Evolutionary and competence- based theories of the firm

This essay explores evolutionary and competence-based theories of the firm. " Evolutionary " approaches to the theory of the firm often invoke the biological metaphor of natural selection[1]. The classic example here is the seminal work by Richard Nelson and Sidney Winter: An Evolutionary Theory of Economic Change (1982). Exponents of evolutionary approaches argue that they provide better theoretical tools to understand technological and organizational change within the firm, especially when compared to the more static, equilibrium-oriented approaches of neoclassical economic theory[2]. Evolutionary theories can be regarded as a subset of a wider class of theories, variously described as " capabilities " , " resource-based " , or " competence-based " theories of the firm. We shall use the latter term here, although the other terms are common in the literature[3]. The competence-based perspective sees the existence, structure and boundaries of the firm as explained in some way by the associated existence of individual or team competences – such as skills and tacit knowledge – which are in some way fostered and maintained by that organization. Early precursors to this view include Adam Smith and Karl Marx, who saw the division and management of labour as crucial to the developments of skills and providing a key rationale for the firm. But there is a variety of twentieth-century exponents, notably including The central idea of competences provides the basis for evolutionary and non-equilibrium theories of industrial competition and development. Within this group there is a diversity of views, particularly over the nature of (tacit) knowledge, the units and methodology of analysis, and the competences paradigm has attracted a wide and growing following and its ideas are now prominent in the literature on corporate strategy The competence-based or competence perspective contrasts with the other large set of theories, frequently described as contractual or contractarian theories of the firm. The focus there is not on the developing resources and