Technological Regimes And Firm Behavior

Technological Regimes and Firm Behavior FRANCO MALERBA and LUIGI ORSENIGO (Department of Economics, Bocconi University, Via Sarfatti 25, 20136 Milan, Italy)

This paper examines the relationship between firm behavior (in terms of basic strategies and organization) and technological regimes (defined in terms of opportunity, appropriability and cumulativeness conditions, and of the complexity of the knowledge base). This paper advances two major points. First, technological regimes define broad prescriptions and trade-offs which identify the basic dynamic mechanisms and viable firm behavior. Second, the menus of viable technology strategies and organizations of innovative activities increase the higher and the more pervasive are technological opportunities, the higher is the degree of cumulativeness of technical change, the lower is the degree of appropriability of innovations and the more complex is the relevant knowledge base. These points are illustrated with evidence from the semiconductor, biotechnology and computer industries.

1. Introduction Are firm behavior and organization related to the specific technological environment in which firms are operating? The now enormous literature on technology strategy and organization has provided a large number of contributions in the field of business strategy, organizational theory, economics and business history. Among economists, recent contributions in the evolutionary tradition such as Dosi et al. (1992) and Nelson (1992) have proposed a particular > perspective in the analysis of firm strategy and organization: firm behavior is closely linked to firm competence and it coevolves during the development of an industry along with technology, demaad and institutions. This evolui tionary approach would suggest that:

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1 • Firms are organizations with specific competences at doing something. ? Such competences have often a tacit nature and are stored and organized in 2

(g) Oxford Univenity Preu 1993

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Technological Regimes and Firm Behavior

the routines which guide decision-making. The learning process through which capabilities and routines are developed and shaped is to a large extent local and path-dependent; o The type of organization and the menu of available strategic options open to firms are strongly shaped and heavily constrained by the nature of the competences and routines of individual firms. What a firm can do depends heavily on its past history of development of competences and on how they are organized; o Behavioral discretionality is very high in complex and non-stationary environments. In these circumstances, the mapping between information, actions and outcomes is not well defined; o The forms of organization and the types of strategies observed in reality may differ significantly across firms, because they reflect different individual histories of development of competences and different institutional environments. The present paper, conceptually related to this evolutionary perspective, aims to explore in detail the relationship existing at any given time between firms behavior and organization and the technological environment in which firms are active. At any given time in fact the technological environment defines the nature of the problems that firms have to solve in their innovative activities, the incentives and constraints to particular behaviors and the basic dynamics mechanisms of evolution of firms, technologies and industries. In this paper the technological environment at a given time is represented by the technological regime. The notion of technological regime goes back to Nelson and Winter (1982) and Winter (1984), who have shown through simulations how different opportunity and appropriability conditions and different characteristics of the relevant knowledge base may lead to very different patterns of industrial evolution. At the level of empirical research, Pavitt (1984 and 1991) has proposed a taxonomy of the sectoral patterns of innovative activities which is based on very similar conceptual categories. In this paper technological regimes are characterized in terms of opportunity, appropriability and cumulativeness conditions, and in terms of the complexity ofthe knowledge base. In a previous paper (Malerba and Orsenigo, 1990) the specific features of technological regimes have been shown to affect the specific patterns of innovative activities of a sector in terms of concentration of innovators, ease of innovative entry and stability of the hierarchy of innovators. It must be noted that because this paper aims to examine at a given time the relationship between the technological environment and firm behavior at the very general level, it does not take into consideration a finer grained analysis of strategy and organization nor a full coevolutionary story of 46

• Technological Regimes and Firm Behavior •

industrial development. In particular, this paper does not address the detailed features and articulation of firm strategies, the specific types of firm organizations, the relationship between capability and firm behavior, the changes in behavior and strategies during the evolution of an industry and the dynamic interaction between firm behavior and technological regimes. In this paper, two basic points are made. First, technological regimes define broad prescriptions and trade-offs which identify the basic dynamic mechanisms and viable behavior in terms of basic technology strategies and basic types of organizations of firms. Second, the menus of viable basic technology strategies and organizations of innovative activities increase the higher and the more pervasive are technological opportunities, the higher is the degree of cumulativeness of technical progress, the lower is the degree of appropriability of the innovations and the more complex is the relevant knowledge base. The paper is organized as follows. Section 2 discusses and defines the main concepts used in the analysis: capabilities, organization, strategies, technological regimes. Then, in order to insert the discussion of the relationship between technological regimes and firm behavior into a coevolutionary story of industry development, the empirical evidence about specific high technology industries (semiconductors, biotechnology and computers) is analyzed in Section 3. In particular, firm basic strategies arid organization structures in the case of semiconductors, biotechnology, computer hardware and software are examined. In Sections 4 and 5, the conceptual relationships are set out and discussed and different firm strategies and organizational structures are mapped into different technological regimes.

2. Some Initial Remarks on Technological Regimes and Firm Behavior The Technological Regime As mentioned in the introduction, the notion of technological regime dates back to Nelson and Winter (1982) and provides a description of the technological environment in which firms operate. In this paper a broad definition of technological regime is proposed. The technological regime is a particular combination of: • • • •

opportunity conditions; appropriability conditions; degrees of cumulativeness of technological knowledge; characteristics of the relevant knowledge base (Malerba and Orsenigo, 1990). 47

Technological Regimes and Firm Behavior

Opportunity conditions reflect the ease of innovating for any given amount of money invested in search. Two basic dimensions of opportunity may be identified—level and pervasiveness. Level (high or low). High opportunities represent a powerful incentive to the undertaking of innovative activities and denote an economic environment which is not functionally constrained by scarcity. Science is certainly a major source of opportunities. Yet, the sources of opportunities differ among industries and technologies. As Rosenberg (1982) and Nelson (1992) have shown, in some industries opportunity conditions are related to advancements in R&D equipment and instrumentation, while in others external sources of knowledge in terms of suppliers and users may play a major role. During the evolution of industries, opportunity conditions do not remain exogenous or constant. First, opportunities are to a certain extent generated and recreated by firms innovative activities, such as R&D. Second, in several industries technological opportunities may become eventually depleted, as the literature on industry life cycle has emphasized. For the purpose of our paper, opportunity conditions will be examined at a given point in time. It is therefore possible that a technological environment characterized by high opportunity conditions may be related to an early stage in the development of an industry, while a technological environment characterized by low opportunity conditions may be related to a later stage in the development of the same industry. Pervasiveness. Opportunity conditions may be highly pervasive or not. Highly pervasive opportunities mean that new knowledge may be applied to a variety of products and markets. On the other hand low pervasiveness means that new knowledge concerns only a limited and specific set of products and processes. Appropriability conditions summarize the possibilities of protecting innovations from imitation and of extracting profits from innovative activities. As known, firms utilize a variety of means in order to protect innovations, ranging from patents, to secrecy, to continuous innovation, to the control of complementary assets (Levin et al., 1987; Teece, 1986). Low appropriability conditions denote economic environments characterized by the widespread existence of externalities. Cumulativeness means that today innovations and innovative activities form the base and the building blocks of tomorrow innovations and that today innovative firms are more likely to innovate in the future in specific technologies and along specific trajectories than non-innovative firms. These definitions identify three levels of cumulativeness. 48 i

