Edited by J. Stanley Metcalfe and John Foster
Chapter 4: Dynamic Capabilities, Tacit Knowledge and Absorption
Peter Hall1 INTRODUCTION The primitive assumptions that distinguish ﬁrms in an evolutionary model of competition are that: 1. 2. 3. 4. they are inherently diﬀerent from one another; diﬀerences among them persist through time; they adapt to a changing competitive environment; and they inﬂuence the competitive environment by their own innovations. Assumption 1 is the basis for the heterogeneity essential for selection processes to have a variety of ‘experiments’ to work on. Assumption 2 implies some inheritance or inertia characteristic that allows the diﬀerences to persist for long enough for selection processes to operate. Assumptions 3 and 4 reﬂect the operation of ﬁrm-level behaviours designed to promote survival and growth in an environment of continual change engendered by: ● ● ● changes in scientiﬁc and technological knowledge; changes in consumers’ tastes, preferences and levels of awareness and understanding; and other ﬁrms’ decisions, whether elsewhere in the supply chain or in direct competition. The core behavioural assumption is that ﬁrms act to survive and, with varying degrees of commitment, to do well (that is, to earn above-average returns).2 Firms are more or less successful, depending on what they know and what they do with what they know, period by period and over time, in the changing environment they confront. The common feature of all evolutionary accounts of the ﬁrm that draws these assumptions together and provides the key concept for tests of evolutionary theory at the ﬁrm level is dynamic capabilities:3 ‘the capacity to sense opportunities...
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