David J. Teece

University of California, Berkeley | UCB · Haas School of Business

Richard Arend has criticized my proposal that interested strategic management scholars should engage with ongoing debates around competition policy for digital platforms. He is skeptical that the field of management has anything to contribute. In this essay, I respond to his various claims, noting that competition economics still has a largely pre-...

Global strategy cannot be fully understood without consideration of dynamic capabilities (DCs). This is because the three key constituents of DCs – the sensing and seizing of opportunities and the reconfiguration of the resource base – are essential preconditions for strategy development, within nations and cross‐border. We investigate the aspects...

We analyze the role and effect of ecosystem leadership understood as the exercise of effort towards others with the purpose of establishing and maintaining an ecosystem around a focal systemic innovation. While there has been much attention to the firms that sponsor ecosystems in the ecosystem literature, ecosystem leaders are usually characterized...

Multi-sided platforms (MSPs) are becoming increasingly important in contemporary economies. This special issue of California Management Review aims to stimulate collective discussion among researchers and practitioners on advancing diverse types of MSPs and on better understanding their future development. This article analyzes five contributions t...

Research Summary The growth of China and President Xi's policies have transformed the global economy in ways that global strategy and international business (IB) scholars have yet to reflect fully in their research. The global economy is increasingly bifurcated between a China‐centered authoritarian system and a market‐oriented democratic system, g...

The Reinventing Capitalism series seeks to feature explorations about the crisis of legitimacy facing capitalism today, including the increasing income and wealth gap, the decline of the middle class, threats to employment due to globalization and digitalization, undermined trust in institutions, discrimination against minorities, global poverty an...

During the last decade, MedTech companies started to invest in building digital healthcare platforms to maintain their competitiveness in the Digital Economy. However, launching a new digital platform business revealed several challenges that MedTech incumbents must overcome, including value impedance. This is caused by digital transformation gaps,...

The manager is often neglected in management scholarship. Although we are not the first to call for renewed attention to managers, given the rapidly evolving state of the environment in which firms operate, it seems an apropos moment to reflect on the importance of managers and remind ourselves to incorporate them into our ideas, relationships, and...

This paper gives a fresh account of competition in the digital economy. Economic analysis in the field of industrial organization remains largely focused on a sophisticated version of the Schumpeter–Arrow debate, which is unresolved and largely irrelevant. We posit the need to look at competition anew. Static models of monopoly firms and markets in...

How to profit from innovation has been an important question for both innovation scholars and practitioners over the years. It is certainly a relevant question for all types of technological innovation, including emerging ones. David J. Teece’s profiting from innovation (PFI) framework [Teece DJ (1986) Profiting from technological innovation: Impli...

In this chapter we argue that traditional approaches to modeling the growth of the multinational enterprise (MNE) that focus on costs and efficiencies are too narrow to adequately and comprehensively address the foundations of MNE growth trajectories. Today’s global realities and the changing view of the MNE require a more focused and explicit capa...

Open innovation has become well established as a new imperative for organizing innovation. In line with the increased use in industry, it has also attracted a lot of attention in academia. However, understanding the full benefits and possible limits of open innovation still remains a challenge. We draw on strategic management theory to describe som...

The rapid reshaping of the global economic order requires fundamental shifts in international business scholarship and management practice. New forms of protectionist policies, new types of internationalization motives, and new tools of techno-nationalism may lead to what we call “bifurcated governance” at the macro-level and “value chain decouplin...

Universities play an important role in innovation ecosystems. In addition to developing human capital and advancing technology, they are increasingly expected to participate as economic development partners with industry and local, state, and national governments. Models such as the "Triple Helix" have been advanced to frame the assessment of inter...

Much has been written about university–industry partnerships, but relatively little research has focused on the effects of such collaboration on conflict among university departments or on broader types of entrepreneurial behavior involving local, regional, and even global initiatives. This broader perspective, which we call “campus entrepreneurshi...

Chinese firms are grappling with the four paradigm shifts around electric, connected, shared, and autonomous vehicles that are roiling the rest of the global auto industry. This article, which follows my earlier MOR article about the auto industry (Teece, 2018a), looks briefly at the development of capabilities in these fields by Chinese firms. It...

Pisano's recent ICC article offers some clarity around the pursuit and development of new capabilities, but it overreaches by equating this with dynamic capabilities as a whole. The capabilities that he discusses are, for the most part, simply technologies that can be thought of as “ordinary capabilities”. Moreover, his approach isolates capability...

I've been asked to comment on this collection of three papers, each of which offers deep insights into the forces affecting the auto industry, particularly as concerns the relative positions of incumbent auto firms with respect to new electric vehicle entrants. Taken as a whole, the papers open a lens on the changes roiling the automotive sector. I...