• Technological Regimes and Firm Behavior • Technological and individual levels. Cumulativcness may be linked to the specific features of technologies and the cognitive nature of learning processes. Organizational level. Cumulativeness may be related to the organization of the various learning activities. For example, an R&D laboratory may be necessary for innovation. Firm level. Cumulativeness may be the result of the amount of resources needed for innovation. For example, if innovation requires large R&D budgets, only large firms will be active in innovation. Innovations therefore will be linked to these firms. Three points have to be made in this respect. First, high cumulativeness at the firm level implies also high appropriability of innovations. Second, cumulativeness at the industry level may be present if low appropriability conditions are present and the relevant knowledge base for innovation diffuse widely across the firms in the sector. In this case, cumulativeness at the industry level may be associated with lack of cumulativeness at the firm level. Third, cumulativeness denotes economic environments characterized by increasing returns. Knowledge base. Technologies differ also in terms of the properties of their knowledge base. Two dimensions are considered in this paper. Degree oftacitness. The knowledge base can be primarily tacit, local and firmspecific or rather codified and 'universal' and thus relatively more easy to get access to (Winter, 1984). Degree of complexity. Similarly, the relevant knowledge base may show varying degrees of complexity in two respects. First, innovations may require the integration of different scientific disciplines and technologies. Second, innovative activities may be fed by the contribution of a variety of competences concerning the production process, the nature of markets, the features of demand and so on. Some of these competences may be external to the firms in the industry. They may refer to suppliers of materials, R&D and manufacturing equipments, users, universities and government laboratories. Specific patterns of innovative activities. In a previous paper (Malerba and Orsenigo, 1990), it has been shown that the nature of technological regimes affect the specific patterns of innovative activities at the sectoral level. In particular, a high concentration of innovative activities is related to high opportunity, appropriability and cumulativeness conditions, while a high stability in the hierarchy of leading innovators is related to high appropriability and cumulativeness conditions. Finally the ease of entry of new 49

Technological Regimes and Firm Behavior

innovators in an industry is related to high opportunity and low cumulativeness conditions. In this paper technological regimes are put in relationship with firm behavior. The following section discusses the basic dimensions of firm behavior considered in this paper. Strategies, organization and capabilities Firm behavior in terms of basic technological strategies and basic organizational choices is discussed here along the following lines. Strategies are denned simply as the set of principles which broadly guide decision-making about innovative activities (how much to invest in R&D, how long is the relevant time horizon, and so on). Following a consolidated tradition, a rough distinction between three main stylized basic technology strategies is done. Radical strategies, which aim at the exploration of a large part of the opportunity space trying to discover major technological breakthroughs. They usually involve 'big projects' in terms of investment and time horizons. Incremental strategies, which conversely aim at the continuous improvement of existing technologies and capabilities. Imitative strategies, which basically aim at keeping the pace of competitors, looking at and trying to do what they are doing. T h e organization

of innovative activities is analyzed at two basic levels.

• According to the main source of innovation within the company (R&D laboratories, design and engineering, production, etc.). • According to the degree to which the sources of innovative activities are internalized within the company, or are kept external to the company (such as customers, suppliers, other external sources like universities, other companies, etc.). In addition, recent literature has indeed shown that the innovative process is highly complex and typically interactive (Kline and Rosenberg, 1986) and that firms can have various long term relationship or cooperative agreements with external sources of innovation. l 1 The central i n tion/decenfralirarion of innovative activities among the various sources is not going to be discussed in this paper. Tbe current debate about the organization of innovative activities in the American and in the Japanese firm can be considered in this respect u extreme possible solutions, implying different balances bctwmi vertical and horizontal coordination (Aoki, 1990).

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Competences. As it has been mentioned in the introduction, firm basic technology strategies and organization are highly affected by the level and types of firm idiosyncratic competences. In general capabilities are the set of specific competences (technological, inventive, design, and so on) and complementary assets of a firm (Dosi et ol., 1992). Such competences have usually a tacit component and pertain to the organization as a whole, rather than to single individuals. Thus, the concept of competence is intrinsically an organizational one, in that it necessarily implies a set of organizational rules (routines) for the communication and implementation of individual knowledge. Competences define therefore what a firm can do, shape the company's organizational structure and constrain the available menu of possible choices. In this paper only one specific dimension of capabilities is taken into consideration: specialization or differentiation. The notion of specialization or differentiation may relate to the technological fields which are mastered and used by firms; to the learning processes through which such knowledge is created (R&D, engineering and design, production activities, marketing, etc.), to the applications of such knowledge.

3. The Coevolution of Technological Regimes, Firm Strategies and Organizations in Some High-Technology Industries: an Introduction In order to link the nature of technological regimes with the type of firm behavior, the histories of three relevant high technology industries are examined: the semiconductor industry, biotechnology, computer hardware and software. The coevolution of the technological environment, firm strategies and organizations is briefly sketched, in order to identify some basic relationships which will be later on examined more in detail. The semiconductor industry The discovery of the transistor at ATT's Bell Laboratories started the semiconductor industry. The early days of the semiconductor industry (1950s) were characterized by high opportunity conditions typical of a new industry based on a new scientific field. The knowledge base was rather simple and linked to science (solid state physics and chemistry). Market opportunities were clearly perceived and identified by firms in the industry: hearing aids, telecommunications, radio sets and computers. The future potentials of transistors were also clear. The relevance of the 51

