strategic

management’ in dealing with it (Teece and Pisano 1994: 557) — find an immediate

specification in, respectively: (i) the ‘technological discontinuities’ which ‘destroy’ (rather

than ‘enhance’) the firm’s existing competence (Tushman and Anderson 1986); (ii) the

change in the communication channels, interpretative filters and organizational routines (in

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brief, in the ‘architectural knowledge’) the firm needs to implement in front of these

discontinuities (Henderson and Clark 1990). Nonetheless, the focus on technological

aspects is so dominant that the concept of dynamic capabilities as such is only rarely used in

an explicit way (e.g. Iansiti and Clark 1994).

In what can be termed the ‘technology approach’, dynamic capabilities are identified

with research and technological capabilities. That is, capabilities which apply to a certain

technological element, such as: the ‘knowledge’ the firm masters in setting a new product

dominant-design (Henderson and Clark 1990); the ‘skills and know-how’ the firm uses to

deal with new products and processes (Tushman and Anderson 1986); the recursive chain of

‘activities’ through which the firm engages in technological problem-solving (Iansiti and

Clark 1994)8.

While the application to technology makes dynamic capabilities more concrete, in

this approach their inner nature is conceptually more diffuse. On the one hand,

organizational learning still seems at the core of their explanation (Iansiti and Clark 1994:

17). On the other hand, a certain connection remains with the ‘problem-solving’ strategies

of the firm. In particular, about how much to invest in the new technology and about when

to adopt it. This strategic influence, which reveals a certain overlapping between the present

and the previous approach, crucially affects the way the firm environment is depicted. First

of all, the firm is described in ‘technical’ terms, as a community of engineers and strategies

designers trying to tackle the firm technological complexity. This implies that, with respect

to its external environment, the firm just needs to have a ‘technology integration capacity’

(Iansiti and Clark 1994: 565). Picking-up that external, codifiable knowledge, which is

more suitable to be linked with its existing knowledge base, is the most crucial capability9.

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The same capacity does not apply, instead, to other forms of knowledge integration, of more

tacit nature, which call for some kind of physical proximity between the firm and its

interacting organizations. A second strategic influence on the present technological

approach concerns the characterisation of the firm environment. In general, its is depicted as

an ‘industry’ populated by ‘established organisations’ (incumbents) and ‘new entrants’,

among which the relevant relationships are mainly of competitive nature (Tushman and

Anderson 1986: 445-446). Non-competitive relationships among firms, and relationships

with other institutions and organizations of different nature, are instead just given a

marginal role in shaping organizational learning and the capabilities dynamics.

Furthermore, out of the manifold set of relationships that the firm establishes beyond its

boundaries, only those with customers are deemed relevant for the capability-building

process (Iansiti and Clark 1994).

In spite of these influences, the strategic management and the technology approach

provide quite different predictions on which would be the ‘superior’ firm in terms of

dynamic capabilities. The former points out those firms which manage to reconfigure their

resources and capabilities to make them rent yielding in a new competitive equilibrium

scenario. The latter, instead, favours those firms that are able to drive the ‘creative

destruction’ of such an equilibrium through the successful adoption of a new technology.

Although, to the authors’ knowledge, empirical tests have not been provided yet, that the

two predictions lead to the identification of the same firms appears at least theoretically

implausible.

2.3 The organization approach

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Although organizational learning is common to all the approaches, organization theory

enters more pervasively in a third approach which makes the firm’s reaction and pro-

reaction to change mainly dependent on the structure and composition of the relative

organization. As in the previous technological one, also in the present ‘organization

approach’ the explicit use of the dynamic capabilities concept is infrequent10. However,

there is no doubt that its inner logic is at work, although to a different extent depending on

the specific contributions.

At the outset, important seeds can be found in the literature on the patterns the firm

follows in ‘creating’ new knowledge (Nonaka 1994, Nonaka and Takeuchi 1997). These

patterns are actually modelled as driven by the capability of the firm to create further

knowledge, i.e. to learn. The creation of organizational knowledge, in turn, depends on a

‘spiral’ of events through which knowledge is transformed into further knowledge.

Dynamic capabilities thus apply to knowledge itself. What is more, they are crucially

affected by its availability. Organizational learning in fact tends to be dominated by local

processes of search (March and Simon 1958). Accordingly, when a technological

discontinuity shakes the firm environment and urges the firm to learn distantly from what it

knows, core competencies become ‘core rigidities’ (Leonard-Barton 1992). In such a

framework, therefore, dynamic capabilities are thought to be used in contrasting the

organizational inertia and the path dependency associated with the learning process.

In these and other similar organizational accounts (e.g. Levitt and March 1988,

March, 1991), the attention to interactive kinds of aspects among firm/organization

members, as well as to organization-wide conditions and management models is higher than

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in the previous two approaches (Nonaka 1994). Furthermore, such a relational dimension

also spans beyond the boundaries of the firm, and makes external interactions extremely

relevant in driving organizational learning11. However, these relational considerations are

only partially encapsulated. First of all, although both formal and informal external

communication channels are considered (Nonaka 1994), the latter are simply treated as an

extension of the standard intra-organizational case, rather than a constituent part of it.

