imarket concepts

Organizational Capabilities in a Science-Based Industry: Management-Based, Technology-Based, and Market-Based Activities Fredrik Tell Department of Management and Economics Linköping University Sweden Science and Technology Policy Research (SPRU) Mantell Building University of Sussex Brighton BN1 9RF United Kingdom frete@eki.liu.se (corresponding address during 2001) Paper submitted to the Nelson and Winter Conference in Aalborg, Denmark, June 12-15, 2001, organized by DRUID 2nd draft, June 10, 2001 Still a very preliminary version, please do not quote or refer to without the author’s permission. Abstract An essential element in different versions of knowledge-based theories of the firm (e.g., evolutionary, resource-based, competence-based, etc.) is the notion of organizational capabilities. Organizational capabilities is a fundamental constituent of Nelson and Winter’s (1982) evolutionary theory of technological change, as well as of Chandler’s (1977; 1990) theory of the emergence of managerial capitalism and the industrial enterprise. As has been noted by e.g., Foss (1996; 1999) organizational capability is a concept still in need of much refinement. This paper does not aim at delivering a full conceptualization of organizational capabilities. Instead, its ambitions are somewhat more modest. The paper discusses organizational capabilities in science-based industries (Pavitt 1984) and derives a model consisting of three basic activities in the creation of organizational capabilities in such industries: management-based, technology-based, and market-based activities. The theoretical foundations can be found in a knowledge-based theory of the firm using e.g., evolutionary economics, business history, theories on organizational learning, and technology and innovation management theory. The viability of this conceptual framework is discussed by drawing upon a longitudinal case study of the main electrical manufacturers in the Western world between 1878-1990 and more particularly their business activities in electrical power transmission systems. Some implications of this conceptualization of organizational capabilities are discussed, and it is argued that organizational capabilities should be viewed as fundamentally knowledge-based as they exhibit many general characteristics of organizational learning (Levitt and March 1988; Levinthal and March 1993). Introduction The notion of organizational capabilities has recently gained considerable academic interest. For instance, during 2000, a special issue of Strategic Management Journal (SMJ), as well as an edited collection of articles written by a number of well recognized scholars in the field of strategic management and evolutionary economics devoted to the nature of organizational (or firm) capabilities (Dosi, Nelson & Winter 2000), was published. This paper continues on this path by recognizing the empirical and theoretical inheritance of business historians, primarily Alfred Chandler (e.g., Chandler 1977; 1990), for the subsequent investigation of organizational capabilities. One reason for the recent interest in capabilities of the firm has to do with the increased interest for the resource-based theory of competitive advantage (where capabilities are seen both as direct, difficult-to-imitate, sources of competitive advantage as well as providing a tool for the rejuvenation of corporate resources). Another source of inspiration comes from the conceptualization of the firm provided in the evolutionary economics framework suggested by Nelson and Winter (1982), where they introduce the notion of organizational capabilities as a “conceptual glue” for the maintenance and coordination of productive knowledge within the boundaries of the firm. These approaches share a common interest in trying to construct a knowledge-based theory of the firm, an interest they also have in common with Chandler (1992). However, despite Helfat’s (2000, p. 955) editorial assertion of the importance of business history and the seminal work provided by Chandler, there are virtually no references to Chandler’s theoretical conceptualization of organizational capabilities in articles provided in the SMJ Special Issue. Also in Dosi, Nelson and Winter (2000), there is an apparent lack of usage of the Chandlerian understanding of the evolution of organizational capabilities in the modern industrial firm (cf. however Nelson 1991). This paper is in one sense, therefore, an attempt to revive some of Chandler’s ideas and reconcile them with recent theorizing on organizational capabilities. By presenting a comparative historical study of the heavy electrical manufacturers in the Western world, the aim is to show how the organizational capabilities of these firms, for better or for worse, to a large degree hinged on management-based activities, technology-based activities, and marketbased activities. The paper is structured accordingly. In the first section a rudimentary model of organizational capabilities in science-based industries is presented. The second section of the paper outlines the aim, scope and method of the historical study of heavy electrical manufacturers between 1878-1990 presented in the paper. A brief narrative of the evolution of eight major heavy electrical manufacturers is provided in the third section of the paper. A fourth section discusses some of the empirical data in the light of the proposed framework and relates the findings to more general issues of organizational learning in organizational capabilities. Organizational capabilities in science-based industries As pointed out by Carlson (1991, p. 353), it seems essential to investigate the relationship between technology and business arrangements when analyzing managerial capitalism in science-based industries. It is appropriate to frame some questions on the relationship between organizational capabilities and technology.1 As discussed by Chandler (e.g., 1992b, p. 81), the 1 That the relationship between technology organizational capabilities has not been completely covered by Chandler is also indicated by Hounshell’s (1995) comments on the accusations of Chandler being a technological determinist. “Moreover, it is ironic that Chandler would be labeled a technological determinist: in his treatment  potentials of economies of scale and scope are given by technology, but their realization is organizational. In addition to Chandler’s emphasis on investigating investments in organization, manufacturing, and marketing, it seems fruitful in regard to science-based industries to ask questions on the investments in technology-enhancing activities. This study takes advise from Richardson’s (1972) seminal work on capabilities by investigating three types of activities involved in the formation of capabilities in the institutional form of capitalism denoted the industrial enterprise by Chandler and other business historians. It is convenient to think of industry as carrying out an indefinitely number of activities, activities related to the discovery and estimation of future wants, to research, development and design, to the execution and coordination of processes of physical transformation, the marketing of goods and so on. And we have to recognise that these activities have to be carried out by organisations with appropriate capabilities, or in other words, with appropriate knowledge, experience and skills. (Richardson 1972, p. 888) Extending Chandler’s investigations into organizational capabilities, I will below suggest three activities, management-based activities, technology-based-activities, and market-based activities, as particularly pertinent in the formation of organizational capabilities in sciencebased industries. Management-based activities As has been suggested in evolutionary economics, managerial capabilities may provide a key to explaining differentials in firm behavior and performance (e.g., Nelson 1991; Pavitt 1998). Therefore, it seems convenient to begin analyzing the theoretical implications of these activities. Using the framework of Cohendet Llerena, and Marengo (1999), and, to some extent Dosi and Marengo (1994), I below suggest five basic variables of organizational design, which are parts of the management-based activities of a large industrial enterprise. Division of labor Within firms, as expressed by Grant (1996b, p. 377), capabilities can be viewed as an architecture where “advances in knowledge tend to be associated with increased specialization.” The outcome of division of labor has generally been identified as being increased specialized organizational members (e.g., “specialists”, Grant 1996a) and the differentiation of activities (e.g., “functions”, Pavitt 1998). Division of labor also entails the formation of hierarchies and the functional basis of specialization. Rules, guidelines, and organization charts form normative structures specifying the areas of competence. As exemplified by Mintzberg (1983, pp. 46-62), division of labor at the administrative level often takes the form of unit grouping, basically functional or market grouping. Another aspect of division of labor not covered in this study is the design of work processes and creation of individual positions. Routinized work processes often involve a particular sequencing of events, where each individual member of the organization is given a time slot where he/she contributes to the production process (Grant 1996a, p. 115; 1996b, p. 376). This procedure may include a “blueprint design” (cf. Nelson and Winter 1982), where production planning or other staff units (“technostructure”, Mintzberg 1983) have rationally planned the activity. However, such division of labor may equally well be an emergent property of interactions among organizational members (cf. Levinthal 2000, p. 10). of technology – and here perhaps is where historians of technology have always come up dissatisfied – Chandler seldom opened and exposed much of the black box of technology” (Hounshell 1995, p. 210).  Integration and coordination of activities The discussion above implies, as noted by Cohendet, Llerena and Marengo (1999, p. 5), that division of labor and the coordination of labor are reciprocally related, since “the problem of co-ordination arises when labor has been divided” (cf. Lawrence and Lorsch 1966). The issue of integration and coordination of specialized knowledge has been awarded a prominent position in the theory of organizational capabilities. Teece and Pisano (1994, pp. 542-544) distinguish integration as a core managerial and organizational process, exemplifying with routines, projects, culture, coordination and combination, interdependencies, and complementarities between processes and incentives. However, other theorists have dug deeper into the details of the creation of coherence through integration and coordination of knowledge. Grant (1996a, pp. 114-115), identifies four mechanisms for the coordination of knowledge: 1) rules and directives are standards that regulate interactions between individuals and convert tacit knowledge (of practices) into explicit knowledge (of rules); 2) the assigning of time slots for specialists in the sequencing of work processes diminishes the requirement of formal communication between “knowledge-carriers” and allows for purposeful design; 3) routines have an ability to support complex patterns of interactions despite the absence of formal rules or directives; and 4) group problem solving and decision making may through communication, mutual adjustment and consensus coordinate different knowledge bases. Grant (1996b, pp. 380-382) continues this discussion and suggests three relevant characteristics of integration of knowledge when discussing competitive advantage and the rents related to such advantages: i) efficiency of integration; ii) scope of integration; and iii) flexibility of integration. Distribution of decision-making authority One feature of organizational capabilities and decision making that Nelson and Winter (1982) highlight is the intrinsically inter-relatedness of knowing how to do (i.e., routines) and knowing how to choose. Not only do they argue that these aspects of decision-making – assumed in the neo-classical model of the firm – are inseparable, Nelson and Winter further acknowledge the functioning of routines as truces in organizational coordination.. Frequently, theorists use the concepts of centralization/decentralization in describing the political structure of organizations (e.g., Marengo 1992; Dosi and Marengo 1994; Coriat and Dosi 1995). Distinguishing between a cognitive and a political perspective on organizational structures, Dosi and Marengo (1994) claim that the political perspective states the procedures that define and govern hierarchical relations inside the organization. Since the procedures for agents’ problem solving are usually derived from socially constructed norms and bodies of knowledge, it is straightforward to recognize the importance of the social structures of organizations (Dosi and Marengo 1994, p. 163). Experimenting with varying degrees of decentralized and centralized learning, Marengo (1992) is able to show the importance of creating a common knowledge basis, which in essence requires some form of centralization. In a totally decentralized system, where organization members do not communicate with each other, no coordination emerges, even in stable environments. However, too much centralization stymies the variation of knowledge (i.e., exploration) in the organization. Hence, the localization of learning in organizations is important. By creating units or positions that holds decision-making authority, management can promote local search. However, in a strongly hierarchical system, based on supervision, control and coordination by rules and directives, learning takes place primarily at higher organizational levels and subsequently directing explicit knowledge through the chain of command.  Incentive structures and schemes The discussion above, and the arguments presented by Levinthal and March (1993, p. 107) and Dosi and Marengo (1994, p. 168), interconnect the analysis of management-based activities to incentive schemes in organizations. As thoroughly discussed in the literature on contract-based theories of the firm, there exist a principal-agent problem at different levels of organized activities (Jensen and Meckling 1976). By the delegation by principals (e.g., stockholders or management) of some execution authority to an agent (e.g., professional management or employees), the agent can take advantage of information asymmetries. Opportunism prevailing there is therefore a risk of the agent’s not performing in the best interest of the principal, and hence principal-agent contracting should provide incentives schemes remedying this (Knudsen 1995). Apart from the fundamental assumption on the lack of conformity in interests between principal and agents, the reasoning of contract theory entails another crucial assumption in this context: that the interest of the principal is clear. Relying on assumptions on rationality and equilibrium analysis (or comparative statics), contract theory has been preoccupied foremost with the analysis of static efficiency (e.g., exploitation of knowledge). However, from an evolutionary perspective, focusing also on dynamic efficiencies (e.g., exploration of knowledge), it is not perfectly obvious what the best interest of the principal is. Since there is no optimal solution to dynamic efficiency problems, even granting the firm unitary decision-making characteristics (i.e., without the principalagent problem), the objective toward which effectiveness in performance is measured remains fuzzy (cf. Dosi and Marengo 1994, p. 168). The incentive schemes at different levels of an organization – implicitly or explicitly contracted between principal and agent – thereby may differ not only in their abilities to control performance, but also in the objective of control. As discussed by Pavitt (1998, p. 445), systems of corporate control then has a major influence on the rate and direction of knowledge-seeking activities. Hence, rewarding behavior conforming to certain goals, as such incentive schemes, provide a “payoff structure”, guiding individual behavior (Cohendet, Llerena and Marengo 1999, p. 5), that may be in conflict with other goals. Knowledge dynamics of routines and vision The higher order principles of management can be regarded as productive knowledge stored in routines (Penrose 1959). Nelson and Winter (1982, p. 52) emphasize the automatic element of routines and the interwoven relationship between knowing how to choose and knowing how to do. Routines refer “to the smooth uneventful effectiveness of such an organizational or individual performance” (Nelson and Winter 1982, p. 97). This implies a focus on procedural knowledge, or know-how, in organized activity, as it provides a means for understanding how knowledge is stored, utilized, and coordinated in a largely tacit activity (Kogut and Zander 1992, pp. 386-387). As noted by Witt (1998), evolutionary economics subsequently has been primarily concerned on the “procedural” rather than the “substantive” aspects of organizational cognition. However, recent theorizing introduces some substantive elements in an evolutionary theory of the firm, since the focus on procedural knowledge “ignores the fact that conceptions are necessary for organizing otherwise meaningless and ambiguous information into significant agendas and action plans” (Witt 1998, p. 162). The recognition of vision (Fransman 1994), identity (Kogut and Zander 1996), and business conception (Witt 1998) are some examples of trying to come to grips with this deficiency. The declarative knowledge alluded to is the provision of subjective knowledge based on internal justification allowing for common communication and conceptualization of where the firm is and where it aims (Loasby 1998, p. 145; Witt 1998, p. 164; Cohendet, Llerena and Marengo 1999, p. 17). Nelson (1991) also recognizes the distinction between these two forms of knowledge when  discussing the importance of strategy in creating firm differentials, suggesting strategy and organization being more “substantial” than the “procedural” rationality significant for capabilities. The restatement of declarative knowledge thus gives a mechanism allowing for the purposefulness of organizational capabilities (Dosi, Nelson and Winter 2000, p. 8). Moreover, it is argued that such subjective knowledge provides with frames for reconfiguration (Teece and Pisano 1994), recombination (Kogut and Zander 1992), or conversion (Nonaka and Takeuchi 1995) of