Linking technology and institutions: the innovation community framework

ELSEVIER

Research Policy~_5(1996)91-106

Linking technology and institutions: the innovation community framework Leonard H. Lynn *, N. Mohan Reddy, John D. Aram Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106, USA

Fnal versionreceivedDecember 1994

Abstract

The technological innovation and diffusion literatures consistently suggest the importance of the institutional environment, including non-market as well as market organizations and relationships, in the commercialization of innovation. There is, however, no general framework for studying the relevant organizations and relationsh/~ as a structured system. This paper draw; on organizational ecology to develop such a framework, 'the innovation community'. The paper then suggests how the new framework could be employed in guiding research and in developing a general institutional theory of technology commercialization. Two major streams of research, primarily developed by economists, have enriched our understanding of the processes of technology commercialization. One stream has sought to identify the industry structures and firm characteristics most conducive to the commercial introduction of new technology by individual fit~as. This approach suggests, for example, that innovation has an inverted U-shaped relationship with firm size and industry concentration (see Cohen and Levin, 1988; Kamien and Schwarz, 1981, comprehensive reviews). The other stream has focused on the diffusion of new technology, emphasizing the processes by which use of specific 'innovations' spreads through an industry. This research has helped us understand some of the factors influencing the speed wRh which a technology comes into widespread use.

* Corresponding author. Tel: (216) 368-6048.

While b3th streams of research have contributed to our understanding, both have been widely criticized. Dosi and Orsenigo (1988), for example, criticize the industry structure approach for using too narrow a characterization of industry structure. They point to the importance of such additional variables as accumulated technological capabilities, production technologies, firms' R & D strategies and organizational structures. Diffusion research has been criticized for neglecting the fact that innovations are typically improved as they are used and processes of improvenlent interact with the process of diffusion (Gold, 1981; Rosenberg, 1979); for assuming a static environment (Gold, 1981; Zuscovitch, 1986); for inadequately appreciating the 'systems' nature of most technological innovations (Freeman, 1988; Rosenberg, 1979); for ignoring inter-industry relationships (Mowery and Rosenberg, 1979, 198~ Rosenberg, 1979); and for viewing technological innovation as a simple reaction to 'demand" (Dosi, 1982; Mowery and Rosenberg, 1979).

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Thus, both approaches are faulted for taking too limited a view of the institutional environmerit in wh~h innovation occurs and for failing to incorporate dynamic and interactive processes. Several theorists have called for a richer, more interactive paradigm (e.g. Dosi, 1982; Mowery and Rosenberg, 1979; Nelson and Winter, 1982; Saviotti and Metcalfe, 1991). These theorists are more explicitly concerned with the evolution of technology, specifically with how the institutional environment may shape the process of technological evolution and how the resulting processes of technological change may reshape the institutional environment. They have developeJ concepts variously labeled as technological paradigms (Dosi, 1982) technological guideposts (Sahal, 1985), new technical systems and techno-economic paradigms (Freeman, 1988), and development blocks (Carlsson and Stankiewicz, 1991; Dahmen, 1989). These concepts construe technological breakthroughs as a broad set of procedures and solutious aimed at an array of related problems. The notion of invention-innovation-diffusion as a stepwise process is rejected. Technical advance is seen as often resulting from the cumulative impact of small improvements where innovation and di~usion are interactive stages in the history of a technology (Nelson and Rosenberg, 1993; Rosenberg, 1976, 1979). In a 'breakthroughs and barriers' model, Ayres (1988) notes that cumulative improvements in a technology lead to a clustering or bunching of innovations. Similar notions of interdependent or systems innovations have been advanced by Rogers (1983), Resenberg (1976), Mensch (1979), and Teecc (1984), among others. The systems nature of technological innovation implies that the successful commercialization of an innovation may require the development of one or more other innovations. This notion led Rosenberg (1979) to argue that interlocking, mutually reinforcing technologies depend upon inter-industry relationships. Broadening the scope of interest in diffusion to the various actors that offer the array of components and services needed in creating a new technology represents movement toward the more comprehensive idea of an 'innovation community'.

Evolutionary models have brought about an integration of the innovation-diffusion continuum and expanded on the dichotomous views of innovation that have dominated the field, e.g. competence enhancing versus competence destroying (Abernathy and Clark, 1985; Tushman and Anderson, 1986); architectural versus component (Henderson, 1993; Henderson and Clark. 1990); basic versus improvement (Mensch, 1979); and product versus process (Abernatby and Utterback, 1978). They have also gradually expanded the awareness of the institutional domain that influences the development and propagation of technology (Dosi, 1982; Nelson and Winter, 1977, 1982; Teece, 1986; Zuscovitch, 1986). The authors of this paper believe, however, that an approach is needed that is still more comprehensive and explicitly institutional than either the technological systems or technology evolution frameworks. The next two sections review a body of literature by economists, historians of technology, sociologists and other ,:~cial scientists that points to the importance of processes and structures not yet accounted for in theory nor subjected to systematic research in understanding the course of technological innovation. The paper then begins t!,e development of a new institutional approach making use of ~he 'innovation community' framework. Variables crucial to this approach are outlined. The proposed new framework is intended to help researchers identify dimensions of the institutional environment that should be special targets of research. It suggests an approach to ex~lering the linkages between these organizations and it points to hypotheses of interest to both theorists and policymakers. The proposed framework is offered in the spirit of Bacon's thought that "Truth emerges more readily from error than confusion" (cited in Kuhn, 1970 p. 18).