We propose an orchestration theory of the (new) MNE as an envelope of internalisation theory and its variants. We first critically assess extant varieties of internalisation theory of the MNE. We then discuss their limitations and explain why it is important to move from internalisation to an orchestration theory of the MNE. Orchestration theory, r...

Expert services firms allow corporate clients to access the skills of specialists to address complex problems. The experts offer unique knowledge and experience, supported by advanced methods and tools of the services provider. Because the client organization generally contains much of the knowledge needed to address the problem, the process of fin...

Technology transfer is the act of conveying product- or process-related ‘industrial’ knowledge from one organization or subunit to another. It requires a series of activities and leads to learning by the recipient organization. Transfer is often costly in terms of financial and other resources. The cost is likely to be higher when the knowledge inv...

Basic research can be defined as systematic inquiry that involves a quest for some fundamental scientific aspects of phenomena without any specific practical applications in mind. The pay-off of basic research is often uncertain and, once published, difficult to appropriate. Accordingly, the social returns to basic research exceed the private retur...

Creative destruction describes the process of how economic progress emerges from strong competition which destroys weaker competitors while Karl Marx explained how capitalism finds this process, it was Joseph Schumpeter who popularized the term. He described capitalism as driving “the perennial gale of creative destruction” Schumpeter has been infl...

Diversification is the act of expanding a firm’s business into new product, geographic or vertical markets. Lateral diversification involves some degree of relatedness; conglomerate diversification involves none. The Penrosean resource-based view accounts for diversification as a process of firm growth driven by the opportunity to deploy excess res...

Governance arrangements determine how an activity or entity is owned, controlled, monitored and maintained for the long run. At the most general level, ‘governance’ can be accomplished by boards (in-house monitoring) or by arm’s-length contractual arrangements. The former are exposed to bureaucratic inefficiencies, the latter to (market) recontract...

Anticipating complex contractual issues, which can lead to market ‘failures’, managers often choose to bring economic activity inside the firm. (We are, of course, using ‘failure’ in a comparative institutional context, reflecting an understanding that better ways of organizing are possible.) Such internalization, in turn, implies foreign direct in...

Vertical integration, in which one company owns and controls two or more stages of a supply chain, can have many causes, including avoiding contractual difficulties (high transaction costs), remedying capability deficits and achieving informational efficiencies. Sometimes vertical integration that is justified when intermediate markets are underdev...

SWOT analysis is a simple and widely used framework for comparing the strengths and weaknesses of a project, business, firm, or industry with the opportunities and threats in the relevant external environment. Due to the lack of guidelines about what elements to include in the analysis and their relative importance, users can miss significant facto...

Complementarities – when two or more items are more valuable in combination – can be vertical or horizontal, and they can involve user utility, prices, and/or technologies. They are important for innovation because most technologies require complementary technologies if their full value is to be realized. Complementarities are important for strateg...

Systemic innovation involves coordinated development among a group of elements composing a unified system. It is the opposite of a modular system, which is based on autonomous innovations. Systemic innovation is most likely when industries are not yet on the path of a 10.1057/978-1-137-00772-8_387, when products are complex (e.g., an aeroplane), an...

Outsourcing, the use of an external supplier for any value chain function, can bring advantages, such as cost savings or access to specialized know-how. It can also cause problems such as a loss of control over the function’s quality. Over time, more and more activities of the enterprise have proved amenable to being outsourced effectively. The spr...

In the first half of the twentieth century, the relationship between science and 10.1057/978-1-137-00772-8_391 was largely understood in terms of a linear model: innovation starts with basic research and then moves to applied research and development, followed by production and diffusion. This model has been criticized as oversimplified and mislead...

System integrators are economic agents at the apex of a supply chain who are responsible for combining components or modules into a complete product. Some degree of 10.1057/978-1-137-00772-8_730 is usually involved. The integrator must develop the initial concept or design, manage suppliers, and add value through logistics, specialized know-how, a...

Monopoly rents are earned by firms that are able to restrict supply and/or increase prices without fear of attracting competitors. The difference between price and long-run marginal cost is a measure of the economic rent, and the sum of the difference across all units sold is the total monopoly rent. This can be higher if price discrimination is po...

A firm’s business strategies regarding the choice of a market, market entry timing and entry mode can significantly influence the firm’s performance. A number of factors such as control, experience and cultural distance can influence the formulation of a firm’s market entry strategy – for example, whether to choose between licensing and franchising...