firm knowledge and resources in order to obtain dynamic efficiency. Thus, this conception performs an “entrepreneurial function” through the bridging of internal and external environments, also being transmittable to organizational members (Witt 1998, p. 175; Cohendet, Llerena and Marengo 1999, p. 17). Technology-based activities Arguably, technology is a strong determinant of organizational outcomes. However, technological evolution is not only (or not even primarily) a self-perpetuating process (Rosenberg 1982; Hughes 1983; Tushman and Rosenkopf 1992). Technology evolves to a large degree through individual achievements and social interactions in firms and “technological communities” (Dosi 1982; 1988; Nelson and Winter 1982). Firms’ activities, internally or externally oriented, planned or emergent do affect the technological pattern that emerges in industries (cf. Pavitt 1984). Technology tends to evolve in trajectories, that is, technological activities tend to be dependent upon earlier selected problems and principles within a technological paradigm (Dosi 1982). Nelson and Winter (1982, p. 258) denoted such “natural trajectories” technological regimes, which refers to engineers’ and technicians’ conceptions of attainable technological frontiers. Technological regimes Dosi (1988) suggests a model of technological evolution, discussing the endogeneity of technological knowledge for firms. He acknowledges both the internal and external sources of technological development. Continuing on the framework of technological innovations as problem solving of “ill-structured problems” from Dosi (1982), Dosi (1988, p. 1127) maintains that technological paradigms embody an outlook or pattern of inquiry i.e., a set of heuristics. These heuristics entails a perspective of technological knowledge as hardly being a free economic resource. Rather, knowledge is highly differentiated among firms and “sticky”, shaping their search activities (Pavitt 1984, p. 348). What the firm can hope to do technologically in the future is narrowly constrained by what it has been capable of doing in the past. (Dosi 1988, p. 1130) Hence, because of technology’s characteristic of being idiosyncratic to firms, it is possible to discern regular technological patterns in firms’ technological activities. Accordingly, “technological capabilities” (cf. Argyres 1996; Laurila 1997), refers not to an aggregated technological frontier, attainable by all firms, but to firm-specific activities, due to the embeddedness of technological knowledge in the organization and markets of firms. Neither is it possible to recognize it solely as an “environment” of firms, since search and development are endogenous to the firm. There are, however, some underlying dimensions to consider in the technological regime in which the firm is operating. Malerba and Orsenigo (1993) describe a technological regime as the technological environment of firms in an industry. Discussing Nelson and Winter (1982), Nelson (1994) describes the concept of a technological regime as denoting how “focusing” of technological alternatives occurs in industries through actors’ cognitive processes. This means that a technological regime  “narrows down” the range of technological solutions advanced. This also points to the idiosyncracy and firm-specificity of technological knowledge, warranting a refocusing from understanding technological regimes as (exogenous) environments, and rather quite endogenous to knowledge-based firms. As we keep that assumption in mind, Malerba and Orsenigo (1993, pp. 47-49) characterize the technological regime by its. • Opportunity conditions: the ”leverage” on each dollar invested in search, in terms of innovation. • Appropriability conditions: the possibilities of protecting innovations from imitation. One important feature that may affect the degree of path-dependence is whether technologies are sponsored by specific firms or non-sponsored (i.e., general) (Katz and Shapiro 1986; Farrell and Saloner 1989). • Cumulativeness: the dependence of today’s innovations on previous knowledge landmarks and innovative activities. • Knowledge base: the degree of tacitness and complexity involved in underlying knowledge processes. These four factors affect the evolution of industrial structure, through firm’s strategies, competencies and their organization. Malerba and Orsenigo (1993, p. 47) conjecture that depending on the four factors determining the technological regime of an industry, different firm strategies and ways of organizing will be viable. Multi-technologies, technology strategy, and product complexity Technological strategies in industrial enterprise usually manifest themselves in attempts to diversify or integrate (vertically or horizontally), in the pursuit of firm growth. Pavitt (1998, p. 435) argues that the underlying division of labor in technology, leading to specialized bodies of knowledge has led industrial products to become more multi-technology. Hence, the rich fields of technological opportunity have caused industrial firms to become multi-product as well as multi-technological. Focusing on this second point, we will rest the issue of product complexity to subsequent discussions. A significant characteristic of the industrial firm, as discussed by Dosi, Teece and Winter (1992), is its multi-product scope but also the coherent distribution of product portfolios, even in the long run. Teece (1982) argues, that due to the tacit and idiosyncratic components of product knowledge, such knowledge is hard to transfer through capital markets, causing problems for investors to allocate resources. However, as the human capital (i.e., knowledge) in firms is not entirely specialized to particular products but rather exhibits greater generality, a single firm can obtain a multi-product structure. As discussed by Penrose (1959), final products only represent one possible use of the internal resources of a firm, as the productive opportunity set is much wider than the set of resources. Knowledge created by e.g., complementary assets, may be viewed as excess capacity, or slack, of firms, which allows for maintenance and efficient governance of multi-product structures as well as diversification into new product lines. Granstrand and Sjölander (1990) suggest that the technological base – or technological capability – of a multi-technology corporation have numerous sources. Technology acquisition strategies hence need to be adapted to different technological trajectories and regimes. Moreover, technology integration (Granstrand 1998, p. 474) becomes an important function of new product development since: “Success is also linked to routines and approaches for technology selection, evaluation and adaptation” (Iansiti 1995, p. 522). Granstrand and Sjölander (1990, p. 40) propose a number of technology acquisition strategies with an increasing degree of organizational integration:  Technology scanning; Technology purchasing; Joint ventures; Acquisition of innovative firms; and Internal Research & Development. We may not only expect firms and sectors to differ in terms of technological dimensions. As explored by e.g., Henderson and Clark (1990), Tushman and Rosenkopf (1992), Henderson (1996), Davies (1997) and Hobday (1998) there is divergence in the complexity of industrial products, reflecting technological dynamics. According to Tushman and Rosenkopf (1992) there are four types of products with an increasing degree of complexity: 1) nonassembled products; 2) simple assembled products; 3) closed systems; and 4) open systems. The most complex form of products, open systems, are agglomerates of a number of closed systems linked together through interface technologies. Instead of being produced by single, albeit large, firms, multiple organizations are involved in the coping with technological interdependencies in open systems. Linking technologies are therefore core technological subsystems in open systems, serving as an integrating technology. Being a more complex form of product, involving many different organizations, the selection of system-wide dominant designs is an inherently political and social process in open systems. However, as a closure occurs, the links and relations among actors in the network of organizations become stronger and enhance competence. Market-based activities In theories of the firm, firms and markets are comparable institutional forms for economic transactions and production (cf. Williamson 1985). However, most firms operate in markets, and need to adapt to that institutional structure. Neoclassical economics models this relationship as the firm being an input/output regulating device based on technology, input prices and demand; ruled by the forces of perfect competition. This, in turn, implies making technology exogenous to the firm. However, the assumption of one “market” with universal mechanics is suspect, since, as is the case with firms, markets differ. They too are institutions being products of their history (Hodgson 1988; North 1990). This is particularly salient in industrial markets, often characterized as monopolistic markets or (sometimes, bilateral) oligopolies. To develop organizational capabilities, industrial firms do not only need to learn about and develop technology, but the imperative of learning is also true about their relationship to markets (Leonard-Barton 1995, ch. 7; Tidd, Bessant and Pavitt 1997, ch. 7). Loasby (1996) suggest an interpretation of markets as knowledge-based and dynamic institutions. In doing so, Loasby (1996, p. 38) examines “the organization of industry as a system of dispersed planning to cope with, and also generate, various kinds of change.” Planning is needed in order to adapt to changes i.e., divergence from the expected, but planning also introduces both intended and unintended change. Loasby denotes markets transaction technologies, enabling transactions between at least two parties. This transaction technology is a public good and Loasby (1996, p. 43) asks: “who can be expected to invest in the provision of a public good?” His suggestion is that we search for potential candidates among the participants in the transactions. Such “market building” Marshall denoted the firm’s external organization, not only aiming at developing a particular market, but a means of acquiring knowledge through market experiments and also an opportunity for creating demand (Loasby 1998, p. 154). Moreover, the provision of an external organization also is a potential source of external economies from which a number of participants can benefit (Loasby 1996, p. 44). Hence, there is no thing as the market from a knowledge-based perspective, but different markets entail different capabilities (cf. Richardson 1972; Langlois 1995). As discussed by  Langlois (1995, p. 76) firms are responses not to “the” market failure, but to the failure of a particular market-type to adequately perform certain activities. Returning to the question of whom of the participants involved that will invest in markets, Loasby (1996, p. 46) concludes that such investments will be costly. Therefore new markets will be organized by firms that see future prospects of recovering such costs over a reasonable time-horizon. This leads us back to the issue of the knowledge base of different firms and the learning dynamics involved. Inferring from Loasby’s reasoning, it is possible to conjecture that incumbent firms “lockedin” (through local learning patterns) to certain, technologies, markets, and products easily overlook opportunities for creation of new markets; as this implies competence-destroying innovation in market knowledge (cf. Christensen 1997). Hence, activities aiming at gaining access to and influence markets constitute one important part in the composition of organizational capabilities. Markets provide opportunities for identifying competencies, and learning the “rules of the market” and the actors within it create options for future contracts i.e., some form of inter-organizational knowledge (Loasby 1996, p. 51). As there are both firm and market differentials in capabilities, this implies learning about a variety of institutions. Carrying over the discussion from the section on technology-based activities, we will continue with the proposition that products provide a link between technologies and markets. With this assumption, it is possible to discern a pattern for complex product systems (CoPS) and the evolution of industrial markets. CoPS is a form of product often resembling “open systems” (Tushman and Rosenkopf 1992, p. 334). Such products are usually developed, delivered and used in networks of suppliers and customers (and often regulators), where sociopolitical dynamics are important as selection mechanisms for technological choices. Therefore, traditional market transacting is not the dominant aspect of CoPS-markets. Rather, several institutional factors influence the irregular and costly investments made by buyers, downplaying the role of price competition between firms. Complex product systems imply industrial markets bearing resemblance to what Alter and Hage (1993) calls systemic networks, where long term relationships between buyers and sellers is one salient feature (Håkansson 1987; Noorderhaven 1995). By interacting and developing the industrial network as an institutional form, learning takes place. Learning in markets The execution of market-based activities that a firm performs, are investments in a productive capability. Through externalities and increasing returns, such efforts may not only have the result of increasing singular businesses of firms but may allow for diversification and creation of further business opportunities (also “competence destroying” ones). Such externalities and increasing returns may be expected in industries with particularly “open system” architecture of their products. Taking the standpoint of the single enterprise, how do the firm learn about the market context in which it operates? A distinction between horizontally-oriented and vertically-oriented market-based activities can be made. Vertical market-based activities refer to the search for suppliers and the quality and prices of their products, as well as activities aiming at finding out about, and affect, consumer preferences. It has been argued that manufacturers often learn from user-producer interactions, and that these interactions form an important base in e.g., the development of new products (von Hippel 1988; Lundvall 1988). While learning about customer preferences in a pure market is subject to almost insurmountable barriers of cognition and uncertainty, in “organized markets”, like business networks, user and producers may become quite knowledgeable about each other. The links between user and producer may create competitive (dis)advantages also for the individual firm, hinging on the quality of the counterpart and the relationship. Hence, the quality (in  terms of knowledge) of demand becomes equally important to the quantity (Lundvall 1988, p. 357). Lorenzoni and Lipparini (1999), suggest the concept of relational capability to denote this side of organizational capabilities. Hence, it can be argued that the strength of market linkages may be considered a part of any organizations capabilities through the learning about the market structure they provide. However, firms also learn about the market and its institutionalized rules through horizontal arrangements. First, market capabilities are composed of the capabilities of the firms and actors in the industry. Second, however, the emergent capabilities also have collective properties in the sense of the market-specific “rules of behavior” that appear and are enforced. Learning about the competitive forces at hand thus includes learning about “market capabilities” i.e., the way knowledge is coordinated and distributed in a particular institutional setting. Such market knowledge is also the target of the market-based activities included in organizational capabilities, and it may involve cooperative action among firms aiming at “organizing” markets. Not only will the industrial enterprise tend to be multi-product and multi-technological, as previously discussed, but industrial firms also operate in multi-markets. Market-based activities involve learning about different markets through internal organization, market contracting and the establishment of network relations (relational contracts) (Grant 1996b, p. 383). The making of corporate strategy entails devotion to markets as well as technologies. As discussed by Chandler (1990), corporate diversification during the 20th century also involved the exploitation of new markets, primarily through internationalization. In a pattern similar to the one observed in technology, a few large multinational corporations emerged as prime movers in a number of markets. These firms created network capabilities through relations with important customers and competitors, and “systems-of-use” evolved around products provided (Rosenbloom and Christensen 1994). The firm draws inferences from user interactions and develops knowledge, which serves as guidelines for future behavior. In this sense, “knowledge on markets” becomes a resource that direct the firm in its search for opportunities in its external environment (Penrose 1959, p. 80). Organizational capabilities in a science-based industry: The case of electrical manufacturing This paper draws upon a longitudinal case study of the electrical manufacturing industry (Tell 2000). As discussed by Pavitt (1984), the electrical manufacturing industry can be classified as science-based. In such industries, and in the electrical manufacturing industry in particular, as emphasized by Rosenberg (1982) and König (1996), the concept of science-based industry does not necessarily imply a linear relation from science to industry. Rather, scientific progress and the diffusion of scientific knowledge have in many cases been industry-based, through the work of inventors, the early establishment of R&D laboratories and the amount of practicing electrical engineers that partook in educating engineering students. This points to some form of endogenous technology in such industries in relation to competing firms. The sources of innovation in the electrical manufacturing industry could thus be seen as stemming, at least to a high degree, from the organizational capabilities of the electrical manufacturing firms. In order to investigate the formation of such capabilities a longitudinal comparative case study of the major electrical manufacturers in Europe and the U.S. between 1878-1990 was performed, focusing on their activities in the electrical power transmission business. Inspired by Chandler’s (1980; 1988) advocacy of historical study as “comparative institutional history”, the case study was “theoretically informed” by the notion of  organizational capabilities and made use of primarily secondary sources in tracking the history of the main heavy electrical manufacturers in the Western world.2 A qualitative history of the firms and the technological changes in power transmission technology that took place during the period was written and analyzed in terms of the organizational capabilities of the firms involved. As the space of this paper does not permit such a full elaboration on this history, the paper is instead structured around major trends in the evolution of organizational capabilities of the electrical manufacturers, partitioned into four time-periods: 1878-1918, 1919-1945, 1946-1975, and 1976-1990. The narrative is hence not organized according to each firm, but rather explores a variety of emerging patterns in the dimensions of organizational capabilities outlined above among the firms for each “epoch”. A couple of caveats should be noted. This study has particularly been focusing on the heavy segments of electrical manufacturing, e.g., electrical power generation and transmission. One should recognize that many of the firms were diversified large enterprises early on, active in a variety of fields. The electrical manufacturing industry therefore turns out to be very complex, not at least when covering such a long time-period. Therefore I have chosen to simplify the “genealogy” of many of the companies involved, sparing the reader intricate details of many important events such as mergers, acquisitions, divestitures and market exits. I have also refrained from using references in the narrative below, in order to economize on space, sources can be found in the end of the paper and more detailed references in Tell (2000). 