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discovery of the transistor for the development of the electronic industry was recognized by a large number of firms, scientists and entrepreneurs both within the existing infant electronics industry and outside it. As a consequence, all the firms in the electronics industry which were producing electron tubes entered the new semiconductor industry. Several of them were large vertically integrated and diversified producers, such as General Electric, RCA, Sylvania. In the early days of the industry most of the firms in the semiconductor industry would follow strategies of continuous major innovations. Once a firm would develop a new product it would aim at rapidly launching it on the market. In the meantime, its researchers would continuously explore new technological possibilities and aimed at introducing radically new products on the market. New product introduction would frustrate the attempt to focus on process innovation for a given product and to try to incrementally modify existing products and process. During these years, cases of failures of firms which preferred to stay with existing products or to try to automatize the production process in order to reach a high level of efficiency (rather than innovate continuously) were common. Because opportunities were high and capabilities in semiconductor technology had not been fully accumulated yet at the level of the single firm, the 1950s (the transistor period) were characterized by several entrants, both new firms and established firms coming from industries other than electron tubes. Firms could exploit high opportunity conditions and initiate innovative activities based on a knowledge base which could be mastered in a relatively easy way (Tilton, 1971). At the end of the 1950s the innovative strategies of two merchant producers such as Fairchild and Texas Instruments resulted in two radical innovations, the planar process and the integrated circuit, which altered the technological environment and the behavior of firms in the industry. The technological regime that emerged with integrated circuits was different from the one that characterized the transistor period. High opportunity conditions were still present. The knowledge base however, became more and more centered on design and engineering rather than on basic science, and became increasingly tacit and firm-specific. In addition, cumulativeness of technological change increased because firms developed advanced capabilities in specific innovative activities and because some basic processes and products were introduced and constituted the basic blocks upon which firms would develop their new processes and products. These basic blocks were three: silicon as the material for semiconductor devices, the planar as the basic manufacturing process and the integration of components into systems as a product concept. As a consequence of the tacitness of the knowledge base linked to en52

Technological Regimes and Firm Behavior

gineering and technical know-how, and of the cumulativeness of technological change firms could choose now to follow also a strategy of incremental innovations by improving and modifying existing products and process, eventually moving down the learning curve and maintaining lead times over competitors. Actually, several semiconductor firms followed a strategy of radical innovations followed by a continuous stream of incremental innovations, such as Texas Instruments, Fairchild, Transitron and Sylvania. Similarly, during this period entry would occur through the introduction of new products. For example, General Microelectronics and General Instruments followed a strategy of entry through radical innovations by introducing MOS (and not bipolar) digital integrated circuits in the mid-1960s (Malerba, 1985). The trajectory of miniaturization and integration that was pursued by firms in the industry since the 1960s resulted eventually in the introduction of the microprocessor, in the large scale integration and in the increasing systemic features of semiconductor devices. Over the years, the semiconductor industry became characterized by three major product groups: products requiring a whole set of innovative and technological capabilities (such as microprocessors), products requiring mainly advanced engineering and production capabilities (such as memories), or products requiring mainly advanced design capabilities able to target specific applications or customers (such as application specific integrated circuits—ASIC). In these product and market segments, firms are characterized by specific strategies and organization. In microprocessors, established as well as new merchant producers such as Intel, Zilog, Sun and MIPS, as well as computer producers such as IBM and Hewlett Packard would follow strategies of introduction of new microprocessors, and then modify and improve the basic model over the years. In memories, established vertically integrated Japanese firms such as NEC, Fujitsu and Hitachi would be characterized by advanced engineering and production competence, large investments in manufacturing equipment and by strategies based on learning curves and high volume production for their own use and for the external market. In ASIC new small design houses, positioned between users and manufacturers of semiconductors have emerged. These small and medium size firms such as Mietec, Advanced Silicon Corporation, Lasarray, Integrated Power Semiconductors, European Silicon Structures would not have high fixed costs and R&D expenditures and would specialize in design of integrated circuits based on the understanding of specific applications, user-producer interaction and tailoring design to specific users needs (Hobday, 1988; Malerba, 1992). The production of those semiconductor devices with the masks designed 53

Technological Regimes and Firm Behavior

by the design houses will then take place in large or medium size silicon foundries. Biotechnology The take-off of industrial research in biotechnology immediately followed two key scientific discoveries in the early 1970s, i.e. recombinant DNA and hybridoma technology. These break-throughs opened enormous opportunities for innovation in a large variety of industries, primarily pharmaceuticals. Innovation implied, however, the acquisition, understanding and improving of new basic scientific knowledge in a wide variety of disciplines. Moreover, it implied the fusion with other older biologically-based technologies, especially as large-scale production processes are concerned. A high rate of entry of new specialized companies (New Biotechnology Firms—NBF) was made possible by the novelty of the knowledge base, which weakened the entry barrier constituted by the cumulative nature of technical change. The NBF were usually formed through the collaboration of a scientist and a professional manager backed by venture capital in order to apply the new scientific discoveries to commercial product development. Their specific skills concerned research, but they lacked the experience and the organization necessary to support crucial aspects of the innovative process, such as manufacturing and—above all—the testing and administrative procedures for the approval of new products and marketing. The absence of capabilities and structures in these fields impaired also the possibility of fully appropriating the profits deriving from innovations. Appropriabiliry conditions represented a crucial strategic problem of the NBF. Particularly in the early stages, the relevant knowledge had to a large extent a generic nature and could in principle be codified. Patents and the control of complementary assets represented therefore a crucial requisite for the private appropriation of the profits generated by innovations. Yet, considerable confusion surrounded the conditions at which patents could be obtained. Established companies faced the opposite problem. They had to acquire and develop the new knowledge, but had the experience and the structures necessary to control testing, production and marketing. As a result, innovative activities in biotechnology involved the development of variegated and complex organizational solutions, in particular of collaborative relationships between the NBF, established companies and the academic community. The strategies of the NBF varied considerably in at least two aspects: in terms of the research directions they pursued and in terms of their attitudes towards vertical integration and collaboration. 54