1. Market and Non-market relationships The neoclassical economic framework for the analysis of innovation has been faulted by institutional economists for being so exclusively based on a theory of markets that it has little to say

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about the institutional structures that influence innovative performance (Mowery and Rosenberg, 1989). Institutional economists have sought to overcome this limitation by incorporating nonmarket relationships within their frameworks. Williamson (1975, 1981, 1985), for e~ample, demonstrates how transaction cost economizing leads to the organization of economic activitwesby hierarchy when transactions are frequent, information is asymmetrical, and asset specificity gives rise to opportunism. Teece (1986) applies the transaction cost framework to technology diffusion within producer and distributor industries. The difficulties of appropriating the benefits of innovation make opportunistic self-dealing a special problem. Teece documents instances where innovators failed to receive the economic benefits of an innovation because they could not gain control of vertical complementary assets (VCAs), such as manufacturing facilities, distribution channels, and service capabilities. According to Teece, an innovator can purchase VCAs, contract for them through a contracting arrangement such as licensing, or develop them in-house. If the innovator's technology is tightly appropriable (i.e. it is protected by iron-clad patents, secure in-house know-how, or trade secrets), licensing or partnering reduces capi~I requirements and risks while protecting the ~'~movator's income stream. Innovators with weakly protected technologies would ideally seek to manage integration in order to protect themselves from imitators and to avoid being 'held up' by owners of specialized VCAs. The feasibility of this strategy, however, may depend on the investment required to integrate forward, the time required to gain market position relative to competitors, and the criticality of the VCA to the success of the innovation. For example, forward integration is likely only where appropriability is weakly protected, specialized VCAs are critical, the firm's cash position is strong, and the firm is positioned favorably with respect to competitors and imitators. Otherwise, the innovator will contract out for access to VCAs, at times with little bargaining power. Williamson (!991) a l ~ addresses weak appropriability or 'leakage' in relation to hybrid gover-

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nance structures, such as franchising, long-term contracting, or reciprocal trading. Some joim venture arrangements might be de~'ribed as hybrid structures. Williamson predicts that hybrid structures will be present where a moderate degree of asset specificity exists. Hybrid structures will lie in an intermediate position between markets and bierarchies in terms of the strength of performance inventives, administrative systems, legal regimes, and adaptation processes. It is to classify a large number of different w a d of organizing transactions between the extremes of pure market and pure hierarchy based on differing conditions of payment, duration, delivery, amt equity stakes (Macneil, 1981). With respect to technology, Williamson states that weak appropriability increases the attractiveness of hierarchy over market and hybrid structures. Williamson (1991) also notes that reputation effects may influence the structures that organize economic transactions. Hybrid organizations are more vulnerable to opportunism than are the hierarchical under conditions of intermediate asset specificity, because hybrid organizations have weaker control mechanisms than hierarchies. But where reputations are quickly and accurately communicated within a group of traders, the risk of opportunism is reduced. As a result, improvement in inter-firm reputation effects will reduce the cost of hybrid contracting. Thus, settings in which trust is present (due to strong reputation effects) increase the attractiveness of hybrid organizations. Williamson (1991, p. 291) concludes: "Hybrid contracting will therefore increase, in relation to hierarchy, in regimes where interfirm reputation effects are more highly perfected, ceteris paribus." This point is consistent with many of the discussions of the effectiveness of industrial groups in Japan, Germany, Sweden and elsewhere (e.g. Bolton et al., 1989, Gerlach, 1992; Imai, 1992a, 1992b; Kester, 1992; Sahel, 1987). The incorporation of nori-market relationships through transaction cost analysis by institutional economists represents a considerable advance over neoclassical economics. Studies of the como merciafization of technology, however, raise issues that go beyond transaction economizing. As Granovetter (1985) observes, economic relation-