1878-1918 Management-based activities The early founders: The entrepreneurs The early stages of the electrical manufacturing industry is an era where single-handed management by inventors such as Thomas Edison and Werner Siemens was slowly substituted for by the managerial hierarchies of Chandler’s (1977) visible hand. Many of the early firms combined the technological abilities of one co-founder with the business acumen of his partner. At Thomson-Houston, one of the predecessors of General Electric, a successful division between administration and sales (Charles Coffin) and technology (Elihu Thomson) was refined, and the company experienced an annual growth. In 1878, the Edison Electric Light Company was incorporated, and Edison formed a number of companies for the manufacture of different products. These companies were amalgamated into Edison General Electric in 1890, and its managing director Henry Villard commenced upon centralizing administration and building a nationwide sales force. Thomson-Houson and Edison General Electric then combined into General Electric in 1892, with Charles Coffin from ThomsonHouston as new president. The establishment of Siemens & Halske already in 1847 was a combination of the venturing, scientific mind of Werner Siemens, and the craft skills carried by Johann Georg Halske. Already before Halske’s departure from the firm in 1867, the Siemens company was a family business that involved many of the male members of the Siemens family. Siemens organized foreign subsidiaries that were quite autonomous, but 2 As it turns out, the major firms during this period were to be General Electric, Westinghouse (American), Siemens, AEG (German), GEC (Great Britain), Alsthom (France), Brown Boveri Cie. (Switzerland), and ASEA (Sweden). Due to a number of mergers and acquisitions during the period covered in this history, companies that belonged to one of these firms during a certain period of time may previously have been independent. Moreover, at the end of this study, not all of these firms existed as independent companies. Despite these caveats, these are probably the names under which most of these firms are recognized today.  managed by family members. Hence, despite the differentiation of activities in several countries, the firm could be governed by the use of family kinship, which created loyalty and commitment to overall objectives, but sometimes lacking the professionalism of its competitors. The most influential electrical manufacturer in Switzerland would be the one created by Charles Brown and Walter Boveri in 1891: Brown Boveri (BBC). There was a division of labor between the two compatriots, as Brown was the engineer and Boveri the businessman. In similarity to several of its competitors, the Swedish firm Allmänna Svenska Elektricitets Aktiebolaget (ASEA) started out as a joint venture between a businessman, Ludvig Fredholm, and inventor Jonas Wenström in 1883. The French and British electrical manufacturing industry started as quite scattered and fragmented, and most important French and British firms were actually subsidiaries to foreign electrical manufacturers. Both Westinghouse and General Electric established subsidiaries, Société Anonyme Westinghouse and British Westinghouse, and Compagnie Francaise Thomson-Houston (CFTH) and British Thomson-Houston (BTH), respectively. The third French company with foreign ties was Compagnie Electro-Mecanique CEM (Brown Boveri) a focused supplier of electrical equipment. This was rather different from the domestic player Compagnie Generale d’Electricité (CGE), which emerged as a group of holdings. Siemens established Siemens Brothers in Great Britain, where minor domestic manufacturers appearing were English Electric and General Electric Company (GEC). Consolidation of industry The early stages of the electrical manufacturing industry was marked by a large number of mergers and acquisition, leading to few dominant players in several of the countries involved. In Germany, Siemens acquired domestic competitors Schuckert in 1903 and Bergmann in 1912. AEG took control over Union in 1902 and Lahmeyer, Felten and Guillaume in 1910. After these actions the two companies where completely dominating the German market. After the merger leading to General Electric, the American giants, GE and Westinghouse grew rather more organically than their German counterparts. In Britain and France little consolidation occurred before World War I, while Swedish firm ASEA was more active in promoting itself as a national champion. In a burst of acquisition it acquired domestic competitors Nya Förenade Elektriska Aktiebolaget (NFEA), Svenska Turbinfabriks AB Ljungström (STAL), Surahammars Bruk, and Liljeholmens Kabelfabrik in 1916. Organizing electrical manufacturing In the U.S., it was Charles Coffin, more than George Westinghouse, who came to perfect the organization for utilization of technological opportunities and market growth. Coffin installed an elaborate, albeit functionally organized, administration. There were vice presidents for sales, finance, manufacturing and engineering, and from 1900 and on product design (engineering). Manufacturing was concentrated to three major plants, specializing in selected products: Harrison, New Jersey (lamps), Schenectady, New York (heavy machinery), and Lynn, Massachusetts (smaller mass-produced products). In contrast to the developments at General Electric, the Westinghouse organization was quite fragmented, with George Westinghouse residing unopposed and influencing all operations In similarity to Westinghouse a strong entrepreneur and engineer was active in the formation and early management of AEG: Emil Rathenau. Although production was concentrated to Henningsdorf, manufacturing units were comparatively small. Moreover, the general organization had no unitary principle, as it mixed grouping into production units, groups of production units, non-producing units, holdings in utilities, and utility operation.  The early British electrical manufacturing industry can be characterized by its tradition of many small firms and the influence by foreign competitors on the British firms. The major American firms both erected large plants to which they tried to transfer rational large-scale American manufacturing methods in their British subsidiaries. Also British manufacturer English Electric initially attempted to implement the American ways of producing electrical equipment. The focus on scale also implied few but large product-based manufacturing departments at the major works. British manufacturer GEC, however, developed a wholesale organization for sales where the sales offices sold all of the company’s products. GEC was also among the last to obtain in-house production facilities. Particularly the holding structure of the French manufacturers is significant before World War I. The foreign parents established a number of firms for various products, as e.g., Westnghouse’s companies for traction (Compagnie Générale de Traction) and for electrical motors and steam engines (Société Industrielle des Moteurs Électriques et à Vapeur). The domestic CGE was organized as a holding company in itself, owning various electrical manufacturing companies, as well as utilities and metallurgical firms. A similarly fragmented organization can be found at Brown Boveri (BBC), which in the early 20th century established a number of foreign subsidiaries often with their own production for the domestic market. Hence, subsidiary plants were not component suppliers for electrical apparatus assembled at the main factory in Switzerland, but specialized in the manufacture and marketing of certain products locally. In particular its German subsidiary grew quite independent of its “mother”. After initial turbulence, ASEA became organized as an industrial manufacturer under the directorship of Sigfrid Edström in the beginning of the 20th century. Edström was an advocate of specialization in Swedish industry, which caused ASEA to confine its business to heavy electrical engineering. Another consequence of industrial organization of ASEA was an increasing number of functionally specialized departments and the imitation of American manufacturing methods. From individual to organizatioal coordination At Thomson-Houston it is significant that Coffin’s contribution lie much in his ability to integrate sales strategy with product development. In the new company, General Electric, topmanagement (i.e., Coffin) maintained a firm grip of the operations. Coordination within and between units primarily took place through different committees. Whereas Edison had been a “holistic conceptualizer”, George Westinghouse exemplified the pragmatic engineer with an ability to integrate technological systems. In an organization that relied on him being the major integrative device, the physical dispersion of operations created major control problems. To coordinate functionally operations at ASEA, Sigfrid Edström, instituted an organization not based primarily on direct supervision by him personally, but founded in rational planning and formal directives. Moreover, management accounting procedures were improved in order to gain better control of operations. The major developments of the Siemens organization came in manufacturing and its administration, in particular after its merger with Schuckert (although the merger also gave the unified company access to the stronger marketing organization of Schuckert). In the new company, a division was made between light products (Siemens & Halske: S&H) and heavy products (Siemens-Schuckert: SSW) which would remain until World War II. Siemens developed a management system based on rational planning, standardized products and middle management. The epicenter of these activities was the co-localized facilities at Siemensstadt. At German competitor AEG, Emil Rathenau resided over a loosely coupled system without much integration except the one executed by himself. The Swiss manufacturer BBC emerged as an internationally dispersed group of subsidiaries. The subsidiaries were  quite autonomous and the structure of BBC rather promoted intra-subsidiary coordination than coordination between subsidiaries and the parent in Switzerland or between subsidiaries. The lack of systematic integration was also a feature of the holding structure of the French manufacturers. Technology-based activities Electrical manufacturing in the mind of inventors The inventions by people like Thomas Edison, Elihu Thomson, Werner Siemens, Charles Brown and Jonas Wenström stemmed from the opportunities they perceived in the new science of electricity. The technologies developed were system technologies, and especially Edison has been recognized for his abilities to conceptualize whole systems. This was a useful asset for commercial venturing, since it meant that companies based on such products could control and offer whole systems to customers, rather than being merely suppliers of components in a system designed by the customers’ engineers. This also meant that initial technological interdependencies was strong, not at least significant in the “battle of the currents” between alternating current (AC) and direct current (DC) technology when one systems advantage over the other depended on the ability of designing all parts of the integrated system. In the forming stages of the power business, Edison lost the battle of the currents but General Electric still emerged as a strong contender for leadership in the electrical manufacturing industry through its combination of the AC products of ThomsonHouston and the DC applications (like distribution systems and motors for traction) of Edison Electric. As is well known, at least in the U.S., it was George Westinghouse who was the driving force behind the commercialization of the universal AC-based power system. He was himself not an inventor, like Edison or Thomson, but was well equipped to understand both the principle of increasing the voltage in order to make transmission more efficient, as well as grasping the utility of “interface” devices, like the transformer or the rotary converter. Underlying products Westinghouse manufactured were complex technologies, that required engineering skills. In this sense, George Westinghouse was skilful in exploring new areas with a kind of systems approach he had developed earlier, he was also able to exploit initial advantages well through threats of patent litigation. Due to the inventive capacity of Werner Siemens, the German company started out in a strong position. At the advent of heavy electrical engineering, the company had long experience of its lighter cousin, the telegraph business. At first, the organization of technological activities depended on Werner Siemens himself, and the cadre of laboratory staff that was working with him. When he did not believe in arc lighting, the company deferred its technological activities in that direction. A similar sequence is Werner Siemens’ downplaying the importance of alternating current for power systems when asked about it by a Westinghouse employee. The number of products manufactured and sold increased rapidly already before World War I. In the early days, Siemens, despite being a very innovative firm, sometimes became a technological follower, since the belief in its own technological ability made its founder unaware of the potential and progress in competing solutions to electrical engineering problems. In the beginning of the industry it was important for most companies without their own strong inventors to secure patent rights to a successful technology, and for instance Rathenau at AEG established links with General Electric. Despite the general interest in electrical engineering, the British market came to be dominated by foreign technology. Both the British firms and the foreign subsidiaries mainly used the licenses from the U.S. or Germany. Despite the ingenuity of some of the early inventors in Britain, it would become traditional industrialists that would  dominate the industry, apart from the foreign subsidiaries. A salient feature of technological development and innovation in Britain was that new products and innovations developed by Britons came from individual inventors, of which few established any electrical manufacturing company, or whose companies were acquired by other companies. The “wholly” British electrical manufacturers, like English Electric and GEC, did not pursue innovative strategies but rather relied on foreign technology and their knowledge in marketing. In France there were some early inventors in the electrical power system, but there were few firms established. Foreign firms that tried to exploit the opportunities of the French market instead invaded the French industry. Licensed technology played quite an important role for French manufacturers since they did not develop much equipment by themselves. Electrical manufacturers in France in the early years also worked with quite unrelated products. The firms manufactured both light and heavy products. Through Wenström’s inventive capacity, ASEA was an early mover in developing the threephase AC system for power transmission. BBC emanated as a very strong technological firm, since one of the founders, Charles Brown, did quite extensive experimental work with the new technology and developed both theory and apparatus. Some of these experiences he gained while still working for Oerlikon, the Swiss pioneer in electrical manufacturing, which granted a technological platform for the new firm. The company immediately pursued a technological direction where it focused on electrical engineering which involved generation and transmission of energy, and its utilization in the form of mechanical power (motors) but not so much in lighting. Hence BBC commenced by focusing on the development and manufacturing of complex products for electrical power systems. The technological activities of Brown Boveri was thus directed toward the refinement of products and research for applications within the heavy segment, rather than aiming at finding new applications. The emergence of R&D laboratories One important reason for the establishment of the famous GE Research Laboratories was its potential to secure patents and find ways of circumscribe other manufacturers’ patents. As Coffin took on a diversification strategy, however, products and technologies with new applications (both for industrial and household use) eventuated from the laboratories’ inventive capacity. Hence, the number of products and technologies rapidly increased at GE. In this sense, the General Electric Research Laboratory became an important vehicle in the exploration