Accordingly, they are not given any special attention. Furthermore, following a typical

strategic management approach, the ‘environment’ within which firms operate is often

reduced to an aseptic triad (customers-suppliers-competitors), affecting individual rather

than organizational learning.

Similar stylisations of the firm environment can also be found in a more recent

strand of organization studies linking the dynamic capabilities of the firm to the role of

managerial cognition (Garud and Rappa 1994). The capacity of the firm to adapt

successfully to radical new technology would depend, rather than on organizational learning

or the firm’s capability set, on the mental models and strategic beliefs that boundedly

rational managers develop in driving firm decisions. Indeed, the shaping of these cognitive

representations by the historical environment — either through the shared ‘dominant logic’

of working together (Prahalad and Bettis 1986) or through the ‘imprint’ of the firm founders

(Baron et al. 1999) — makes it difficult for the top managers to adapt their mental models

in rapidly changing environments (Barr et al. 1992). Dynamic capabilities should therefore

be related to how beliefs evolve within organizations, to the role of hierarchy in cognition

and, first and above all, to how capabilities and cognition relate (Tripsas and Gavetti 2000).

In this last respect it should be stressed that the empirical tests of this cognitive

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hypothesis seem to provide different predictions from those one could associate to the

technology approach. In both case studies (e.g. Tripsas and Gavetti 2000) and systematic

analysis (e.g. Kaplan et al. 2003), cognitive arguments seem to explain both the firm inertia

and the firm pro-action in front of technological discontinuities also after having controlled

for alternative explanations (among which there is the availability of relevant technological

capabilities).

2.4 The evolutionary approach

The theoretical background on which dynamic capabilities draw is in general evolutionary.

With the partial exception of strategic management, this holds true for all the approaches

analysed so far. Indeed, they all link the advent of new technological paradigms to the

evolution of the firm knowledge base (Dosi et al. 2000). On the other hand, it is possible to

distinguish a group of studies which settle dynamic capabilities more explicitly in the

variation-selection-retention model at the core of evolutionary theorising (Cyert and March

1963, Nelson and Winter 1982).

In what can be accordingly termed the ‘evolutionary approach’, dynamic capabilities

are related to the minimum ontological element of the evolutionary firm, i.e. to its

organizational routines. On the one hand, dynamic capabilities directly apply to ‘operational

routines’ — rather than to generic competencies or capabilities — allowing the firm to

generate and modify them whenever it is necessary (Zollo and Winter 2002, Zott 2002). On

the other hand, dynamic capabilities are distinguished from the routines they apply to, on

the basis of their intentional and deliberated character. In other words, while operational

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routines are conceived of as automatic or quasi-automatic responses to environmental

changes, capabilities and dynamic capabilities are instead related to those ‘constant

dispositions and strategic heuristics that shape the approach of a firm to the non-routine

problems it faces’ (Nelson and Winter 1982: 15).

Also in this approach organizational learning is crucial in determining the dynamic

capabilities of the firm. Dynamic capability is in fact conceived as a ‘learned, regular

pattern of collective activity’ (Zollo and Winter 1999: 17, authors’ emphasis). Here,

however, organizational learning is fitted within an evolutionary model, which enlarges the

scope of ‘attributes’ dynamic capabilities depend on. The focus on variation, for example,

recovers in the analysis the nature (e.g. exploratory vs. exploitative, cognitive vs.

experiential) and the direction (i.e. imitative vs. experimental) of organizational search,

whose choice also depends on the costs of deploying the relative resources (Zott 2002). The

retention of the routines that the firm has learnt to select, instead, recovers the delicate issue

of the timing of their actual implementation (Zott 2002). What is more, the map which

connects dynamic capabilities to organizational learning is widened by addressing those

routines that standard organization theory relegates to ‘off-line’ activities: knowledge

‘articulation’ and ‘codification’. Conversely, the latter two are here pointed out as important

forms of learning, through which the firm actually develop its dynamic capabilities12.

On the basis of these considerations, the added value of the evolutionary approach

appears extremely valuable. First of all, it adds an important evolutionary qualification to

the relevance of organizational learning for dynamic capabilities. While it is involved in the

‘selection’ of a new set of ideas, mainly through articulation and codification processes, the

firm gets also engaged in the ‘generative variation’ of further knowledge. Accordingly, the

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‘exploration’ of new knowledge does not necessarily prime its ‘exploitation’, as it is instead

suggested by some accounts of the organization approach (e.g. March 1991). Further

qualifications are added by simulating the evolutionary model in the attempt at suggesting

propositions to be empirically tested. Quite interestingly, the predictions the evolutionary

approach would suggest do not purely reduce to that of the previous approaches13.

On the other hand, it must be noted that the evolutionary model is set at work in a

framework (a typical ‘knowledge-cycle’) which occurs entirely within the boundaries of the

firm, and with respect to which the firm environment does not play a direct dynamic role.

