Further Economy Stability

Transformation is a vital process at the level of the economy as a whole, but it is often accomplished through flexibility and stability at the level of individual firms. In fact, the words flexibility and stability neatly characterize the technological evolution of the 90 per cent or more of modern economies that operate in established industries and use well-known technologies, but are nevertheless regularly affected by changes of greater or lesser degrees of importance.

Except in the rare cases in which technological underpinnings are rendered totally obsolete, the primary requirement for firms in established industries is to learn how to blend old and new technologies, that is to find efficient ways of fitting new technologies into their existing rosters of products, processes, and routines.

Moreover, technological change within existing firms may need to be compatible not only with existing technologies but also with other activities that affect the ability of firms to implement changes. These extend beyond conventional organizational factors associated with ‘change management’ to include areas such as sales, marketing, and procurement in which personnel need to understand the nature of technological improvements and their importance both for themselves and for their customers and suppliers.

Dealing with change is clearly a dynamic process in which some old technologies become obsolete while new technologies may simultaneously gain in importance. It is also an irregular and contingent process that is not totally susceptible to managerial control.

As new technologies often emerge from outside a given industry (and, even more so, from outside a given firm), assimilating new technologies can be a reactive process in which firms seek to gain or retain competitive advantage by encouraging flexibility in order to permit orderly evolution within their more or less stable stock of resources and capabilities. Thus they need to develop receptive capacity.

Receptive capacity includes control over physical and financial resources as well as the intellectual elements that Cohen and Levinthal have termed ‘absorptive capacity’. Acquisition of knowledge is clearly a necessary condition for technological updating but it must be accompanied by other types of resources to ensure the successful implementation of change.