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Evolutionary Approaches to Innovation, the Firm, and the

Dynamics of Industries
Gino Cattani, Franco Malerba

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 STRATEGY SCIENCE
Vol. 6, No. 4, December 2021, pp. 265–289
http://pubsonline.informs.org/journal/stsc ISSN 2333-2050 (print), ISSN 2333-2077 (online)

Evolutionary Approaches to Innovation, the Firm, and the

Dynamics of Industries
Gino Cattani,a Franco Malerbab
a
Stern School of Business, New York University, New York, New York 10012; b Department of Management and Technology and ICRIOS,
Bocconi University, 20136 Milan, Italy
Contact: gcattani@stern.nyu.edu, https://orcid.org/0000-0002-8310-7182 (GC); franco.malerba@unibocconi.it,
https://orcid.org/0000-0003-4083-2365 (FM)

https://doi.org/10.1287/stsc.2021.0141
Copyright: © 2021 INFORMS
Abstract. We examine the progress of the evolutionary research on innovation, the firm, and
the dynamics of industries in the last four decades. The paper acknowledges that the themes
related to knowledge and technological regimes, the evolutionary processes leading to inno-
vation, and the long-term dynamics of technologies have generated, and still remain, relevant
research trajectories. The same can be said for the research trajectories on organizational and
dynamic capabilities, evolutionary strategies, vertical integration, diversification, niche con-
struction, and authority and power in organizations. Important progress has also been made
in understanding the evolutionary trajectories of industries, the link between industry archi-
tecture and industry dynamics, the types of knowledge of entrants, the role of focal and verti-
cal spinouts, the relevance of institutions and sectoral innovation systems in industry dynam-
ics, and the catch-up process by firms from latecomer countries. We argue that future
developments in the evolutionary camp should continue to be characterized by eclecticism
and multidisciplinarity, as well as by the integration of different methodologies from cases to
stylized facts, quantitative analyses, appreciative theorizing, and formal modelling. We con-
clude with an analysis of the main methodologies used by evolutionary scholars and a discus-
sion of the road ahead.

History: This paper has been accepted for the Strategy Science Special Issue on Evolutionary Approaches
to Innovation, the Firm, and the Dynamics of Industries.

Keywords: innovation • technology • knowledge • routines • capabilities • exaptation • industry evolution • history-friendly simulation
• technological regimes

1. Introduction of the economic system (i.e., technologies, knowledge,

The evolutionary approach to economic change origi-
nates from Richard Nelson and Sidney Winter’s pio-
neering 1982 book An Evolutionary Theory of Economic
Change and has grown significantly over the last 40
years. The book has stimulated a wide variety of re-
search trajectories by scholars in economics, manage-
ment, technology, sociology, and history.
In the Nelson and Winter (1982) framework, learn-
ing and search in uncertain environments lead firms
to introduce novelty in the economic system and accu-
mulate knowledge in specific and idiosyncratic ways.
At the same time, firms as organizations develop over
time patterns of repetitive actions—routines—that are
used in current activities, if the context does not
change, and represent a distinct differentiating mecha-
nism and a source of heterogeneity within industries.
For Nelson and Winter, three key basic evolutionary
processes drive economic change: variety creation
through innovation and entry of new ventures; selec-
tion among firms, technologies, and products; and re-
tention that creates continuity in several dimensions
and firms). Nelson and Winter also propose a method-
ology for research centered on the need to develop dy-
namic analyses (“dynamic first!” in Winter’s words)
because the economy is always changing, and a
picture of what is going on at any time needs to be un-
derstood as a frame in a motion picture, and also cen-
tered on a view that theory has to be informed by, and
have a fruitful dialogue with, empirical investigations
and case studies. Theoretical arguments are, indeed,
strongly influenced by rich empirical observations
and oriented to provide an explanation for them.
This paper aims to take stock of the evolutionary re-
search that has been conducted in the last few decades
by concentrating on the evolutionary approaches to in-
novation, the firm, and the dynamics of industries. It is
not our intention here to propose a survey of all the
contributions in the evolutionary camp on these topics.
There are already several excellent surveys, including
Dosi (1988), Nelson (1995), Metcalfe (1998), Dosi and
Nelson (2010), Winter (2014, 2017), Nelson et al. (2018),
and Nelson (2021). Our goal is to flag topics in which

265
 Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
266
progress has been consistent and areas considered rele-
vant or promising. Because of space constraints, our dis-
cussion does not include other evolutionary topics such
as bounded rationality (for a discussion, see Cohen et al.
1996), stylized facts and statistical properties of industrial
dynamics (Dosi 2007), aggregate regularities and emer-
gent properties of evolutionary processes (Kauffman
1993, Kirman 2001), and the macro dimensions linking
the supply side with the demand side (Dosi et al. 2015).
In the following discussion, we include some leading
scholars whose work is close to the evolutionary
approach. Among them, we would like to mention
Nathan Rosenberg, Christopher Freeman, James March,
Steven Klepper, and Joel Mokyr. In the following
sections, relevant contributions of the evolutionary ap-
proach to innovation (in Section 2), the firm (in Section
3), and the dynamics of industries (in Section 4) are dis-
cussed. Then, in Section 5 the main methodologies used
by evolutionary scholars are presented, and Section 6
closes by delineating the road ahead.
2. Innovation
Innovation plays a central role in the evolutionary frame-
work. In their 1982 book, Nelson and Winter point out
that modern capitalism is a dynamically evolving system
that is innovation driven. For the evolutionary approach,
innovation is at the base of the emergence of novelty in
the economy, the driver of change in firms and industries,
and the foundation of long-term economic growth. Inno-
vation is an experiential process that faces uncertainty and
is full of trials and errors. There is a strong intellectual link
with Schumpeter’s 1934 Theory of Economic Development
(originally published in 1911 as Theorie der wirtschaftlichen
Entwicklung) and his notion of innovation as a process of
creative destruction that creates disequilibrium, generates
novelty in the economy, and challenges incumbents and
existing technologies. In the 1982 book, it is pointed out
that for Schumpeter (1934), several innovations are the re-
sult of informal activities by entrepreneurs and new small
firms. But it is also stressed that a large part of technologi-
cal change is the result of the research and development
(R&D) activities of medium and large firms. Here, Nelson
and Winter (1982) follow Schumpeter’s (1950) Capitalism,
Socialism and Democracy in his recognition of the R&D lab-
oratory as a major organizational institution generating
technological change, as well as Chandler (1962) in his
claim that major technological progress is the result of the
activities of large corporations with their vast assets and
extensive capabilities.
This broad and articulated view of innovation and the
various firms involved in this process has been a major
theme of the evolutionary approach in the last decades.
This has been coupled with the recognition of the extreme
diversity of technologies and technological change, as em-
phasized by Rosenberg (1976, 1982), who claims that one
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
should talk about “technologies” and not “technology.”
Several excellent surveys examine technological change
and innovation as an evolutionary process (e.g., Dosi
1988, Freeman and Soete 1997, and Dosi and Nelson
2010). In the following pages, we want to highlight
some key aspects that we consider relevant for current
evolutionary research and promising for future
developments.
2.1. Knowledge and Technological Regimes
Innovation is affected by the context in which innova-
tive activity takes place. Here, evolutionary theory has
proposed some key factors and dimensions that affect
the rate, direction, and patterns of innovative activities.
A first factor is knowledge and its nature, conceptualiza-
tion, and dimensions. The view of technology as knowl-
edge has become a cornerstone of the evolutionary ap-
proach because it implies that technology is not
replicable and easily transferred without cost, as infor-
mation is. This means that the reproduction of knowl-
edge in a different setting requires efforts and often faces
uncertainty and that the modes of replication may vary
(Nelson and Winter 1982, Winter and Szulanski 2001).