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ships are embedded in social and cultural values that affect the functioning of markets. Embeddedness implies more than an efficient market for reputations. Dote (1986), Kester (1992), and othera, for example, have examined the values underlying the Japanese socioeconomic system in employment practices and multifaceted interorganizationa! relationships that can be influential in technology development and diff,Js~on. In his study of the Italian ceramic tile industry, R,,~_~. ~. ( ! 9 ~ ) argues that a geographical area or an "industrial d/strict' is the proper unit of analysis for understanding technical change and institutional structure. The industrial district is centered on a set of closely related firms from different industries which function as a unit and which have greater stability than individual firms or industries. While some firms within these groups are linked by hybrid structures, the concepts of 'industrial district' and 'group' transcend the focus on bilateral economic transactions. An institutional analysis of technological change requires attention to a number of organizations outside vertical channel relationships. Non-market organizations such as trade unions and regional tribunals have important impacts. And even amongst the business organizations in the group, technological change in the production of ceramic tiles was brought about through a complex of activities by large manufacturers of presses, specialized technical and design centers, engineering artisans and small engineering firms that built machines or machine parts, and factories that produced glazes. Flows of information about the experiments and activities of various actors appeared to be critical to the coordination of these diverse activities. The focus on channel relationships and on hybrid organ/zations by institutional economists seems to best explain specific governance structures where innovat;on plays only a minor role. In this framework, inno, ~tion is treated as a random occurrence external to the firm which simply calls for organizational response or adaptation. Little attention is paid to structures and institutional arrangements that lead to a higher or lower rate of innovation, to the paths of innovation diffusion, or to the different types of innovation and

their organizational consequences. Other than legal doctrines that support property rights and technological appropriability, institutional economics still overlooks the influence of institutions on innovation in areas that transcend the immediate economic transaction. Further, it does not effectively incorporate non-economic organizations. 2. Coordinating organizations One important function in the commercialization of innovation is the coordination of activities, functions, roles, and contributions. This function is often performed through organizations or relationships that seem to have more of the characteristics of a complex field of many actors rather than the bilateral relationship depicted in transaction cost analysis. Many of the actors are not engaged in economic exchange at all. Walton's (1987) study of the implementation of work innovations in the maritime shipping industries of eight countries, for example, shows how government, industry, and union organizations acted variously to facilitate or to hinder the implementation of productivity-enhancing workplace changes in different countries. High innovation countries (Norway, Holland, Japan) and moderate innovation countries (the U.K., Sweden, West Germany) used tripartite forums, third party facilitators, and a spirit of mutuality in planning and implementing changes. Low innovation countries (Denmark, the U.S.) did not use these mechanisms. Walton coins the term 'metacompetence' to suggest the ability of the relevant decisionmakers to restructure the forces, motives, and assumptions affecting behavior across institutions to facilitate innovation. At one level coordination simply implies an efficient flow of information. Carlsson and his colleagues attribute Sweden's success in attaining a very high level of automation to the effectiveness of 'bridging' institutions that facilitate such flows (Carlsson, 1993; Carlsson and Stankiewicz, 1991). The case of the Bessemer steelmaking process gives a dramatic example of the importance of such bridging (Morison, 1966). William Kelly, an

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American iron-kettle maker, discovered the pneumatic steelmaking concept in 1847 and quickly began work to develop a new steelmaklng process based on it. Henry Bessemer, in England, made a parallel discovery some eight years later, at which time he also began developmental work. Both Kelly and Bessemer built experimental pneumatic converters. Kelly, however, was unable to get sufficient help from skilled experts to commercialize the technology. He spent seven or eight f~uitless years in the attempt. Bessemer was more fortunate. In 1856, only a year after he had begun his experiments, he showed a piece of steel made ~ t h his experimental converter to the chairman of the mechanical section of the British Association for the Advancement of Science (BAAS). This led, in August of that year, to a presentation on the new steelmaking process to the BAAS. British trade and professional journals gave comprehensive and accurate reports on the paper as did publications on the continent. Experts in various fields quickly began working to overcome technical barriers to the commercialization of the Bessemer converter, and by the end of the year converters were built in England and France. By encompassing well-developed professional societies, the British institutional environment apparently provided more effective pathways for the flow of information, allowing the British to overcome an eight-year American lead in commercializing the Bessemer process. Despite its slowness to commercialize the Bessemer converter, the U.S. quickly made widespread use of the technology. Ar~nual U.S. production of Bessemer steel rose from about~ 3,000 tons in 1867 to over a million tons in 1880. By the late 1870s, productivity in the U.S. plants was the highest in the world. A U.S. converter in 1876 could produce three to five times as much steel as a European converter. There were several factors underlying the rapid growth in both size and process efficiency by users of the Bessemer process in the U.S., but an institutional factor of considerable importance was the establishment of a trade association, the Bessemer Association. The Association, which controlled the patents held by its members, was instrumental in the diffusion of advances in process technology.