Environmental factors are just ‘viewed [...] as inputs to the dynamic capability building

process, rather than part of the process itself’ (Zollo and Winter 1999: 11). However, once

fitted in a broader evolutionary framework, this view appears a contingent simplification

rather than a general hypothesis. Given the importance that evolutionary economics has

traditionally attributed to the institutions making up the surrounding environment of the

firm (Hodgson 1988), their role in shaping the dynamic capabilities of the firm is another

evolutionary qualification of the issue. The introduction and the subsequent development of

innovation system kinds of concepts (Lundvall 1992, Nelson 1993) — on which this paper

will focus in the next sections — actually implement the idea that institutional and policy

contexts, with their spatial and territorial characterisations, crucially shape the dynamic

capabilities of the firm, thus introducing important policy implications (Metcalfe 1995).

This consideration is among the starting points of a the alternative approach to

dynamic capabilities which is put forward in this paper. Such an alternative view will

incorporate, in addition to those emerged in this section, some other insights which

originate from a different way of looking at dynamic capabilities: that is, through an

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‘environmental’ rather than organizational lens. To the view emerging through this latter

lens the next section is dedicated.

3. Dynamic capabilities through the ‘environmental’ lens

In order to consider the relational and contextual factors affecting the dynamic capabilities

of the firm, it seems natural to draw on the literature on the so called ‘local production

systems’. Under this generic heading it is in fact possible to place all those approaches that,

in spite of their specific features and ‘unit of analysis’, share an important common view:

that firm is not an isolated entity, but is instead ‘somehow’ related to its territory by

relations and networks with other firms, institutions and organizations in the same

geographical area.

Of course, this is not the unique characterisation for the ‘firm environment’. There

are several other approaches that have considered the interaction between the firm and the

environment, without focusing on the local dimension. The literature on organizational

learning considers the interaction with other actors as an important learning mechanism for

firms (Levitt and March 1988, March 1991). The more recent literature on complexity,

competition and evolution offers compelling argument on the importance of the

environmental context (Levinthal 1997, Gavetti and Levinthal 2000). Yet, this literature

thinks that either the external environment is just a further complication that needed to be

incorporated within the boundaries of the firm, or that the firm’s external relationships are

simply strategic to an exogenous bundle of rules of the game. The traditional literature on

local production systems is where the external relationships of the firm and the role of its

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socio-economic context are most deeply analysed, in particular in dealing with the firm

dynamics. That is the reason why the following survey deals with the ‘traditional’

approaches to local production systems and their ability to influence firm’s dynamic

capabilities. Accordingly, the lens provided by the analysis of local production systems is

the ‘environmental’ lens to dynamic capabilities considered in this paper.

In this section it will be shown that also this latter ‘environmental’ lens suffers, as

the organizational one, of an important drawback, somehow symmetric to that one. In fact,

in order to concentrate on the outside-the-firm space (i.e. its environment), this lens ends

out with diverting the attention away from the inside-the-firm space. Consequently, the

result is a certain focalisation-bias on the relational and contextual features affecting the

dynamic capabilities of the firm. On the other hand, such a focalisation-bias takes place to a

different extent in the different approaches. A schematic taxonomy of the most significant

approaches, rather than an exhaustive review of the correspondent contributions, might be

useful in illustrating this point (Table 2).

Insert table 2 about here

3.1 The Industrial District approach (ID)

Out of the several approaches to the local systems of production, that of the industrial

districts (ID) is for sure the most notable, as notable are its insights for the dynamic

capabilities issue. The theoretical ‘pedigree’ of the notion is quite well known, as it goes

back to Alfred Marshall’s (1890) observation of the tendency of small specialised firms to

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concentrate in a limited geographical area. This phenomenon was explained by the

possibility for the firms to reap external economies of scale. In its original characterisation,

therefore, the ID represents a quite standard ‘industrial’ environment for the firm — i.e. a

set of inter-industrial relationships — while it is the mechanism through which it affects the

growth of firms (and their capability to grow), which receives a novel interpretation.

In the earlier Becattini’s revisitation (1979, 1987, 1990) of Marshall’s tradition, the

ID approach gained a new impulse. Becattini (1990: 38) speaks about the ID as ‘a socio-

territorial entity which is characterised by the active presence of both a community of

people and a population of firms in one naturally and historically bounded area’. This

definition marks a certain shift from the consideration of purely economic factors to the

inclusion of social factors too: the ‘population of firms’ must exist within a ‘community of

people’. This shift extends the meaning of the firm environment driving the firm behaviour;

however, it also entails a certain retrieval as both firms and people are considered

constituent players of the ID.

Although the firm does not ‘melt’ in the ID, the collectivity of firms still captures

more attention than their individuality, especially as far as learning is concerned. Indeed, by

setting the ‘community of people’ at work in creating and maintaining a homogeneous

system of values14, and by describing the ‘population of firms’ as specialising in one or few

phases of the production processes (typical of the district), the ID gets characterised as a

typical ‘flexible production system’ (Piore and Sabel 1984). Within it, the development and

transmission of new knowledge relays mainly on the embedded collective knowledge, and

also technological change becomes a social process, because the ‘community of people’

embodies the relevant collective knowledge (Bellandi 2001). It seems that there is no

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influence of this collective knowledge within the firm’s boundaries because the unit of

analysis becomes the networks of different agents (Chell and Baines 2000, Johannisson and

Ramírez-Pasillas 2002, Lechner and Dowling 2003). On the contrary, it looks as if

knowledge flows among firms and individuals without interfering with the internal

organization of the firm. All the attention is concentrated outside the firm’s boundaries and

there is a lack of analysis of the feedback that firms gain by being located within a ID.