Within this perspective, tacitness and know-how become
relevant dimensions for any analysis of innovation (Po-
lanyi 1962, Cowan et al. 2000). Also, the composition be-
tween tacit and codified knowledge in a technology is
not fixed but evolves continuously, even in markets for
technologies (Arora et al. 2001). Viewing technology as
knowledge has major implications for evolutionary anal-
yses of innovation, the strategy and organizations of
firms, and the dynamics of industries because technolo-
gies can be characterized by a set of procedures and rou-
tines for using and generating knowledge.
As we will discuss in Section 3, this view represents
a building block of the evolutionary discussion of or-
ganizational routines and capabilities of firms. In ad-
dition, evolutionary theory claims that the sources of
knowledge can be internal or external to the firm,
usually widely distributed across a variety of different
actors. As a consequence, as discussed in Section 4, in-
novation systems emerge. For all these reasons, over
the last few decades a significant effort in many evolu-
tionary contributions has been made to identify the
relevant dimensions of knowledge. An example is the
already-mentioned distinction between tacit and codi-
fied knowledge, which has relevant implications for
the replication and diffusion of knowledge (Cowan
et al. 2000, Nightingale 2003) as well as the distinction
between engineering, technological, and scientific
knowledge (Rosenberg 1982, Rosenberg and Nelson
1994). Attempts to develop useful taxonomies of knowl-
edge along the lines pioneered by Winter (1987) may
represent an interesting research trajectory in the evolu-
tionary camp, as will become evident in the discussion
that follows on the firm and the dynamics of industries.
Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
Knowledge is part of technological regimes, which
represent another key dimension of the evolutionary ap-
proach (Nelson and Winter 1982, Malerba and Orsenigo
1997, Breschi et al. 2000). The notion of technological re-
gimes identifies some basic properties of the technologi-
cal and learning environment that lead to specific sector-
al patterns of innovation. In the original formulation, a
technological regime was classified in terms of opportu-
nity conditions, appropriability of innovation, cumula-
tiveness, and knowledge base. Opportunity conditions
relate to the richness of the scientific and technological
environment and identify the ease with which a firm can
innovate, appropriability refers to the extent to which
firms can capture the value of their own innovations and
defend their innovation from the imitation of competi-
tors, cumulativeness indicates whether an innovation
builds on previous ones and therefore highlights how
relevant previous innovations are for today’s innova-
tions, and the knowledge base identifies some basic char-
acteristics of knowledge in a specific industry (e.g., de-
gree of tacitness, basicness, specificity, complexity, and
basis in science or engineering).
These dimensions have a very solid theoretical base
and can be linked to various evolutionary traditions re-
garding innovation and its determinants. These early di-
mensions of technological regimes have been enriched
over the years by a series of other contributions that have
added variables such as accessibility, complexity, variety,
and technology cycle (see, e.g., Castellacci 2007, Castellacci
and Zheng 2010, and Peneder 2010). The notion of techno-
logical regimes has proved quite capable of explaining the
patterns of innovative activities at the technology and in-
dustry levels in terms of distributed (Schumpeter Mark I)
or highly concentrated (Schumpeter Mark II) industrial
structures. It has also been successful in explaining the
catch-up of firms from latecomer countries with respect to
the incumbents from leading countries in several sectors
and technologies (Park and Lee 2006, Corrocher et al.
2021, Rosiello and Maleki 2021). Using a database cover-
ing the period 1977–2015, Fontana et al. (2021) show that
the distinction between Schumpeterian patterns of innova-
tion (Mark I versus Mark II) and their explanation in
terms of technological regimes has still the promise of
yielding important insights into the connection between
learning processes, inventive activities, and industrial
dynamics.
2.2. The Evolutionary Processes Leading
to Innovation
The notion of technological regime identifies some
basic properties of the technological and learning en-
vironment in which firms operate that determine spe-
cific sectoral patterns of innovation. What it does not
fully explain, however, is the type of innovations (rad-
ical or incremental) that occur in a given technological
regime, the processes responsible for their occurrence,
267
and the impact of these innovations on the evolution
of the regime. The purpose in the following pages is
to first assess how current models of technological
change that adopt an evolutionary lens theorize on
the processes underlying incremental and radical in-
novation. We begin with the punctuated equilibrium
model that has received considerable attention in the
literature. We then highlight its evolutionary roots
through the lens of technological speciation. Building
on recent advances in evolutionary biology, we fur-
ther examine the concept of exaptation, which has
been recognized as an increasingly important evolu-
tionary mechanism in the history of species, ecosys-
tems, and artifacts (e.g., technologies).
2.2.1. Punctuated Equilibrium Model. Originally de-
veloped in the context of evolutionary biology as an
alternative paradigm to Darwin’s phyletic gradualism
(Eldredge and Gould 1972, Gould and Eldredge 1977),
the punctuated equilibrium model has come to have
an important influence in the innovation and technol-
ogy field. The model describes the technology life
cycle as characterized by periods of incremental
innovations punctuated by sudden bursts of radical
innovations (e.g., Abernathy and Utterback 1978;
Dosi 1982; Sahal 1985; Tushman and Anderson 1986;
Anderson and Tushman 1990; and Mokyr 1990a,
1990b). The occurrence of a radical innovation marks
the beginning of a period of technological ferment dur-
ing which alternative technologies and products em-
bodying them compete for dominance. Using data on
the minicomputer, cement, and airline industries, for
instance, Tushman and Anderson (1986) demonstrate
that technology evolves through periods of incremen-
tal change punctuated by technological breakthroughs
that either enhance or destroy the competence of firms
in an industry—which, in turn, explains firm entry,
exit, and performance over time. This basic pattern has
been observed in a variety of industries, whether they
have a distributed (Schumpeter Mark I) or highly con-
centrated (Schumpeter Mark II) industrial structure.
In the field of evolutionary biology, however, the
dominant contemporary perspective is that the mech-
anisms underlying the phenomena of punctuated
equilibrium are quite compatible with the traditional
Darwinian view of phyletic gradualism (Dawkins
1987, Mayr 1988, Reznick et al. 1997, Ridley 1999). As
Mayr (1988, p. 483) suggests, speciational evolution
may be a better term for Gould and Eldgrede’s (1977)
argument than punctuated equilibrium. Recognizing
speciation as the central mechanism of punctuation
not only highlights the actual mechanisms at work in
the process of punctuated change but also delineates a
number of ways in which the theory can be further
applied to research on innovation and technological
change. In contrast to the punctuated perspective, the
 Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
268
model of technological speciation sheds light on the in-
herently gradual nature of technological change. Extant
studies on technological speciation (Levinthal 1998, Ad-
ner and Levinthal 2002, Cattani 2006, Garnsey et al.
2008, Cattani 2019, Cattani and Mastrogiorgio 2021) em-
phasize how a new (radical) technology often emerges
from the redeployment of a firm’s knowledge base into
a new application domain, whose selection criteria
(user needs and performance requirements) constitute a
necessary condition for a speciation event or disconti-
nuity (e.g., radical innovation) to occur. Indeed, many
discontinuities in technology evolution consist of the
application of an existing technology to a new applica-
tion domain with significantly different customers’
needs and performance standards.