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Professional societies, trade associations, and various forms of industry consortia and uaiversity-industry relationships, can facilitate the diffusion of technical information, help ~ bottlenecks, coordinate investment, and help provide infrastructural support. They can help by promulgating new standards, as did the Society of Auto* motive Engineers in the early 19(J0s (Thompson, 1954). Additionally, one might speculate, these organizations can provide a venue for the exchange of complementary knowledge leading to the development of interdisciplinary technologies (Reddy et al., 1991). Clearly, not all and societies are equally effective in carrying out these roles. In both the U.S. and Japan, professional and trade associations helped spread information about the basic oxygen steeimaking 13:ocess, but the Japanese associations worked more closely with government, steelmakera, and other in'ms to do this effectively. The Japan Iron and Steel Federation and the Iron and Steel Institute of Japan are closely linked to government through advisory councils and the employment of retired bureaucrats. They have larger staffs than their U.S. counterparts and a more explicit mandate to collect technical information (Lynn, 1982, 1984; Lynn and M~Keown, 1988). The examples given so far may seem to mggest that professional and trade associations f~cilitate the commercialization and diffusion of technology. This is not a ~ a y s true. As we have seen, thanks to the powerful Bessemer Association, the US. steel industry was extremely effective when it came to using the Bessemer technology to cut its production costs. The U.S. industry lagged, however, when it came to product innovation, quality, and price to consumers. This too may h~ve been an outcome of the strength of the Bessemer Association. The Association ,~ems to have kept new firms out of the indu~;try and controlled competition. It was dominated by the steel rail producers, and had tittle interest in tcchnology not directly related to rail production (Morison, 1966). Professional or trade aL~iations also appea:" to have posed barriers to the use of new technologies in other cases. This may be the case with laser angloplasty, for examFie, where some ob-

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servers point out that widespread use of the new technique world shift surgeon income to cardiologists and wonder if this is why the surgeons' professional society opposes it (Gruentzig, 1982). Sehwartz-Cowan (1987) argues that electric refrigerators came to predominate over gas refrigerators, which the author asserts were more efficient and quieter, due to the effective lobbying of the e!eetr/cal manufacturers association. Hirsch (1975) notes how trade associations influence legislation and governmental policies to create barriers to new products in the pharmaceutical industry. Trade associations and professional societies, of course, are not the only forms of coordinating organization~, involved ha commercializing teclinology. Government also can play a role. The Japanese government kept otherwise competing Japanese steelmakers from bidding against each other for rights to the basic oxygen steelmaking technology, and thus minimized license and royalty fees paid to the technology's Austrian developers. Government then all but forced the Japanese firms to share the technology with each other and to cooperate in adapting it. Profit-making organizations such as the Japanese and Korean trading companies, publications, and consuiting companies should also be mentioned, as should universities and labor unions (Lynn, 1982). Justman and Teubal (forthcoming) suggest some of the ways in which government can influence a country's technological infrastructure, "a set of collectively-supplied, specific, industry-relevant capabilities, intended for several applications in two or more firms or user organizations", such as human capital, physical capital and knowledge. It often seems to matter what types of organizations serve to coordinate technological advance. In describing the organizations inwlved in technological change in the textile machinery and other industries of Massachusetts and BadenWurRemberg (Germany), Sabel et al. (1987) suggest that trade associations played the coordinating role in Baden-Wurttemberg, facilitating technological advance. In Massachusetts the mechanism of coordination used was horizontal integration by merger, a mechanism that seems to have led to technological stagnation. Currently, Mas-

sachusetts is relying on universities to play the coordinating role. While noting the apparent current success of Massachusetts high technology, Sabel et al. (1987) suggest that this success is in danger of turning to failure. In their view trade associations are superior to universities in coordinating industry action. Two points come out of this discussion. First, coordinating organizations warrant far more attention than these organizations have received. Elsewhere we offer propositions on the roles of U.S. trade associations, professional societies, independent R & D coordinating organizations, public service organizations, and government agencies (Reddy et al, 1991). Second, different non-market organizations can carry out comparable functions in the commercialization of a technology (such as coordination). Similar institutions in different countries may perform different functions, and different institutions may be functional equivalents. We need a framework that encourages more systematic thought about what the necessary functions are in the commercialization of technology. We also need systematic field work which gives a better sense of what the alternative institutional arrangements may be for carrying them out. National variations, including those based on cultural differences, may prove to be highly significant.

3. The innovation community Organization theory offers a wealth of concepts relevant to the institutional enviromnent for the commercialization of technology: "organization-sets" (Evan, 1966), "action-sets" (Boissevain, 1974), "networks" (Jay, 1964), "interorganizationai collectivities" (Van de Ven et al, 1974), "complex, and more or less or~,anized, systems" (Crozier and Thoenig, 1976), "loosely coupled networks of clusters of organizations" (Pfeffer and Salancik, 1978), and "ad hoc networks" (Schon, 1971). Weingart (1984) views technology development as a function of interaction among institutionalized "orientation complexes" - industrial, political, academic, and military organizations with differing codes of behavior, convic-