While the standard ID approach suffers from a certain focalisation-bias — a bias for

the system-environment — the assessment somehow changes if the attention is turned to the

most recent contributions on the ID approach. Indeed, the change in the international

economic conditions occurred in the 1990s has opened a new discussion among those who

place the firm at the centre of the analysis and those who instead focus on the system of

firms (Whitford 2001). Ferrucci and Varaldo (1993), for example, supported the firm-

centred position, arguing that the ‘district-firm’ is different from a ‘normal-firm’, due to its

strong root in the local socio-cultural context. Their position, along with those who also

suggest to shift the level of the analysis away from the district-system (Taylor 1999),

actually inaugurated a new way of looking at the firm dynamics, which somehow overlaps

the organizational lens and the environmental one. Although this new combined approach

seems quite promising, it also entails some problems that will be addressed below.

A further different evaluation applies to those recent contributions, which have

started conceiving the district-system in cognitive terms (Belussi and Gottardi 2000). Given

that, as a cognitive system, the ID has the primary task to process, diffuse and recompose

information in a coherent set of knowledge, this emerging approach has in fact recovered in

the analysis of the firm dynamics the importance of its strategic flexibility and strategic

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rationality, especially of those firms operating in integrated business groups. Indeed, the

exploration and the refinement of this kind of system approach appear quite helpful in

overcoming the focalisation-biases of both organizational and environmental nature that

have been previously detected. An argument that will be addressed in the next section of

this paper.

3.2 The milieu innovateur approach (MI)

A connection between the firm dynamics (and, implicitly, the related capabilities) and the

firm environment can be found in the approach of the so called ‘milieu innovateur’ (MI),

developed by the GREMI group with the objective of investigating the relationship between

technology and space (Aydalot 1986, Camagni 1991a). As in the organizational technology

approach referred to above, innovation is still retained the crucial engine of the firm

dynamics. In analysing the relationship between technology and space, the GREMI group

focuses the attention on the local environment as a ‘unit’ encompassing both the firm and

technology. Since the very beginning, the attention of GREMI was in fact mainly focused

outside the firm. The original intention was actually the understanding of the innovative

activities of some places by implicitly assuming that favourable conditions are to be found

outside the firm’s boundaries.

The MI approach is a systemic one and this crucially affects the way firms are

engaged in it. The MI is actually considered ‘incubator’ of innovations and innovative firms

(Aydalot 1986: 10), in which the firm is indeed a player, but just one of the many involved

in the innovative process. In such an approach, the organizational bias of the firm as an

22

isolated and space-less economic agent is therefore overcome, as firms are rooted in their

territory and constrained by both their local industrial atmosphere and their social,

institutional and political conditions. On the other hand, however, the firm appears nearly

undistinguishable from such an environment, thus introducing another bias, this time

towards the MI. Indeed, only the MI seems able to innovate, while the firm and its

organization does not play any crucial role in the innovation process. In other words, the

milieu determines the innovative behaviour of firms to the point that it is not the firm who

innovates, it is the territory (Gay and Picard 2001).

In the MI approach therefore, the dynamic capabilities of the firm or, better to say,

their technological capabilities, degenerate into ‘collective capabilities’. It is the MI who

defines the new technological paradigms and trajectories, since it is the depositary of local

know-how, skills, competence and experience, specific to that particular territory. Indeed,

rather than on individual learning, the focus is on the ‘collective learning’ the firms realise

by interacting. Interactions, in turn, are given much more emphasis than in the

organizational approaches, to the point that they are considered more important than the

availability of local factors and resources. Again, a sign of a ‘reverse bias’. Within the MI,

non-market interactions, as well as inter-personal relations, create a local synergy that turns

out to be a more powerful explanation of innovation and, consequently, of local growth

(Maillat 1995).

The idea of territory emerging from the MI approach is evidently quite different

from that of standard industrial economics — where industries come first and create the

territory — or of economic geography — where it is, instead, space that comes first. In the

MI approach industry and space are instead ontological equal, as the territory has a twofold

23

inter-related nature. On the one side, it is the result of the innovation processes; on the other

side, it performs different collective tasks in order to foster innovation15. Following this

approach, the MI has come to be considered as a collective operator with the main task of

reducing uncertainty (Camagni 1991b). In order to function correctly, it has been claimed,

the MI needs to encapsulate a crucial dimension, i.e. a coordination mechanism, which

harmonises all its tasks (Crevoisier 2001). However, this concept of the MI as a ‘living

thing’ gives rise to some questions, because it seems to introduce a deterministic

relationship between the firm and the MI. This approach gives the impression that, as far as

a firm is located within a MI, it will become an innovative firm with no effort and with no

costs. The firm does not seem to participate to the innovation processes, which is played all

outside its boundaries. Hence, no connections seem to exist between the MI and the space

inside the firm (i.e. its organization).

