Geography Reference
In-Depth Information
error and include various stochastic elements. Over time routines change
because of innovation, which reassemble old routines into new combina-
tions, or substitute them with entirely new ones (Zollo and Winter 2002).
Thus, firms grow over time through the search and selection of the 'best'
routines, shaping the condition for the whole industry. Routines are
therefore seen as largely analogous to 'genes' in biological evolutionary
theories. Every firm thus has distinct options and strategies for responding
to technical change which are drawn from its own history, the personali-
ties of its management, the variety, experience and insight of its personnel,
the contributions of the culture and locale in which the firm is sited, and
the network of suppliers and customers related to the firm, all of which
might be seen as 'identity creating' elements of the firm. The evolutionary
approach emphasizes the value of diversity in producing 'evolutionary
fitness' and the role of routines as stable constructs by which the firm is
governed in everyday activities, and from which innovation is a departure.
Routines act as coordinating mechanisms for individual knowledge, skills
and activities, and they reflect the skills of the organization as a whole.
Routines therefore embed organizational knowledge and are at the basis
of the firm's organizational capabilities (Nelson and Winter 1982).
In discussing the limits of traditional economics for explaining techni-
cal progress, three critical questions are addressed by Nelson and Winter
(1982, pp. 62‒64). The first one is
where does knowledge reside?
The answer
given is in the organization's memory, as knowledge is an attribute of the
firm as a whole, and is not reducible to any of its single components. The
second question is
what are the conditions that separate what is technically
possible from what is impossible?
The answer given is 'the boundary is the
boundary of knowledge' (p. 63). For the firm, the purpose of carrying out
innovative and R&D activities is to widen up technological possibilities
and create its own technology. Yet, technology is constrained by a number
of factors and technological possibilities are not an infinite set. Problem-
solving activities can search for sources that provide an answer, thus
improving the state of knowledge, but solutions to some problems may
not exist at all. The third question, which is arguably the most relevant for
us here, is
what is the relationship between the knowledge of a firm and that
of other firms or of the environment in general?
The indefinite boundaries
of a firm's knowledge point to different ways in which 'firms can augment
their own knowledge by reaching out into the environment - into their
industry or into society more broadly' (p. 64). As skills, organization and
technology are all seen as being intimately intertwined in routines, knowl-
edge sources are therefore entangled in the internal and external environ-
ments of the firm, therefore making it rather difficult to separate neatly the
importance of the two dimensions.