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tions, and substantive ideas. DiMaggio and Powell (1983) suggest the concept of "organizational field" to encompass organizations that, in the aggregate, constitute a recognized area of institutional life: for example key suppliers, resource and product consumers, regulatory agencies, and other organizations that produce similar services or products. While this iiterature suggests ways in which groups of organizations may be defined, how they interact, and how action is coordinated, it gives the researcher little guidance as to where to bound organization sets or networks (Aldrich and Whetten, 1981), or how to define linkages between organizations. Nor does this literature help the researcher capture the evolutionary nature of both technology and the organizations involved in developing it. Organizational ecology shows a way to address these problems. Based on "~Pnittaker's (1975) work, Astley and Fombrun (1987) use the term "organizational community" to denote a set of functionally integrated and interdependent organizations. Brittain and Wholey (1988) also use the concept of organizational community in their study of the electronics components industry. These autho~ mc!ude d,.'rect and indirect competitors in their definition of community. In a study of the early telephone industry Barnett and Carroll (1987) broaden the community notion further by incorporating direct and diffuse mutualism between organizations in addition to competitive organizational relations. Astley and Fombrun's (1987) notion of community includes all the relationships noted by Barnett and Carroll (1987) and further identifies the coordinating activities of state, trade, and professional groups as part of an organizational community. Freeman and Barley (1989) further develop the concept of an organizational community from the population ecology literature and from social network theory to explain the organizational strategies of two bioteclmoiogy firms. Community members in this framework include new biotechnology firms, university departments, research institutes, established corporations, venture capital firms, regulatory bodies, industrial associations, scientific bodies, and suppliers. Ast-

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ley and Fombrun (1987) and Fon~brun (1986, 1988) distinguish between the economic "substructure' of a community and its coordinating 'superstructure'. We propose the term 'innovation connnunity" to refer to the organizations directly and indirectly involved in the commercialization of a new technology. Although scholars so far have used the organization community framework solely to understand the structure of i n t e r - r e l a ~ among organizations, comparative studies of innovation communities are particularly promising. Such st, dies may well follow past research on technological innovation in taking as their depew dent variables the speed of commercialization (explaining why one of two or more competing systems was first to bring out a new technology), rate of diffusion (explaining the speed with which a new technology came to be used in a population of potential users, or explaining why one of a set of competing systems made more extensive or intensive use of a new technology within a certain period of time). They could additionally focus on areas such as which social or interest groups gained or lost through commercialization. The innovation community framework however, suggests that attention also be paid to the relationships between components of the community and to the interactive development of technologies and communities. The major contn'bution of the framework is to suggest ~mportant variables that have not yet received sufficient attention. The following are important features of the innovation community framework. 3.1. Technology as the center o f the innovation com,~ty

A problem for researchers analyzing sets of organizations is that 'everything is connected'; it is difficult to know where to stop including organizations as members of the set. The innovation community perspective suggests that rather than start with an a priori list of relevant organizations, a researcher should regard the identification of these organizations as an empirical question (DiMaggio and Powell, 1983). Thus the members of an innovation comnlunit3" are defined

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as the organizations sign/ficantly involved in the commerc/alization o f a new technology. A researcher might begin to identify the members of an innovation community by examining the sources of vertical complementary assets and the sources and flows o f information, poss~ly by interviewing or surveying those supplying the commercial manifestation of the technology. This approach is consistent with such ecological theorists as McKelvey (1982) and McKelvey and Aldrich (1983). Ecological theorists explain how technologies converge wi*hin populations and come to be differentiated between populations. Each 'population' has its own special technology and is relatively impermeable to the importation o f new technologies. The innovation community emerges from existing communities o r intersections o f existing communities. The innovation community is by definition a set o f interacting populations e m b e d d e d in a dense web o f social and economic relationships. Gerlach and Palmer (1981) note that complex socioeconomic systems are characterized by segmentation, polycentricity and integration. Innovation communities are segmented as they consist o f diverse populations of both substructural and superstructural organizations: producers, vendors, distributors, trade associations, piofessions,

Table I Innovation community frameworkvariables I. Communitylevel a. Size b. Heterogeneity (i.e. number of types of members) c. Stability(amount of change in membership during process of commercialization) d. Boundary permeabifity(level of barriers to en*.ry to the community e. Balance of power between superstructure and substructure f. Divisionof labor between superstructure and substructure HI. SeMmcture level a. Size b. Heterogeneity c. Industry concentratio~ d. Nature of ties (marke~~ ~~.,.-lashierarcMes) e. Vertical versus horizeat-,~int~.gration

and state agencies. Each population has a specific set of competencies and performs a specialized role. The exact configuration of populations and the role mix will differ among different innovation communities and within given communities over time. As ~=.~ bccn mentioned, the functions played by similar organizations in different countries may differ. 3.2. Superstructure a n d substructure

The innovation community consists of a substructure and a superstructure. Organizations in the substructure produce either the 'innovation' or its technological complementaries. Economic research on innovation has almost exclusively attended to substructure organizations. Superstructure organizations provide collective goods to their members, often specializing in coordinating flows of information or coordinating the activities of substructure organizations. Many superstructure organizations are thus 'linking organizations' (professional societies, trade associations, government organizations, trading companies, etc.) (Carlsson, 1993). Superstructure organizations can promote technology integration in several ways. Professions, trade associations, and state agencies influence the emergence of a d o m -

I1. Superstructure level a. Size b. Heterogeneity c. Basis of authority (legal, economic, cultural/normative) d. Level of centralization e. Scope