3.3 The Regional System of Innovation approach (RSI)

The role of the environment in driving the firm dynamics appears more evident in a very

recent ‘local’ kind of approach, the regional systems of innovation (RSI). Stemming from

the literature on national system of innovation (Freeman 1987, Lundvall 1992, Nelson 1993,

Edquist 1997), the RSI approach questions the key elements a region must posses in order

to foster innovation. While a RSI has many features in common with a NSI16, it would be

however a mistake to consider a RSI as a ‘proto’ of a NSI, just on a smaller scale. Rather,

the RSI represents another point of view of the whole system of innovation (Braczyk et al.

1998, Howells 1999, Doloreux 2002). Indeed, from a top-down perspective, the regional

24

governance structures are quite different from the national ones, and from a bottom-up

perspective, the qualitative differences are related to the regional internal sets of interactions

between firms and organizations (Howells 1999). A regional system therefore becomes a

crucial arena for localised learning and tacit know-how sharing, thanks to its institutional

fabrics and informal links. The relevance of the RSI for the dynamic capabilities of the firm

is thus notable.

Given the importance that also the RSI approach attributes to innovation and

learning, it might seem that the same approach does not add to the analysis of the dynamic

capabilities issue much more than the MI approach17. However, the RSI concept is built up

on five constituent elements which make its interpretative power somehow superior: (i) the

region, an administrative and political unit with some cultural and historical homogeneity

and with some statutory power; (ii) innovation in the neo-Schumpeterian evolutionary

approach; (iii) networks, i.e. relationships based on trust, reputation, custom, reciprocity and

reliability; (iv) learning processes especially in the sense of institutional learning; (v)

interactions driven by formal and informal links and relationships (Cooke 2001). No matter

its exact composition, drawing on this conceptual framework the RSI is able to incorporate

firms, along with other actors involved in the innovative process, within specific regional

contexts, but still keeping the former conceptually ‘independent’ from the latter.

Furthermore, unlike the two approaches previously reviewed, in the RSI the internal

organization of the firms is explicitly considered, by positively correlating their systemic

innovation potential to such elements as trustful labour relations, shop-floor co-operation

and a worker welfare orientation (Cooke 2001). To be sure, the RSI approach quite

naturally concentrates around the region, as an administrative and cultural unit of analysis.

25

Nevertheless, ‘the “cultur” of the region (…) can be divided into the institutional level, the

organizational level for firms and the organizational level for governance’ (Cooke 2001:

960), so that the firm organization emerges as relevant too.

These and other elements make the present environmental approach less de-

focalised on the organizational issues of the firm than the previous two. However, a certain

environmental bias still remains. Again, there is a lack of analysis about how the RSI

influences the firm, which, inevitably, depends on the internal structure and organization of

the firm itself. Moreover, the RSI approach, as well as the MI one, concentrates its attention

on learning as a collective and socialised process. Yet, both forget to see how the new

knowledge, mainly tacit, has different fallouts for different firms. Each firm would use,

apply, implement, develop and change the new knowledge in different ways, according to

their internal structure. Taking into account these drawbacks, also the RSI does not seem

able to encapsulate all the factors that are at stake in dealing with firms’ dynamic

capabilities.

3.4 The New Industrial Space approach (NIS)

The California School of Economic Geography developed the new industrial spaces

approach around the middle of the 1980s (Storper and Walker 1983, Scott 1988) in order to

explain the development of new locational structures of production brought about by the

emerging regime of flexible accumulation. According to this approach, the new industries,

emerging after technological breaking points, have structures that are independent from

older industries and can enjoy a window of location opportunities. Here, the firm is central

26

and seen as an organization with the aim to internalise transaction costs (Coase 1937). Thus,

by expanding the transaction cost approach to the firm, the new industrial spaces are seen as

complexes of firms organized into networks where the production is a comprehensible

organizational structure rooted in both the firm and the market (Scott 1988). Therefore,

production is seen as a more complicated phenomenon involving both a single enterprise

and the interactive system or networks of socially divided enterprises.

This is the only approach, among all those reviewed in this section, which gives

much more importance to the firm. The external environment is considered as a typical

Porter’s diamond, based on the relational practices between customers and suppliers. Firms

are seen as agents seeking to reduce transaction costs through agglomeration and

urbanisation economies. Localised industrial agglomerations occurs where these external

economies tend to spur continuously out of their variegated production systems and local

labour markets. The external environment is also considered because nothing and nobody

assure that markets alone can successfully coordinate transactions in an industrial space

(Storper 1999). Industrial agglomerations are more likely to be successful when they

manage to build an appropriate framework of institutional and collective order, such as

industrial technology, labour training, business service associations, innovation networks,

cooperative manufacturing structure, local government and land use control (Scott 1992).

This approach suffers from the limitation of its basic concept, the transaction cost

view of the firm. The new industrial spaces are seen as systems coordinated by institutional

and/or business transactions, yet only formal transactions among firms are taken into

consideration. The simple explanation that, when external transactions increase firms tend

to geographically concentrate in order to reduce transaction costs, seems quite reductive. All

27

informal transactions, which can be explained by neither the market nor the hierarchy, are

neglected. Also the external environment is considered only according to its ability to

reduce uncertainty and, consequently, transaction costs. This view seems to focus its

attention on cost criteria, which, certainly, cannot capture the complexity of an informal

organization such as a local system of production. Therefore, the territory is seen as just

functional to the cost-cutting strategy and the institutional as well as the historical context of

firms are not questioned.