The theory of the firm is a broad topic area encompassing frameworks designed to answer a number of questions about firms, including why they exist, how their boundaries are determined, how the differing interests of owners and managers can be reconciled, how firms should be organized internally for efficiency and why performance outcomes differ be...

Capability development refers to creating a new capability or enhancing an existing one. Capability evolution, capability growth, capability expansion and capability maturation are often used interchangeably for this idea. A number of theoretical lenses – such as the knowledge-based approach, resource based view and evolutionary theory – offer insi...

A business ecosystem is made up of interdependent firms using common standards and collectively providing goods and services to their customers. The effective engagement of ecosystem participants requires some level of ecosystem management, including rules for participation by other firms. The supporting institutions and enterprises that provide th...

An autonomous innovation can be commercialized without any accommodation by other elements of the technological system of which it is a part. This typically requires that the system uses standardized interfaces. Although the components of such a system can evolve independently, system integration is still required in most cases to provide the full...

Conglomerates are multiproduct companies in which the requirements and output of at least one product division in terms of physical capital and technical skills are very different from the others. In the United States, this organizational form was more common in the middle of the twentieth century than it is today. In emerging economies, conglomera...

The dynamic capabilities framework, which emerged in the strategic management literature during the 1990s, appears to have become one of the dominant paradigms in the field. At a practical level, the managerial activities that support dynamic capabilities are the sensing of opportunities, the seizing of such opportunities and the transforming of th...

Multiproduct companies, which produce products in multiple technological or market categories, exist because of the characteristics of organizational knowledge, the limitations of markets for know-how and the dynamic nature of market opportunities.

Managerial discretion is the latitude that executives have to affect the activities of the companies they run, as opposed to merely accepting internal and external influences. There are two distinct streams of literature. In one, 10.1057/978-1-137-00772-8_570, managers are assumed to be opportunistic and likely to misallocate firm resources to thei...

M-form firms are multidivisional organizations in which each division is a product or geographic unit responsible for its own operations and profit while the corporate head office sets overall strategy and monitors the divisions. The M-form emerged as the dominant organizational design for large corporations in the twentieth century and continues t...

Market structure refers to the industry and market conditions that govern the interaction of the buyers and sellers in a given market. This includes the number and size distribution of buyers and sellers, and can also incorporate certain technological and organizational features of the industry, such as barriers to entry. Market structure is someti...

In management studies, systems theory is an underexplored construct consistent with the dynamic capabilities framework. The systems approach received attention from management scholars in the middle of the last century, but, since then, has been largely abandoned. Meanwhile, academic disciplines have continued to narrow their focus. The capabilitie...

Firms across all industries are embracing internet-based digitization strategies to expand or improve their business. In many cases, though, internet-based businesses pursue customer growth ahead of profits. The path to profitability, which is a core element of a business model, should not be an afterthought. A well-designed business model balances...

Although the dynamic capabilities framework has proved important for explaining longterm competitive advantage, some scholars have attacked it as lacking theoretical underpinnings. In this paper, we clarify the lineage of the “dynamics” in the dynamic capabilities framework from the non-strategic model of Cyert and March to the dynamic evolutionary...

Although the dynamic capabilities framework has proved important for explaining long-term competitive advantage, some scholars have attacked it as lacking theoretical underpinnings. In this paper, we clarify the lineage of the " dynamics " in the dynamic capabilities framework from the non-strategic model of Cyert and March to the dynamic evolution...

Business models, dynamic capabilities, and strategy are interdependent. The strength of a firm's dynamic capabilities help shape its proficiency at business model design. Through its effect on organization design, a business model influences the firm's dynamic capabilities and places bounds on the feasibility of particular strategies. While these r...

Contemporary theories of the MNE have made limited progress in explaining interfirm heterogeneity. A fuller explanation should account for the uncertainties that firms face about market demand and about the costs of competing organizational alternatives. One approach is to allow a role for entrepreneurial managers who assess uncertainties on an ong...

Expert services firms allow corporate clients to access the skills of specialists to address complex problems. The experts offer unique knowledge and experience, supported by advanced methods and tools of the services provider. Because the client organization generally contains much of the knowledge needed to address the problem, the process of fin...

Complementarities – when two or more items are more valuable in combination – can be vertical or horizontal, and they can involve user utility, prices, and/or technologies. They are important for innovation because most technologies require complementary technologies if their full value is to be realized. Complementarities are important for strateg...

SWOT analysis is a simple and widely used framework for comparing the strengths and weaknesses of a project, business, firm, or industry with the opportunities and threats in the relevant external environment. Due to the lack of guidelines about what elements to include in the analysis and their relative importance, users can miss significant facto...