IV. Technologicallevel a. Speed of commercialization(technologyto commercialproduct) b. Speed of diffusion(first introduction to market saturation) c. Continuous versus discontinuous(from technical standpoint) d. Scope of inputs (number of industries supplyingcomplementarities)

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inant design for a technology by linking diverse bodies of knowledge, competencies, and techniques, thus facilitating a convergence of interdependent and complementary technologies. Underlying everything, taken-for-granted understandings serve as guidelines for action and can provide a basis for restructuring when the innovation community is disrupted. The state, professions, and trade associations are the institutional sources for many of these taken-for-granted understandings (Reddy and Rao, 1990). Partitioning the relevant environment into substructure and superstructure helps us to incorporate non-market organizations into our framework and directs our attention to mechanisms by which the flows of key inputs are regulated.

4. Innovation community variables Use of the innovation community framework points to the possible importance of variables that have so far been given little attention in the literature on technological innovation. Table 1 lists some of these variables. 4.1. C o m m u n i t y level variables

At the community level, variables of interest would include the size, diversity, stability, and boundary permeability of the community. A sizable literature suggests why these characteristics of a community might relate to its willingness/ ability to introduce various types of new technology. This literature also suggests how various forms of technological change may lead to change in community characteristics. As ecological theorists have shown, a new technology may disrupt the niche comfortably occupied by a population, destroying existing competencies and linkages, and replacing them with new ones (Abernatby and Clark, 1985; Astley, 1985). For analytical purposes one might categurize innovations as posing three levels of institutional challenge: no challenge, because the innovation draws on or enhances the competencies of the dominant members of the existing community; substantial challenge, because the required

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competcncics come from various communities, but some superstructural elements exist to coordinate the change; and revolutionary challenge, because the competency needs overwhelm existing superstructural elements and lead to the emergence of a new population (industry). Part of this notion of challenge is captured in Tushman and Anderson's (1986) characterization of some innovations as competence de~ro~ng. while others are competence enhancing. _These authors hypothesize that the former are initiated by new entrants and the latter are initiated by existing firms. Supoort for this hypothesis is found in analyses of the development of the U.S. cement, airline, and minicomputer industries. Henderson and Clark (1990) and Henderson (1993) develop this notion further, suggesting that incumbent firms are less competent than new entrants when it comes to introducing "architect° ural innovations' (i.e. those that change the ways in which the components of a product are integrated into a system). The reason is that the architectural knowledge developed by incumbent firms is accompanied by information filters and information channels that facilitate the incremental development of product components, but make it harder to develop or introduce new ways of using the components. Indeed, Henderson (1993) finds that in the case of the p h o t o f i t ~ alignment equipment industry, incumbent fim~ were less competent than new entrants when it came to exploiting radical innovation. We would suggest that an innovation can be competence enhancing or destroying not only in the context of a specific organization but also in the context of a community. New technologies that are not particularly radical from the teclmical standpoint may pose challenges to institutional arrangements because commercialization may depend on technological complementarities and require the integration of diver~e elements of information, knowledge, and skill (Constant, 1984, Pavitt, 1984; Rosenberg, 1979, 1982). New cordigurations of these elements are needed through the integration of formerly unassociated perums, pieces of equipment, and financial agreements. Successful commercialization of an innovation often means finding ways to coordinate configura-

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tions o f these new factors or to combine them within new organizations. Community superstructares vary in their abifity to carry out these activities. Thus Sabel et al. (1957) seem to imply that advances in textile production technology were competence destroying for the U.S. industry, but competence enhancing for the Germ~-~ industry. This seemed not so much because of differences between U.S. and G e r m a n firms, but rather because o f differences in the innovation communities that were engendered in the two countries. Innovation communities sometimes take in new members and cast out old ones. The degree to which they do this - their stability and boundary permeability - has consequences for how quickly they can make radical or evolutionary changes in their innovation. The ability of members of the Bessemer Association in the U.S. to keep out new members fadfitated certain types of innovation (particularly cost-cuRing), while inhibiting others. Impermeability can sometimes destroy an entire community, thus allowing the birth of a new one. Propositions (see Table 2) based on this discussion would include: ' O t h e r things being equal, s m ~ , homogeneous and stable communities will be faster to introduce incremental improvements in a technology', and, ' O t h e r things being equal, small, homogeneous and stable communities will be slower to introduce radically new technologies'. A n o t h e r important community level variable is the relative power of superstructure and ~ub-

structure organizations. Mechanisms for dealing with opportunism, uncertainty and bounded rationality are resident in the superstructure in the form of channels of communications, shared understandings, and laws. This integration of the superstructural and substructural levels offers rich opportunities to incorporate concepts from organizational theory, such as power and dependency, into a framework that also draws on concepts developed by the new institutional ecn~omists and others. Relative power might be measured by (1) the degree to which members of the substructure allow superstructure organizations to influence their actions, and (2) the degree to which members of a given superstructure allow members of other superstzuctures to influence their actions. The allocation of roles between superstructure and substructure will frequently vary between innovation communities. Some of the collection of information on the basic oxygen furnace steelmaking process, performed by superstructural organizations such as government and trading companies in Japan, was carried out by substructural organizations in the United States (the steelmakers themselves, or their vendors). The consequences of such differences should be carefully explored. Different organizations clearly have different levels of resources. Some types of organizations (because of appropriability concerns) may be more willing to invest resources in information collection than others. Further, organizations