This last consideration, along with those made in the previous sections, suggests that

sticking to an environmental lens only, however articulated it might be, does not seem

enough, as well as it appears insufficient to draw on the organizational lens only. Of course,

this does not amount to doubting of the relevance of the this literature per se, but just of its

exclusive use in investigating the dynamic capabilities issue. A more ‘complex’ approach

appears necessary, but, as the next section will show, its identification is far from automatic.

4. Some concluding remarks and directions for future research

Sticking to one lens only, either ‘organizational’ (Section 2) or ‘environmental’ (Section 3),

inevitably entails a partial view of the dynamic capabilities of the firm. Therefore, one

might think that using both lenses simultaneously, somehow overlapping them, enables to

capture the same capabilities more accurately. A similar exercise appears implicit in an

interesting research program, which has recently tried to extend to spatial systems of firms a

relational approach of inter-organizational nature (Lipparini 1995, Lipparini and Lorenzoni

1996). The starting point of this last stream of studies is the role that is played by the firms’

28

relational set-ups. According to this ‘relational view’, setting-up firm networks, signing-up

partnership agreements with other organizations, managing the ensuing relationships, or

simply involving (also informally) customers and suppliers in their business operations,

would increase the learning capabilities of the firms involved. The dynamic capability of the

firm is in fact retained nothing but a ‘relational capability’.

The relevance of a relational argument has emerged both from a theoretical and an

empirical point of view. From a theoretical perspective, it has become evident that while

externalities and spillover effects make firms, operating in local systems of production,

relatively more efficient, their dynamics also depend on the organization of the firm itself

(Ferrucci and Varaldo 1993, Lipparini and Lorenzoni 1996). Furthermore, the relevance of

these theoretical suggestions is confirmed by some recent empirical studies showing how

groups of firms and across-firms shareholding are quite pervasive also within local systems

of production (Brioschi et al. 2002, 2004). In front of these encouraging theoretical and

empirical results, one might wonder whether the combined perspective, which is referred to

here, actually allows to overcome the biased-views documented in the previous sections.

Unfortunately, a closer look at those aspects does not seem to confirm this suggestion. On

the contrary, the retrieval of organizational aspects in the analysis of local production

systems seems to occur at the expenses of those tacit and informal elements which are

typical of the environmental lens, and which get therefore somehow hidden, if not even lost.

First of all, the focus on formal inter-organizational arrangements inevitably entails

a peculiar view of the learning process. A local system of production would evolve mainly

by developing a system-wide ‘architectural’ knowledge that, intelligently and purposely,

combines the ‘component’ knowledge embodied and developed by the relevant individual

29

firms. Evidently, such a view neglects that rarely local systems of production draw on a

body of production and innovation knowledge that has an explicit and hierarchical nature.

On the contrary, if a certain combination of the ‘individual’ knowledge of the firms is

possible, it occurs unintentionally, through repetitive trials and errors (Camagni 1991b). A

second distortion refers to the actual specification the knowledge creation process finds,

once it is set at work within local systems of production. Indeed, such a view just retains

those moments of the ‘spiral knowledge model’ (Nonaka 1994), which operate on a codified

and explicit kind of knowledge. On the contrary, it filters out those moments that are more

intensive of an implicit kind of knowledge. The consideration of these latter stages of the

process seems therefore to call for an additional network of relationships on which the

present view does not explicitly focus on. Finally this approach seems to presume that, in

order to generate knowledge and thus feeding-up the dynamic capabilities process, the

interaction among the firms of a system must be deliberately planned and organized. Less

explicit forms of interactions are not deemed very powerful in increasing the knowledge

stock of the interacting agents (Lipparini 1998). This way of looking at ‘learning-by-

interacting’, however, is not entirely satisfactory. As clearly emphasised by Lundvall

(1992), the same kind of learning is in fact affected, not only by an organizational kind of

distance, but also, and above all, by the degree of proximity that (firm) producers and (firm)

users show in economic and in spatial terms. What is more, the relative importance of these

different forms of distance varies depending on the content of the interaction themselves.

Moreover, learning-by-interacting is actually less formal and organized than what the

combined lens to dynamic capabilities envisages.

In the light of the previous set of considerations, the evaluation of the organizational

30

analysis of local production systems, although extremely important, cannot be retained fully

satisfactory. On the contrary, it seems that the dynamic capabilities process gets examined

in an even more partial way. This is not surprising! As it happens in practice, when one just

imposes a lens over another, without bothering with their relative convexity, the resulting

image is not necessarily more crystalline. Using a different, more appropriate lens in

general yields a more accurate view.

A more fruitful research line might be, for example, that of analysing the dynamic

capabilities of the firm dealing with it as a ‘complex adaptive system’ (Fuller and Moran

2000, 2001, Montresor and Romagnoli 2004). Following such a perspective, the dynamic

capabilities of the firm could be seen as its capabilities to undertake a ‘complex’ process of

change in two respects. On the one side, the firm needs to have the homeostatic capacity of

fine-tuning its capabilities set and its organizational structure with respect to the outer

environment, once the environmental signals do not exceed the threshold levels of the

former. On the other side, the firm also needs the (truly dynamic) capacity of shifting its

boundaries, in order not to be overwhelmed when the environmental pressure becomes

excessive18.