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As far as the directions of research are concerned, at one extreme one finds companies which tried to develop as soon as possible products which could be sold on the marketplace, attaining an early lead through the specialization in a specific niche. This strategy implied concentrating on the most immediate application of genetic engineering and on products which did not require large scale production processes or substantial marketing efforts, e.g. diagnostics based on hybridoma technology. Companies like Hybritech and Centocor are good examples of this strategic posture. At the other extreme, one finds companies which.tried to develop core technological capabilities in a wide range of areas, exploiting the technological complementarities made possible by genetic engineering (Daly, 1985). In different ways, companies like Genentech, Biogen and Celltech belong to this category. As far as vertical integration is concerned, although the aim of the large majority of the NBF was to become fully integrated pharmaceutical companies, integration could not be achieved rapidly and costlessly. In the absence of products generating revenues, the NBF became essentially research companies and specialized suppliers of high technology intermediate products, performing contract research for and in collaboration with established companies. Some of them, however, linked with a large number of contractors, trying to avoid establishing too close a relationship with specific partners (e.g. Genentech). Other NBF restricted instead their linkages to a small group of contractors, with whom long-term, stable relationships were built. Examples of this kind of relationships are the linkages between Chiron and Ciba Geigy, DNAX with Schering Plough and Ortho Diagnostics with Johnson and Johnson. The strategies of the established companies were in some way specular to those pursued by the NBF. For them too, entry in the new technology required a gradual process of acquisition of external knowledge and the development of adequate organizational solutions. Their main strategic and organizational problems concerned the timing and the size of their involvement; the integration of the new knowledge into their specific competences and organizations; its utilization for the development of new products. The timing and the commitment to biotechnology among large established firms varies markedly as a function of the proximity of their competences to the new technologies, to their diversification strategies and to their technological expectations. Many of them, especially the large integrated European and, above all, the Japanese chemical groups, considered genetic engineering as an important new research tool and a source of opportunities for diversification, rather than a direct source of new products and processes. Its embodiment was, however, a slow and difficult process, because it implied a radical change in the research procedures, a redefinition of the 55

Technological Regimes and Firm Behavior

disciplinary boundaries within the laboratories and, in some cases, also in the divisional structure of the company. 2 Collaborative research with the NBF and with universities allowed these companies, in any case, to get access to the new technology and to experiment alternative directions. The advantages stemming from these interactions could be fully exploited however only through the contextual development of in-house capabilities, which made it possible to absorb and complement the knowledge supplied by external sources. Collaboration with universities, NBF and internal research were indeed strongly complementary (Arora and Gambardella, 1990). The case of HofFman-LaRoche (HLR) illustrates vividly this strategy. HLR entered biotechnology mainly on the basis of its competences and interests in the field of immunology, epitomized by the foundation in the early 1970s of the Basel Institute for Immunology. Subsequently, HLR developed a wide network of linkages with the NBFs and particularly with Genentech, which was eventually acquired in 1990. The variety of strategies and the development of collaborative relationships reflected the novelty, the uncertainty and the fast progress of the technology, the complexity of its knowledge base, the difference in the core capabilities of the major actors. As the technology developed, however, some definite and quite similar strategies gradually emerged. A large fraction of the NBF became specialized producers of diagnostics based on monoclonal antibodies; other companies concentrated their efforts on the development of pharmaceutical and—to a lesser extent—agricultural products. In particular, within the field of therapeutics, companies concentrated research in a small range of areas. Established companies gradually tailored their involvement in biotechnology to their wider technological strategies. In particular, the incentives towards increasing degrees of vertical integration are becoming stronger. As the technology matures, the tacit component of knowledge acquires more relevance and progress becomes more cumulative, making the exchange of knowledge more difficult. Finally, vertical integration raises entry barriers and provides the innovator with strategic complementary assets. } Thus, established companies have gradually strengthened their in-house research efforts and many NBF, and particularly monoclonal antibodies companies, have indeed succeeded in developing over time in-house manufacturing facilities. However, it must be stressed that most firms do not have 2 Thus, fome companies reorganized completely the structure of their RAD laboratories, creating entirely new 'life sciences' centers. See Orsenigo (1989) and Gambardella (1991). 1 For a fuller discussion, see Orsenigo (1989) and Pisano (1991)-

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the need for large scale manufacturing. Only a handful of therapeutic products are actually sold on the marketplace and in any case—again, particularly for monoclonal-based diagnostics—rsmall scale production is often sufficient. Vertical integration, however, seldom reaches marketing (Pisano, 1991).

The Computer Industry: Hardware and Software The development of the computer industry is characterized by high opportunity, appropriability and cumulativeness conditions, but also by increasing pervasiveness and complexity of the knowledge base during the course of its history. The beginning of the industry (1950s) was characterized by the supply of the first commercial computers, such as the Univac I by Remington Rand and the IBM 650. During this initial period appropriability conditions remained high because of the presence of legal protection, the relevance of tacit knowledge in developing and producing computers and the importance of complementary assets such as customer assistance and distribution network. The strategies of the seven major mainframe producers which dominated the market from the early 1950s to the early 1970s (IBM, Univac-Sperry, NCR, Control Data, Honeywell and Burroughs) were centered on the introduction of new products, which could then be modified and improved through a stream of incremental innovations. In deciding and shaping their strategies these computer firms had to carefully balance their R&D and investment resources between the focus on the continuous incremental improvements of their existing successful products, or the focus on the development of totally new products. 4 In the course of the 1950s and 1960s, computer firms generated major changes in the technological environment and in the product space. Since the early 1960s IBM aimed at the development of compatible modular computers, which eventually led to the introduction of the IBM 360 in 1965. Compatible modular computers would allow standardization of components, the obtainment of economies of scale in the production of specific components and overall cost reduction in the production of mainframes, increasing the entry barriers for new mainframe firms but lowering the barriers to * For example, during the 1930s IBM has been particularly successful in balancing the introduction of new types of computer! such as the 701, the 6 ) 0 and the 704 and the improvements of existing computer models and families. On the contrary, for a firm such as Rand this balance proved quite difficult to manage and has been the cause of major failures during the 1930s of Rand with the UNIVAC I. Rand fbcussed too much on existing successful products and not enough on developing totally new products through R&D investments. It finally had to merge with the Sperry Corporation in 1933 (Flamm, 1988).

