68 R.R. Nelson do. Or rather, while it may not be too difficult of the decision making processes, the links to destroy an old structure or its effectiveness, between R&D and production and marketing it is a major task to get a new structure in shape etc. This means that at any time there will be and operating smoothly. Thus to the extent that certain kinds of r&d projects that a firm can a major change in strategy calls for a major carry out with some confidence and success and change in structure, effecting the needed changes a wide range of other projects that, while other ay take a long tim firms might to able to do them, this particular The reason for changing structure, of course, firm can not, with any real confidence to change, possibly to augment, the things a R&d capabilities may be the lead ones in firm is capable of doing well. Which brings the defining the dynamic capabilities of a firm discussion to the concept of core capabilities. However, in a well tuned firm, its production Strategy and structure call forth and mold procurement, marketing and legal organizations organizational capabilities, but what an organiz. must have built into them the capabilities to ation can do well has something of a life of its support and complement the new product and process technologies emanating from R&D. In Winter and I have proposed that well working Teece's terms, the firms capabilities must include firms can be understood in terms of a hierarchy control over or access to the complementary of practiced organizational routines, which define assets and activities needed to enable it to profit lower order organizational skills, and how these from innovation. And in an environment of are coordinated, and higher order decision Schumpeterian competition, this means the capa procedures for choosing what is to be done at bility to innovate, and to make that innovation lower levels. The notion of a hierarchy of profitable, again and again organizational routines is the key building block The concept of organizational capabilities, and under our concept of core organizational capabili- the theory that winter and I proposed as to what ties. At any time the practiced routines that are determines and limits them, does not directly built into an organization define a set of things imply any coherency to the set of things a firm the organization is capable of doing confidently. can do. However, Dosi et al.(1989)argue that If the lower order routines are not there for in effective firms, there is a certain coherency doing various tasks, or if they are but there is There would appear to be several reasons. The no practiced higher order routine for invoking ones stressed by Dosi et al. basically are associated them in the particular combination needed to with localized learning in a dynamic context, and accomplish a particular job, then the capability follow on the arguments that Winter and I made to do that job lies outside the organization,s some time ago that, to be under control,a extant core capabilities routine needs to be practiced. Firms need to The developing theory of dynamic firm capabili- learn to get good at certain kinds of innovation ties I am discussing here starts from the premise and at the things needed to take advantage of that, in the industries of interest to the authors, these, and this requires concentration or at least firms are in a Schumpeterean or evolutionary coherency, rather than random spreading of context. Simply producing a given set of products efforts. Further, in many technologies one innd with a given set of processes well will not enable vation points more or less directly to a set of a firm to survive for long. To be successful for following ones, and the learning and complemen any length of time a firm must innovate. The tary strengths developed in the former effort capabilities on which this group of scholars focus provide a base for the next round abilities for innovation and to take but i think it also is the case that to be economic advantage of innovation effective a firm needs a reasonably coherent In industries where technological innovation is strategy, that defines and legitimatize, at least important, a firm needs a set of core capabilities loosely, the way the firm in R&D. These capabilities will be defined governed, enables it to see organizational gaps and constrained by the skills, experience, and or anomalies given the strategy, and sets the knowledge of the personnel in the r&d depart- ground for bargaining about the resource needs firm procedures for forming new ones, the character its next step forward. Absent a reasonably