Table 2 Propositions PI. Other things being equal, small, homogeneousand stable communitieswill more quicklyintroduce incremental improvements in a technology. P2. Other things being equal, small, homogeneousand stable communitieswill be slower to introduce radicallynew technologies. P 3 0 m e r things being equal, communitiesin which superstructurai orga~iizationsassume the information-collectingro!e will more rapidly commerdalize and diffuse a new technology. P4. Other things being equal, communitieswith superstructure~spec':alizedby industry will more rapidly commercialize narrowly-basedincremental innovationsthan communitieswith more encompassingsuperstructures. PS. Other things being equal, larger more encompassingsuperswJctures will be more effectiveat commercializingsystemic technolo~es. P6. Other things being equal, innovationcommunitieswith more heterogeneous substructures will produce more radical innovations.

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have their systematic biases. A proposition based on this logic would be: 'other things being equal, communities in which superstructural organizations assume the information-collecting role will more rapidly commercialize and diffuse a new technology.' The community perspective explicitly recognizes the extreme variability of modes of linkage between constituent organizations. Firms may be formally connected to other firms in the same or a different industry through contractual ties, interlocking boards of directors, quasi-vertical integration, joint ventures, or the movement of employees. A similar range of variability also exists at the superstructural level and in the linkages ,:onnecting the sub- and superstructural levels. Network theory suggests ways of thinking about these ties in a comparative community context. Two organizations might be regarded as occupying structurally equivalent positions in the community, for example, if they have identical ties to identical organizations (DiMaggio, 1988; White et al, 1976). Connectedness within a community is another dimension that might he expected to vary between communities and to influence their relative capacities for technological innovation. 4.2. Superstructure variables

One way superstructures vary is in the number of power centers. The development of technical standards and the emergence of new industries may engender political activity by market participants (Becker, 1970). State agencies may he carefully guarding their jurisdictions against other agencies. Professions may provide checks and balances against each other, and professions may stand as counterweights to state agencies and industries. As a consequence, superstructures specialized by industry may be more effective at developing incremental innovations while more encompassing superstructures (e.g. those that span more than one industry) may be more effective when it comes to systemic innovation. Hence two propositions: 'Other things being equal, superstructures specialized by industry will more rapidly commercialize narrowly-based incremen-

101

tal innovations', and, 'Other things being equal, larger more encompassing superstructures v~Jl more rapidly commercialize systemic technologies'. The superstructure of an innovation community might also be characterized in terms of its orientation towards cooperative problem-solving. Some analysts argue that legalistic nm-n~ in the U.S. have inhibited certain types of innovation relative to Japan and other countries (Aram, 1992; Aram et al., 1992; Dore, 1986; Walton, 1987). Presumably industries and communities within a single nation would also vary considerab~ in this regard. Sometimes the norms of cooperation will have an institutional embodiment. The Japanese, as was noted above, have elaborate mechanisms, such as long-standing industxy-government advisory councils, for coordinating the activities of organizations identified here as being part of the superstructure. These may have given the Japanese advantages in commercializing new systemic technologies (Aram et al., 1992; Imai, 1992a; Lynn and McKeown, 1988). 4.3. Substructure variables

Many of the variables that would be associated with community superstructures have their analogues at the substructure level. These would include size, diversity, and inclusiveness, for example. Some of these variables have been addressed in the economics literature summarized in the introductory ~ction of this paper:, e.g. research on the impacts of industry concentration, vertical and horizontal integration on innovation. I~ should he noted, as is demonstrated in many of the cases cited above, however, that substructure variables are strongly mediated by the community superstructure (see also Burr, 1988; Lauman et al., 1978). Examples of how more encompassing innovation community substructures may facilitate the development of new systemic t e c ~ s are provided by Kodama (1986, 1991). Kodama analyzed Japanese R & D spending on 31 different product groups from 1970 to 1982. His data suggest that there was a widespread 'fusion' of re-

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search between industries in Japan over this period. Beginning in 1971, for example, new electromechanical technologies were developed in Japan through inter-company relationships and inwa-company research that spanned traditional industrial boundaries. Similar developments linked the prec/sion instruments and communicat/on/electronic equipment industries, and the food, drug, and indns~:rial chemical industries in the 1970s. The early 1980s witnessed the fusion of ceramic~ with mechanical machinery, electrical machinery, and industrial chemicals. Kodama's findings suggest an additional proposition: 'Other things being equal, innovation communities with more heterogeneous substructures will produce more rad/cal innovations'. 4. 4. Technology variables