Focusing on the interaction with the environment
(e.g., the specific target niche or application domain),
therefore, affords a window into the process through
which new technologies develop and come to com-
mercial fruition. For example, Levinthal (1998) notes
how punctuated equilibrium rests on speciation,
which is defined as “the application of existing tech-
nological know-how to a new domain of application”
(p. 218) rather than mutation events. Similarly, Cattani
(2006) shows how Corning’s development of fiber op-
tics can be explained in terms of technological specia-
tion—that is, very much like the process of speciation
by lineage splitting in biology. Because of its past his-
tory, in fact, Corning was, indeed, endowed with rele-
vant knowledge that was accumulated for reasons
that were unrelated to fiber-optic applications.
From these examples it can be evinced that much of
a firm’s prior accumulated (technological) knowledge
very often is actually adaptation for the particular (but
different) use for which it was originally created. How-
ever, this knowledge can also prove valuable for new
(often unforeseen) applications, some of which emerge
after the occurrence of an exogenous shock (e.g., techno-
logical developments in other fields) that helps uncover
those applications (Cattani 2006). Indeed, each new
technology “offers a spectrum of opportunities, only a
few of which will ever be developed during its lifetime”
(Basalla 1988, p. 220). These opportunities correspond
to hidden functionalities or shadow options (Penrose
1959, Bowman and Hurry 1993, Andriani et al. 2017,
Andriani et al. 2019, Cattani and Mastrogiorgio 2021)
that are embodied in a technology. Although firms can-
not identify ex ante many of those functionalities or op-
tions, they can seek to uncover them either through de-
liberate search or serendipitously—a process also
known as exaptation, to which we now turn.
2.2.2. Exaptation. The previous discussion suggests
that innovation may originate from the appearance of
novel applications or functions of existing technolo-
gies, a process known as exaptation (for a review, see
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
Andriani and Cattani (2016)). According to Gould and
Vrba (1982, p. 5) an exaptation is observed when (1) a
character, previously shaped by natural selection for
a particular function (an adaptation), is co-opted for a
new use, and (2) a character whose origin cannot be
ascribed to the direct action of natural selection (a
nonadaptation) is co-opted for a current use.
Exaptation describes a very different innovation
process than other processes discussed in the innova-
tion literature. For instance, Arthur (2009) argues that
new functions and corresponding artifacts typically
originate from one of the following two channels: the
discovery of a new phenomenon in science and tech-
nology, which activates the exploration of the possibil-
ities inherent in the new phenomenon and eventually
results in the design and development of new artifacts
and processes, or the expression of a need that drives
the formulation of functions that subsequently are
translated into new artifacts. However, there are situa-
tions where the end state is largely unknown (Wiener
1993) in that the innovation process starts from the
assumption that artifacts (e.g., a technology) have an
inherent (and unpredictable) creative potential—
namely, “the appearance of novel functions for which
the forms were not originally designed or selected”
(Andriani and Cattani 2016, p. 117).
Exaptation identifies a third channel driving the
emergence of novelty: a functional shift of an existing
artifact that is not traceable to the discovery of new phe-
nomena or the pull from clearly defined needs. By em-
phasizing the role of a functional shift, research on ex-
aptation distinguishes between technologies that have
adaptive and nonadaptive origins. The first case, which
refers to a technology that was developed for a particu-
lar function (an adaptation) and was later co-opted for a
new use, corresponds to what evolutionary biologists
call preadaptation (Bock 1959, Ridley 1999). In the con-
text of technology, Cattani (2006, see figure 1 on p. 307)
reports some of the key technological antecedents (i.e.,
technologies developed for other, more or less related,
technological fields or applications) that contributed to
defining Corning’s technological preadaptation for fiber
optics. Much of this prior accumulated (technological)
knowledge was actually adaptation for the particular
(though different) uses for which it was originally creat-
ed. This knowledge, however, also proved valuable
with respect to the new (though unanticipated) applica-
tion—that is, fiber optics for long-distance telecommu-
nications. Yet some technologies may have nonadaptive
origins such as when they are not currently used for
any specific application but can “later be co-opted for a
new role” (Dew 2007, p. 157). The origin of Gorilla
Glass is a clear illustration of this particular case
(Cattani and Mastrogiorgio 2021).
There is a clear linkage between speciation and
exaptation. However, whereas the extant theory of
Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
speciation focuses on the adaptation trajectory of a
technology once it is redeployed into a new domain
of application, exaptation focuses on the functional
shift and on what caused this shift. As Andriani and
Cattani (2016) argue, “An evolutionary theory on the
emergence of novelty must explicitly account for what
causes the ‘functional shift’ of an existing technologi-
cal artefact, i.e., the functional discontinuity that is
central to the notion of exaptation” (p. 118). Exapta-
tion has been increasingly recognized as an important
evolutionary mechanism, as it sheds new light on a
long-lasting debate on the emergence of novelty, par-
ticularly radical innovations that result in discontinu-
ities shaping the evolution of an industry.1
Building on the Woesian model of cell evolution
(Woese 2002, 2004), Carignani et al. (2019) highlight
the central role of the horizontal transfer of existing
functional modules in prompting radical innovation
via exaptation. For example, the so-called pure turbo-
jet architecture required high-speed turbines, a char-
acteristic reached in a different technological lineage
(steam turbines) around 1900, when turbines that could
“provide power at the high rotational speed necessary
for the turbocompressor’s effective operation without
requiring speed-multiplying gearboxes” (Constant
1980, p. 84) first appeared. The existence of preadapted
functional modules during the initial phase of recombi-
nant innovation was “largely independent of deliberate
research efforts aimed at radical innovation, but is in-
stead the result of technological spillovers from prior es-
tablished and funded research” (Carignani et al. 2019,
p. 520).2 The pure turbojet originated from the exapta-
tion of preadapted modules that were integrated into a
novel architecture—that is, they were co-opted into a
new function via horizontal transfer—and inventors
stretched their performance trying to reach the point
where the required minimum level of performance was
attained. Hence, the exaptation of a horizontally trans-
ferred module of a system can prompt the emergence
of a completely new system built around an exapted
module. An important implication of adopting a Woe-
sian model of evolution is that it is now possible to pro-
pose a more general framework that unveils an
important mechanism through which exaptation may
occur. Taken together, these developments unveil the
evolutionary origins of radical innovations and their
impact on industry dynamic.
2.2.3. Role of Search. The distinction between radical
and incremental innovations discussed in the preced-
ing has also been linked to the search by organizations
for new knowledge as well as the recombination of
existing knowledge (Nelson and Winter 1982,
Henderson and Clark 1990, Malerba 1992). Following
March (1991), scholars have used the distinction
between exploration and exploitation activities:
269
exploitation means searching over knowledge compo-
nent spaces that are known to the innovator, whereas
exploration means searching over unfamiliar spaces.
This distinction has been used to explain the genera-
tion of breakthrough innovations. It has been claimed
that breakthrough innovations arise from exploration
(including searching for new uses or functions for a
firm’s existing knowledge base), whereas less relevant
innovations emerge from exploitation (Cohen and
Levinthal 1990, Henderson and Clark 1990, O’Reilly
and Tushman 2013).
Inspired by several case studies that point to the ev-
idence that breakthroughs may originate from a more
complex search process, in this special issue, Sarnecka
and Pisano (2021) propose that breakthrough innova-
tions involve a process that combines both exploration
and exploitation. For them, the development of break-
through innovations is a sequential process that in-
volves exploration (initially) and exploitation (later
on). Using patents by over 2,500 firms during the peri-
od 1975–2005 and a novel measure of search (techno-
logical focal proximity), Sarnecka and Pisano find that
in the early phase, firms explore unfamiliar terrain,
but once exploration has taken place, firms focus their
search strategies to exploiting the now familiar knowl-
edge in a cumulative way. The results of this paper
have implications for the conceptualization and
empirical analyses of the process leading to radical in-
novations and for identifying the most appropriate
strategies aimed at breakthroughs, because exploration
and exploitation must be dynamic and interrelated.
