Teece, David J. (Born 1948)
David Teece has made important contributions to strategy, innovation and international business (IB) and public policy, including reasons for the existence and organization of firms; how appropriability/value capture and transactional issues can influence innovative activity and value creation and the boundaries of the firm; and the role of dynamic capabilities in contributing to the sustainable competitive advantage (SCA) of firms. Recent work on dynamic capabilities integrates a considerable body of social science and management research and fashions a novel framework to help deepen understanding of the nature, essence, strategy and performance of the business enterprise.
KeywordsInternational Business Dynamic Capability Transaction Cost Economic Sustainable Competitive Advantage Business Model Innovation
Born in New Zealand, Teece attended the University of Canterbury before going to the Wharton School of the University of Pennsylvania (M.A. 1973 and Ph.D. 1975) where he studied economics, with specializations in industrial economics/organization, international trade and technological innovation. He taught at the Stanford Graduate School of Business from 1975 to 1982 before moving to the University of California (Berkeley) where he became Professor of Business Administration (in 1982); and for over 20 years he held various academic and research positions at UC Berkeley including Director of the Institute of Business Innovation and its predecessor the Institute for Management, Innovation, and Organization, and (since 2013), the Tusher Center for Intellectual Capital.
Major Contributions to Scholarship in the Field of Strategy
Teece’s work has integrated streams of transaction cost theory, evolutionary economics, and behavioural organization theory, among others (part of the intellectual history of Teece’s work also detailed in work with co-authors, see for example Augier and Teece 2005). In this entry, we emphasize some major themes.
Boundaries of the Firm
Teece’s early work on firm boundaries was heavily influenced by his PhD adviser Edwin Mansfield and by Oliver Williamson. Williamson (1975) had set out the basic framework for what was to become known as transaction cost economics (TCE); at its heart lay a core hypothesis that was as deceptively simple as it was potentially powerful; the more transaction-specific the assets underlying a transaction between buyer and seller, the more likely the buyer would internalize the transaction to avoid the danger of opportunistic appropriation of quasi-rents once the buyer had become committed to the transaction.
Teece’s work has both extended and contributed to the TCE literature. For instance, one major lacuna in early TCE was lack of explicit recognition of internalization in the context of internationalization/ cross-border expansion, as represented by the growth of the multinational enterprise (MNE) and the choice of foreign direct investment (FDI) as opposed to licensing. This was not something that Oliver Williamson (1975) had been explicitly concerned with. This lacuna had been partially filled by scholars in international business (IB) such as Stephen Hymer (1976) and Buckley and Casson (1976). However, interpretation of what was meant by transaction costs in the IB field (described as the “Internalization School” in Teece 1986a) could be eclectic and was generally developed to deal with the special case of the MNE. Teece (1981a, 1986a) approached the problem by starting with the governance perspective associated with TCE and extending it to deal with the characteristics of the nature of technology, assets and capabilities, regimes of appropriability and the characteristics of the markets in which the firm operates. Along with Teece (1980, 1982) this helped apply TCE in novel areas and demonstrated its potential as a framework that can help explain the boundaries of the firm in general and not just the special case of vertical integration and/or the MNE.
Knowledge Assets and Competitive Advantage
The resources required to transfer technology internationally are considerable. Accordingly, it is quite inappropriate to regard existing technology as something that can be made available to all at zero social cost. Furthermore, transfer costs vary considerably, especially according to the number of previous applications of the innovation, and how well the innovation is understood by the parties involved. (1977a: 259)
The frame of reference Teece derived from these early insights (of knowledge transfer as a potentially costly activity) served him well two decades later in a series of papers on intellectual property (IP) strategy. These papers could be regarded as representing a confluence and integration of two recurring themes in Teece’s work over the years; knowledge assets and capabilities as the foundation of the theory and SCA of firms (see, for instance, Grindley and Teece 1997; Teece 1998, 2000).
Complementary Assets and Technological Innovation
Teece’s previous work on knowledge assets and the boundaries of the firm were to serve as part foundation for what was to become one of his most influential and cited pieces of work to date. In 1986 he published “Profiting from technological innovation: implications for integration, collaboration, licensing and public policy” in Research Policy (Teece 1986b).
