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Lecture 10

Lecture 10 March 27:April 2.doc

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Political Science

Table of contents1. Evolutionary concepts of economic action 2. Organisational ecology3. Critique of biological analogies4. Evolutionary view of start-ups5. Spin-off processes6. Types of university spin-offs/start-ups7. Start-up policies 8. Establishment of clusters and cluster policiesE1. Evolutionary concepts of economic actionETraditional concepts of economic action/location are staticTBUT: economic action is path-dependent/shaped by past structures/decisionsBNelson & Winter introduced an evolutionary conception analogous to Darwins theory of biological evolutionbAccordingly, firms compete for market shares in a similar way as animals for habitat (a) Phenotype Represents an organism: a specific manifestation of joint genetic material REconomic equivalent: a firmE1. Evolutionary concepts of economic action(b) Genotype GIs a population with a joint pool of genetic materialICharacterised by the possibility of reproductionCEconomic equivalent: firms in an industry or region(c) GenesGCarry information about characteristics CAll genes establish the gene pool/genetic codeAEconomic equivalent: organizational routines/ firm traditions(d) FitnessFAbility to survive in the environmentAEconomic equivalent: competitiveness in marketsE1. Evolutionary concepts of economic action(e) SelectionSMechanism which enables survival: MSuperior characteristics spread/inferior ones disappear SEconomic equivalent: survival of new/failure of established firms(f) VariationHow changes take place in the genetic pool. Random changes. Some are appropriate others are not and will die out. nAs fitness depends on the gene pool, adjustment to a different environment requires changes of that poolcGenetic variation occurs through recombination/mutation (random changes)GEconomic equivalent: innovation processes (BUT: these are not random events)E2. Organisational ecologyWhen we think about the structure of an industry we see different firms coming up and new technologies and new ways of organizing the labour process. (a) Organisational change through selection/replacementeHypothesis (Hannan & Freeman 1984): organisational change results from the selection of organisations rather than adjustment within organisationsoOrganizations are viewed as not structurally adaptable: OAdjustments tend to be consensual and thus suboptimalADue to uncertainties, it is unclear what the best adaptation isDStructural inertia results/adaptations are slowSBecause of this, it is assumed that organizations themselves become the object of selection BFirms are characterized by particular routines/sets of rules/ conventions (e.g. processes/strategies/philosophies)pWho drives development? Big powerful firms or new firms? Work of Hannan and Freeman suggest that the large firms have a number of structural problems and are not easily adaptable because real change is driven by new firms that enter the picture. They are not adaptable because the adjustments have to be quite consensual. In some economies the drive for consensus is stronger than others, but in large firms generally consensus is usually sub optimal, or it takes a long time. Just too many people. Structural inertia. Its the selection processes between firms that decides. Those firms that drive the organizational technological change are the ones that are reinforced through the selection processes. 2. Organisational ecology(b) Selection mechanisms of organisationsSCompetition for the same resourcesCAcceptance (legitimacy) within the population one product may be more efficient than another but if people dont trust in the product it wont sell very well. tChanges in environmental conditions (demand/political structure/institutions)CFirms with the greatest fitness surviveFOthers are forced out of the marketOSelection follows according to different principles:SEconomic efficiencyEReliability (ability to produce in the same quality over time) RAccountability (provides security in high-risk situations/ generates long-term customer relations) in North American products: relatively low. Waranties are often short, not extended. In German context: typical warranty period minimum of 2 years.sThis produces legitimacy in the marketT2. Organizational ecology(c) Structural inertia STo establish a new firm, scarce resources need to be mobilizedTOnce resources are in use, it is difficult to recover them OA1: selection prioritizes high reliability/accountabilityAA2: this requires that firms constantly reproduce their structure AA3: reproductivity generates pressure toward inertiaAStandardized routines/institutions developSThey enable reproduction without much effortTBUT: they also make a firm resistant against change THUS: structural inertia results from the selection process Standardization provides pressure towards inertia. Firms that were competitive in the beginning, will become more vulnerable towards organizational changes from new firms entering the market. 2. Organizational ecology(d) Inertia vs. organizational change STILL: firms can change their organization (to some degree) SIt is easier changing peripheral structures than core onesIA4: reproductivity of structure increases with age THUS: structural inertia increases with ageA5: structural inertia increases with the size of a firmAA6: attempts of reorganization threaten reliability of performanceAAttempts might follow from internal conflicts/resistanceARadical reorganization reduces legitimacyRIncreases the failure rateIChanges in organizations tend to be slow/switching costs are high CThis puts new organizations in a favourable positionTExisting organizations can still change, but big changes can threaten their reliability. Radical reorganization might be difficult to accomplish because of conflicts this creates internally. Switching to a new area where they dont have confidence and expertise is dangerous. In these stages small firms are much more radically different because they have nothing to lose no preexisting reliability. 2. Organizational ecology(e) Density-dependence theoryDInitial stage: little legitimacy as products serve niche markets IFew start-upsFGrowth stage: legitimacy/market growsGIncreasing start-up activityISaturation: increasing competition SMarkets/resources become tightMDecreasing legitimacy DDeclining start-up activityDConcept has been used to describe regional start-up dynamicsC3. Critique of biological analogies(a) Problem of biological semanticsPIntentions of economic agents are underestimatedIFirms are less complex/hardly comparable with organismsFThey do n
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