of new technologies for GE. From an initial situation where it had been used primarily for the exploitation of patents and, sometimes, imitation of competitors’ technologies, the purposes of the lab grew wider, encompassing in fact all these three tasks. Refinement and revolution went hand in hand, especially as long as results materialized in patents and not only publications. Early important technological development that spurred diversification at GE was e.g., domestic appliances and X-rays. Technological activities were loosely organized in Siemens at first, but technological development was furthered as the company began employing corporate scientists. The technology that the company worked with, both telegraph and power systems, were complex systems, and Werner Siemens had been instrumental in developing both these systems as whole systems, but also in single components, as e.g., the dynamo. Although initiated as a venture for the exploitation of the emerging knowledge in electricity and sales of equipment to power stations, AEG rapidly went into a position as one of the more innovative in the industry, not at least due to its technical director Dolivo-Dobrowolski. In contrast to domestic competitor Siemens, AEG started by focusing primarily on the heavier technologies involved in electrical engineering. Hence, the company did have a smaller  number of products than some of its international rivals, although these products were very technologically related. As the firm went international and began to grow rapidly, however, it diversified into a number of new products (as lighter electrical engineering in Telefunken). It grew closer to GE and also technologically stronger by the early acquisition of Union. Since George Westinghouse himself was not the electrical genius of Edison or Thomson, he instead employed other inventors’ ideas, like Frenchman Lucien Gaulard and Briton John Gibbs, and sometimes themselves, like Croatian Nicola Tesla and American William Stanley. However, no R&D laboratory like GE’s was established. Technological progress at BBC was exploited by the provision of licenses to the subsidiaries established across Europe. Patents and subsequent licensing thus became an important means not only to protect the rights of the firm and defend it against competition, but also to diffuse its technology within the group, gaining market share and providing funding for further technological development. At the turn of the century, BBC could also use licenses from Parsons to enter the turbine business, and – building on the experiences with the licensed technology – develop it further. Long before Edström’s entrance in at ASEA, in 1892, it established a design and development department for the continuous improvement of equipment. This was also necessary since the Swedish firm was lagging behind its competitors e.g., in transformer and switchgear design. Moreover, before World War I, the company also sought a balance between heavier, batchproduced, and lighter, standardized, products. Although the company was diversifying, the number of products was quite small before World War I. The products were primarily geared toward industrial use, like mining, and utilities, and they were all related to the production and use of electricity (generation/transmission/mechanical power). The company had been a forerunner in the AC-system, and in the pre-World War I period tried to use the patent rights it had. The company tried to imitate and adopt technologies developed by its German and American competitors e.g., by “reversed engineering” and “industrial espionage”. Through licensing the company diversified into turbines, one example of the relative “relatedness” with which the Swedish firm proceeded. Moreover, it integrated vertically by acquiring manufacturers of steel and cables. Cooperative agreements relieved the firm from competitive pressures and allowed for appropriation of technology. Licenses provided another means for acquiring technology (e.g., from Union), while internal development grew in importance, especially when it was performed in association with utility customer Vattenfall. Market-based activities Early users of electricity The first customers of the Edison company considered electric lighting a luxury item rather than a facilitating devise for improving business. Markets expanded domestically in the late 19th century, as mining and heavy industry also started to procure electrical equipment and install it in mines and factories. George Westinghouse first made a name of himself in the railway industry as he supplied it with his new invention, the air-brake. This experience would be important in his dealing with the growing power utility business, as it became the primary customer for heavy electrical equipment. As in the railway industry, this would become an industry with few sellers and few buyers with increasingly professional expertise. The market for telegraph equipment was similar to the evolving electrical equipment in several respects. Therefore, Werner Siemens had a firm ground in his experiences from the telegraph industry as he entered electrical manufacturing. One apparent difference was that electrical equipment had a much wider audience and market, as it could be applied in more products than the telegraph. However, Siemens would concentrate primarily on industrial buyers in the initial phases of the industrial evolution. In the beginning, AEG’s customers  were lighting and tramways, that is, more “luxurious” customers (using DC equipment) that domestic competitor Siemens’. This was to change rapidly, however, and AEG became as technically competent in heavy engineering as Siemens. Since BBC positioned itself as a manufacturer of primarily heavy products, its customers were also primarily industrial buyers. Such customers fitted the technologically oriented firm, as they demanded more advanced products. The company also competed in rather few segments of the electrical industry with quite similar customer characteristics. The users of the equipment manufactured by ASEA were important already from the beginning. Both ASEA and Magnet (which would become a part of ASEA) served the local mining industry, and it was the industrial application of electricity that primarily interested these customers. Hence, the electrical industry in Sweden, more than e.g., in the U.S., was instantly focused on industrial rather than consumer markets. The market faced by the early establishers of electrical manufacturing in France was characterized by low degree of urbanization and little industrialization. An important activity of the French electrical manufacturers had thus to be to initiate demand, which can be seen in their holdings of of the main customers of early electrical equipment: utilities. Investing in markets: the establishment and ownership of utilities Edison Electric marketed its DC systems first to cities and for lighting use exclusively and also established firms for the financing of electrical power plants, like Edison Illuminating Company of New York and Edison Continentale Cie. in Paris. The investments in market not only created the market for General Electric but also gave important insights in the efficient management of power utilities and the specific needs they had (for instance in metering). Initially, Westinghouse did not make the same investments in his potential customers as did Edison Electric and Thomson-Houston, as he only accepted cash payment and not bonds or securities as payment for his apparatus. However, this strategy changed into one where Westinghouse entered a city and secured a franchise and established a central station company, which later could be sold to local businessmen. When it came to the investment in the growing imarket for electrical equipment, Siemens fared worse than its domestic competitor AEG. In the decentralized marketing organization of Siemens, the company could not provide sufficient support to its customers and the local agents of Siemens’ equipment. Siemens neglected establishing a financial trust for supplying customers with funds. Emil Rathenau’s strengths were much in his marketing capability and banking contacts. AEG understood the opportunities of creating financial holding companies, both at home and abroad, to finance the establishment and operation of utilities. In France, utilities and manufacturers were often owned by the same holding companies, which could have contributed to close cooperation and e.g., technological development but it does not seem as that this was particularly common. The establishment of Motor, the financial trust for financing of electrical companies, was instrumental in BBC building markets for its products. For instance, it financed the utility Nordostschweizerischen Kraftwerk (NOK), which evolved into one of BBC most important domestic customers. The founders of ASEA invested in its own markets by the creation of Wenström & Granströms Kraftbolag, and later ASEA would be an important owner of Skandinaviska Elektricitetsverk. Internationalization efforts When it comes to international markets, the companies established by General Electric or its predecessor enjoyed quite large degrees of autonomy. In selling railway equipment, George Westinghouse would also come to understand the pros and cons of international business, through his early venturing in Great Britain. Rapidly the company established a network of subsidiaries and agents but lacked the financial strength and organizational ability to maintain  such an organization, and at the beginning of the century, the company faced the threat of bankruptcy partly due to the growth of its international operations. In terms of internationalization, Siemens did not build a strong marketing organization with foreign direct investments in the 1880s, but relied on agents whose incentives for making efforts to cooperate with the German firm were slim. Siemens refused to share marketing expenses with these firms and was furthermore not keen on monitoring their results. It is also significant that Schuckert had a better marketing organization, from which Siemens could benefit after the acquisition of Schuckert. After the installation of technical offices in the Siemens organization, the international sales organization improved. AEG grew bigger than Siemens at the turn of the century, much due to its marketing ability in exporting heavy electrical products. Moreover, the company organized sales in an “internal network” rather than as independent agents as Siemens did. This led the company to become internationally very active before World War I. The British empire (later commonwealth) provided well-known markets for exports for British manufacturers, and became the natural destination of early foreign sales. In contrast to some of the electrical manufacturers in other countries, the British firms did not make any foreign direct investments in manufacturing abroad, but rather “traded” with foreign agents. BBC early on had an international profile as a multi-domestic firm where it was the subsidiaries that dealt with international customers. The relative autonomy of these subsidiaries guaranteed certain pliability to local customers. Before World War I, the Swedish company ASEA did not have much impact on international markets. Inter-firm relationships: competitive and customer relationships The long lasting duopoly in the American market for electrical apparatus created strong antagonism between the firms, but also clear rules of permitted conduct. At the domestic scene, the German industry was characterized by its “organized” relationships, instantiated by cooperation during times of crisis and technological licensing. The British manufacurers met competition by a number of other domestic firms. In France, foreign subsidiaries and a few domestic firms dominated the competition. The market appears to have been based more on price competition than many other markets at that time. The relationships between competitors were confined to the realm of the international business groups. Cartels and market agreements were important both on the Swedish and the international scene and ASEA partook in the arrangements. The selling of equipment to utilities in Britain took place by competitive bidding, which made the relationship between manufacturer and utilities in most cases of an arms-length, contractbased, market transacting character. The industry was also in an early stage plagued by overcapacity, which increased the competitive pressures on the firms. The British manufacturers therefore did not develop strong ties with utility customers. The distance between utilities and manufacturers contributed to a conservative attitude toward technological change in the industry, as utilities focused on price and the meeting of ex ante specifications. The electrical manufacturers responded by not developing their own technology but rather rely on licensing of approved foreign technologies and products. ASEA took active part in creating utilities, but it was the relationship with the state-owned Vattenfall that was to bear much fruit in terms of technological progress for the, in international comparison, small firm.  1919-1945 Management-based activities Integrating increasing organizational complexity As Gerard Swope took over after Coffin as the portal figure of General Electric, the managerial path pursued by Coffin was continued. Despite diversification into new areas General Electric remained functionally organized. Gerard Swope became the focal point around which GE centered. Internal reporting was to come to his desk, as a caricature he could be seen as the omniscient integrator of the vast operations carried out by General Electric. The analytically minded president of GE coordinated the firm through improved accounting and management control systems. Management dealt with the risk of dishonest reporting by the means of tight supervision and control. Westinghouse was earlier in adapting the divisionalized form of organization than its larger competitor, where sub-units were made responsible for all activities related to the products they were making. In one sense, however, this was in stark contrast with the organization under George Westinghouse’s reign, as it meant a movement from centralization of decision-making to decentralization of authority to divisional management. The organization remained dispersed, but managerial methods for governance changed. However, in the inter-war period, the emergence of an adaptive management style at Westinghouse implies that corporate governance focused more on shortterm meeting of current market demands in a variety of markets, than investments in longterm technological development in a few areas. At Siemens more decentralized organization was devised, where departments were grouped according to their technologies and products, and the organization was indeed close in spirit to the multi-divisional form. International operations were quickly recommenced and organized in over 200 subsidiaries. Moreover, the organization of heavy and light products in S&H and SSW grew closer again. In 1939, the two units were amalgamated. It should be remembered that Siemens also was an early user of the tools of profit-centers and market-based evaluation of organizational units. The family-orientation, however, had the potential of creating a sense of commonality and shared skills and knowledge, supported by the emphasis by Siemens management of being an electrical manufacturer. At both English Electric and Siemens Brothers, the latter which after World War I was in the hands of British interests, the interwar period was characterized by centralization. In particular English Electric under the helm of Lord Nelson instantiated the autocratic firm, led almost by a single man. GEC differed somewhat from English Electric and Siemens Brothers, in that it was widely dispersed, fragmented and kept together by “trading”. The increasing number of subsidiaries remained relatively uncoordinated by the parent firm in Switzerland e.g., when it came to production. The power and influence of the subsidiaries, especially the German one in Mannheim grew stronger during this period, and when Brown and Boveri died in 1924, some of the centrality of Baden was lost. Parallel to the objective of technological excellence, a tendency for the local subsidiaries to optimize local interests than pursue company-wide objectives appeared. After World War I, ASEA commenced building a corporate group, with the parent being ASEA in Västerås. ASEA continued to grow, albeit in a concentrated fashion. Moreover, manufacturing took place in large organizational units, which were not split up until World War II, when Thorsten Ericson became new CEO. This was partly due to the change in management philosophy that occurred as Edström was succeeded by his brother-in-law Arthur Lindén in 1933. With this succession, the decentralization launched by Edström was halted, as Lindén had a much more detailed management style, and wanted to be involved in operative decisions. There is thus a tendency  of ASEA becoming increasingly centralized, and also subsidiaries were only partly autonomous profit centers, as their assets had been transferred to the parent in 1940. This trend was somewhat reversed with the entrance of Ericson, when smaller units, manageable by middle level officers, were created out of the larger ones. Strategic concentration and further diversification The vertical and horizontal integration with other firms was quite high in German industry, and Siemens was no exception. It cooperated with competitors and was also part in several large cartels involving e.g., the steel firms that were major suppliers to Siemens. This also affected Siemens’ technology development, as in the case of the joint venture with Verenigte Stahlwerke. However, the lighter side of Siemens’ operations should not be neglected, after a slow start, for instance, the company developed competence in electronics, a technology it would exploit further after World War II. After World War I, the organization of AEG concentrated as it focused on manufacturing when utility holdings were lost. Despite being smaller than Siemens, the company still was characterized by its dispersion of production units. Moreover, the number of subsidiaries and joint ventures increased, and AEG continued to be a holding company. The company was run through decentralized subsidiaries and production units, and its corporate office in Berlin (that undisputedly was the center of the company) was not as strong as its competitor Siemens’ Further creation of domestic giants: M&A Behind the curtains, General Electric tried to restructure and concentrate the global electrical manufacturing industry. It obtained interests in a number of European firms, but in the repercussions of the depression the American company had to withdraw its attacks. One milestone in the restructuring of the British industry was however reached with the creation of Allied Electric Industries (AEI) in 1928, which was supposed to effect the amalgamation of both BTH and the former British Westinghouse (now called Metrovick). However, any increased coordination seen after this merger was to be not much more than a chimera. AEI did not break up the independent status of its constituent units, but let them continue as separate companies with little interaction or coordination. Moreover, within Metrovick and BTH trading groups were formed as the number of activities and products increased, and decentralization programs were carried out. At Metrovick, for instance, this meant that functional department lost some independence but were to be coordinated by cross-functional committees within a larger organizational unit not completely unlike divisions. At the same time control functions, like inspection, was strengthened and centralized to maintain uniformity. In the post World War I era in France, the rate of mergers and acquisitions increased, and the industry experienced rapid growth. However, French Westinghouse was too organizationally dispersed and did not manage its growth, but ended up merging with CEM. The GE-supported CFTH encountered a similar fate, as it joined forces with Société Alsacienne de Constructions Mécaniques (SACM) to become Alsthom. Alsthom can be denoted the first large electrical manufacturer in France and its operations was organized in product groups. This involved some changes compared to CFTH that had organized its production in specialized plants. Alsthom, however, aimed at refining its organization. A trend in French electrical industry in the inter-war period was that most firms specialized in manufacturing, while some (particularly CGE) increased their holdings in utilities. As the companies that became dominating in the French industry absorbed smaller firms, these larger manufacturers increased their efforts of integrating the incorporated firms. However, CGE, with its large share of utilities, held on to a holding structure, but also other manufacturers continued to be organized in this way.  