In the paper, Teece set about creating a framework that would help innovators and innovating firms assess possibilities for the exploitation of commercially relevant inventions and/or innovation, including solely in-house strategic options versus contractual ones. This was an early exploration into what we now think of as business models for technology commercialization (Teece 2010). He recognized that there could be a gap between the conventional wisdom (that there was a direct link between firm innovativeness and commercial success) and the reality (the progenitor for what could become a successful product often failed to reap the rewards for its pioneering efforts). In principle the gap was visible, but with the information diffuse and scattered in the public domain it awaited collation and interpretation. Teece collected, collated, and noted numerous examples that apparently breached the notion of first mover advantage with the original innovator often losing out to later followers. The more difficult question was why this should happen, and to answer that question Teece weaved together separate strands comprising complementary assets, the appropriability regime, timing, and the evolution of standards, all of which drew upon sound theoretical reasoning and empirical evidence from the extant literatures in economics and strategy. Teece built on these foundations to help provide a working model and predictive framework for the exploitation and appropriation of innovative potential, the paper showing how the framework could be applied by strategists and policymakers to help formulate strategy and policy with the help of simple diagrams, 2 × 2 matrices, and flow charts.
Additional features of this paper worth noting include that the importance attributed to complementarities questioned (without explicitly mentioning) the lack of complementarities in Porter’s (1980) industry-based 5-forces framework. Complementarities have proven the Achilles heel for Porter and/as it is arguable that modern network and business ecosystem-based strategy (to which Teece keeps contributing) is mostly about such complementarities. The second aspect is about international trade policy. Moreover, Teece’s idea that the acquisition and leverage of complementary assets and capabilities can confer SCA to firms and that public policy can contribute, is in line with strategic trade-based ideas as in Krugman (1987) albeit of the minimally invasive type (i.e. in terms of supporting complementarities).
At minimum dynamic capabilities is a tool for integrating over fifty years of scholarship and empirical analysis in economics, sociology, behavioural decision theory, business history and strategic management itself. More ambitiously, it outlines a new theory of management which can be the cornerstone to a much deeper understanding of the business enterprise, competitive processes, competitive outcomes, and wealth creation in advanced post-industrial knowledge-based societies.
Teece and co-authors have written about the history and intellectual foundations for dynamic capabilities, including the relationship with transaction cost economics, evolutionary economics, neo-Schumpeterian and behavioral theory and the resource based view, and how it builds on and extends those traditions (see, e.g., Augier and Teece 2005, 2009; Teece 2009; Katkalo et al. 2010; Pitelis and Teece 2010).
The term dynamic capabilities was originally introduced into the literature in an early working paper co-authored with former students Gary Pisano and Amy Shuen (Teece et al. 1990), then developed further in Teece and Pisano (1994) and subsequently expanded into Teece et al. (1997). Teece also contextualized the concept by noting that earlier work in the resource-based theory (which included Rumelt 1984; Wernerfelt 1984; Amit and Schoemaker 1993; and some of his own work such as Teece 1980 and 1982), had tended to portray the enterprise as consisting of bundles of idiosyncratic competencies or resources (especially know-how) that could be difficult to trade or imitate, and whose ownership and utilization could generate competitive advantage at a point in time. However, he argued that sustainable advantage in modern globalized dynamic environments required more than just the ownership of such assets; it also required unique and difficult-to-replicate dynamic capabilities to “continuously create, extend, upgrade, protect, and keep relevant the enterprise’s unique asset base” (2007: 1319). Teece also argued that for analytical and practical purposes DCs could be broken down into three categories: “(1) to sense and shape opportunities and threats, (2) to seize opportunities, and (3) to maintain competitiveness through enhancing, combining, protecting, and, when necessary, reconfiguring the business enterprise’s intangible and tangible assets” (2007: 1319).
However, despite the efforts of Teece and others (see especially Helfat et al. 2007: 1–18) to clarify and operationalize the concept, the varieties of definitions and interpretations in the literature indicate that for some at least it is not a settled concept. Also, while the concept has been applied in a large variety of contexts and from a variety of disciplinary and methodological perspectives, this has been at the expense of a more focused and integrated development, which might have facilitated the ambitious agenda of making it both a recognized universal tool for managers and a general theory of management more realizable, at least in the medium term. To a large extent this is just to be expected; although the concept has been around since early-1990s, over half the Google Scholar citations to it have been made in just the last 5 years (to January 2016). Dynamic capabilities may be reasonably regarded as a concept that is still at the developmental stage, though to describe it as such is to run the danger of underplaying the significant impact it has already had on the field.
Some Other Contributions
Teece has made several other significant contributions to the field of strategy, including an early 1978 paper with Henry Armour, which was an early empirical contribution to the literature and perhaps the first to show a statistically significant positive linkage between organizational structure and financial performance. This was generalized across industries in Teece (1981b).
He also co-authored a contribution on the “virtual corporation” with Henry Chesbrough (Chesbrough and Teece 1996), which analysed the competitive opportunities – and dangers – of the “virtual corporation” “where businesses could outsource their business activities to a variety of partners. He and Chesbrough made a discriminating case for when innovation could be outsourced and when it could not, hence anticipating the literature on open innovation” (Chesbrough 2012).
