Technological learning and a dynamic capabilities framework of competitive strategy: A study of the U.S. pharmaceutical industry from 1977 to 1991

Why do some firms in an industry consistently outperform their competitors? What competitive advantages do these firms possess that enable them to yield above-average profits over a long period of time? What unique capabilities do these firms possess and exploit?; A dynamic capabilities framework is developed in an attempt to explain why some firms in an industry outperform their competitors over time. It is argued that technological learning, from both internal and external sources, is the preeminent capability and the principal driver of other organizational capabilities. However, technological learning does not directly increase organizational performance. Instead, there are first and second order effects of technological learning, each of which are influenced by contextual factors. The first order effects of technological learning are increased product development and productivity, both of which are moderated by the organization's strategic flexibility. Financial performance is the second order effect of technological learning, but is also contingent on the interaction of product development and productivity, characteristics of the industry structure, and marketing commitment.; The U.S. pharmaceutical industry was studied in an attempt to support the proposed dynamic capabilities framework. Data were collected on twenty-one firms from 1977-1990. In general, the results partially support the proposed framework. An important finding is that the relationship between technological learning and each of the first order effects (radical product innovations, incremental product innovations, and process innovations) are moderated by different dimensions of strategic flexibility (e.g. manufacturing, financial, marketing). Concerning financial performance, firm productivity has a positive impact and marketing intensity has a negative impact on measures of profitability.; The normative implications of this study are that a firm should develop a comprehensive knowledge strategy that outlines how the firm will learn and ensure that the firm remains flexible enough to be able to rapidly apply new knowledge. Firms must understand the importance of both internal and external learning, but at the same time realize the tradeoffs associated with applying resources to each.