Complementarities – when two or more items are more valuable in combination – can be vertical or horizontal, and they can involve user utility, prices, and/or technologies. They are important for innovation because most technologies require complementary technologies if their full value is to be realized. Complementarities are important for strateg...

Outsourcing, the use of an external supplier for any value chain function, can bring advantages, such as cost savings or access to specialized know-how. It can also cause problems such as a loss of control over the function’s quality. Over time, more and more activities of the enterprise have proved amenable to being outsourced effectively. The spr...

Multiproduct companies, which produce products in multiple technological or market categories, exist because of the characteristics of organizational knowledge, the limitations of markets for know-how and the dynamic nature of market opportunities.

Vertical integration, in which one company owns and controls two or more stages of a supply chain, can have many causes, including avoiding contractual difficulties (high transaction costs), remedying capability deficits and achieving informational efficiencies. Sometimes vertical integration that is justified when intermediate markets are underdev...

System integrators are economic agents at the apex of a supply chain who are responsible for combining components or modules into a complete product. Some degree of outsourcing is usually involved. The integrator must develop the initial concept or design, manage suppliers, and add value through logistics, specialized know-how, a valuable brand or...

Basic research can be defined as systematic inquiry that involves a quest for some fundamental scientific aspects of phenomena without any specific practical applications in mind. The pay-off of basic research is often uncertain and, once published, difficult to appropriate. Accordingly, the social returns to basic research exceed the private retur...

The dynamic capabilities framework, which emerged in the strategic management literature during the 1990s, appears to have become one of the dominant paradigms in the field. At a practical level, the managerial activities that support dynamic capabilities are the sensing of opportunities, the seizing of such opportunities and the transforming of th...

Capability development refers to creating a new capability or enhancing an existing one. Capability evolution, capability growth, capability expansion and capability maturation are often used interchangeably for this idea. A number of theoretical lenses – such as the knowledge-based approach, resource based view and evolutionary theory – offer insi...

Systemic innovation involves coordinated development among a group of elements composing a unified system. It is the opposite of a modular system, which is based on autonomous innovations. Systemic innovation is most likely when industries are not yet on the path of a dominant design, when products are complex (e.g., an aeroplane), and when compani...

Technology transfer is the act of conveying product- or process-related ‘industrial’ knowledge from one organization or subunit to another. It requires a series of activities and leads to learning by the recipient organization. Transfer is often costly in terms of financial and other resources. The cost is likely to be higher when the knowledge inv...

Governance arrangements determine how an activity or entity is owned, controlled, monitored and maintained for the long run. At the most general level, ‘governance’ can be accomplished by boards (in-house monitoring) or by arm’s-length contractual arrangements. The former are exposed to bureaucratic inefficiencies, the latter to (market) recontract...

Market structure refers to the industry and market conditions that govern the interaction of the buyers and sellers in a given market. This includes the number and size distribution of buyers and sellers, and can also incorporate certain technological and organizational features of the industry, such as barriers to entry. Market structure is someti...

Profiting from innovation is a theory that accounts for marketplace outcomes between innovators and follow-on rivals. Almost all innovations require complementary investments. The weaker the appropriability regime applicable to an innovation, and the weaker the market position of the innovator with respect to providers of complements, the harder it...

Monopoly rents are earned by firms that are able to restrict supply and/or increase prices without fear of attracting competitors. The difference between price and long-run marginal cost is a measure of the economic rent, and the sum of the difference across all units sold is the total monopoly rent. This can be higher if price discrimination is po...

A firm’s business strategies regarding the choice of a market, market entry timing and entry mode can significantly influence the firm’s performance. A number of factors such as control, experience and cultural distance can influence the formulation of a firm’s market entry strategy – for example, whether to choose between licensing and franchising...

Conglomerates are multiproduct companies in which the requirements and output of at least one product division in terms of physical capital and technical skills are very different from the others. In the United States, this organizational form was more common in the middle of the twentieth century than it is today. In emerging economies, conglomera...

Intangible assets are a very economically significant asset class yet are largely excluded by accounting conventions from corporate balance sheets. Ownership (or control) of intangible assets can allow firms to differentiate their offerings to customers and establish some degree of competitive advantage. However, intangibles do not, apart from isol...

Anticipating complex contractual issues, which can lead to market ‘failures’, managers often choose to bring economic activity inside the firm. (We are, of course, using ‘failure’ in a comparative institutional context, reflecting an understanding that better ways of organizing are possible.) Such internalization, in turn, implies foreign direct in...

An autonomous innovation can be commercialized without any accommodation by other elements of the technological system of which it is a part. This typically requires that the system uses standardized interfaces. Although the components of such a system can evolve independently, system integration is still required in most cases to provide the full...