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new plug compatible peripheral suppliers. In addition, the introduction of the minicomputer in the mid- 1960s allowed real time interaction and time sharing with the possibility of distributed processing, networking, problem solving functionalities and small business applications. In this market segment DEC has been a major innovator, with products such as the PDP5, PDP8 and PDPll/VAX. Each of these product lines would stay in the market for a certain period during which it would be incrementally improved, and then it would be substituted by a new product with improved performance, better architecture and reduced price. Compatible modular computers and minicomputers greatly changed the nature of the technological regimes. Opportunity conditions became highly pervasive and the knowledge base increase its complexity. Now the development of new computer products requires the integration by computer producers of complex architectures, advanced system software, very large scale semiconductor components such as microprocessors and memories, disk drives, terminals, floppy disks, in addition to articulated network interfaces. It must be noted that these various parts and components are characterized by relatively autonomous and separable knowledge bases which have in most cases independent technological trajectories. In the course of the 1970s and 1980s new hardware market segments emerged. In addition to mainframes present since the origin of the industry, supercomputers and mini-supercomputers for scientific work, medium systems such as workstations, small systems such as personal and portable computers are now present. As a consequence of the complexity of the knowledge base and the pervasiveness of computer technology, a variety of firm strategies emerged. First, firms may be either full line suppliers (such as IBM) which offer a variety of products ranging from mainframes to personal computers, or specialized producers (such as Cray for supercomputers, Convex and Alliant for minisupercomputers, Wang for image processing, Tandem and Stratus for fault tolerant systems). Second, firms may be vertically integrated in the development of components and systems (such as IBM, which produces in-house a relevant part of the components needed in its products), or system integrators (such as Olivetti, which to a large extent uses components and subsystems developed and produced externally). Third, firms may follow network strategies for the acquisition of external knowledge and for the joint development of new products. Cooperation may involve suppliers, users or other firms in the industry. Fourth, firms may follow strategies of radical innovations (such as DEC in 1965 with the minicomputer, Apollo and Sun in the early 1980s with the workstation, Apple with the personal computer) or strategies of incremental innovations within certain product families. 58

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In addition to the birth and growth of new market segments and product types, software emerged as a relevant industry closely associated with hardware developments. Since the unbundling decision of IBM in 1969 of pricing software separately from hardware and the growth of the mini and personal computer markets, a software industry has rapidly emerged, grown and prospered. This industry now supplies system software and utilities, application tools, programming languages, application solutions, custom software and software services. The links and interactions of the software industry with the hardware industry have taken many forms: vertical integration (the original form in the 1950s and 1960s and still practice in some segments), competition, market transactions and strategic partnership and cooperation. For example, vertical integration by IBM, DEC, Apple, Data General, Wang is present in system software and utilities, application tools and programming languages, because the knowledge of the functioning of the hardware is quite important. These hardware producers link system software to their hardware, in most cases in a proprietary way (IBM's MVS for IBM mainframes, DEC's VAXVMS for DEC minicomputers, Apple's Macintosh for Apple personal computers, Data General's MV for data general computers, Wang's VS and OIS for Wang Workstations). Few independent specialized software firms such as Microsoft and Lotus are present in these software segments. These independent software producers have an in depth understanding and a close interaction with hardware manufacturers. Application solutions, custom software and software services on the contrary require a different knowledge base for innovation: an in depth understanding of end-user's applications of information systems in terms of horizontal applications (such as spreadsheet or word processing) vertical applications (such as software for banks, transport, and so on) and specific user's applications (custom software). Therefore in order to be successful, software firms have to understand market needs, identify the relevant dimensions of specific market applications, target their products to those dimensions and interact on a continuous basis with users (Brady and Quintas, 1991). Once targeted a specific product range, market segment or software application, firms build up specific capabilities in that specific domain. Within that domain cumulativeness of technological change is high, because software programmers become more knowledgeable and more experienced about the strengths and limits of the currently used programs for those applications and about the various characteristics of user requirements. For example, Concept has developed capabilities in banking applications, SD-Scicon in military applications, Finsiel in public administration applications, EDS in industrial automation and ADP in brokerage. Within specific applications, appropria59

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bility is low, because firms operating in a product segment accumulate capabilities able to clearly identify, rapidly absorb and effectively adapt new software products introduced by their competitors to their own products. In order to increase appropriability several software firms have followed strategies of obtaining complementary assets such as distribution networks and user and maintenance services. This is a strategy followed by the European firm Cap Gemini Sogeti through several acquisitions in various European countries (Malerba and Torrisi, 1992). In software applications the conditions of high opportunity coupled with pervasiveness and high variety of applications imply that firms are highly heterogeneous in terms of behavior and organization. Even within the same application, firms may range from vertically integrated computer companies, to diversified electronics producers (such as Philips and STQ, to multiproduct software houses (such as Microsoft and Computer Associates), to small specialized firms (some of which are new entrants targeting a specific customer or application), to major users with detailed knowledge about a specific application (such as GM, McDonnell Douglas, Boeing, Arthur Andersen, KPMG Marwick). As far as technology strategies are concerned, a survey done on software firms (Torrisi, 1992) has shown that strategies may range from the aim to introduce major innovations, to the attempt to innovate on a continuous basis by improving and modifying existing proprietary software products, to imitation by introducing small improvements in the software packages developed by other firms. In addition, given the complexity of the knowledge base required for innovative activities and the heterogeneity of competences, cooperation among firms and networking strategies are quite widespread. They provide complementary and specialized expertise regarding computer hardware or basic operating software, features of specific applications, characteristics of market niches or user requirements (Malerba and Torrisi, 1992).

3. The Effects of Opportunity, Appropriability and Cumulativeness on Firms Behavior Technological Regimes and Strategic Imperatives The preceding discussion allows us to draw some preliminary generalizations on the effects of opportunity, appropriability and cumulativeness conditions on firm behavior. The nature of the specific technological regime in fact identifies some problems which are common to all thefirmsactive in that environment. In particular, high opportunity conditions tend to make relatively more attractive the pursuit of strategies of radical search and exploration. More60

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over, insofar as technological progress is rapid and innovations are generated from every quarter, high opportunities imply also that companies have to establish windows and channels of communication with the external environment (e.g. scientific institutions) in order to keep pace with progress. In terms of organizational structures, this entails that a company must be prepared to j ump rapidly and continuously on the new opportunities, changing and adapting quickly its research organization. High cumulativeness conversely implies a prescription in favor of incremental search and of the building up and exploitation of existing technologies and capabilities. It implies also a tendency towards an increasing specialization of innovative activities along specific directions. Low appropriability conditions imply that imitative strategies are viable for followers and that innovative firms have to view the protection of innovations as a key strategic dimension in their innovative activity. A Matrix of Basic Technology Strategies If technological regimes are examined according to opportunity, appropriability and cumulativeness conditions (leaving for the moment the analysis of the knowledge base to Section 4), it is possible to identify eight types of regimes, according to the fact that opportunity, appropriability and cumulativeness conditions may be high or low (see Table 1). Each of the eight technological regimes defines the number and the types of viable technology strategies. In very general terms, it is possible to define a matrix of basic technology strategies according to three simple dimensions: exploration of new technologies, exploitation of given technologies, and strengthening appropriability TABLE 1. Basic Technology Strategies High opportunity

