Research of David J. Teece
Overview of Research
Key Research Topics:
Profiting from Technological Innovation
Dynamic Capabilities and Strategic Management
Antitrust and Innovation
Publications
Overview of Research
1. Remarks on scholarship, excerpted, by David J. Teece, delivered upon acceptance of Doctor Honoris Causa, St. Petersburg State University, July 1, 2002. (full remarks).
2. Remarks on scholarship, excerpted, by Kalevi Kyläheiko, Professor of Economics, for the award of the Viipuri International Prize in Strategic Management and Business Economics, Lappeenranta University of Technology School of Business, Finland, 2003 (full remarks)
3. Remarks on scholarship, excerpted, from the Announcement of the Honorary Doctorate by the University of Copenhagen Business School, by Professor Kristian Kreiner, Department of Organization. (announcement pdf)
1. Remarks on scholarship, excerpted, by David J. Teece, delivered upon acceptance of Doctor Honoris Causa, St. Petersburg State University, July 1, 2002:
(full remarks)
My academic research has been oriented toward understanding the business firm. There are deep questions still to be answered in economics about the role of firms in the economy. Amongst the most fundamental are: (1) Why do firms exist. (2) Why are they hierarchical. (3) Why don’t firms outsource everything, if markets are as efficient as the economics textbooks claim they are. (4) Why are firms diversified if there are gains to specialization. (5) Why should economies of scale and scope lead to large diversified firms rather than strategic partnering. (6) If firms have know-how, where does that know-how reside. If it is merely in the minds of the employees, how can the firm prevent the employee from extracting all the value. (7) How can firms profit from innovation if they don’t have strong IP.
These questions might sound banal to the layperson, but I can assure you they are deep questions, and we don’t yet have answers as good as we would like. My research over the past 20 years has been directed to helping find answers to some of these questions. I have done so by combining an understanding of economic theory, organization theory, business history, and the economics of innovation. I will briefly summarize some of the answers I have provided to the puzzles identified earlier.
First, in a series of papers beginning with “Economies of Scope and the Scope of the Enterprise” (1980), and “Towards an Economic Theory of the Multiproduct Firm” (1982), I have developed a theory of why one would expect to find diversified rather than specialized firms. In the frictionless market paradigm it would seem that if for some reasons firms had excess capacity, they would simply rent that capacity to other specialized firms who would be able to make better use of it. I spotlighted in my 1980 paper what at that time was a rather novel concept – imperfections in the market for know-how. I developed theory as to why firms simply cannot transact in markets for know-how in a way that would enable them to transfer and capture full value from their knowledge assets.
This was a satisfactory answer, but it raised a deeper question: Where does the firm’s know-how come from? I attempted an answer in “Towards an Economic Theory of the Multiproduct Firm.” I appealed to the writings of Edith Penrose (1959) and to some extent also to Cyert and March (1963). Their scholarship portrayed the firm as somehow having excess resources (Penrose) or slack (Cyert & March). This was sufficient when coupled with an articulation of market imperfections, to explain why firms might internalize transactions that otherwise could conceivably take place in the market for know-how. Note that the market imperfections I described were not of the traditional Williamsonian type. Rather, there were simply problems associated with identifying trading opportunities and measuring and monitoring performance under technology transfer agreements.
Were I to rewrite these papers today, I would differentiate between problems associated with transacting for intellectual property and problems associated with transacting for know-how. With respect to the former, it is the fuzzy boundary problem (Teece, 2000) stemming from the lack of clarity of property rights, which is most compelling. With respect to know-how, it is uncertainty around how the know-how will be used that confounds the market.
The main limitation of these early articles was the failure to explore how firms develop knowledge. With hindsight, my treatment of learning and capability augmentation was indeed quite skimpy. Firms built capability through involvement in industrial research, and through learning by doing. Also, in a dynamic context where markets and technologies are rapidly changing, the firm’s ability to orchestrate the use of its core and complementary assets is surely key to success. These skills come in part from the firm’s managerial competence, and from leadership and vision at the top.
My work on dynamic capabilities (Teece, Pisano, & Shuen, 1996) has endeavored to identify the decision making process that supports this orchestration capability. However, the dynamic capabilities approach is still very much in its infancy and has yet to yield a testable theory. But the dynamic capabilities approach recognizes the fungiblity of many of the firms knowledge assets. Core competences can be shaped and directed. The firm’s current products are merely a temporal expression of the firm’s basic competences. Firms develop dynamic capabilities by engaging in learning activities – market research, collection of competitive intelligence, development of deep customer knowledge, research and development activities, strategic alliances, benchmarking, and test marketing. Competition itself contributes to organizational learning. Firms find out in the marketplace how well they are doing, and what their competitors are up to. As Hayek (1945) stressed over half a century ago, competition is a knowledge discovery process. However, such knowledge discovery is by no means complete. Causal ambiguity -- what Richard Rumelt refers to as uncertain imitability – can retard learning and enable competitive advantage to be sustained indefinitely. Because competences are causally ambiguous, tacit, and interconnected, they are likely to be quite heterogeneous and constitute the core of a firm’s organizational capital, and the source of its competitive advantage. This of course is quite consistent with Rumelt’s (1991) findings that firm effects on profitability dominate industry effects six to one.
