Acknowledgements: The development of NeBIC theory has benefited greatly from the detailed guidance of the editor, associate editor, and reviewers. I also wish to thank research associate Michael Williams and Arvin Sayam for their valuable assistance and healthy debate in maturing the ideas presented here. NeBIC: A Dynamic Capabilities Theory for Assessing Net-enablement We propose the Net-enabled Business Innovation Cycle as an applied dynamic capabilities theory for measuring, predicting, and understanding a firm’s ability to create customer value through the business use of digital networks. The theory incorporates both a variance and process view of netenabled business innovation. It identifies four sequenced constructs: Choosing new IT, Matching with Economic Opportunities, Executing Business Innovation for Growth, and Assessing Customer Value, along with the processes and events that inter-relate them as a cycle. The sequence of these theorized relationships for net-enablement asserts that choosing IT precedes rather than aligns with corporate strategy. The theory offers a logically consistent and falsifiable basis for grounding research programs on metrics of net-enabled business innovation. NeBIC Page 1 1

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helpful ideas and comments on early drafts. We are indebted to Mike Hannan and Jim Baron for their role in the Stanford Project on Emerging Companies. Stephanie Woerner provided assistance of many types. Finally, we thank Thomas Hellmann and Manju Puri for sharing their financing data. Coming from Good Stock: Career Histories and New Venture Formation We examine how the social structure of existing organizations influences the entrepreneurial process and suggest that resources accrue to entrepreneurs based on the structural position of their prior employers. We argue that information advantages allow individuals from entrepreneurially prominent prior firms to identify new opportunities. Entrepreneurial prominence also provides reputation benefits that reduce the perceived uncertainty of a new venture in the eyes of external constituents. Using a sample of Silicon Valley start-ups, we demonstrate that entrepreneurial prominence is associated with initial strategy and the probability of attracting external financing. New ventures with high prominence are more likely to be It has often been noted that some of the most radically innovative products and technologies are

The typical approach to developing complex products is to decompose the product into systems, and these into components. We introduce a new notion of system modularity based upon the way components share design interfaces across systems. Modular systems are those whose design interfaces with other systems are clustered among physically adjacent systems, whereas integrative systems are those whose interfaces are physically distributed or functionally integrative across all or most other systems. Our research method allows us to study how system modularity impacts design team interactions. Our approach is illustrated by analyzing the development of an aircraft engine.

While the course of technological change is widely accepted to be highly uncertain and unpredictable, little work has identified or studied the ultimate sources and causes of that uncertainty. This paper proposes that purely technological uncertainty derives from inventors ’ search processes with unfamiliar components and component combinations. Experimentation with new components and new combinations leads to less useful inventions on average, but it also implies an increase in the variability that can result in both failure and breakthrough. Negative binomial count and dispersion models with patent citation data demonstrate that new combinations are indeed more variable. In contrast to predictions, however, the reuse of components has a nonmonotonic and eventually positive effect on variability.

many helpful discussions, the anonymous referees for their comments, and managers of Lucent Strategy research consists of a balance between positive and normative theory. Normative theories suggest particular heuristics, or cognitive representations, to find appropriate solutions. Heuristics permit faster solutions to real-time problems; they also suffer from the potential of negative transfer to inappropriate applications. The theory of real options provides an appropriate heuristic framing of competencies and exploratory search. A real options approach marries the theory of financial options to foundational ideas in strategy, organizational theory, and complex systems. We join these approaches to identify three pairs of concepts: scarce factor and the underlying asset in option theory, inertia and irreversibility, and the ruggedness of landscape and option values. Strategic theories of resources largely define a core competence as unique and non-immutable. In doing so, this definition has wrongly forgotten Barney’s initial insight into scarce factor markets as determining the valuation of a competitive asset. Financial theory of real options derives its heuristics of investing in exploratory search by inferring future value of today’s investments from

Institutional entrepreneurship implicit in a firm's sponsorship of its technology as a common standard is beset by several challenges. These challenges arise from a standard's property to enable and constrain even as potential competitors agree to cooperate on its creation. Our exploration of Sun Microsystems's sponsorship of its Java technology suggests that standards-in-the-making generate seeds of selfdestruction.

Commercial software project managers design project organizational structure carefully, mindful of available skills, division of labour, geographical boundaries, etc. These organizational “cathedrals ” are to be contrasted with the “bazaarlike” nature of Open Source Software (OSS) Projects, which have no pre-designed organizational structure. Any structure that exists is dynamic, self-organizing, latent, and usually not explicitly stated. However, in large, complex, successful, OSS projects, we expect that sub-communities will form organically within the “bazaar ” of developer teams. Studying these sub-communities, and their behavior can shed light on how successful OSS projects self-organize. This phenomenon could even hold important lessons for how commercial software teams might be organized. Building on wellestablished techniques for detecting community structure in complex networks, we extract and evaluate latent subcommunities from the email social network of several projects: Apache HTTPD, Python, PostgresSQL, Perl, and Apache ANT. We then validate them with software development activity history. Our results show that subcommunities do indeed form within these projects. We find, in other words, that “chapels ” (if not cathedrals) spontaneously arise within the bazaar as OSS systems and the teams evolve. We also find that these subgroups manifest most strongly in technical discussions, and are significantly connected with collaboration behaviour. 1.

This paper proposes that transaction costs and capabilities are fundamentally intertwined in the determination of vertical scope, and identifies the key mechanisms of their co-evolution. Specifically, we argue that capability differences are a necessary condition for vertical specialization; and that transaction cost reductions only lead to specialization when capabilities along the value chain are heterogeneous. Furthermore, we argue that there are four evolutionary mechanisms that shape vertical scope over time. First, the selection process, itself driven by capability differences, dynamically shapes vertical scope; second, transaction costs are endogenously changed by firms that try to reshape the transactional environment to increase their profit and market share; third, changes in vertical scope affect the nature of the capability development process, i.e., the way in which firms improve their operations over time; and finally, the changes in the capability development process reshape the capability pool in the industry, changing the roster of qualified participants. These dynamics of capability and transaction cost co-evolution are illustrated through two contrasting examples: the mortgage banking industry in the United States, which shows the shift from integrated to disintegrated production; and the Swiss watch-manufacturing industry, which went from disintegration to integration. Copyright © 2005 John Wiley & Sons,

This study links theories concerning methods that firms use to acquire technology with theories concerning types of technological change. We place particular emphasis on interorganizational relationships. We predict that firms will often acquire know-how needed for encompassing technological change through equity-based arrangements with other organizations, complementary technological changes through nonequity interorganizational arrangements, and incremental changes through internal R&D. Our theory draws on perspectives that emphasize the need to develop new competencies within a business organization and to protect the value of existing competencies. Our empirical analysis examines methods of technology acquisition that firms have used in the commercialization of medical lithotripters, which are devices that fragment stones in the kidney and gall bladder. The analysis contributes to a better understanding of how technology acquisition methods vary with the manner in which technological change relates to a firm’s existing capabilities. The study also helps develop our understanding of the evolutionary processes by which capabilities diffuse through an industry. © 1998 John Wiley & Sons, Ltd. Firms often must acquire new know-how as technology changes in an industry. Past research identifies different ways that firms acquire new knowhow when technological change affects their businesses, including internal development and acquisition from other firms (e.g., Teece, 1986; Mitchell