Technology-based activities Diversification or concentration? After World War I, General Electric continued its diversification campaign, by aiming at the electrification of the American household. The range of products manufactured and sold by GE widened rapidly and spanned over household, power and medical products. Also Westinghouse continued to diversify into related areas. As for GE, all types of electrical products were manufactured and sold, for rather different customers and by using technologies sprung from the general electrical knowledge base, as e.g., broadcasting. It also meant that the technological path was, although not self-perpetuating, bordered with “signs” on possible routes to take. Siemens still regarded heavy electrical engineering having sufficient potential to abandon some of the new product lines it had ventured. Electricity became identified as the core technology, and in order to raise the company’s technological level exchange of patents (perhaps most importantly with Westinghouse) happened recurrently. AEG came out of World War I a more concentrated company than before. Concurrent with the concentration of the French industry, the manufacturers also focused their production into a narrower range of products primarily by focusing on manufacturing solely. In the technologically oriented BBC, the period between the wars provided opportunities for technological development within chosen areas. It did not, in contrast to several of its competitors, enter a large number of new areas during the inter-war period. Instead, the technological activities and knowledge of the company became diffused across a number of subsidiaries, as they worked with the technology based on the parent’s licenses. New fields and technologies The number of technologies increased with the breakthrough of electronics, where GE also obtained a leading position. In a cumulative sense, electronics was a child to electricity, but its applications were different than in electricity. This meant that the general technological knowledge base of GE increased in complexity, albeit in specific products it decreased compared to some of the previous introduced technologies (e.g., household appliances). AEG was able to draw upon its knowledge base in order to secure its survival. The company thereafter diversified into a number of new products and technologies exhibiting a wider spectrum of product complexity. The common denominator in AEG continued to be electrical engineering, but as this field found an increasing number of applications, the relatedness among technologies decreased. In the loosely coupled structure of AEG, thence, a number of flowers blossomed. The technological paths of BBC were perhaps more clearly defined than the trajectories of many of its competitors. The technologies the company worked with were highly related, and the company continued to provide innovations in e.g., turbines, generators, and mercury-arc rectifiers. In comparison, the company became increasingly “heavy”, a trend that continued until the introduction of electron tubes during World War II. The number of products increased, but products were quite related, both in terms of markets and functions served, as well as in the relatedness of the technologies they were built on. In the case of ASEA, the company also tried a few of the new areas in electrical manufacturing, not as many as the corporate giants, but not as few as e.g., Brown Boveri. The diffusion of the industrial R&D laboratory Due to the shaky financial conditions during especially the depression but also due to the scattered organization of Westinbghouse, there was also a cutting back on central R&D spending. However, the company could benefit from licensing much of its technology, for instance a patent exchange agreement with Siemens turned out to be very beneficial for the Pittsburgh-based firm. At other firms in the industry, however, R&D spending increased with  the introduction of central R&D laboratories. At Siemens, central R&D laboratories were established. Despite the number of products increasing (after the abolishment of unrelated product lines), Siemens had a conspicuously common framework for the products derived from electrical engineering, be it light or heavy. Products were all derived from complex technologies. Moreover, the company in the period before World War II became increasingly heavy, as Siemens-Schuckert played the dominant role in the organization. The integration of technologies were secured by the central R&D lab, but also by the increasingly joint organization and a barter of subsidiaries performed with AEG in 1941. The non-settlement of the “battle of the currents” in Great Britain contributed to the more uncertain environment and disintegrated structure of the electrical manufacturing industry well up until the 1930s. During the period between the wars, the companies involved in electrical manufacturing commenced establishing corporate R&D labs, which contributed to their ability to catch up with foreign competition. The French manufacturers increased their capacity for designing and installing more complex products, and there were complemetarities exploitable in the mergers. Some of the firms, like CEM in turbines, commenced to develop idiosyncratic designs, however the general pattern was still one of using foreign technology in France, and the manufacturers continued to imitate the American firms in manufacturing technology. Due to the lack of R&D facilities in the 1920s, ASEA was lagging far behind the international frontier in e.g., switchgear and rectifiers. However, in the midst of the economic depression, the company started investing in corporate R&D laboratories, which increased the innovative capacity of the Swedish firm. Hence, experiences of testing new equipment and trying out new designs in a trial-and-error fashion accumulated during the inter-war years although immediate outcomes may have been meager. The support and tough requirements received from Vattenfall was also valuable, as this electrical utility added experimental situations to the scarce opportunities for learning from testing of apparatus that ASEA possessed itself. Patenting and licensing Securing patent rights to many of its innovations, GE engaged in several patent exchanges and licensing agreements. GE, being the global leader played an important role in transferring technology through licenses and patents abroad. It is less clear whether the company acquired that much technology from the outside, rather it seems as GE managed to fuel most of its technological diversification organically. Licensing technology remained important for the AEG’s continued success. The company still made use of GE licenses. Important devices for acquisition of new technology, apart from internal development and licenses, were joint ventures and the acquisition of smaller firms. As the subsidiaries of foreign companies in France began to merge they possessed portfolios of licenses and sometimes license holdings were conflicting. The mergers increased the strengths of the French companies remaining and they grew increasingly independent of their parents. In this respect CFTH was an exception as it had close ties with GE in technology. Market-based activities Horizontal activities: The cartels After the war, there was a rapid expansion into consumer products, mass-market customers that needed to be reached quite differently than the professional of heavy electrical apparatus. Publicly General Electric stated that they would compete on price, but the company was a driving force behind the global cartels in fixing prices on e.g., lamps. GE also took measures towards restructuring the international electrical engineering industry by acquiring shares in many of the major manufacturers. The vehicle used for international coordination of the electrical manufacturing industry and GE’s interests were taken care of by International  General Electric (IGE), which was formed during this period. IGE became important both for the sales overseas but also for inter-firm cooperation and patent agreements. Westinghouse pursued technical cooperation with e.g., Siemens. On the American scene the cartels had an abrupt ending in the indictment of the electrical manufacturers of having violated anti-trust legislation (although this affected GE more than Westinghouse). Siemens played an important role in the international cartels. Moreover it entered a joint venture with AEG in the creation of lamp manufacturer Osram, and had technological cooperation with Westinghouse. Siemens also cooperated with some of the larger utilities in developing power transmission equipment in the inter-war period. AEG was allied with GE, which at the time was very active in the electrical cartels. The relationships between the manufacturers had changed somewhat with the creation of British Electrical and Allied Manufacturers’ Association (BEAMA) in 1911. Despite complaints on foreign cartels, the electrical manufacturers in Great Britain also commenced organizing their markets to an increasing degree. The heavy influence of American manufacturers in the British Isles also contributed to the larger degree of coordination among firms. Having been scattered and subsequently outcompeted by foreign larger companies, the British firms became proponents of regulated markets and pricing agreements. There were also links forming between the electrical manufacturers in France as e.g., through the formation of Compagnie des Lampes, and cooperative agreements were also entered into. Mergers and acquisitions tended to be a regular pattern on the French scene, where the foreign influence was still high but on the downturn. The electrical giants threatened the Swedish firm (by acquisition of American interests and by cartel agreements with the Germans). However, on the domestic market, ASEA was in control e.g., by “silent” ownership of competitors. New markets, international markets, and home markets After having lost much of its foreign presence and associated subsidiaries, Westinghouse would turn its attention to the rapidly growing American market in the inter-war period. Moreover, the company broadened its customer base by establishing itself as a major manufacturer also in consumer goods and for industrial products. When it came to international venturing, Westinghouse did not cease with such efforts, but it was primarily focused on the U.S. The company remained one of the world’s leading licensor of electrical equipment and its products were sold globally. Manufacturing and development of those products, however, converged to the American continent. The ending of World War II also meant that Westinghouse increased its efforts for increasing international sales. It also developed ties with particularly important utility customers as e.g., AEP. The expansion of Westinghouse in all these respects helped creating a more disparate customer base for Westinghouse, making it difficult to decide which market signals to rely on, and to establish sufficiently good channels for information collection and to influence customer preferences and choices. When Carl Friedrich von Siemens took over at Siemens, he confined the business to solely electrical engineering, decreasing the variety of markets in which Siemens competed. However, due to the expansion within electrical engineering, the company still faced several types of customers on different markets. Having lost some of its influence in international markets, AEG succeeded in regaining some of the lost positions during the depression, although not as well as Siemens. The British electrical manufacturers embarked upon consumer markets, as they e.g., were pioneering radio. CFTH could benefit from its stronger links with General Electric and its international division IGE. However, international markets remained rather unimportant for the French manufacturers. ASEA tried to expand internationally, but right before and during World War II, international markets decreased in importance.  Interaction and integration with utilities In relation to its utilities customer, Electric Bond and Share Company, the financing trust was sold in 1923, decreasing General Electric’s impact on the U.S. utility industry. AEG became severed from many of its international customers as it lost the financial trusts after World War I. This caused AEG to move away from utilities and concentrate on manufacturing, although it still owned utilities in Germany. Some of the electrical manufacturers, for example English Electric, developed stronger ties with utilities. Utilities in France tended to be risk avert when it came to invest in new equipment. There was also a concentration of utilities taking place in France. In the inter-war period several holdings associated with electrical manufacturing were large owners of utilities, securing a customer base for those operations. The initial customer base of BBC continued to be more or less the same during the period between the world wars, although the company expanded its business to a number of new countries. However, in dissimilarity to some of the “big giants” this “little giant” did not commence producing for consumer markets. In this sense, BBC positioned itself as a niche manufacturer, which was threatened by the large international companies (like GE), but also acquired numerous smaller firms. Motor was reorganized into Motor-Columbus in the inter-war period, and continued to be an important vehicle for the company’s marketing activities. These activities were otherwise decentralized to the local subsidiaries that could, as in the case of France, Italy, and Germany, develop relationships with important customers as if they were purely domestic companies. However, in the BBC organization as it appeared between the wars, it seems to have been little room for interaction between subsidiaries. Vattenfall continued to be an important customer for ASEA in the inter-war years. The state utility required the Swedish firm to reach international technological standard in order to obtain sales, but also helped out with providing testing facilities for new equipment and by sharing development costs. Moreover, the company strengthened its ties to the market by reinvesting in Skandinaviska Elverk, and by creating Electro-invest for international concessions. In customer relations, corporate subsidiaries handled specialized areas, while the parent company took care of the more prestigious large projects. 1946-1975 Management-based activities Opposing forces: concentration and diversification With increasing size of Westinghouse’s operations a number of manufacturing facilities all over the U.S. were established. These plants were organized according to the main products they were producing, and hence fitted the divisional organizational chart. However, it seems as the company grew more centralized, despite the original intentions As Westinghouse sought to increase revenues by entering new markets in the 1960s, Donald Burnham effected a program emphasizing the delegation of decision-making rights to divisions. This was largely congruent with the business strategy of unrelated diversification that the firm undertook. In an organization with such diverse activities as watch-making, nuclear power plants construction, and real estate, top-management could hardly keep track of all operations, neither have sufficient experience to make relevant decisions. However, as in the case of George Westinghouse’s large expansion more than half a decade earlier, management developed little tools for asserting the strategic viability of operations. Rather, top-management acted as it had a portfolio of businesses to administer and reconfigure. The measure used became current profitability, and hence short-term focus of operative divisions.  