Much of our discussion has illustrated how configurations of superstructure and substructure organizations influence the manner in which new technology is developed and commercialized. This is particularly true of the aspects of technology captured in the first two teclmology variables in Table 2, speed of commercialization and speed of diffusion. As we have noted, however, technological innovations often influence the nature and configuration of the innovation community. Russo (1985), for example, shows how technical changes in the Italian ceramic tile industry gave rise to vertical disintegration of producer firms and the formation of multi-factory multi-firm groups based on geographical proa~aity. Tushman and Anderson (1986) argue that competence-destroying innovations altered the market positions of new entrants and existing firms in the cement, airline, and minicomputer industr/es. Similarly, Henderson (1993) shows the influence of 'architectural innovation" on the structure of the photolithographic alignment equipment industry. In terms of nonmarket organizations, Walton (1987) shows different countries" institutional adaptations to similar work innovations in the maritime shipping industry. The third and fourth of our technology variables, the technical continuity of an innovation

and the number of industries supplying technical inputs, are intended to capture aspects of technology that act on community structure.

5. Conclusions The innovation community framework suggests that the actors involved in the con~nercialization of a new technology be viewed as forming a bounded structure encompassing a superstructure of coordinating organizations, a substructure of organizations producing key components of the commercialized technology, and linkages between the substructure and superstructure and among the various actors. This bounded structure is seen as co-evolving with the commercialized technology. This framework calls the attention of researchers to important variables that have not yet been adequately studied and shows how these variables might be thought of in a systematic fashion. It suggests rich possibilities for research exploring these variables and the linkages between them. It allows, as well, a view of interactive evolution involving organizational relationships and technology. In explaining some of the issues of concern to innovation researchers, the innovation community framework suggests that attention be paid to: community size, community member stability, community boundary permeability, strength of members' sense of community, structure of the sub- and superstructure components, strength of the superstructure, division of functions between the sub- and superstructure, modes of linkage, strength of linkages, relative position within the community of specific actors, segmentation of the community, congruence between community structure and the technology. Research based on this framework would ideally follow a series of innovations through the life cycles of the innovations, measuring the nature and degree of influence by members of the innovation community on the diffusion process. Both qualitative and quantitative methodologies would be needed. An initial approach that seems feasible might start at the point where a new technology has been commercialized, and then work

LH. Lynn et at/Research Policy 25 (1996) 91-106

backwards, tracking key inputs. These would include: flows of information, people, and finance (Justman and Teubal, 1986). The researcher would be concerned with the origin of these resources and with how they flow to the points where they are needed. It would be necessary to identify the major superstrnctural actors, to determine how they function and the degree to which their interests are in accord. The research should be comparative, to facilitate understanding of the key variables. It could compare different technologies within a single industry, comparable technologies in different industries, or different innovation communities and technologies. Particularly rich findings might come from a study comparing the development of a technology in different countries. Initially, research might primarily be concerned with developing methods of dimensionalizing innovation communities, technologies, and paths of technological evolution. Later it would test relationships. The discussion above suggests several propositions, sowe of which have been listed in Table 2. The objective of this program of research would be to develop a systematic a~l,! general institutional theory of technology commercialization. This general theory should have several attributes. It should incorporate both structural and functional analysis, i.e. it should create an understanding of the structure (number of members, rate of change, nature of linkages) of innovation communities and how particular structures fulfill different functions, requirements, and processes of innovation commercialization. For example, one may find that the number of members of an innovation community is a straightforward function of the number of technological interdependencies required for the commercialization of an innovation. As the nmnber of members increases, successful commercialization may depend on the ability of superstructure organizations to establish information flows linking the new and old members. The new theory should also specify the ways in which organizations and inter-organizational relationships can satisfy the functions, requirements, and processes of technology commercialization.

]03

Non-routine information flows between trade associations, for instance, may occur throngh vohmtary recognition and action by separate association leaders, through overt expectations and facib Ration by government agencies, or through relations among associations within a broader "encompassing' or 'peak' organization. Theory shtmld help us understand the range of organizational relationships capable of fulfilling processes or functions and to specify conditions for the success of each. A satisfactory institutional theory of technology commercialization should identify patterns of evolution of innovation communities. Research might examine, for example, whether professional societies invariably function earlier and trade associations function later in the commerdalizatiou process. It might identify the factors narrowing the number of relevant organizations over time and those working to expand the size of the community. Finally, theory should account for how technological innovation influences the structure and functioning of communities as well as how communities influence the process of technological commercialization. Some innovations draw upon the competencies of existing community organizations while others require the integration of new competencies and require new organizational relationships. Still other innovations represent revolutionary challenges to existing competencies and lead to the creation of entirely new populations of organizations. Organizations that stand to lose from an innovation may seek to block it or reshape it. Theory needs to differentiate the structural and functional consequences of varying degrees of technological discontinuity.

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