High

Low

cumulative ness

cumulativeness

cumulativeness

I Exploration

III Exploration

V Exploitation

VII No innovative activity

IV Exploration and appropriability increasing Imitation

Exploitation and appropriability increasing Imitation

High

High appropriability

Low opportunity

Low cumulativeness

Exploitation

Low appropriability

II Exploration and appropriability increasing Exploitation and appropriability increasing Imitation

£1

VI

VIII No innovative activity

Technological Regimes and Firm Behavior conditions.5

•—•

T a b l e 1 provides a n overview of t h e basic strategies .viable t o

firms in each technological regime. In conditions of high opportunity, high cumulativeness and high appropriability, firms may follow strategies of exploration of new technologies, exploitation of existing technologies or exploration of new technologies followed by exploitation of these technologies (Quadrant I). This is the case of semiconductor firms introducing new types of integrated circuits, which could then move down the learning curve on a specific product. In conditions of high opportunity and high cumulativeness, but low appropriability (Quadrant II), the strategies of exploration of new technologies or exploitation of existing ones have to be coupled with strategies aiming at strengthening appropriability. In these conditions,followerfirms may eventually follow an imitation strategy. This is the case of leading software firms which try to strengthen appropriability through the use of complementary assets such as distribution, post sales services and customer assistance. In case of high opportunity and high appropriability, but low cumulativeness (Quadrant HI), firms may be induced to follow strategies of exploration of new technologies. The same holds for situations of high opportunity, but low appropriability (Quadrant IV). Here, however, firms may follow also strategies of appropriability strengthening. In this quadrant also imitation is a viable strategy. This is the case offirmsoperating in the early period of the semiconductor industry and of biotechnology. In case of high cumulativeness and high appropriability, but low opportunity, strategies of exploitation of existing technologies are the only viable strategies (Quadrant V). Firms engaged in the development and production of highly integrated semiconductor memory devices fit this case. If appropriability is low, however (Quadrant VI), leading firms may alsofollowstrategies of appropriability strengthening, whilefollowerfirmsmay choose imitative strategies. Finally, in case of low opportunity and low cumulativeness and high appropriability (Quadrant VII), there is no systematic innovative activity by firms. If firms innovate, however, they are able to profit from their innovation. On the contrary, in case of low opportunity, low appropriability and low cumulativeness, (Quadrant VIII) firms do not undertake any innovative activity. From the above discussion it is possible to claim that a situation of high opportunity, high cumulativeness and low appropriability (Quadrant II) is the one with the highest number of viable strategies. High opportunity allows ' For « discussion of the distinction of exploration and exploitation in terms of organizational learning see Match (1991).

62

Technological Regimes and Firm Behavior •

exploration strategies, high cumulativeness allows exploitation strategies, while low appropriability allows follower firms to pursue imitation strategies and induces innovative firms to try to strengthen appropriability. Note that when regimes are characterized by low opportunity or cumulativeness, the menu of viable strategies becomes narrower compared to the case where both opportunity and cumulativeness are high. At one extreme, with high opportunity only one technology strategy is viable (exploration), while at the other extreme, with high cumulativeness only a different technology strategy is viable (exploitation). In a situation of high opportunity and high cumulativeness a major tradeoff is present between the continuous exploitation of existing technologies with no exploration of new technologies or the continuous exploration of new technologies without exploitation of existing ones. Sole exploration may imply too high costs of finding totally new products without being able later on to fully profit from the new innovative products. Sole exploitation may imply the risk that firms may end up being locked for too long in existing technologies, without moving rapidly and forcefully to the new technologies. This tradeoff is illustrated by the cases of Remington Rand and IBM in the early days of the computer industry. Remington Rand was the first producer of commercial computers with UNFVACI in 1951. It maintained UNTVACI as its main computer product for several years and did not invest a large amount of resources in R&D. On the contrary IBM forcefully entered the commercial computer industry only in 1954 with the IBM 650, but was able to maintain a successful balance between major innovations in computers and continuous improvements in existing product lines (Flamm, 1988; Dorfman, 1987). 6 More on Technology Strategies Some additional basic technology strategies may be added to the few strategies discussed in the previous section, as Table 2 shows. 6 Another cue is also illustnted by tbe behavior of Fairchild and Texas Instruments during the 1960s. Both firms were major innovators. For example, in 1961 Texas Instruments and Fairchild introduced the planar silicon transistor. Later on Texas Instruments introduced the Series 51 RCL (a resistor-capacitorlogic), which was later modified and improved over the years, while Fairchild introduced the DCTL (a direct coupled transistor logic). Texas Inmiments and Fairchild moved into TTL quite soon, and began developing new types over an n n r r y ^ period. But while Fairchild followed a strategy based on continuous exploration and high R&D investments, without paying too much attention to the subsequent exploitation of a product, Texas Instruments was able to m«inf«in • successful halsnce bttween major innovations and move down the h—rn''nfl curve on writing integrated circuit and end up A«nin«riiifl the market for integrated circuits in the early 1970s.

In a recent paper, Kazan and Mowery illustrate the case of Intel and RISC. Became it was highly successful with CISC (complex instruction set computer) microprocessors, for some yean Intel ignored RISC (reduced instruction set computers) microprocessors, introduced by Sun Microsystems and MPIS Computer Systems. Pushed by the market success of RISC, finally Intel entered only later in this market, with mixed results (Kazan and Mowery, 1992).