On a different but related topic, another stream of
evolutionary research has focused on the large num-
ber of trials and failures that firms have to go through
in order innovate (Murmann 2003, Lewin and Massini
2004). This process is considered path dependent and
locally bounded, based on trials and errors and on vi-
carious experience (Gavetti and Levinthal 2000, Greve
2003, Murmann and Frenken 2006, Winter et al. 2007).
Along these lines, in this special issue, Murmann
and Zhu (2021) examine the process leading to a new-
to-the world innovation: WeChat by Tencent. They
find that a nested, three-level hierarchy of the key
evolutionary processes of variation, selection, and re-
tention was embedded within Tencent. These evolu-
tionary processes involved organizational capabilities
and other organizational features at the WeChat
business unit level. Moreover, a dynamic co-opetition
between rival business units within the firm was inter-
linked with more general variation, selection, and re-
tention processes in the market. Murmann and Zhu,
in fact, show that initially three business units simul-
taneously competed and cooperated in developing al-
ternative products while allowing the market to select
the winner. The main message of this paper is the
need to examine in depth the evolutionary processes
 Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
270
and the dynamics of co-opetition that take place with-
in a firm and that lead to a major innovation.
2.3. The Long-Run Evolution of Technologies:
Trajectories and Branching
In an evolutionary approach, technologies are consid-
ered to significantly evolve in the long run: technologies
follow specific directions of advancement and are guid-
ed by technological paradigms (Dosi 1982). Technologi-
cal paradigms identify specific patterns of solutions to
selected technoeconomic problems and identify heuris-
tics of problem solving and of search. They also imply
that knowledge may take the form of key design
concepts that shape innovations over time (Baldwin
and Clark 2000), often becoming dominant designs
(Henderson and Clark 1990, Utterback and Suarez
1993). Within given paradigms, technological trajecto-
ries represent the directions that technologies follow in
the space of the technoeconomic characteristics of arti-
facts and production processes. In early evolutionary
contributions, trajectories are considered often ordered
along certain paths, with trade-offs to be faced and solu-
tions to be found for bottlenecks and technological im-
balances (Rosenberg 1976, Dosi and Nelson 2010).
In this special issue, Levinthal (2021) pushes for-
ward the discussion on exploration and exploitation
(already discussed by Sarnecka and Pisano (2021)) as
processes that unfold over time and links them to
technological trajectories. He proposes that the oppor-
tunity structure is not unchanging and that forgoing
an opportunity in exploratory search may negate the
possibility of engaging in that opportunity in the fu-
ture. In a sense, a door that is not opened today may
not be there tomorrow. For Levinthal, exploration and
exploitation should not be seen as a sampling problem
done over time but as a branching process, called by
evolutionary biologists a phylogenetic tree (a tree of
life; see Dennett (1995)). The hierarchical nature of the
tree indicates ancestry, whereas branching connotes
speciation events. In this way, the paper moves from
the view of trajectories as particular linear paths of de-
scent to the view of opportunity as a process of
branching resulting from realized trajectories and la-
tent opportunities. Conceiving in this way the long-
run exploration-exploitation trade-off opens up a set
of new questions in terms of trajectories that are feasi-
ble within an organization, the likelihood of branch-
ing possibilities arising over time, and the accessibility
of latent branching opportunities.
3. The Firm: Routines, Capabilities, and
Firm Strategies
At the core of an evolutionary theory is the analysis of
the causes of organizational inertia and adaptability,
as well as the related phenomena of failure and
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
success. Nelson and Winter (1982, chap. 5) trace the
origins of this performance heterogeneity to the exis-
tence of firm-specific organizational routines. Con-
ceived as the firm’s DNA, routines form the basis of
an evolutionary framework that seeks to explain why
firms differ in terms of profitability even if they face
the same or very similar market conditions. Routines
suggest that a business firm is “first and foremost an
organization that knows how to do something”
(Winter 1995, p. 148). Because different firms have
different routines, they know how to do something in
rather different ways.
Although several definitions of routines have been
proposed over the years (for reviews, see Cohen et al.
(1996), Becker (2004), and Feldman et al. (2016)), it is
useful to conceive them as “patterned sequences of
learned behavior involving multiple actors who are
linked by relations of communication and/or authori-
ty, a bundle of coordinated activity that evolves slow-
ly through local learning and typically involves
substantial elements of tacit knowledge and context
dependence” (Cohen and Bacdayan 1994, p. 555).3
The emphasis on learning captures a fundamental as-
pect of routines: unlike simple rules (Nelson and
Winter 2002, p. 30), routines exhibit a much greater
level of complexity, as they involve multiple actors
whose work must be coordinated for a routine to
deliver a satisfactory performance. A key conceptual
advantage of focusing on routines is to link the com-
petitive dynamics of industries to “the characteriza-
tion of firm-level processes of search and adaptation”
(Gavetti and Levinthal 2004, p. 1313). Differences in
routines reflect differences in learning processes that
ultimately account for the observed performance
heterogeneity among firms in the same industry.
In this sense, routines qualify as a firm’s resources.
Indeed, as stated in Winter (1995), a routine “in opera-
tion at a particular site can be conceived as a web
of coordinating relationships connecting specific re-
sources … . [T]he routine per se—the abstract activity
pattern—is itself a resource” (pp. 149–150, italics in
original) in that the term “‛routines’ connotes a menu
of previously learned patterns of action” (p. 150). Be-
cause the routinization of a firm’s activity constitutes
the most important storage of its specific operational
knowledge, routines are the building blocks of a firm’s
organizational memory because they store knowl-
edge, especially tacit knowledge (Nelson and Winter
1982). Preserving routines is critical to sustaining
performance over time: unless tacit knowledge is
somewhat codified, the smooth functioning of a firm’s
routines largely depends on the retention of long-
tenured employees and their commitment to passing
their (largely tacit) knowledge onto newcomers as in a
master-apprentice relationship (Cattani et al. 2013,
2017).
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Routines are also context dependent, as the under-
lying knowledge is “embodied or embedded to a large
extent in its associated human, physical and organiza-
tional capital” (Winter 1995, p. 148), which is often
highly specific to the needs of the firm in which the
routines operate. The transfer of routines across differ-
ent organizational contexts might prove very chal-
lenging even when the same individuals are involved
(Huckman and Pisano 2006). Routines are indeed
more valuable within the firm that currently employs
them than they would be in another firm—a necessary
(though not sufficient) condition for those routines
to be a source of sustained competitive advantage
(Peteraf 1993). Because of this imperfect mobility,
routines can act as an isolating mechanism (Rumelt
1984), thus protecting a firm from imitation and the
erosion of its superior profitability.
In moderately dynamic markets, effective routines
are efficient and robust processes that support the
smooth functioning of a firm’s activities. Routines
adapt to experience incrementally in response to feed-
back based on their previous state; if a new state does
not differ too much from it, routines provide a reliable
and, in some cases, even optimal menu of previously
learned patterns of action that can be followed with
only some minor adjustments. As Nelson and Winter
(2002, pp. 29–30) point out, competence must “always
be assessed against the background of historically
evolving competitive standards. … Thus, the evolu-
tionary response to the competence puzzle focuses on
the role of learning and practice, and specifically on
the degree of correspondence between the current
challenge and the earlier contexts in which experience
trained the actors.” Because routines can be seen as a
learning-based answer to the competence challenge,
they are the conceptual building block of behavioral
continuity in evolutionary theory: firms are, in fact,
“expected to behave in the future according to the
routines they have employed in the past” (Nelson and
Winter 1982, p. 134). This continuity in behavior is a
distinctive trait of firms competing in a routinized
technological regime, which is conducive to the inno-
vative activity of established firms and their routin-
ized ways of doing things (e.g., Winter 1984, Malerba
and Orsenigo 1995, and Breschi et al. 2000).
