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 firms
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

2
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 firm
1
. 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
unquestioned
2
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 base
3
.
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 firms dynamics is just one of them (Garud and Rappa 1994).
This is for sure an extremely important result in addressing the epistemological and

3
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 socalled 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 papers 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

4
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 firms 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

5
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
papers 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-

6
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 robust
4
(Henderson 1993, J ones 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 firms
5
.
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

7
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 capabilities
6
. According
to this approach, dynamic capabilities are conceived as a particular firms 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

8
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

9
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 firms existing competence (Tushman and Anderson 1986); (ii) the
change in the communication channels, interpretative filters and organizational routines (in

10
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 capability
9
.

11
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

12

Although organizational learning is common to all the approaches, organization theory
enters more pervasively in a third approach which makes the firms 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 infrequent
10
. 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

13
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 learning
11
. 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 firms 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

14
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

15
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 capabilities
12
.
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

16
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 approaches
13
.
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

17
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 firms 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

18
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 firms 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 Marshalls (1890) observation of the tendency of small specialised firms to

19
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 Becattinis revisitation (1979, 1987, 1990) of Marshalls 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 values
14
, 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

20
influence of this collective knowledge within the firms boundaries because the unit of
analysis becomes the networks of different agents (Chell and Baines 2000, J ohannisson and
Ramrez-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 firms 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

21
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 firms 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 innovation
15
. 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 NSI
16
, 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 approach
17
. 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
Porters 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
excessive
18
.
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), 28
th
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
(competitiveadvantage)
Technological capabilities
(organizational competences to
overcomeinertia)
Capabilities to createorganizational
knowledge(renew managerial
cognition)
A learnedcollectiveactivity
(intentional routines)
What do
they apply to?
Lower-level strategic
capabilities/resources
(competitiveadvantage)
Technology (i.e. technological
knowledge, skills, know-how,
recursiveactivities)
Organizational knowledge
(managerial cognition)
Operational routines (quasi-automatic
routines)
Which is their core
element?
Organizational learning froma
strategic point of view (competitive
advantage)
Organizational learning combined
with strategic considerations
Organizational learning froman
organization theory perspective
Cognitivelearning froman
evolutionary viewpoint (variation-
selection-retention)
How is the firm
conceived?
A set of resources and capabilities
whoseintegration/combination is a
static factor
A technical systemof resources with
respect to which technological
integration is dominant
An organization in which individual
and collectiveknowledgeinteract
A set of organizational routines and
capabilities
How is the firm
environment dealt
with?
An aseptic (strategic like) diamond
with which thefirmisintegratedin
formal terms(competitors, suppliers
and consumers)
An industry characterized by
competitiverelationshipsandwith a
special focus on external (formal)
technology integration andconsumer
integration
A set of organizations interacting
(mainly) on aformal basis (inter-
organizational learning)
A systemof institutionswhich operate
in asocio-political context with a
territorial specification


42
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 tendto concentratein
somegeographically bounded areas?
Why do someplaces innovate
morethan others?
Why do someregions innovate
morethan others?
Why do new industrial
spaces emerge?
The core feature Embeddedness Innovation Institutions
Agglomeration and
urbanisation economies
The players
Community of peopleand
population of firms
Firms, institutions, organisations,
research and training institutions,
etc.
Firms andinstitutions

Firms with economies of
scaleandscope
Core of the innovation
dynamic
Inter-firmandinter-personal
relations
local synergy created by the
relationshipsbetween all local actors
Relations between
firmsandinstitutions
Formal relationships
among firms
Type of territory Social organisation
Active: task to foster innovation
Passive: result of theinnovative
processes
Administrativedefined region Portersdiamond
Main task
Maintenanceof ahomogeneous
systemof values
Coordination of all forces
of theterritory
Supporting innovative
activities of firms

Reduction of transaction
costs
Firms
Homogeneous
evolutionary firms
Homogeneous
evolutionary firms
Homogeneous
evolutionary firms

Transaction-cost approach
to thefirm




43


Notes:
1
For a critical position of dynamic capabilities as a source of competitive advantage see Eisenhardt and Martin
2000.
2
Routines being the most acclaimed challenger.
3
Of 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 latters 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).
6
Unlike 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).
7
A 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,

44

dynamic capabilities would be for them equifinal, and hence neither inimitable nor immobile.
8
In 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).
9
To be sure, in Iansiti and Clarks 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.
11
Such 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).
12
Indeed, 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)
13
Original 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).
16
First 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.
17
A 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).
18
For an extensive discussion of this argument see Leoncini et al. (2004).