My recent work on innovation management builds on some of these core ideas. In “Profiting from Innovation” (Teece, 1986), I developed a conceptual model which took into account the asset base of the firm (in particular, the firm’s ownership of complementary assets), the character of the intellectual property regime, and the strategic choices made to help explain who wins and who loses in innovation. The framework I developed has yet to be bettered, and the paper is the most cited article in the field of technology strategy. But there is still much to do on this problem. For instance, the ownership of intellectual property needs to be disaggregated from the ownership of complementary assets in order to better explain developments and strategies in biotechnology and semiconductors. Thus is the subject of my ongoing research.
2. Remarks on scholarship by Kalevi Kyläheiko, Professor of Economics, for the award of the Viipuri International Prize in Strategic (Technology) Management and Business Economics to David Teece, Lappeenranta University of Technology School of Business, Finland, 2003 (excerpted and adapted):
(full remarks)
We are here to honor Professor David Teece for several reasons out of which the following four are highlighted:
1. for his outstanding analysis of the most crucial management problems faced by knowledge-based society, especially, of how to profit from innovation, and, even more importantly, how to sustain the profits over time in radically changing environment. In this endeavor he has combined ideas from transaction cost economics, evolutionary economics and resource-based view with his own capability-based view.
2. for his pioneering contributions to the toolbox of strategic technology and innovation management. In particular, he has extended and dynamized the fundamentally static transaction cost theory by introducing such useful concepts as the role of autonomous vs. systemic innovations, complementary assets, the appropriability regime and dynamic capabilities.
3.for showing that clear economics-based ideas can be expressed in non-technical language as well. This has clearly facilitated necessary dialogue between the two originally not-so-friendly camps based either on economics of organization or organization theory and management.
4. for establishing the eclectic, but at the same time, original dynamic capability view of the firm which makes it possible to grasp the importance of concepts, such as learning, strategic options and entrepreneurship, when trying to understand how firms really co-operate and create wealth in globalized world markets.
3. Remarks on scholarship, excerpted and adapted from the Announcement of the Honorary Doctorate by the University of Copenhagen Business School, by Professor Kristian Kreiner, Department of Organization. (announcement pdf)
David J. Teece received his Ph.D. in economics from the University of Pennsylvania and was on the faculty at Stanford University before going to University of California, Berkeley, where he is currently a chaired Professor at the Haas School of Business and the director of the Institute of Management, Innovation and Organization (IMIO). Teece has made key contributions to the theory of the firm and strategic management, the economics of technological change, knowledge management, technology transfer, antitrust economics and several other areas.
Professor Teece’s early work focused on issues relating to the internal organization of business firms and their boundaries and diversification. He pioneered and elaborated the statistical testing within the transaction cost economics framework originally developed by Ronald Coase and Oliver Williamson. He imported to transaction cost theory ideas from evolutionary economics and from Edith Penrose’s work. Later work introduced the ideas of complementary assets and appropriability regimes in building a conceptual framework for understanding the factors which influence the distribution of profits from innovation (on innovating firms, the followers, or owners of related assets). Professor Teece is one of the founding fathers of strategic management as we know it today; he pioneered research on both the resource based approach and especially dynamic capabilities. In this way he helped establishing the competence based perspective on economic organization. He also contributed to related areas, such as technology transfer, organization theory, intellectual property rights, and general management.
At the core, professor Teece’s work (in particularly within the theory of the firm and strategic management) is characterized by a persistent effort to enhance, test, and synthesize different intellectual traditions, in particular transaction cost economics, evolutionary economics, and the so-called capability approach. The overarching ambition in his work is to build a coherent and robust understanding of the central issues in economic organization and wealth creation, particularly at the level of the firm. Many of Teece’s contributions stand out because they embrace ideas from several disciplines; and his research covers various aspects and levels of the modern organization. For instance, in his important contributions to the theory of corporate diversification professor Teece used transaction cost economics to understand diversification, building a theory of diversification around the problem oftechnologytransfer; and he contributed to the transaction cost theory of the firm by introducing evolutionary insights. In addition, his paper, “Organizational Structure and Economic Performance”, was (remarkably) the first empirical study to demonstrate a statistically significant link between organizational structure and performance. His paper with Monteverde (1982) was the first to establish a statistically significant link between asset specificity and organizational structure, thereby helping to transform transaction cost economics into an empirically relevant paradigm.
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