In this type of competitive environment, the norma-
tive guidance offered by the resource-based view
(Rumelt 1984, Peteraf 1993, Winter 1995) lies in the
idea of leveraging the idiosyncratic profit opportuni-
ties latent in existing resource endowments. However,
when the resources in question are productive rou-
tines, “such exploitation often takes the form of repli-
cating the firm’s routines in the quest for greater profit
through growth, a process that is a central feature
of evolutionary economics” (Winter 1995, p. 148). In-
deed, routines are at the core of an evolutionary
271
perspective on firm growth where firms grow by rep-
licating their routines and other practices across dif-
ferent sites. Growing through replication requires the
ability to “recreate complex, imperfectly understood,
and partly tacit productive processes in carefully se-
lected sites, with different human resources every
time, facing in many cases resistance from proud, lo-
cally autonomous agents” (Winter and Szulanski
2001, p. 731). This ability to replicate has been shown
to be a distinctive trait of the growth strategy of com-
panies such as Walmart, McDonald’s, and Starbucks;
lodging chains such as Marriott; and Bank One,
among others. As the value of replication is eroded by
delay, timing is critical of aspect a replication strate-
gy.4 Even in relatively stable industries, firms that dif-
fer in their ability to replicate their business model ex-
hibit differential growth and profitability rates.
The ability to replicate is an instance of higher-order
routines (Winter 2003) or organizational capabilities
that allow a firm to “perform a coordinated set of
tasks, utilizing organizational resources, for the pur-
pose of achieving a particular end result” (Helfat and
Peteraf 2003, p. 999). Organizational capabilities de-
note the capacity of managers to run an organization,
whether this means maintaining the status quo, such
as in a market environment where change is slow-
paced or somehow predictable, or altering how a firm
makes its living, such as in a market environment
where change occurs frequently and its direction is
difficult to anticipate (Helfat and Winter 2011).
3.1. Organizational Routines as Dynamic
Capabilities
One major area of application of evolutionary think-
ing has been the dynamic analysis of economic change
at the organization and the industry level, particularly
in contexts “where innovative performance is a key el-
ement in the competitive struggle” (Nelson and
Winter 2002, p. 34; see also Barney 1986). In a world
of continuous change, the ability to cope with change
is obviously a key trait affecting firm performance
and survival. Although the quasi-automatic responses
of established routines enable firms to deal with a cer-
tain range of familiar variation, outside that range, the
inertia of those established routines can be problemat-
ic. Routines have an almost paradoxical nature: the
same routines that allow firms to adapt to the require-
ments of their current market environment are those
that can also hinder their ability to adapt to sudden
changes in that environment (Hannan and Freeman
1984, Leonard-Barton 1992). For a firm confronting
the challenges of change, the “option of starting
over, with no preconceptions and no commitments,
is not available for an established firm” (Winter 2017,
p. 740). What, then, explains the adaptability of certain
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272
firms in the face of changing conditions in their refer-
ence environment?
From a conceptual and an analytical point of view,
it is important to look at the hierarchical structure of
organizational routines. Whereas “lower-order” oper-
ating routines attend to the details of current opera-
tions (e.g., how to assemble a certain type of engine
on a particular car model), large organizations often
have higher-order or “metaroutines” functioning as
“control and correction mechanisms, with each layer
devoted to noticing and possibly fixing any problems
that might bubble up from the layer below—or, alter-
natively, passing the problem to the layer above”
(Winter 2017, pp. 740–741). These higher-order rou-
tines constitute organizational capabilities, as they
provide a firm with the ability to survive and prosper
(Helfat 2018). Organizational capabilities that are di-
rected toward change are especially important in mar-
ket environments characterized by technological
change. For instance, what made IBM unique was its
ability to extract returns from its established position
across a wide range of innovations instead of reaping
gains from a single innovation. Making continuing
improvements in a related set of products and pro-
cesses “by re-deploying related assets and capabilities
in R&D, manufacturing, marketing and other func-
tional areas” (Malerba et al. 2016, p. 18) is an apt
illustration of what evolutionary scholars call a dy-
namic capability (Teece and Pisano 1994, Teece et al.
1997, Eisenhardt and Martin 2000, Zollo and Winter
2002, Winter 2003, Helfat et al. 2007, Teece 2007).
The term “dynamic” here refers to the capacity to
adapt, integrate, and reconfigure resources (including
routines) in order to match the requirements of an
evolving environment (Teece et al. 1997, Eisenhardt
and Martin 2000). Firms differ not only because they
have different starting points (i.e., resources such as
skills, routines, and capabilities) that define the set of
choices available to them but also because they rely
on different high-level processes such as alliancing,
new product development, and strategic decision
making (Eisenhardt and Martin 2000). These process-
es, which match and even create market change, un-
derlie a firm’s dynamic capabilities. It is through the
activation of these processes that firms leverage
their resources, redeploy them across different mar-
kets, or invest in the development of new resources
(Pisano 2017).
The emphasis on “processes” is grounded on the
empirical observation that a dynamic capability is “a
learned and stable pattern of collective activity
through which the organization systematically gener-
ates and modifies its operating routines in pursuit
of improved effectiveness” (Zollo and Winter 2002,
p. 340). These processes support firm innovation in
both stable and dynamic market environments. For
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
instance, the processes that guide the development of
new products or the allocation of R&D resources
across different innovation projects are examples of
dynamic capabilities, regardless of whether firms
compete in routinized or entrepreneurial technologi-
cal regimes. For instance, one of the main reasons
explaining Japanese car manufacturers’ successful
commercialization of new car models and faster time
to market in the 1970s and 1980s was their reliance on
firm-specific processes driving the incorporation of
customer feedback during the design phase of a new
model and their commitment to quality at the product
and process levels (e.g., Clark and Fujimoto 1991).
The dynamic capabilities view emphasizes the role
of managers in guiding the processes by which re-
sources are leveraged and reconfigured (as predicated
by the resourced-based view) as well as the processes
by which new resource configurations are created
(Eisenhardt and Martin 2000). Managerial discretion
ultimately shapes which specific path(s) firms choose
and to which they commit their resources. Recogniz-
ing the central role of managers is an important step
toward expanding the boundaries of the evolutionary
perspective to “incorporate elements of deliberation
and cognition into its canonical micro-foundation”
(Gavetti and Levinthal 2004, p. 1314).5 There are sev-
eral decisions in which the role of managers is obvi-
ously essential. Here, we consider three main strategic
decisions—vertical integration, diversification, and
niche construction—for which the insight of an evolu-
tionary perspective has proved especially important.
3.1.1. Vertical Integration. Make-or-buy decisions have
received wide attention in the economics, organi-
zational, and strategic management literatures. The
extent to which firms use the market or internalize
market transactions is highly contingent on the trans-
action costs of using markets (Coase 1937; Williamson
1975, 1985). The contribution of an evolutionary per-
spective lies in establishing a link between decisions
about vertical firm structure and the evolution of an
industry, as well as recognizing the central role of a
firm’s capabilities in influencing this relationship.