More recently, Teece has revisited the core issues of the nature and essence of the firm and the MNE in terms of entrepreneurial shaping of the market (Augier and Teece 2009), and later market and business ecosystem creation and co-creation (Pitelis and Teece 2009, 2010; Teece 2014). This turned on its head the economics-based market failure approach and brings together core themes of entrepreneurship, strategy and IB, not least complementarities and business ecosystems that Teece helped found. It also built on Frank Knights and Edith Penrose’s insights, extending the role of entrepreneurs to the simultaneous creation and evolution of markets and firms (Augier and Teece 2007: 182). In Katkalo et al. (2010) moreover the three main categories of DCs are linked explicitly to value creation and capture, a theme followed in subsequent work on business model innovation.
Teece (2010) contributed to the emergent stream of discourse in the strategy field on business models (which describe “the design or architecture of the value creation, delivery and capture mechanisms employed”, p. 191) by relating them both to strategic conceptualizations and economic theory. Like much of his work, the article synthesized and integrated apparently disparate threads into a coherent narrative and sought to popularize and communicate complex but deceptively simple arguments without jeopardizing their essential integrity. His work on what he calls “next generation competition” (Teece 2012) also endeavors to explain how the nature of competition itself has changed, and how scholars and practitioners alike should reconceptualize it.
An economist at heart, Teece was throughout interested in anti-trust and public policy. He has made numerous contributions on anti-trust more relevant for this entry being arguably the article with Jorde (Jorde and Teece 1992). The article noted the importance of non-collusive aspects of inter-firm co-operation and their concomitant implications on innovation. These need to be taken into account for an informed anti-trust decision and legislation, lest an exclusive focus on market shares and concentration throws out the baby (value creation though non-collusive co-operation) with the bathwater (the increase in market share). Here too, Teece parts with the original IO-based approach of Bain (1956) and their strategy counterpart in Porter (1980).
Place in the Strategy Field and the Wider Context
As a graduate student at Penn in the early 1970s, I was fortunate to end up in his Ph.D. class on the economics of technological change. He opened my eyes to a set of issues for which I had no previous exposurey. No one at that time, including Ed, knew much about the topic. (Teece 2005: 17)
Later in his career Teece came to appreciate the contributions of Richard Nelson and Sidney Winter, Herbert Simon, James March and Nate Rosenberg and Alfred Chandler. These scholars are amongst Teece’s acknowledged mentors (for more detailed accounts of the intellectual foundations for Teece’s work see also Augier and Teece 2005, 2007, 2009). The 2005 paper explicates the different intellectual lines, including transaction cost theory, behavioural and evolutionary theory.
Reception of Work
The reception of Teece’s work is manifested in several professional awards as well as in citations. Teece has been recognized in a study by Accenture as one of the world’s top 50 living business intellectuals, defined in the study as “influential thinkers and writers on business management topics” (Accenture 2002). The list was produced on the basis of the sum or ranks in three categories; web hits, media mentions and scholarly citations. He was one of 30 US business professors named in the “A-List of Management Academics 2011,” the list was compiled by Business Educators, a US-based private organization on the basis of professional accomplishments, renown in their field of expertise and dedication to sharing their knowhow with others (Haas 2011). Teece (2009) was selected as one of the best books of 2009 by the management magazine Strategy + Business.
With circa 95,000 citations in Google Scholar (5 January 2015) and an h-index of 90 (indicating that 90 of his publications had been cited at least 90 times each), the recognition of Teece’s work is on a par with many a Nobel laureate. His most cited publications are “Dynamic capabilities and strategic management” (with Gary Pisano and Amy Shuen, 1997, with circa 25,000 citations already, also listed as the most cited paper in Economics and Business, 1995–2005, by Science Watch (Teece 2009: xi); and “Profiting from technological innovation y” (Teece 1986b). The latter was judged by the editors as one of the best papers published by Research Policy 1971–1991 and identified in 1999 by its editors as the most cited paper ever published in the journal. Both articles have been reprinted numerous times in other publications.
Science Watch (May 2008) ranked Teece in the top ten most-cited researchers world-wide in economics and business (1997–2007). He was identified as in the Top 10 Most Influential Scholars in Management Based on Citations, Academy of Management Perspectives (Aguinis et al. 2012).
