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Intangible Assets and a Theory of Heterogeneous Firms

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Intangibles, Market Failure and Innovation Performance

Abstract

This article outlines a capabilities-enriched economic theory of the firm and its sources of competitive advantage. The nature and key categories of intangibles are discussed, with an emphasis on their suitability for providing differentiation in an era when so many services and tangible goods are readily available on a global basis. The linkages in the conversion of intangibles into profits are analyzed, including the frequent need for co-specialized complements. Among the key categories of intangibles are organizational capabilities, which can be either ordinary or dynamic. Ordinary capabilities are, generally, those that can be measured against best practice and with some effort, imitated by rivals. Dynamic capabilities, which reside in both signature processes and management skills, allow the enterprise and its top management to develop conjectures about the evolution of consumer preferences, business problems, markets, and technology; validate them; and realign assets and competences to enable continuous innovation for the creation of competitive advantage. The key concepts of complementarity, entrepreneurial management, and dynamic capabilities are then applied to deepening the economic theory of the firm, combining with the dominant transaction cost approach to provide a richer understanding of why firms are needed in the economic system.

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Notes

  1. 1.

    Needless to say, through land use and other controls, national governments and local authorities can dramatically impair the value of real estate by limiting its use.

  2. 2.

    Business models in their entirety are generally not protected by intellectual property rights. Certain elements of a model might qualify for patent or copyright protection.

  3. 3.

    The VRIN criteria discussed earlier tend to overlook this point, i.e., the V of VRIN is likely to be highly context dependent.

  4. 4.

    The leaked Nokia memo was widely reproduced online. See, for example, http://www.engadget.com/2011/02/08/nokia-ceo-stephen-elop-rallies-troops-in-brutally-honest-burnin/ (accessed December 26, 2013).

  5. 5.

    Mansfield et al. (1981) found that about 60% of the patented innovations in their sample were imitated within four years. In a later study, Mansfield (1985) found that information concerning product and process development decisions was generally in the hands of at least several rivals within 12–18 months, on average, after the decision was made. Process development decisions tend to leak out more than product development decisions in practically all industries, but the average difference was found to be less than 6 months.

  6. 6.

    For a review of the literature on complementarity and the related mathematical concept of supermodularity, see Ennen and Richter (2010).

  7. 7.

    Langlois (1992) defines dynamic transaction costs as “the costs of persuading, negotiating, coordinating and teaching outside suppliers” (1992: 113).

  8. 8.

    See Bloom and Van Reenen (2007) for a notable exception to the virtual exclusion of firm-specific managerial practices from the economics literature.

  9. 9.

    This section draws on material in Al-Aali and Teece (2014).

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Acknowledgement

I wish to thank Greg Linden for comments and help in editing.

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Authors and Affiliations

  1. Tusher Center for Intellectual Capital, Haas School of Business, University of California, Berkeley, Berkeley, CA, USA

    David J. Teece

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  1. David J. Teece
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Correspondence to David J. Teece .

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Editors and Affiliations

  1. European Chair on Intellectual Capital & RITM, University Paris-Sud, Sceaux, France

    Ahmed Bounfour

  2. Faculty of Economics, Gakushuin University, Tokyo, Japan

    Tsutomu Miyagawa

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Teece, D.J. (2015). Intangible Assets and a Theory of Heterogeneous Firms. In: Bounfour, A., Miyagawa, T. (eds) Intangibles, Market Failure and Innovation Performance. Springer, Cham. https://doi.org/10.1007/978-3-319-07533-4_9

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