After Siemens Brothers had sold its heavy electrical engineering plant in Stafford to English Electric and subsequently was acquired by AEI in 1955, there were three major electrical manufacturers in Britain. AEI continued its fragmented existence as a federation of companies (that is, a separation particularly between the two main companies within it, Metrovick and BTH) under the diversification strategies introduced under Lord Chandos. Concomitant with AEI, English Electric and GEC grew during the fifties. Operations became increasingly dispersed and in the family-oriented English Electric the succession of the old Lord Nelson was to leave a managerial vacuum at the top as no managing director was appointed when the father handed over the stewardship to his son. At GEC, the company tried to manage the increased diversity by management committees. As the three companies merged in the late 1960s, however, a new electrical giant, GEC, with a new management style, was created. Swedish ASEA was in comparison with its larger international competitors rather focused and specialized. Further acquisitions and divestitures, and the integration of subsidiaries into the parent firm strengthened this concentration of the company. The new GEC under the helm of Arnold Weistock would follow its American competitors in implementing an extreme form of the divisionalized form, where the idea of decentralized profit responsibility slowly would overshadow the idea of the large enterprise as an integrated whole. Divisionalization at GE After World War II, GE commenced to organize its business rather differently, under the new president, Ralph Cordiner. This form of governance carried several managerial implications. All the way down to operative units, responsibility and, not at least accountability, was pushed down by making profit-and-loss centers (profit centers) at several administrative levels. These units now became self-contained in the sense that all operations related to one product or product group was grouped together, rather than, as previously, organized in separate functional departments. Hence the need for coordination between related operations decreased. However, the new organization put new requirements on the coordination of these autonomous units into a working whole. In the new, decentralized, General Electric there was therefore still a strong conformity in administrative procedures e.g., in the measures used for target setting and evaluation. Down almost to departmental level, however, each unit was held accountable for profitability. This meant that a short-term behavior among operative units was encouraged, not at least because of the separation of long-term and short-term focus between the “operative” and “services” (staff) work in the organization. The use of “strategizing” on a mid-range level was further accentuated under the reign of Fred Borch. The divisionalized organization was refined with the Strategic Business Unit (SBU) concept, which became the focal unit for running the company from a management perspective. Alternatives to divisionalization Siemens was able to perform a remarkable recovery after World War II, when its production edifices were almost leveled to the ground. The choice of creating group directorates at different locations in the split Germany had major consequences for the organization as it increased the physical dispersion: from having been co-located in Berlin (Siemensstadt) Siemens now had three (south, west and central) new hubs. Hence, the joint Siemens only had existed during World War II before it was to be split up again. This three-partitioning developed into Siemens & Halske, Siemens-Schuckert and Siemens-Reiniger. However, the vision was to merge these companies into a unified Siemens company again, which happened in 1966 with the creation of Siemens AG. The amalgamation caused centralization by creating common administration and central staff units. However, a number of semi-autonomous companies also emerged in the group especially as Siemens entered joint ventures with e.g., AEG and Bosch.  The losing of World War II meant that AEG forfeited a large percentage of its production capacity, as this was located in Eastern Germany or Eastern Europe. Hence, there was a very small core of AEG left, which was merged into the unified structure of AEG-Telefunken (AEG). The growth strategies pursued however, caused the number of units and subsidiaries to rapidly increase again, and added to the diversity of operations. Moreover, there was a separation of sub-units as joint ventures, like Transformatoren Union (TU) and Kraftwerk Union (KWU) with Siemens, were created. This trend was institutionalized with the establishment of a decentralized organization in 1964, where central offices worked as support staff to operative activities. The integration between sub-units were thus minimal, and the introduction of a general sales organization in 1971 can be seen as an attempt to improve integration, coherence, and a unified appearance in markets. Another factor affecting the lack of corporate coherence and consistence was the continuously changing top-management, where no CEO held office longer than five years between 1955 and 1975. A major change in the composition of some of the French manufacturers occurred after World War II, as the state utility created, Electricité de France (EDF), seized control over all French utilities. This struck particularly hard on CGE that had to refocus its operations toward manufacturing. Another outcome of these changes was further concentration. At Alsthom Georges Glasser entered as CEO in 1957 and commenced reorganizing the firm’s activities into three divisions. 10 years earlier, CEM had been organized in autonomous plants, but these were assembled into three major groups in 1952. In 1965, the subsidiary of BBC reorganized again and created four divisions and four major brand names. CGE continued to be a holding company, however organized in 7 sectors after 1965. The sector organization was responsible for integrating within product areas. In this period there was a trend of the French manufacturers coordinating thir organizations by using over-arching sectors (CGE), groups (CEM), or divisions (Alsthom). With the increased diversity of operations it was no longer feasible to maintain the pure holding structure. However, the divisions could also, as in the case of CGE, be operated as subsidiaries, increasing its autonomy toward the holding company. As especially the Western European economy boomed after World War II, BBC was particularly well equipped to take advantage of the situation, being perhaps the most multinational electrical manufacturer in the world. In particular, the company could circumscribe national tariffs and quotas by relying on domestic production. This period was also signified by a domestic concentration of the Swiss electrical manufacturing industry, as Oerlikon (1967) and Sécheron (1970) went into the hands of BBC. The number of dispersed factories, both within and outside Switzerland continued to increase, and the company took measures in trying to increase the specialization of factories in respect of product lines. The larger subsidiaries in Germany, France and Italy had also commenced upon developing their own products, which were more adapted to local circumstances. There was a lack not only of technological coherence, but perhaps more important, also of business coherence emerging in BBC. The headquarters were in little possession of any integrating mechanisms for the dispersed activities. Management control systems were absent or inadequate, and the organizing principle of local subsidiaries did not promote over-arching coordination. A new organization was however implemented in 1970, which organized subsidiaries in geographical groups, hoping to integrate manufacturing, technology and marketing at least on a regional level by coordinating it from Baden. In 1960 at ASEA, a new organization was established that was organized around related products, so called sectors. This was a more cautious way of divizionalizing the company, since it meant that design offices and factories were grouped together in sectors, conjoint with standardized products sales where that was applicable. However, systems selling and regional  sales offices continued to be independent central units, and both sectors and sales were then managed as profit centers by using transfer prices. Moreover, the company slowly commenced upon foreign manufacturing. With the new CEO Curt Nicolin came a downsizing of administration and increased efficiency at the shop-floor by the use of new manufacturing and inventory control systems, but the organizational restructuring for ASEA as a whole was not as radical as that experienced by e.g., General Electric in the 1950s. Technology-based activities Related and unrelated technological diversification The establishment of a number of research centers points to the plurality of technologies with which GE worked was not only confined to electricity, but also embraced e.g., plastics. There emerged new technologies with increasing complexity as e.g., nuclear power, but it was also possible to transfer knowledge from previous products and technologies to new as was done in, for instance the case of turbines and jet engines, and electronics and computers. Still, hence, GE struck a balance between exploring new areas into which to diversify, and trying to exploit previously gained experience in new products. In the period after World War II up to the oil crisis there are at least two significant trends in the technology-based activities at Westinghouse. Firstly the company commenced manufacturing products using technologies more unrelated to the traditional core of Westinghouse. Secondly, investments in a central R&D center in Churchill meant that the depth and scientific degree of Westinghouse’s technological undertakings changed somewhat in character. One of the high-technology products that Westinghouse was able to compete successfully with was nuclear power plant, using complex and large-scale technologies. Some products would require large investments in R&D, while others less so, inducing an imbalance in the technological portfolio of the Pittsburgh firm. The electrical manufacturers in Great Britain evolved along two diverging technological trajectories. GEC, BTH and Siemens Brothers became increasingly focused on light electrical engineering, while English Electric and Metrovick (former British Westinghouse) became geared towards the heavier end of the electrical product range. Like their foreign counterparts, the British manufacturers went into new product areas like radio, xray, and aircraft engines. Still they were reliant on particularly American technology, as GE had a strong influence through licensing with AEI and Westinghouse had a similar relation to English Electric. However, there were also an increasing number of products of British design, especially from GEC, which was a company enjoying relatively high degree of technological independence. Brown Boveri had a strong portfolio of patents and products, not at least in power generation. These provided a platform for further technological development as demand increased for increasingly large-scale and technologically complex products, in particular in association with the “size revolution” of nuclear power. While some of BBC’s competitors continued to spread their activities into a multiplicity of products and technologies, the Swiss firm remained focused in a quite narrow domain after World War II. ASEA became more specialized on heavy electrical engineering, and also sealed an agreement with Swedish manufacturer of light equipment Ericsson on the division between them in light and heavy products. A continuous dilemma for the Swedish firm was the balancing between standardized, mass-produced, products and complex, one-off, products. Compared to the explosion of products and technologies observed internationally, ASEA remained coherent in this respect however. By letting some of its subsidiaries (like Elektromekano) remain with its product lines also after they had been acquired, the  integration of technologies was obstructed somewhat. By acquisitions, ASEA was able to venture new fields like household appliances and ventilation systems. The company ventured nuclear technology. High Voltage Driect Current (HVDC) power transmission became its spearhead technology, which it managed to license to English Electric for the Cross-channel link. Still, however, the company was lagging behind in several technological areas, especially electronics, and was forced to be a licensee of both thyristors and integrated circuits. In short, it can be concluded that it had taken some time to obtain this technological position and it was not flawless as the oil crisis entered the scene. Within the heavy electrical sector, moreover, the company pursued one technological trajectory related to generation, transmission and distribution products, and a second path was constituted of products for industrial and traction uses. As products increased in complexity, however, an increasing number of technologies – like solid state or nuclear physics – was involved. After 1960, the company also took on an explicit strategy for devoting more resources to R&D in order to maintain and develop its competitive position, however such a strategy also required larger sales volumes. Investments in technology Despite unfavorable conditions, Siemens managed to leapfrog its competitors several times in terms of product development. The long tradition of electrical engineering surely played an important role in this remarkable catch up. For instance, Siemens expanded its business into computer engineering, in which it would become a European leader. With the formation of Siemens AG in 1966, the company centralized its research activities spanning over different business groups. Despite growing into new businesses as electronics and computers, these technologies related quite well to the old areas of power technology and telecommunications. Siemens maintained its tradition of primarily working with complex technologies, although the number of technologies had increased. In power engineering, the joint ventures with AEG (TU and KWU) were particularly salient as it concentrated the German industry’s resources in electrical power engineering to a united force. Finally, Siemens continuously used cross licensing and exchange of patents. AEG was able to rejuvenate its old relations with General Electric and the American community. In the rapid expansion of the German economy that followed after the war and the Marshall aid, the company continued to pursue an ambitious growth objective. The project that finally would prove the return of AEG as one of the leaders in heavy electrical engineering was the company’s investment in nuclear power technology. Compared to GEC, both English Electric and AEI had been more technology-based companies than GEC, but it was the management of GEC that was to rule in the new giant company. This meant that technological activities became downplayed, as Arnold Weinstock instilled a more short-term focus of the company. As GEC grew closer to a conglomerate, the relatedness between technologies, products and markets diminished. The separate divisions and business units had to be responsible for their own R&D. The company did not explore new technologies like nuclear energy or mobile telecommunication, although such technologies were well within the range of the company’s technological base. Rather defense contracting and R&D grew in importance, since such contracts were executed on a cost-plus basis and hence involved much less commercial risk associated with existing technological uncertainty than development for commercial or semi-commercial (like utilities) markets. The company became sufficiently strong to distance itself from its strong American legacy, and became increasingly technologically independent. A new era began in French electrical manufacturing, as the domestic companies slowly began catching up on their global competitors, primarily through increasing rate of internal product development. Less dependent on licenses, the different designs became more firm-specific.  