Firms with integrative capabilities for communication
and coordination across different stages in a vertical
chain (Monteverde 1995, Helfat and Campo-Rembado
2016) are more likely to internalize market transac-
tions vis-à-vis firms that lack those capabilities. Differ-
ent contextual factors can explain why firms integrate
or disintegrate even when they are going through the
same phase in the life cycle of an industry. For exam-
ple, firms in “new industries based on systemic
innovations or technologies are likely to be vertically
integrated due to the benefits of internal integrative
capabilities,” whereas firms in “new industries based
on autonomous innovations do not benefit from
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internal integrative capabilities and are therefore
more likely to have nonintegrated firm structures”
(Helfat 2015, p. 806). In their history-friendly model of
the computer industry, Malerba et al. (2008) show
how the patterns of vertical integration and specializa-
tion change as a function of the evolving levels and
distribution of firms’ capabilities over time and those
patterns depend on the coevolution of the upstream
(e.g., semiconductor) and downstream sectors. A key
insight of the model is to reveal that the vertical scope
of computer producers was essentially determined by
the coevolution of specific capabilities in designing
and producing semiconductors across firms, the size
of markets, and the structure of industries.
As firms differ in terms of capabilities, some may
continue using the market when others decide instead
to integrate vertically. In their longitudinal case
study of a series of contracts between the same two
partners in the personal computer industry, Mayer
and Argyres (2004) find that learning to contract re-
duces transaction costs and, therefore, the need for
internalizing transactions. Given its focus on the inter-
actions between firm-level capabilities and market-
level factors, an evolutionary perspective affords a
more nuanced understanding of why integrated and
specialized (nonintegrated) firms coexist in the same
industry even when standard economic explanations
would predict otherwise (for an in-depth discussion,
see Helfat 2015).
3.1.2. Diversification. Firms grow not only by expand-
ing within their original business and by integrating
vertically but also by adding new businesses to the ex-
isting ones. From an evolutionary perspective, it is
then critical to understand how firms diversify, even
more than why they do so. In other words, what is the
logic underlying the choice of which new business to
add to a firm’s existing businesses? Teece et al. (1994,
p. 3) find that, when firms grow more diverse, they
tend to “add activities that relate to some portion of
existing activities” and “the strength of relatedness be-
tween new and old business does not change much as
firms grow more diverse.” Coherence is a salient char-
acteristic of how firms are expected to (and should) di-
versify. The interplay of three classes of factors—
learning, evolutionary paths, and strength of competi-
tion—explains this coherence. Because previously
chosen paths constrain the set of available choices
(path dependence), learning is usually local, and
strong competition prevents firms from creating or ac-
quiring the resources needed to compete in a different
business, coherent diversifiers are the modal form of
diversifying firms (Teece et al. 1994).
Learning is a local phenomenon whose speed and
direction depend on how firms decide to leverage their
existing resources (skills, routines, and capabilities)
273
and their efforts to create new resources. As Edith Pen-
rose argued decades ago, the same resource provides a
different service or set of services “when used for
different purposes or in different ways and in combi-
nation with different types or amounts of other
resources” (Penrose 1959, p. 25). One of the main im-
plications of conceptualizing resources as bundles of
services is that the range of possible uses of a resource
is larger than the specific use(s) for which it was origi-
nally created. Some of these uses are unknown to the
firm and represent what Bowman and Hurry (1993,
p. 763) call shadow options—that is, investment op-
portunities awaiting recognition. As previous research
adopting an exaptive lens has shown, shadow options
become real options when a resource is (re)deployed
into novel uses or functions for which it was not origi-
nally acquired or created and this functional shift
reveals new, previously unknown, uses that are em-
bodied in a firm’s existing resources (Andriani and
Cattani 2016). The new services that a resource can
render emerge from its idiosyncratic deployments
(Kor and Mahoney 2004, p. 184; see also Cattani 2006
and Folta et al. 2016). Understanding the processes
through which firms uncover the shadow options em-
bodied in their resources can shed further light on
why coherent diversifiers are the modal form of diver-
sifying firms, thus enriching extant evolutionary ex-
planations of diversification decisions.
Penrosian diversification is one of redeploying resour-
ces from one industry to another. However, leveraging
common resources across different industries does not
explain which new market-specific resources a firm
might be able to develop that help it enter a particular
market or industry. Pisano (2017) proposes a framework
in which “investments in general-purpose capabilities
create options, while investments in market-specific
capabilities are commitments to exercise those options”
(p. 754). In addition to investing in general-purpose or
market-specific capabilities, firms can decide to deepen
their existing capabilities or search novel capabilities
outside their current repertoire. The framework is a first
step toward developing an evolutionary theory of firm
diversification in which strategic choices among differ-
ent types of capability enhancing investments help firms
identify viable diversification paths. Future research
might further explore how diversification decisions are
related to industry evolution, particularly whether the
frequency and type of diversification vary with different
stages of an industry life cycle.
3.1.3. Niche Construction. The recognition of the cen-
tral role of managers has elucidated not only how
firms adapt to an evolving competitive landscape but
also, increasingly, how some firms are able to shape
their environment instead of simply adapting to it. In
evolutionary biology, niche construction describes the
 Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
274
process whereby organisms actively modify their own
and each other’s evolutionary niches (Odling-Smee
et al. 2003). In a similar vein, an emerging stream of
research concerned with the behavioral microfounda-
tions of evolutionary theory emphasizes strategic
leaders’ shaping ability, defined as “the ability to legiti-
mize opportunities and therefore ‘shape’ or ‘construct’
the opportunity space” (Gavetti 2012, p. 269). Accord-
ingly, firms are not viewed as passive subjects of selec-
tion but instead as trying to proactively influence and
even alter their selection environment.
From this perspective, new growth opportunities—
including the opportunity to expand into new busi-
nesses—are not merely out there to be plucked but
enacted through proactive efforts that aim to shape
the selection environment in which firms operate.
This process is the focus of studies on effectuation
(Sarasvathy and Dew 2005, 2016; Sarasvathy 2008)
and, more recently, niche construction (e.g., Gavetti
2012, Andriani and Cattani 2016, Gavetti et al. 2017,
and Patvardhan and Ramachandran 2020). Although
these studies have examined the actions taken by sin-
gle firms and their leaders, a firm can also rely on its
network of collaborators to affect the market environ-
ment. An apt illustration of this dynamic is the work
on innovation ecosystems, which has shown how the
partner firms need to interact for a value proposition
to materialize (Adner 2017; see also Jacobides et al.
2021 in this special issue). These collaborative arrange-
ments through which firms combine their individual
contributions (e.g., know-how or other types of re-
sources) allow their members to create value (e.g., a
new product or technology) that no single firm could
have created alone.
Reflecting on the extent to which firms adapt to or
shape their market environment, the paper by Gavetti
and Lecuona Torras (2021) in this special issue argues
that the evolutionary view proposes a model of strate-
gic opportunity discovery that allows a modest
amount of agency—intended as the ability of individ-
uals to intentionally translate their desires or beliefs
into a course of action that leads to the desired out-
comes. Accordingly, Gavetti and Lecuona Torras em-
phasize how an evolutionary account of strategy
should feature a more prominent role for the strategist
in the discovery of strategic opportunities. Indeed,
individual-level differences can explain why two
strategists in the same position end up seeing different
things (e.g., spot or fail to spot an opportunity), which
then results in variation in outcomes. The key ques-
tion, then, is how strategists can develop superior cog-
nitive representations that reveal opportunities to
them that others cannot see. As Gavetti and Lecuona
Torras elaborate, the modern science of expertise has
the potential to offer a more complete conception of
agency in the discovery of strategic opportunities.