63

Low appropriability

— Get complementary assets

— Get complementary assets

— Rapidly profit from innovation

— Keep lead times — Move down the learning curve

Suggestions to hummttrs Same as in III plus

IV Radical innovations Imitation

Suggestions to innovators Same as in I plus

II Radical innovations Incremental innovations Imitation

— Keep windows on new technologies

— Keep windows on new technologies

— Do not be locked in existing technologies

— Get complementary assets

Suggestions to imuuttors Same as in V plus

VI Incremental innovations Imitation

Suggestions - Strengthen your core competences

Incremental innovations

III Radical innovations

Suggestions — Continue to be innovative

High cumulativeness

VIII No innovative activity

VII No systematic innovative activities

Low ctimulativeness

Low opportunity

Low cumulativeness

Suggtstitns — Balance radical and incremental innovations

Radical innovations Incremental innovations

High cumularjveness

High opportunity

2. Technology Strategies in Various Technological Regimes

High appropriability

TABLE

Technological Regimes and Firm Behavior -

In cases of high opportunity, high cumulativeness and high appropriability (Quadrant I of Table 2) first mover advantages both in terms of introducing first a new product or process, or in terms of moving rapidly down the learning curve, are relevant. Also in this case firms may have to balance the pursuit of a strategy of continuous incremental innovation on an established trajectory with one of search of possible new technologies. In integrated circuits the strategy of Texas Instruments based on the learning curve is a major example. In regimes characterized by high opportunities, firms have also to keep windows on new technologies and monitor what is going on on the technological frontier. Biotechnology is a clear illustration of this point. All the established firms which decided to enter the new technology had to build an extensive network of relationships with the NBF and collaboration remains a distinctive feature of biotechnology.7 On the other hand in situations of high opportunity and high appropriability, but low cumulativeness (Quadrant III) the strategy of continuous search for new technologies implies a strategy of continuous innovation and rapid exploitation of each innovation while keeping windows on external sources of technological knowledge and opportunities. The case of Philco in semiconductors illustrates this point. Philco was one of the main innovators in the early days of the semiconductor industry, by introducing the jetetching process, the production of surface barrier transistors and the development of the first automatic transfer line in the production of alloy transistors. Because of its automation, however, the company did not move to the new mesa and diffusion technologies, and declined rapidly (Tilton, 1971). 8 In situations of low opportunity, but high cumulativeness and high appropriability (Quadrant V) on the other hand the strategy has to be one of incremental innovations based on the accumulation and the strengthening of capabilities in specific technologies. In the case of dynamic random access memories (DRAM) during the 1980s cumulativeness has played a major role in shaping 7 For example, large firms such u IBM and Hewlett Packard h n c always devoted part of their R&D budget to basic research and to the monitoring of the new technological developments. * The case of Genentech in biotechnology illustrates this case. Genentech was the first to introduce in 1987 on the market the first important product of genetic engineering, i.e. the tissue plssminogen activator (t.p.a.). Genentech's product was initially an enormous commercial success and the product was (old at very high prices. Very shortly, however, new similar products were launched by compering companies characterized by higher quality and lower prices. Genentech's effort to come first to the market and to sustain by itself all the commercialization of the product left the company in a difficult fin«tyi«l situation, which ultimately led to the acquisition by HLR. Another case is provided by Siemens. In the late 1930s and early 1960s Siemens had great success with silicon controlled rectifiers and germanium alloy and mesa transistors. This success however brought the firm to disregard the emerging new technology based on silicon planar integrated circuits, with negative consequences for Siemens' international competitiveness and performance in semiconductors during the late 1960s and early 1970s.

65

Technological Regimes and Firm Behavior

firm strategies centered on increased integration and memory capacity, advanced manufacturing capabilities and engineering know-how. High cumulativeness in the DRAM case emphasized a well denned strategy for firms with accumulated engineering and production capabilities in this area: get first to a certain memory type and then move down the learning curve, so that productiop costs would decrease. These first mover advantages were possible, however, only if firms had accumulated the engineering capabilities and the technical know-how necessary for the production of such complex memories. Entry in the DRAM race was therefore quite limited; competition took place among a very restricted number of firms, mainly Japanese. The presence of low appropriability conditions enriches the set of strategies not only because it introduces the possibility of imitation strategies by follower firms, but because it pushes innovative firms to employ a battery of strategies aimed to increase appropriability (see Quadrants II, FVandVI). This is the case of strategies aimed at obtaining complementary assets such as advanced production capabilities, distribution networks or post-sales assistance (Teece, 1986). 9 Biotechnology provides some examples in this respect, although, as discussed previously, appropriability conditions are not the only, and perhaps neither the primary motive for the current trend towards vertical integration into manufacturing. Genentech's experience in leaving to Ely Lilly the production and commercialization of human insulin, was not considered entirely satisfactory and convinced the management of the company to pursue more rapidly the attempt to develop its own sales-force.10

4. The Role of Pervasiveness and Complexity The menu of basic technology strategies and organization discussed above is enlarged if the pervasiveness of opportunity conditions and the complexity of the knowledge are considered (see Table 3). Pervasive technologies imply opportunities for diversification through the application of the core technical knowledge to a variety of products and markets. Conversely, non-pervasive opportunities coupled with high degrees of cumulativeness of technical change entail a tendency towards specialization. Thus, diversified companies will tend to emerge in regimes characterized by pervasive opportunities and low cumulativeness, whilst specialist 9 It m i m be noted that to additional set of appropriability increasing strategies may include lead onset with respect to competitor! and the rapid movement down the laming curve (Levin tf si., 1987). 10 In a mote riiinur fashion, the decision of Celltecb to remain a pure research company weakened significantly the company and reverberated on its very research capabilities. In the history of IBM, these complementary assets in terms of distribution ueiwoiks and post-tales " t i f f " - * have been, on several orraiiom, decisive factors in die market success of IBM's not-so technologically advanced products compared to the ones of its competitors. Another " " T 1 * is the success of IBM in the personal computer market (Teece, 1986).

66

Technological Regimes and Firm Behavior • TABLE 3. Finn Behavior in Pervative Opportunities and Complex Knowledge Base FULL INTEGRATION FULL INTEGRATION low appropriability low appropriability tacit knowledge tacit knowledge

high

- SYSTEM INTEGRATION - SPECIALIZATION A N D NETWORKING high appropriability codified knowledge

- SYSTEM INTEGRATION - SPECIALIZATION AND NETWORKING high appropriability codified knowledge

STRATEGIC ALLIANCES high appropriability tacit knowledge

STRATEGIC ALLIANCES high appropriability tacit knowledge DIVERSIFICATION AND NETWORKING

COMPLEXITY

low

SPECIALIZATION DIVERSIFICATION

SPECIALIZATION

>

high

low

PERVASIVENESS companies are more likely to emerge in high cumulative and non-pervasive technologies (Dosi et al., 1992). Diversified firms and specialist companies which occupy specific niches may clearly coexist in pervasive and cumulative technologies. In this respect, the case of biotechnology offers some interesting examples. The pervasiveness of the knowledge base and the opportunities for diversification represented a major incentive for the entry of large established companies in biotechnology. Japanese food and chemical companies have started research in the field aiming at entering pharmaceuticals on these bases. Also some NBF like Genentech and Biogen have pursued a broadbased research strategy. As the technology has become more cumulative, however, pressure towards specialization has become more compelling and most of the companies have narrowed down their strategies towards more specialized directions. In biotechnology now both specialized and diversified firms coexist. u The properties of the knowledge base identify some further imperatives. The more the knowledge base is tacit, the stronger is the need to develop internal codes and channels of communication, and the weaker is the ability and the possibility to transfer it to other firms and institutions (or relatedly that other 1 ' Similarly, in computed because of the pervasiveness of technology, major computer producers such a IBM and DEC bare diversified in several market segments.