However, licensing continued to be an important means for seeing to that sufficient technological performance could be attained. The electrical manufacturers also went into areas such as electronics and materials. This meant that the number of products continued to increase, still focused on electrical manufacturing however. The subsequent swapping of operations between manufacturers indicates that there was a wide range of products manufactured. R&D centers were erected. Hence, the French electrical manufacturers tended to become more technologically advanced and explored new areas frequently. By having obtained technologies internally developed or jointly developed with EDF, the French manufacturers could compete on international markets by keeping prices low. The French companies, which at the period before the oil crisis were not that many, pursued related diversification, but also entered joint ventures. Alsthom continued its technological cooperation with GE until 1968, and there were also technological cooperation between major manufacturers CGE and Alsthom. BBC was able to compete on the basis of its cumulative experiences in electrical engineering, while some of its competitors had their engineering skills disrupted by the war. The high demand for products also allowed the Swiss engineers to become more interested in technology than market requirements. As different plants had responsibility for different technological areas, these plants drove toward excelling in that technology and then diffusing it throughout the international BBC organization. Brown Boveri invested heavily in R&D and perhaps emphasizing research more than many of its competitors, which contributed to a broad base for sustaining technological development and advantages. However, the R&D of the company also tended to drift farther away from its operative activities. BBC was not very strong in technology efficiency, as, for instance, duplication both of R&D and manufacturing of a number of products within the organization was an outstanding feature of the company. Market-based activities Home markets and foreign markets Despite IGE’s efforts to sell GE’s products abroad, General Electric was an American company primarily serving the American market. This market was huge and the company could differentiate its products into numerous product lines. However, the American utility industry appeared as quite conservative and boring for many young engineers, why it experienced problems in recruiting the counterparts to GE’s engineers. The initiative for product development therefore tipped over to the American manufacturers, while utilities became rather passive. Not meeting demanding customers may have made also the GE engineers a bit less interested in developing new technologies that may not fit the expectations of conservative utilities. Westinghouse continued to be an American company who regarded international markets primarily as a means for leveling out market irregularities and fluctuations on its home market. In the search for global positions in the host of markets where the Pittsburgh firm made business, acquisitions and divestitures became important honing tools. Not at least the increasing competition in the earlier sheltered U.S. market threatened Westinghouse. The company did not, like GE, respond by trying to pursue a growth strategy, and its relative size compared with its domestic competitor shrunk. Another problem of the U.S. utilities was their conservative attitude toward new technology, in the U.S. electrical power equipment market it was the manufacturers who were in command of technological development. This kept, especially smaller, utilities level of technological knowledge relatively low (compared to utilities in some other countries), and was one reason for the establishment of Electrical Power Research Institute (EPRI). They were reluctant  towards new innovations and this attitude may have been one influence to Westinghouse’s neglect of developing semiconductors in power engineering. The German market was the largest market in Europe for electrical products, which contributed to the rapid build-up of Siemens after World War II. In the immediate post-war period there was high demand for Siemens’ products, and when this demand leveled out, the company redirected its marketing efforts toward developing countries. New customers The most dramatic change associated with the market-based activities of the French electrical manufacturers after World War II was the nationalization of utilities into EDF. EDF would play a major role as a sparring partner for the French manufacturers as it was resourceful and powerful. There were no longer any financial links between the utilities and the manufacturers, as the creation of EDF discontinued the holding ownership of utilities. However, the manufacturers also became more internationalized as domestic concentration continued. The investments in markets thus decreased, while on the other hand, CGE International was established in 1973 for the marketing and financing in foreign markets. The increased focusing of certain product-classes as power, traction and telecommunication made Alsthom and its competitors more coherent hence facilitating market-based activities as markets became increasingly dominated by monopsonistic buying. Internationalization and the weakening role of the cartels When the British manufacturers merged into GEC, AEI had established an international export organization but English Electric lacked the advantage of having a brand name in several important international markets as the rights to serve those markets had been forfeited in the licensing agreement with Westinghouse. Moreover, the company had not been able to learn about the buyers in those countries. The growth in demand after World War II could be met by the BBC organization with its intact production capacity. The company continued to pursue its technological inheritance, but became less keen on adapting to customers. The very favorable economic conditions probably contributed to this, as BBC did not have to be particularly customer oriented, but could sell its high-technology products anyway. However, markets continued to be an important base in the organizing in the firm, and the 1970 reorganization into geographical areas can be viewed as a sign of a willingness to deal with the multiplicity of markets faced. However, in its products, BBC became even more narrowly focused on utilities as its main customer group, as generation and transmission products were the growing areas in the post-war period. The company also experienced problems in entering the vast U.S. market. After the immediate boom in domestic demand at the end of World War II, international markets came to play increasingly important role in ASEA. When competing on international markets, the Swedish firm was accused of dumping prices. The firm did however join the international cartels, as long as they had an international impact. Although Vattenfall diminished in importance as a customer and sparring partner after the large transmission projects in Sweden had been completed, the utility helped ASEA in marketing its newly developed equipment abroad. 1976-1990 Management-based activities  Managerial changes and crises The decreasing profitability of Westinghouse under too decentralized premises provided the fuel for the managerial doctrines of Robert Kirby, Burnham’s successor. He embarked upon a program of concentration and increasing productivity (the latter accentuated by the establishment of productivity centers). To attain better control of the widespread corporation, and advanced strategic planning and control tool, Vabastram, was implemented. This made it possible to elevate important decision-making to the top-management level. However, even more than previously, the new management control methods created overtly short-termism at Westinghouse. The effect on the organization was visible, as divisions had to squeeze out every single cent by e.g., selling off assets. The pendulum of organizational dialectics swung back almost immediately as Douglas Danforth took over after Kirby. His attitude towards decentralization and diversification was almost the opposite of Kirby. He abolished the organizational initiatives commenced upon by Kirby, and went for dramatic diversification and creation of autonomous Strategic Business Units. However, he kept the strategic management control device implemented by his predecessor. Based on the evaluation measures, ultimately decided by the stock market, businesses were sold and acquired at an increasing pace. Hence, also in Danforth’s business philosophy there was an ambiguity between sustained growth and short-term profitability. The outcome of this management style was however increasing diversity of operations, increasing complexity and less commonality in the Westinghouse organization. Although the retiring Danforth could provide black figures to his credit when he left in 1988, this was a legacy left for the next leader John Marous. In a conglomerate of seventy-five lines of businesses (with a couple of them entering and exiting continuously) the new CEO continued on this track. As AEG entered a corporate crisis concomitantly with the oil embargo, it commenced selling off subsidiaries and shares in joint ventures (e.g., KWU and TU), once again concentrating the operations of the firm. As Walter Cipa took over the helm, he embarked upon a program of centralization, restructuring and rationalization. This induced a decrease in product segments, and an increased integration within those segments. Moreover, central staff units were used more actively in coordinating the activities of AEG as a whole. In all, a more centralized organization took form, as AEG fought for survival. The focusing and rationalization efforts were not sufficient to rescue the ailing German giant from a financial restructuring process, which ultimately ended in the acquisition of the firm by Daimler-Benz in 1986. The economic downturn in association with the oil crises in the 1970s, caused BBC to look for new markets, and to reorganize its operations again. The company was specialized in the heavy segment of the electrical manufacturing industry, and an attempt to expand operations in the U.S. was unsuccessful. The increased administration associated with the geographical group organization did not sufficiently promote the coordination of the group as a whole. The company was more directed toward technological eminence than for meeting the requirements of customers. The lack of administrative routines and control systems provided little unification in the management structure of the firm, and the company tended to be weak in performing tasks associated with cross functional activities as e.g., project execution. In 1979 a new organization based on product groups instead of geographical regions was launched. However, at this time the company was badly affected by the complete overhaul of the electrical power sector. The new organization had problems in providing incentives for rapid change as it did not deal with the consistent focusing of operative units toward corporate objectives and profitability, but relied on a new administrative structure to facilitate this. The new organization was also short-lived, as a new proposal of group reorganization was suggested in 1985. In this organization, a number of divisions were created, which were to cross the previous boundaries of the subsidiary organization. Increasingly the BBC  organization appeared to close up on the management style of Swedish competitor ASEA, with which it was to be merged in 1988, before the last reorganization was completely implemented. Integrating diversified companies Although the new organization at Siemens was centralized it tried to address the co-existence of differentiated products and technologies and the need for integration by central functions in developing and marketing these products. In contrast to many of its competitors, Siemens opted for an organization with few, but large, business units well up until the 1980s and strong central departments. This created a quite strong corporate bureacracy, and a major reorganization was conducted in 1989 when the number of business units where doubled and two levels of middle managers were abolished. Another reason for the increased differentiation of the organization of Siemens was the acquisitions made during the 1980s, which created both a larger but also more diversified company. GEC under Arnold Weinstock was to make use of a divisionalized form based on market grouping and profit-center thinking to a degree that had its only equal in General Electric under the Cordiner era. He begun by abolishing corporate headquarters and committees, and introduced a management-style based on accountability, cash and profit performance, minimum overhead cost, and use of key financial indicators for frequent evaluation and coordination. By running units as independent companies, the management of GEC thus followed a strong tradition of decentralized management in British electrical manufacturing industry. The heritage was also strong when it came to the detachment of top-management from operations, as this have been a conspiciuous feature of e.g., the management-style of both Lord Chandos and Lord Nelson. At the same time, such a structure concentrated much of strategic decision-making to one man: Arnold Weinstock, who communicated “vertically” with the rest of the organization. By separating units, a small headquarters could manage based on financial measures. The indicators used by Weinstock at GEC promoted a quite myopic behavior at lower levels, and the attempt to increase coordination through the establishment of a board of managers was a dismal failure. Moreover, the managerial climate became “tougher” and more aggressive internally, as managers had to justify decision on sound, short-term, economic calculus. At the same time, however, GEC exhibited tendencies of being risk-avert, avoiding costly, uncertain investments in potential businesses and stuck to the sheltered domain of defense contracting. New strategies and organizational forms Jack Welch entrance as the new leader of GE in 1981 came not only to change parts of its strategic direction, but also stretched and altered some of the basic principles of management. One radical change was making several business layers obsolete and the diffusion of strategic planning from headquarters to divisional levels. Some of the strategic ideas implemented by Welch, for instance “managing less is better management” could be seen as extrapolation of a vision encapsulated in the GE organization since Cordiner’s days. Diversity was emphasized also by the focus of innovation as a major objective. By highlighting change and individual responsibility as well as the focusing the business on high-technology industries, Welch aimed for an organization moving away from centralized caretaking and conformity, toward variety in organizational activities. The measures taken by Welch in attaining this objective very much relied on firm sttrategies (i.e., selling and acquiring businesses) and clear business (as e.g., No. 1 or No. 2; “boundaryless”; “integrated diversity”) visions clearly communicated. As the first energy crisis subsided, there was further concentration efforts taking place in France. The creation of Alsthom-Atlantique in 1976 meant that the new company had a quite  wider range of operations than its predecessors. CGE chose to focus on telecommunication, transport, and energy, while it was switching back and forth between state ownership and private ownership in the 1980s. The company decentralized to subsidiary level, but these were subsidiaries that were quite large after the complete restructuring of the French electrical manufacturing industry. Moreover, during the 1980s the French electrical manufacturing industry had become French-owned. This changed as the transnational, Anglo-French, joint venture in power engineering GEC-Alsthom was created in 1989. The company adopted a French management style, was governed in a divisional structure embracing e.g., transmission and distribution, generation, rail, and marine equipment. In contrast to its resembling competitor ABB, the company did not develop a global matrix, but relied on a “heavyweight” general delegate for local operations. The aim of the new company was to obtain a global presence in the heavy segment of electrical manufacturing. During the late 1970s, despite new top-management, little was changed in the way ASEA was managed. However, with the advent of Percy Barnevik in 1980, the company underwent some turmoil, as he brought in new management ideas. In at least two senses, he continued on previously chosen paths. First, the company continued to grow in a related manner, by expanding its activities within existing or related product lines. Second, changes focused on increasing the tempo and efficiency of the organization, the major difference this time was the focus on markets rather than production. Divisions were created concurrently with a Nordic expansion through acquisitions. These divisions were coordinated in segments, and, eventually, through a matrix based on markets (regions) and products. The organization became more decentralized as decisions were to be taken at divisional level. Profit-center thinking was pushed as far down the organization as possible. However, an internal reporting and management accounting system was developed in order to “tie” the organization. Inevitably, the focus of ASEA became more business, market, and short-term oriented than previously. This was the system that was brought in and refined when the merger with Brown Boveri into Asea Brown Boveri (ABB) took place in 1988. The continuous strengthening of an initially quite weak position had paid off and the company went into the “major league”. Technology-based activities Technological diversification The American situation dramatically changed after 1975. There were radically decreased incentives for expanding in power technology as demand dipped. Instead, completely unrelated business like banking and entertainment were deemed prosperous. With the appointment of Jack Welch as president, traditional technologies were seen as insufficient for maintaining or increasing corporate growth and profits. Profits were made on innovations, not by slowly building a technological lead, he announced. The unrelated diversification that resulted meant that new areas in which GE staff had little cumulative experience were entered. Not only were some of the new businesses that became more important in the “new” GE new to the company, their technological character differed quite radically as they were based in services as e.g., media and finance. Although diversifying, the number of electrical products within GE therefore decreased as Welch entered the scene in the 1980s The 1980s saw Siemens devote itself to a number of high-technology areas as e.g., telecommunications, computers, and energy systems. The new technologies were developed internally but also through joint ventures and mergers and acquisitions new technology was accessed. Bothered by not being a growth company, the corporate management of GEC chose to exit the low-growth power engineering when the opportunity came to join forces with French manufacturer Alsthom in 1989. The conglomerate firm had then opted for focusing its efforts  to defense products. The changing strategy towards becoming a growth firm caused management to start acquiring companies and licenses. Moreover, it initiated a number of joint ventures with other manufacturers in order to secure sufficient funds for product development and growing by larger market shares. GEC-Alsthom was the outcome of one such joint venture. The oil crisis in France, as in the rest of the world, had the effect of decreasing opportunities perceived by electrical manufacturers. However, the French manufacturers that in the beginning of the 1980s were merged to one single company, Alsthom, now had a strong technological core around which it organized its activities aiming at both manufacturing and innovation. The technological evolution of Alsthom was one of continued high-technological content, but also concentration to core technologies. The firm had evolved into a quite focused enterprise, partly due to divestitures of less related areas. The technologies the company worked with were still complex as high speed trains and telecom, but perhaps less so power engineering. By the time of the joint venture into GEC-Alsthom the company had grown almost self-sufficient in regard of technology. During the 1980s, a wave of joint ventures substituted for the lack of mergers to make domestically. Failing technology? One problem in the “old” power technologies was the problems experienced in its flagship, nuclear power plants, where the Three Mile Island and Chernobyl accidents were less favorable for the further development of this technology, as it became questioned by a larger public than only environmentalists. One problem for Westinghouse (especially when compared with GE) was that the company seems to have