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
Intelligent anticipation or foresight subsumes three as-
pects: prior relevant experiences and theory of perfor-
mance (causal understanding of why a particular
business model is successful), depth of experience,
and discipline. These aspects are the building blocks
of a model of strategic foresight first proposed by
Gavetti and Menon (2012) in their discussion of the
events that led Charles Merrill, in the late 1930s, to
what is perhaps the biggest strategic innovation in the
history of banking. A key implication of this model is
that “careful empiricism” in the science of expertise
offers a more nuanced picture of what underpins su-
perior performance across a number of fields: consis-
tently superior performance hinges not on mere luck
but on one’s ability to develop sophisticated cognitive
representations or theories of performance.
The Helfat (2021) paper in this special issue further
examines what it means for a firm to shape the mar-
ket(s) in which it competes, how shaping differs from
adapting and searching for new ways of doing things,
and what impact shaping the coevolution between
firms and markets eventually has on the evolution of
competitive advantage. In order to distinguish shap-
ing from adaptation, Helfat suggests that shaping en-
tails changing the payoff structure for all firms in a
specific business context. Firms can do so by changing
the structure of either demand (willing to pay of
buyers) or supply (opportunity costs of suppliers), or
both. An important implication of this way of concep-
tualizing shaping is to link it to the economic perfor-
mance of firms through the payoffs to choices that
firms make. It is not sufficient that the choices that a
firm makes (e.g., changing the price of a product or
service) may have an effect on other firms: shaping
only occurs when the mapping between choices and
the payoffs to them is transformed for all firms in the
same market or industry. Helfat further discusses
how this payoff structure can be represented analyti-
cally by specifying the functional form of firms’ de-
mand and supply curves that capture the underlying
determinants of payoffs. The paper is a starting point
for theoretically modeling and empirically measuring
the amount of shaping while also allowing for the in-
fluence of sociocognitive, technological, and nonmar-
ket elements of shaping.
3.2. Knowledge and Power
The previous discussion has highlighted the role of
management as a key determinant of performance het-
erogeneity among firms. The implicit assumption is
that managers have the formal authority or power to
affect important decisions and, by implication, firm
performance. However, what is still lacking in the evo-
lutionary theory of the firm is a more precise under-
standing of when managerial functions are actually
fostering the well functioning of a firm. It is interesting
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that, the terms authority and power were not central to
Nelson and Winter’s (1982) book but instead remained in
the background. The smooth functioning of a firm’s exist-
ing routines often implies that someone has the authority
or power to instruct others or order them how a particular
task of a working routine should be performed. Also, the
processes underlying dynamic capabilities presuppose
people (managers) with the authority or power to make
decisions that may involve choosing courses of action that
alter how a firm makes its living, not simply maintaining
the status quo (Helfat and Winter 2011). The problem of
authority and power has been center stage in organization
theory but has received much less attention in the evolu-
tionary theory of the firm.
In this special issue, the paper by Dosi e al. (2021)
takes a first step toward elaborating an evolutionary
perspective on power by arguing that the distribution
of power in an organization is intimately connected to
the distribution of knowledge. This is clearly illustrat-
ed by the story of scientific management by Frederick
Taylor, whose time and motion studies aimed to
transform individual skills into organizational compe-
tences codified into hierarchies of routines. As a result
of this codification, there was a major transfer of
knowledge from individual workers to the manage-
ment, which, in turn, reflected a redistribution of
power between them. Dosi et al. seek to generalize
from this historical evidence by studying the proper-
ties of different distributions of power and knowledge
under different hierarchical structures and problem-
solving complexity. Specifically, they explore the
properties of alternative hierarchical structures by de-
veloping a model with a principal and several agents
(managers and workers) who must choose among dif-
ferent courses of action to solve an organizational
problem. The principal can exercise the power by de-
fining the domain of discretional choice of the agents.
A key feature of this modeling structure is that learn-
ing, intended as changing the organizational routine
in place, is a bottom-up process, whereas power and
control are hierarchical top-down processes. Whenev-
er the upper hierarchical layers (managers or princi-
pal) have less precise knowledge and, therefore, are
more error-prone, they tend to exercise more veto
power. Hence, the overall organization is less resilient
and more error-prone. Under higher uncertainty, con-
formity and obedience result in greater inefficiency
and less learning. Firms with a more authoritarian or-
ganizational structure tend to stifle changes, learning,
and exploration. The paper sets the stage for how evo-
lutionary scholars should think about the role of man-
agement in shaping firm behavior and performance.
4. The Dynamics of Industries
In an evolutionary approach, the dynamics of indus-
tries is seen at the result of a continuous process of
275
technological change, learning and capability accumu-
lation, variety creation in firms and products, and se-
lection among heterogeneous firms. This view has
been clearly put forward by Nelson and Winter
(1982). From their book, a rich stream of contributions
has explored the key dimensions of Schumpeterian
competition; the relationship between static and dy-
namic efficiency; and dynamics in terms of rate of
technological change, firms’ size distribution, profit-
ability, and productivity. As mentioned in the intro-
duction of this paper, we will not discuss the major
developments in the evolutionary camp concerning
the statistical properties and the microeconometrics of
industrial dynamics (for a discussion of these contri-
butions, see Bottazzi et al. 2001, Cefis and Ciccarelli
2005, and Dosi 2007). Instead, in the following pages
we will concentrate on another stream that, starting
from Nelson and Winter (1982), has examined the
evolution of industries and the factors that affect this
evolution. Coherent with the evolutionary approach,
the focus is on industries and their differences (and
not on a generic “representative” industry); on the
stages that industries go through during their evolu-
tion; and on the roles of knowledge, nonfirm actors,
and institutions characterizing a sectoral or a national
innovation system.
4.1. The Variety of Sectoral Patterns of
Innovation and Industry Life Cycles
A first major development of the evolutionary ap-
proach is the recognition that industries differ in their
structure and evolution. This has led to the search for
factors that explain these differences. As characteristic
of the evolutionary approach, it is the empirical evi-
dence deriving from the extremely rich and detailed
case studies of individual industries examined over
time that has prompted efforts to identify in a bottom-
up way which dimensions could be relevant in
explaining this variety. A first distinction, already
mentioned previously, follows the early and the late
Schumpeter. It groups innovative industries into a
Schumpeter Mark I type (in which entry and exit are
high, industrial turbulence is significant, and market
structure is rather dispersed among many small com-
panies) and a Schumpeter Mark II type (in which en-
try and exit are limited, industrial concentration is
high, and large firms are the main innovators) (Nelson
and Winter 1982, Malerba and Orsenigo 1995). A rich-
er classification is the sectoral taxonomy proposed by
Pavitt (1984), and subsequently refined by other schol-
ars (see, e.g., Marsili 2001), which is based on a de-
tailed analysis of innovation in manufacturing sectors.
This taxonomy identifies four groups of industries in
terms of types and sources of innovations, means of
appropriability, modes of competition, and firm size.
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In parallel to these efforts, following the contribu-
tion by Abernathy and Utterback (1978), a tradition ex-
amining industries in terms of life cycle has emerged.