67

'Technological Regimes and Firm Behavior

firms may assimilate and reproduce it). The more the knowledge base is complex, the stronger is the need for firms to develop mechanisms for the integration of the various fragments of knowledge which may be generated internally or externally. Biotechnology represents a clear example of how the complexity and the increasing tacitness of the knowledge base generate a trend towards vertical integration. In the same time, if appropriability is high and knowledge is codifiable, complexity may allow firms to specialize in specific innovative activities generating only part of the relevant know how. These specialized companies may coexist and establish complementary relationships with system integrators which may integrate knowledge produced externally. Again, the software industry is rich with specialist firms and system integrators. On the contrary, low appropriability conditions and high degrees of tacitness of the knowledge base favor strategies and organizational solutions directed towards full integration through the control and the integration of various innovative activities, and complementary assets and the development of strong internal codes of communication (Von Hippel, 1988; Teece, 1986; Mowery, 1983). 12 Finally, in case of high appropriability and tacitness of the knowledge base firms may be motivated to develop strategic alliances. In this case knowledge cannot be exchanged nor easily replicated:13 therefore firms have to establish joint-ventures or long-term agreements concerning common innovative activities. Several strategic alliances in the computer industry are examples of this type. 1 4 In any case, in situations of high complexity of the knowledge base and high opportunity conditions firms are motivated to develop external networks with other actors. The extent, range and type of the networks depend 13

In the early days of the computer industry Urge companies such as IBM were fully integrated and produced in-house components and subsystems. It must be noted that the degree of integration will depend also on the nature of the transaction costs involved. At this stage about the degree and the detailed forms of centralizarion or decentralization of innovative activities. Aolci (1990) and Marengo (1991) suggest however that (vertical) centralization is likely to be relatively more efficient in environments characterized by radical discontinuities (e.g. high opportunities and low cumulatrvcness), whilst more decentralized structures are likely to be relatively more efficient in environments characterized by continuous but incremental change. " In this situation firms, idiosyncratic organizational capabilities play a major role in affecting competitive performance (Nelson, 1992). 14 In the early 1980s ATT and Olivetti engaged in a strategic alliance involving ATT capabilities in minicomputers and distribution networks in the United States versus Olivetti capabilities in personal computers and distribution network in Europe; in the late 1980s IBM and FIAT established INTESA, a joint venture for the application of information technologies to the factory, in which IBM competence in computer technology would be complemented by FIAT knowledge of manufacturing technology and factory organization; in the early 1990s DEC and Olivetti established a strategic «Hiaiv-f involving DECi minicomputer and RISC technology, DEC competence in vertical applications and manufacturing and industrial automation and Olivetti competence in personal computers and distribution networks and in vertical applications such as hanking and public administration.

68

• Technological Regimes and Firm Behavior •

on a number of factors such as the distribution of arm capabilities within and across industries, the relevance of the external sources of technological change, and so on. This is clearly the case of computers and biotechnolgoy.13 In any case, note again from Table 3 that the menu of viable strategies becomes wider as technological opportunities are more pervasive and the knowledge base is increasingly complex. For instance, with low pervasiveness and low complexity only specialist firms are likely to be present. With high pervasiveness and high complexity various types of companies can coexist. In case of high pervasiveness and high complexity, a major trade-off concerning centralization and decentralization, and widening and deepening activities may emerge, particularly when appropriabiliry conditions are low and knowledge is tacit. Without entering into this issue in detail, the need to develop full integration through a centralized organizational structure for the coordination and effective exploitation of complex core capabilities of any one firm may clash with the need to diversify through a decentralized organizational structure for the exploitation of the opportunities for diversification. This is related to organizational solutions aimed to attain strong centralized coordination of internal knowledge and capabilities and organizational solutions aimed to decentralize innovative activities in order to be able to identify and promptly absorb and react to new opportunities.

5. Conclusions This paper has tried to show that technological regimes, defined in terms of level and pervasiveness of opportunities, levels of appropriability and cumulativeness, and complexity of the knowledge base, shape and constrain the set of viable behavior by firms in terms of basic technology strategy and types of organization. Relatedly, technological regimes define the typical trade-offs and menu of choices faced by firms. The present discussion has considered only a few and very general dimensions of strategy and organization: strategies aimed at exploration (as the ones fbcussed at radical innovations) and exploitation (as the ones focussed at incremental innovations); strategies for profiting from low appropriability " Even i company inch ts IBM, for a long time fully vertically integrated, in the early 1980» had to form a cooperative agreement with Microsoft, an independent software firm, for a new operating syitem and with Intel for new microprocessor typo. Recently IBM established also cooperation agreements with potential competitors such as Apple and Siemens, for the joint development of common architectures and standards (with Apple) and for the joint development and production of advanced RAM memories (with Siemens). Cainarca a MI. (1989) hare shown the high number and the diversity of coopetative agreements and the presence of extended networks in software and biotechnology. '* On this point, see in particular Pavitt (1991).

69

Technological Regimes and Firm Behavior

conditions (as imitation) or for strengthening appropriability (as the ones directed to obtain complementary assets or maintaining lead times with respect to competitors); strategies aimed at deepening (such as specialization), widening (such as diversification) or integrating innovative activities; centralization or decentralization of innovative activities. One last remark regards the methodology of our analysis. The study of the relationship between technological regimes and firms behavior at a given point in time (followed in this paper) aims at discussing the determinants of the dynamic mechanisms of firms behavior under different technological environments. This however is only part of the coevolutionary analysis of the development of industry mentioned in the introduction. During the evolution of an industry, in fact the technological environment (expressed in terms of technological regimes) may also change as a result offirmbehavior, which in turn generate again changes in firm behavior, and so on. It is possible therefore that more than one technological regime characterize the evolution of an industry, as the cases of the semiconductor and the computer industries have shown. In conclusion, this paper should be seen as a step toward the conceptualization and the analysis of strategies and organizational structures as emergent properties of processes of learning and selection.

Acknowledgements We thank Paolo Barbanti, Marco Filauro and Salvatore Torrisi for advice and assistance.

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