In addition, Teece has received awards and numerous honorary doctorates, including from St Petersburg State University Russia (2000); Copenhagen Business School, Denmark (2004); Lappeenranta University of Technology, Finland (2004); and University of Canterbury New Zealand (2007). He is also a Fellow of the Strategic Management Society, and a recipient of the Eminent Scholar award (2013) and Honorary Fellow of the Academy of International Business. Finally, in addition to his academic activities Teece has played major roles in creating two service sector MNEs, first co-founding and chairing for two decades the Law and Economics Consulting Group (LECG) in 1988, and later founding and chairing the Berkeley Research Group (BRG) in 2010.
Teece has made a seminal contribution to the field of strategy and particularly in relation to where strategy thinking, is, or can be, rooted in the economic theory of the firm. The consensus in the field (supported by the weight of citations) would seem to be that, at least to date, his dominant contribution would be the notion of dynamic capabilities. But there is a paradox here in that although Teece approaches these issues from an economics perspective, his influence has been far greater outside economics rather than inside. This reflects self-imposed myopia in the economics profession in recent years and it is a fate shared by other leading economists in this area such as Penrose (1959) and Nelson and Winter (1982), Teece’s recent re-engagement with Economic Journals (Teece 2015) seems to reflect a welcome change.
However, one emergent issue is that many of those who have subsequently pursued the notion of DCs in scholarly publications, teaching and practice are not themselves trained as economists and can have different interpretations of the nature, characteristics and significance of DCs. This further distancing from economics can be reinforced by the difficulties that can be encountered in this context in attempts to apply positivist hypothetico-deductive approaches, and the generally accepted need to invoke other methodologies that can be unfamiliar to economists. At best, this may lead to a vibrant and rich mix of multi-disciplinary concepts, methodologies, applications and findings stimulated by Teece’s seminal work in this field. At worst, some of the original sharpness, focus and insight here may be lost in its translation across disciplinary interfaces, in much the same way that the younger Teece (1977a, b) discovered unexpected and significant costs in transferring knowhow across international interfaces.
Teece’s conceptualization of DCs has the potential to unify and integrate disparate approaches to the nature and functions of the firm in economics and management. The scope and variety of current efforts to develop and apply the concept across various areas of the field of management suggests that this is a promise that many think realistic and worth pursuing.
- Accenture. 2002. Accenture study yields top 50 ‘business intellectuals’ ranking of top thinkers and writers on management topics. Accenture Institute for Strategic Change press release (22 May), Cambridge, MAGoogle Scholar
- Augier, M., and D. Teece. 2005. Competencies, capabilities and the neo-Schumpeterian tradition. In The Elgar companion to Neo-Schumpeterian economics, ed. H. Hanusch and A. Pyka, 267–286. Cheltenham: Edward Elgar.Google Scholar
- Chesbrough, H. W. 2012. Open innovation: where we’ve been and where we’re going. Research-Technology Management, July–August, pp 20–27.Google Scholar
- Chesbrough, H.W., and D.J. Teece. 1996. Organizing for innovation: when is virtual virtuous? Harvard Business Review 74: 65–73.Google Scholar
- Haas. 2011. Prof. David Teece makes a-list of management academics, Haas Now, January 17, University of California Berkeley. Available at: http://newsroom.haas.berkeley.edu/article/prof-david-teece-makes-list-management-academics.
- Helfat, C.E., S. Finkelstein, W. Mitchell, M.A. Peteraf, H. Singh, D.J. Teece, and S.G. Winter. 2007. Dynamic capabilities: understanding strategic change in organizations. Oxford: Blackwell.Google Scholar
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- Jorde, T.M., and D.J. Teece (eds.). 1992. Antitrust, innovation, and competitiveness. Oxford: Oxford University Press.Google Scholar
- Nelson, R.R., and S.G. Winter. 1982. An evolutionary theory of economic change. Cambridge, MA: Harvard University Press.Google Scholar
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- Teece, David. 1981a. The multinational enterprise: market failure and market power considerations. Sloan Management Review 22: 3–17.Google Scholar
- Teece, David. 2009. Dynamic capabilities and strategic management: organizing for innovation and growth. Oxford: Oxford University Press.Google Scholar
- Teece, David. 2012. Next-generation competition: new concepts for understanding how innovation shapes competition and policy in the digital economy. Journal of Law Economics and Policy 9: 97–118.Google Scholar
- Teece, David. 2015. Dynamic capabilities and entrepreneurial management in large organizations: toward a theory of the (entrepreneurial) firm. European Economic Review. doi:10.1016/j.euroecorev.2015.11.006Google Scholar
- Teece, David, G. Pisano, and A. Shuen. 1990. Firm capabilities, resources and the concept of strategy. In Consortium on competitiveness and cooperation working paper No. 90–9. Berkeley, CA: Center for Research in Management, University of California.Google Scholar