doi 10.1287/mnsc.1070.0712

The dynamic capabilities literature suggests that firms need to use both internal development and external sourcing to thrive over time, but we have a limited understanding of the conditions that best suit different sourcing choices. This study examines how constraints that arise from firms ’ existing stocks of capabilities and from their internal social contexts shape their choices of capability-sourcing modes and, in turn, their ability to obtain new capabilities. Thus, the research focuses on an underemphasized form of dynamic capability: the ability to select appropriate modes of capability sourcing. We test the arguments with a survey and longitudinal survival study of the international telecommunications industry. We find intriguing variations in the way that firms ’ selection capability influences their ability to renew their capabilities and, ultimately, to survive. Key words: modes of capability acquisition; selection capability; resource gap; institutional gap; internal development; external sourcing History: Published online in Articles in Advance April 7, 2008. Recent arguments in the dynamic capabilities literature suggest that firms need to develop skills in both internal development and external sourcing to be able to renew their capabilities and thrive over time (Helfat

This paper’s argument is that founding team composition—in particular, members’ prior company affiliations—shapes new firm behaviors. Firms with founding teams whose members have worked at the same company engage in exploitation because they have shared understandings and can act quickly. Conversely, founding teams whose members have worked at many different companies have unique ideas and contacts that encourage exploration. In addition, firms whose founding teams have both common and diverse prior company affiliations have advantages that allow them to grow. The results suggest team composition is an important antecedent of exploitative and explorative behavior and firm ambidexterity. The terms “exploration ” and “exploitation ” have been used broadly to capture a wide array of firm actions and behaviors. The concepts are central to studies of adaptation, organizational learning, and

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the Division of Research of Harvard Business School for generous funding. Errors remain our own. Patterned Interactions in Complex Systems: Implications for Exploration Abstract: Scholars who view organizational, social, and technological systems as sets of interdependent decisions have increasingly used simulation models from the biological and physical sciences to examine system behavior. These models shed light on an enduring managerial question: how much exploration is necessary to discover a good configuration of decisions? The models suggest that, as interactions across decisions intensify and local optima proliferate, broader exploration is required. The models typically assume, however, that the interactions among decisions are distributed randomly. Contrary to this assumption, recent empirical studies of real organizational, social, and technological systems show that interactions among decisions are highly patterned. Patterns such as centralization, small-world connections, power-law distributions, hierarchy, and preferential attachment are common. We embed such patterns into an NK simulation model and obtain dramatic results: holding fixed the total number of interactions among decisions, a shift in the pattern of interaction can alter the number of local optima by more than an order of magnitude. Thus, broader exploration is far more valuable in the face of some interaction patterns than in the face of others. We develop simple, intuitive rules of thumb that allow a decision maker to examine two interaction patterns and determine which requires greater investment in broad exploration

the Harvard Business School. Also, the paper benefited greatly from the comments of Elaine Romanelli and three anonymous reviewers. Complexity Theory, Market Dynamism, and the Strategy of Simple Rules This study explores the fundamental tension between too little and too much structure. Observed in multiple streams of research, this tension is associated with the tradeoff between efficiency and flexibility that is central in dynamic markets. Using the strengths of simulation to confirm internal validity and to elaborate theory through virtual experiments, we examine the relationship between the amount of structure and performance in dynamic environments. We have several findings. First, we confirm that an inverted Ushaped relationship exists between performance and the amount of structure. Yet, this relationship is unexpectedly asymmetric – i.e., it is better to err on the side of too much than too little structure. Second, we describe how market dynamism moderates the relationship between structure and performance. In particular, increasing unpredictability is associated with a less structured optimum. Moreover, when environments are

research advice of Andrew King, Larry Singell and Stephen Johnson. Thanks also are due to

papers published so far. The aim of the Series is to bring together research in progress from across the School for publication to a wider audience and to facilitate discussion. Papers are reviewed by senior faculty before acceptance into the Series. The agreement of the authors should be sought before referring to its contents in other publications. This paper is available electronically on the School of Management website:

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