lacked any idea of what would substitute for its previous core business and technology, electrical power, when it withdrew from it. Rather, the actions taken by management implies a kind of “lack of memory”, as it neglected the time it had taken for Westinghouse to become one of the giants in one technological field. Now they were trying to maintain its position or create a new position by constantly switching its interest between areas where profitability currently was high. AEG’s large investments in nuclear technology did not pay off. The losses incurred in the nuclear business tapped the financial resources of the conglomerate firm. In AEG the number of products had increased, not at least due to the joint ventures created in new areas as e.g., computers. In the nuclear business, the company was dependent upon GE technology and licenses, and the diversification into that area finally proved disastrous for the viability of the company. The debacle in the nuclear business had one consequence in the concentration of AEG, since it had to sell off assets and subsidiaries. It also redirected its strategy to technologies less complex and sophisticated, like household appliances and transportation. The innovative efforts of AEG were being stalled as the company fought for its survival. Hence, the number of products and technologies dramatically decreased, while they became more related within business segments. From a situation where the company had focused on the exploration of new opportunities, the situation now had shifted to the complete exploitation of current assets to secure endurance. The opportunities for a firm with the technological profile of BBC diminished quite radically as the 1970s contributed with two severe oil-crises and a backlash on nuclear technology. The demand for the large-scale, complex, technologies that the Swiss firm had specialized almost disappeared. Moreover, the “instant maturity” of several segments of the heavy electrical manufacturing industry, contributed to increased standardization of products and price competition. As Brown Boveri had been pursuing this kind of business for the whole 20th century, it was not easy to adjust to a new situation. It had a fragmented, specialized, scientifically oriented cadre of engineers, where the new predicaments pointed more to flexibility and efficiency. The technological focus of the Swiss firm now became more of a liability than an asset, as it did not have any competence in unrelated products or  technologies, in which it could diversify. Within those technologies that BBC had specialized, efficiency and flexibility became more important, which called for increased coordination of manufacturing and development of products that facilitated power systems control. While the company had difficulties in achieving the former, the efforts put in technological development of new equipment proved more successful. This activity was also coherent with previous actions of the firm, as it had been especially strong in R&D activities. Lessening R&D investments It is clear that after the oil crisis, management interest in power technology decreased at Westinghouse. In a mature business where demand had almost disappeared overnight, competition had increased and some of the advantages of Westinghouse’s long technological leadership could no longer be maintained. Moreover, management seems not to have believed in the cumulative requirements of such advantages, since the management style developed focused on the shaping of product portfolios by a constant buying and selling, rather than by slowly building in concentrated areas. In contrast to this development, the R&D center in Churchill was recognized as one of the most knowledgeable in the U.S. However, the financing of this center had changed. From an initial situation where it had been funded by the “taxation” of operating units, the funding of the center shifted to treating it as a profit center responsible also for “selling its products”. One consequence of this alteration was that the R&D center became increasingly occupied with selling contract research also to outside parties, like the Department of Defense or Electrical Power Research Institute (EPRI). Another was that the R&D it performed for operating units became more tightly coupled to daily operations, rather than experimenting for the future. In the new GEC, growth by technological development was not conceived of as a viable alternative by its top-management, or alternatively technological investments failed. Instead of investing in technological development that could further continued growth, the company gathered a “cash mountain”. In order to obtain a growth position that now had been lost, GEC would have to invest vast resources in the development of new products, products that sometimes were cross-leveling the boundaries of organizational units. In the market-based conglomerate structure of GEC such programs, like one in information technology became difficult, and subsequently ended in a failure. In power engineering, however, the British firm maintained its strong position. In this quite mature segment, technological change was not as radical as in other areas, and GEC managed to become one of the leading firms in HVDC power transmission technology, together with Swedish ASEA. Market-based activities Problems of rejuvenation: Being locked in to sheltered markets GE used to be the largest company and could dominate the industry. This changed after the oil crisis when European and Asian manufacturer became more aggressive competitors on a market that went through a crisis. In the heavier segments, GE was somewhat locked in to the American utilities, which cancelled all their orders for power equipment. They had gone from a situation where they ordered equipment based on previous year’s figures to an almost complete discontinuation of ordering. When Jack Welch entered as CEO, he tried to escape from the worst markets and enter new, high-growth ones. Moreover, an important objective for the “revolutionalized” GE was to become a truly international company. In trying to accomplish boosting international sales, Westinghouse implemented a matrix organization for its international business. It is significant, however, that this was an organization for solely international business, and not for Westinghouse’s business as a whole. This shows the perspective prevailing on the American firm, in which foreign markets were considered  primarily as markets, and not productive opportunities, for the company. Another important customer for Westinghouse, as for British manufacturer GEC, was the defense administration in the U.S., which strengthened its relatively myopic American focus. During the post-oil crisis era the most significant changes in Siemens’ market-based activities was its breakthrough on the American market with several products. Moreover, the company entered a number of joint ventures to obtain global presence. The new organization introduced in 1989 also pointed to more market orientation in the old German firm. GEC after the oil crisis continued to stay in the sheltered environment of defense contracting as it grew into Britain’s largest supplier of defense equipment. Selling defense equipment meant that the customer was very demanding, but also that he was willing to pay for the extra expenses associated with delays. This contrasted somewhat with the policies of the Central Electricity Board (CEGB), which handled utility procurement through competitive bidding. In other markets, competition became increasingly international and more intensive. GEC did not perform very well in foreign markets, as the company continued its tradition to mainly export products manufactured in Britain for British customers. The commonwealth and Britain’s traditional ties could no longer be used as a basis for international business, but GEC did not solve this problem. The relationships with utilities continued to be less developed as the tendering procedure in contracts opened the market for foreign competitors that could sell at low prices. GEC tried to change this fact in the late 1980s by entering different joint ventures, a strategy pursued by its German and French competitors previously. However, GEC-Alsthom’s organization still represented a perspective of its joint founders rather than local presence. One way out: Joint ventures and mergers & acquisitions In the late 1970s and the beginning of the 1980s Alsthom’s domestic markets was extended to international markets. Domestic competition was restricted to Jeumont-Schnneider, and the company restructured its product portfolio again. As the joint venture with GEC was taken up, the differences in market-based activities was recognized, as the policies of British CEGB and EDF were quite different. There was a close relationship between Alsthom and EDF in France, while relations in Britain was characterized by longer distance. The general market environment became more differentiated for the new joint venture as it aimed for global markets. Although being international, GEC-Alsthom did not adopt the more transnational market oriented structure of main competitor ABB. One problem for BBC, was the rapid change in market conditions during the 1970s. The customers did not ask for large-scale and complexity anymore, but wanted cheap and flexible systems. During the good years, BBC had lost some of its contacts with local customers, and was slow to react on this change. Some of the larger firms with which it competed were more cost efficient, and some of the smaller competitors, like ASEA, turned out to be more market oriented. BBC was neither. One response was to look for joint ventures to gain access to, and develop new markets. BBC did little by its own hand however, to create new markets. Many international markets developed into more global markets where standardized commodities were sold basically on price. As BBC continued to have a rather local sales organization, it had difficulties in obtaining scale advantages, but however, had close access to its customers. However, even on such local markets, customers fed back information to Brown Boveri that the engineers of the company perhaps did not want to hear, asking for cheaper, less advanced, but more flexible products. As the local sales organization had become one problem for the ailing BBC, it was one of the prime assets that the company brought with it in the merger with ASEA into ABB. However, a new era of customer, and above all, profit orientation begun in 1988 as the merger occurred. In the beginning of the 1980s, ASEA took on a new strategy  aiming at increasing its sales. Market-based activities were aiming at international markets and the first steps were taken in acquiring several firms in the Nordic countries. Furthermore, a new organization was implemented, first by initiating divisions, and subsequently by developing a matrix organization. The last step in this market-based strategy was the joining of forces with the Swiss manufacturer BBC that had access to a number of markets through its dispersed organization. One intention pursued in the creation of ABB was market development, exemplified by the investments made in Eastern Europe and the focus on entering Asian markets; the slogan being “Being Glocal”. Discussion Capabilities and knowledge: The dynamics of learning Ascribing the industrial firm learning capabilities implies some refinement of the mechanisms of learning from the evolutionary stance adopted here. Hence, I will revisit the learning model provided in chapter one (Levitt and March 1988; Levinthal and March 1993) and discuss it in relation to the outcomes of this study. The first observation is that, as March and his associates have pointed out, organizational learning tends to be difficult, in particular if viewing it from a Panglossian perspective. The learning dynamics observed in this study draw the attention to the imperfectness and ambiguity involved. Learning is indeed local, the electrical manufacturers showed systematic biases in interpretation, not at least when it came to interpreting technological evolution or market demand. Moreover, such local learning led to the creation of unreflected interpretation schemes, manifest in the “obviousness” of the superiority of technological systems (AC or DC), or the organizational structures promoting independent and short-term behavior in firms like GE, GEC and Westinghouse. In dynamic environments of learning organizations, as the one of the electrical manufacturing industry, a pertinent finding is the ambiguity of success. Financial and technological success did not always go hand in hand. Moreover, the lack of “perfect” competition in the industry made it difficult for management of the electrical manufacturers to assess the efficiency of operations. Hence, it is not hard to understand why the electrical manufacturers exhibited significant inertia in their behavior. In general, they adhered to strategies, organizational structures, preferred markets, and technologies longer than what, looking in the rear view mirror, may have been optimal for long-term profitability and survival. Moreover, the three-partitioning of organizational capabilities into different activities indicates multilevel learning. Within each activity, a number of specialized routines emerged in response to problems in need of solutions. For instance, Siemens in the early history of the industry paid attention primarily to dynamo technology rather than lighting technology, GE developed products and organization suited for the demand of American utilities and consumers, and GEC (under Hirst) developed an organizational system where manufacturing and marketing departments “traded” rather than were centrally coordinated. However, the firms were in large successful, and promoted the further use of previously instigated routines. It is possible that superior routines could have been discovered, but why change a winning team? When difficulties arrived (e.g., the depression in the early 1930s or the decreasing demand in the 1970s), no other knowledge on causation was developed than the one based on the utilization of previously successful routines. We have therefore been able to discover competency (or success) traps by the electrical manufacturers in, for instance, the promotion of a universal technological system, the excess use of Strategic Business Unit organization, or reliance on particular customer segments.  Understanding organizational capabilities as learning entities may also include a discussion on the strategies pursued by organizations to promote learning, and the implications of the division between management-based, technology-based, and market-based activities. As argued by Levinthal and March (1993), simplification is one means of facilitating learning from experience, which also induces localized learning. Here, we may observe the partitioning of organizations into different specialized departments as an indicator of this strategy. The principle used for departmentalization e.g., functional grouping (ASEA and BBC) or market/product (GE and GEC) tends to focus the direction of learning. Departmentalization creates boundaries and buffers restricting the searchable area of knowledge necessary. Within functionally organized units expertise knowledge can be enhanced, while the focus of market grouping increases pressures for responsiveness in system-wide sub unit problem solving (cf. Lindkvist, Söderlund and Tell 1998). Perhaps even more salient in the electrical manufacturing industry is the other principle for learning facilitation discussed by Levinthal and March (1993), learning specialization and substitution, as this points directly to the learning activities involved in organizational capabilities. Thinking in terms of the three basic activities proposed in this general framework, management-based, technology-based, and market-based activities may substitute for each other in the organization’s development of its organizational capability. Being technologically strong (e.g., in terms of patents), for example, during some periods may relieve firms from developing their market-based and management-based activities. This implies that the organization develops an “absorptive capacity” (Cohen and Levinthal 1990), within this particular activity, conducive for faster learning. However, such learning then takes place at the expense of learning in other activities. Such “imbalances” in learning dynamics may create “incoherence” of the industrial firm, as there are discrepancies in learning rates and direction of different activities. In the history of the electrical manufacturing industry we saw how the British company Associated Electric Industries AEI kept its two major brand names Metrovick and British Thomson-Houston (BTH) in separate organizations until 1960. Both companies were considered technological leaders in Great Britain, had well established channels to their markets and were making money. As a strategy for enhancing the technology-based and market-based activities on a local level, the strategy of AEI seemed defendable. However, the general management of AEI was weak e.g., it was lacking a management accounting systems for the group as a whole. The potentials of knowledge integration efficiencies and scope attainable on a global level was not realized as “a learning curve” on these activities had not been embarked upon. A similar reasoning is applicable for the Swiss manufacturer Brown Boveri (BBC), which strove for technological excellence and subsidiaries with large home markets, but with little central coordination. The story of Westinghouse in the late 1970s and 1980s is quite a different story, where the development of refined managerial systems substituted for a coherent technology strategy and solid attempts of reaching global markets. Finally, the Swedish manufacturer ASEA during the 1960s and 1970s focused very much inwards on internal efficiency of its organization, increased its spending on R&D, but lost its close cooperation with Vattenfall and did not build an organization directed toward international sales. To sum up, the concept of coherence as discussed by Dosi, Teece and Winter (1992) does thus not only refer to the coherence in activities and products per se, but also involves the balancing of learning processes in each activity. Such balancing indicates a that coherence entails a “juggling” of learning activities, where it is hard to see any potential for perfect optimality or organizational fit (cf. 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