Conceptualised in this way, the nature of dynamic capabilities is evidently quite

different from that of the approaches reviewed so far. First of all, dynamic capabilities apply

to the firm as a system of capabilities, rather than to one or another of its constitutive

elements (be they routines, competencies, or technology). Their core element is the firm

capacity to undertake a complex adaptive process, rather than its ability to implement an

organizational kind of learning. In fact, such a capacity is not purely organizational, and

merely consisting of an evolution process of its organization in response to changing

31

patterns of the selection mechanism. On the contrary, once the firm dynamics is conceived

as a co-evolutionary process, environmental factors become as relevant as organizational

ones in explaining dynamic capabilities, thus actually laying a bridge between the two

perspectives that have been reviewed.

The approach that has been sketched appears to have some important positive

implications, which make it promising and worthwhile pursuing. First of all, firms, which

populate a technological system, are typically treated as ‘evolutionary’ in their nature

(Nelson and Winter 1982), and this has in turn at least two crucial implications. On the one

hand, their learning patterns are informed by the variety generation mechanisms, which are

centred on their organizational routines, thus calling for an organizational analysis of their

dynamic capabilities. On the other hand, their ‘evolution’ is co-determined (along with the

previous mechanism) by the selection process that the market forces operate on them, thus

calling for an environmental analysis of their dynamic capabilities. A second important

implication has to do with the fact that, following a system perspective, the dynamics of the

firm (and of the relative capabilities) cannot be considered in isolation from the set of actors

and relationships of which a technological system is made up of. Not only because do firms

need an institutional set-up and an economic structure to carry out their business activities,

but also, and above all, because they learn (and innovate) by interacting with other firms

and actors of the technological system (Lundvall 1992). This means that what is learnt by

firms is inevitably shaped by the relations, typically of informal nature, they develop within

the institutional set-up underpinning the system itself. An environmental kind of analysis is

thus necessary in this last respect. Furthermore, the learning process of the firm is also

influenced by those interactions, typically of formal nature, firms deliberately establish with

32

others in building up ‘inter-organizational platforms’ for the generation and diffusion of

collective learning. Accordingly, an organizational (to be sure, inter-organizational)

approach to dynamic capabilities turns out to be useful once again. A third implication

concerns the opportunity to deal with dynamic capabilities by retaining elements of

territorial nature. Indeed, the relationships that innervate a system occur both through

‘immaterial’ and ‘material’ kinds of networks. While the former are conducive of codified

bits of knowledge, whose diffusion does not require (to be effective) spatial proximity

between knowledge (innovation) producers and users, such a kind of closeness is instead

essential in the spreading of tacit bits of knowledge, whose ‘embodied’ diffusion benefits

from the location in a common territory. Accordingly, while the former kind of network can

be strategically planned — and thus organizationally investigated — the latter provides

‘local’ systems of innovation (and production) with a special advantage in ‘socialising’ and

‘externalising’ their organizational knowledge (Nonaka 1994) — thus invoking an

environmental/spatial kind of analysis.

Acknowledgment: a previous version of this paper has been presented at the PRIN2003

Workshop on “Dynamic capabilities, organizations and human resources: theories and

empirical evidences”, Ferrara (Italy), 28th May 2003. The authors are grateful to the

participants for their useful comments and suggestions. Usual caveats apply.

33

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41

Table 1 — The main approaches to dynamic capabilities

Strategic management Technology Organization

Evolutionary

What are dynamic capabilities?

Higher-level strategic capabilities (competitive advantage)

Technological capabilities (organizational competences to

overcome inertia)

Capabilities to create organizational knowledge (renew managerial

cognition)

A learned collective activity (intentional routines)

What do they apply to?

Lower-level strategic capabilities/resources

(competitive advantage)

Technology (i.e. technological knowledge, skills, know-how,

recursive activities)

Organizational knowledge (managerial cognition)

Operational routines (quasi-automatic routines)

Which is their core element?

Organizational learning from a strategic point of view (competitive

advantage)

Organizational learning combined with strategic considerations

Organizational learning from an organization theory perspective

Cognitive learning from an evolutionary viewpoint (variation-

selection-retention)

How is the firm conceived?

A set of resources and capabilities whose integration/combination is a

static factor

A technical system of resources with respect to which technological

integration is dominant

An organization in which individual and collective knowledge interact

A set of organizational routines and capabilities

How is the firm environment dealt

with?

An aseptic (strategic like) diamond with which the firm is integrated in formal terms (competitors, suppliers

and consumers)

An industry characterized by competitive relationships and with a special focus on external (formal)

technology integration and consumer integration

A set of organizations interacting (mainly) on a formal basis (inter-

organizational learning)

A system of institutions which operate in a socio-political context with a

territorial specification

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Table 2 — Main features of the different local production system approaches

Industrial District Milieu Innovateur Regional System of Innovation New Industrial Spaces

Research agenda Why do firms tend to concentrate in some geographically bounded areas?

Why do some places innovate more than others?

Why do some regions innovate more than others?

Why do new industrial spaces emerge?

The core feature “Embeddedness” Innovation Institutions Agglomeration and urbanisation economies

The players Community of people and population of firms

Firms, institutions, organisations, research and training institutions,

etc. Firms and institutions

Firms with economies of

scale and scope

Core of the innovation dynamic

Inter-firm and inter-personal relations

local synergy created by the relationships between all local actors

Relations between firms and institutions

Formal relationships among firms

Type of territory Social organisation Active: task to foster innovation Passive: result of the innovative

processes Administrative defined region Porter’s diamond

Main task Maintenance of a homogeneous system of values

Coordination of all forces of the territory

Supporting innovative activities of firms

Reduction of transaction

costs

Firms Homogeneous evolutionary firms

Homogeneous evolutionary firms

Homogeneous evolutionary firms

Transaction-cost approach

to the firm

43

Notes:

1For a critical position of dynamic capabilities as a source of competitive advantage see Eisenhardt and Martin

2000.

2Routines being the most acclaimed challenger.

3Of course, the meaning of the term ‘capabilities’ would deserve, per se, a deeper exploration. However, it is

not the aim of this paper to engage in such an arduous exercise, while it is recognised that a sort of change of

status of the concept has happened: from ‘a label on a black box’ to ‘a label on a more transparent box —

which can be seen to have other boxes inside it’ (Dosi et al. 2000: 4).

4 Briefly and roughly, ceteris paribus, established incumbent firms would dominate entrepreneurial entrants in

front of incremental innovations, leaving the older technology a viable substitute for the new. In such a case

the former would in fact have an incentive to extend their market power to a new generation of technology by

pre-empting the latter’s entry (Gilbert and Newberry 1982). But when an innovations is radical, the reverse

holds. The incumbents’ incentive to invest in it will be in fact attenuated by their fear of increasing the

probability of cannibalising their existing rents (Reinganum 1983).

5 Once again in short, the organizational ‘attributes’ of the incumbents might guarantee them an advantage

over the entrants when an innovation, no matter whether incremental or radical, is ‘competence enhancing’.

However, the same attributes turn into source of inertia and inefficiency for them when an innovation, even

technologically incremental, is ‘competence destroying’, making the research productivity of the entrants

superior (Henderson 1993).

6Unlike the classical Porter analysis (1980), relating the competitive advantage of the firm to its position in a

certain sector, such a strategic management approach refers to the firm possession of resources, which are rare

and difficult to imitate and replicate. For a critical survey of this ‘resource-based-view’ of strategic

management see Foss (1997).

7A different argument is however proposed by Eisenhardt and Martin (2000), who claim that dynamic

capabilities cannot be a source of sustainable competitive advantage. Although typically valuable and rare,

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dynamic capabilities would be for them ‘equifinal’, and hence neither inimitable nor immobile.

8In this last account, in particular, the ‘dynamic capability’ of the firm is explicitly defined as operating on

such a chain, making it the shorter — i.e. with a superior ‘dynamic performance’ — the more ‘consistently’

the firm responds to its technological turbulence (Iansiti and Clark 1994: 561).

9To be sure, in Iansiti and Clark’s framework (1994), such a capacity is paralleled to an ‘internal’ integration

capacity. Such a capacity is retained crucial in assisting the implementation of a new concept, and has to do

with the establishment of proper organizational structures and management practices. See also Iansiti (1992,

1995).

10‘Organization’ rather than ‘organizational’ is here used on purpose, to distinguish this specific point of view

from the ‘organizational’ view that instead encompasses all the approaches that are reviewed in this section.

11Such items as ‘benchmarking’ and ‘best practices’ transfer among firms in fact implement this relational idea

in several management fields, first and above all, in ‘knowledge management’ (Cole 1999, California

Management Review, Spring 1998, special issue).

12Indeed, by engaging in those activities through which implicit knowledge is made more meaningful

(articulation), and by translating it into codified tools, such as blueprints and files (codification), firms

‘produce an improved understanding of the new and changing action-performance links and therefore result in

adaptive adjustments to the existing sets of routines or in recognition of the need for more fundamental

change’ (Zollo and Winter 1999: 14)

13Original results instead emerge. That learning might lead the firms to different retention costs and thus to

two different change trajectories, or that search costs might preclude a laggard firm from catching up with an

industry leader, are just two of them (Zott 2002).

14 This system of values ‘constitutes one of the preliminary requirements for the development of a district, and

one of the essential conditions of its reproduction’ (Becattini 1990: 39). Information and knowledge flow

among people who can trust each other in fact reduce transaction costs and opportunistic behaviour and

enhance the creation of new knowledge.

15‘The territory should not be considered as something given a priori but rather the consequence of a

construction process (termed ‘constructed territory’), a result of the organizational strategies of the players and

45

of the collective learning phenomena’ (Maillat 1995: 159).

16First of all, they are both based on an integrated system where not only the elements but the relationships

between them are crucial. Secondly, they both give a central role to institutions in enhancing and supporting

innovative activities. Finally, they both accept an evolutionary way of thinking about innovation and

technological change.

17A certain overlapping between the two approaches is also suggested by the relevant terminology, such as

when the RSI is defined as the place where ‘firms and other organisations are systematically engaged in

interactive learning through an institutional milieu characterised by embeddedness’ (Cooke et al. 1998: 1581).

18For an extensive discussion of this argument see Leoncini et al. (2004).