Here, innovation and market structure are examined
as evolving through stages. In a first period, new
industries characterized by rich technological and mar-
ket opportunities have high rates of product and pro-
cess innovation and a lot of entry of new firms. Later
on, a dominant design emerges, product innovations
start to slow down, and major process innovations
take place, leading to an increase in market concentra-
tion. Finally, in a mature stage, process innovations
also become incremental, and the market is dominated
by an oligopoly (Utterback 1994). This view often as-
signs first-mover advantages to early entrants, which
then come to dominate the market. Klepper (1996) pro-
poses a model of a standard industry life cycle in terms
increasing returns through process R&D and the
emergence of a shakeout later in the industry evolu-
tion. Although not evolutionary in its basic assump-
tion, Klepper’s model is a clear and convincing model
of the evolution of an industry in terms of rate of en-
try, type of innovation, competition, and market struc-
ture. The original industry life cycle model derives
from the evolution of one industry (auto) and has
found confirmation in a series of other industries such
as typewriters, automobile tires, televisions, television
picture tubes, and penicillin (Klepper and Simons
2000). However, a rich set of case studies clearly points
to a wide variety of different evolution patterns that
calls for extensive research on the determinants of spe-
cific industry life cycles that differ from the standard
one in significant ways and along many dimensions
(Malerba and Orsenigo 1996, Klepper 1997).
Recently, and in a very evolutionary fashion, the peri-
od before the beginning of a standard industry life cycle
(i.e., the activities prior to the first instances of product
commercialization) has also been examined (Malerba
and Orsenigo 1999, Cattani 2005, Eggers 2014, Moeen
and Agarwal 2017). In particular, Moeen and Agarwal
(2017) examine the incubation period of an industry and
show that this period is characterized by widespread ac-
tivities and intense knowledge generation processes con-
ducted by different types of firms within industries and
across industries, with a variety of mechanisms at work.
This incubation period identifies the seeds of a new in-
dustry and shapes and defines the subsequent commer-
cialization stage. In parallel, Agarwal et al. (2017) analyze
the trigger events that start the incubation stage and that
can be classified in terms of scientific discoveries, unmet
user needs, or mission-oriented grand challenges.
4.2. Vertical Integration, Industry Architecture,
and Industrial Dynamics
The role of learning and capabilities brings to the fore-
front a more articulated and dynamic analysis of the
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
changes in the vertical scope and architecture of in-
dustries based on the capability development process
and capability differences, as already mentioned in
Section 3. As Jacobides and Winter (2005) and
Jacobides (2005) show, the distribution of capabilities
within industries and across industries complements
the explanation of the organization of industries in
terms of transaction costs, with the selection process
amplifying the impact of capabilities on the vertical
scope of industries. Along these lines, the interplay of
capabilities, transaction costs, and market size, togeth-
er with the selection process, determines the vertical
structure of production spanning over vertically relat-
ed industries. Over time, a coevolutionary process be-
tween capabilities and transaction costs generates
patterns of specialization and integration among hetero-
geneous firms. During this process, when new technol-
ogies and new knowledge become misaligned with
the existing vertical structure of an industry, new and
superior capabilities may be brought in, and vertical
integration may increase. Helfat (2015) expands this
analysis to other contextual factors and proposes a
broad research agenda concerning the identification of
the various dimensions that affect the dynamics of ver-
tical integration during the evolution of industries.
Along these lines, Helfat and Campo-Rembado (2016)
link the changes in vertical integration and specializa-
tion, and their possible coexistence during industry
evolution, to the type of innovation that characterizes
an industry (in their case, recurrent systemic innova-
tions) and that can lead to interdependence across
stages of production (Teece 1996).
In this special issue, Jacobides et al. (2021) offer a
fine-grained analysis of the evolution of industry
architecture in artificial intelligence (AI) and the dy-
namics of competition and cooperation among firms
involved in AI enablement, AI production, and AI
consumption. Here, some interesting evolutionary
patterns emerge, driven by forces that simultaneously
push toward growth and concentration and toward
openness and specialization. The industry architecture
that emerges from these patterns is one in which AI
provision is characterized by the dominance of a small
number of firms, vertically related to downstream AI
uses and to upstream computing-power provision,
and that dominate top academic organizations in AI
research. At the same time, AI is adopted by and ben-
efits a small percentage of firms, which are able to
both digitize and have access to good-quality data. In
sum, this analysis identifies the factors leading to ma-
jor heterogeneity across firms in capabilities and strat-
egies and an increasing role of knowledge integration
and dynamic architectural capabilities. In their strate-
gies, these heterogeneous firms have also to take into
account another characteristic of the AI sectoral sys-
tem: the presence of various communities active in
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technology generation and diffusion, as well as specif-
ic institutions and norms affecting innovation and
competition.
4.3. Entry, Spinouts, and the Role of Knowledge
Entry is a cornerstone of the evolutionary approach to
industry evolution because new firms introduce inno-
vations and set in motion the gale of Schumpeterian
“creative destruction.” An evolutionary framework
recognizes that new firms may challenge incumbents
and may start bringing radical changes in an industry.
At the same time, it points out that this process takes
place in industry contexts that may differ significant-
ly. Along these lines, entry in industries has been ex-
amined at the theoretical and at the modeling level.
Winter (1984) compares the evolution of an industry
characterized by an entrepreneurial regime with one
characterized by a routinized regime, Malerba et al.
(2016) compare the role of entry in industry evolution
across different technological and demand regimes,
and Dosi et al. (1995) and Winter et al. (2003) model
entry and its effect on the evolution of industrial
structures. These theoretical models have been com-
plemented by a rich series of empirical analyses on
the role of entry in the evolution of industries (see
Audretsch (1995), Agarwal and Gort (1996), and
Klepper (1996), among others).
In the evolutionary approach, the relevance of entry
in the evolution of industries has been associated with
the analysis of knowledge and capabilities that new
firms and incumbents possess. Knowledge and capa-
bilities explain not only how frequent entry is but also
what types of firms enter, which type of distinctive
knowledge they possess, and what kind of perfor-
mance they have. The work by Helfat and Lieberman
(2002), Agarwal and Shah (2014), Klepper (2016), and
Malerba and McKelvey (2020), among others, broadly
discusses these issues. Agarwal and Shah (2014), in
particular, examine the specific knowledge context
from which new firms originate and compare spin-
outs, academic entrepreneurs, and user entrepreneurs.
They show how the specific knowledge context of ori-
gin affects the type of innovation as well as the perfor-
mance of these different types of entrants, as well as
their role in shaping industrial dynamics and evolution.
Among these different types of entrants, spinouts
(new ventures created by the ex-employees of incum-
bent firms) illustrate very well the evolutionary mecha-
nism taking place through the genealogical relationships
between parent companies and new firms founded by
ex-employees. Within spinouts, intraindustry spinouts
(new ventures created by the ex-employees of incum-
bent firms in the same industry) have received most of
the attention so far (Agarwal et al. 2004, Klepper and
Sleeper 2005, Franco and Filson 2006, Wezel et al. 2006,
Buenstorf and Klepper 2009, Chatterji 2009, Clarysse
277
et al. 2011, Argyres and Mostafa 2016). The preentry
experience and know-how inherited by independent
start-ups may be of the technological, operational, or
marketing type and often is of a tacit nature. In studies
that have examined a wide variety of industries, it has
been shown that the industry experience of the founders
has played a significant role in affecting process and
product innovations, strategic choices, and the superior
success rates of the new ventures. Drawing from all
these empirical studies and using a simulation model,
Capone et al. (2019) conduct a cross-industry analysis in
which the emergence and performance of spinouts is re-
lated to the industry context, in terms of the technologi-
cal and demand conditions of the various industries.
Recently, the focus on spinouts has expanded from
intraindustry spinouts to vertical spinouts, defined as
new and independent ventures founded by the
ex-employees of established firms in either an up-
stream or a downstream industry (Adams et al. 2019).
Vertical spinouts can therefore be supplier-industry
spinouts or user-industry spinouts (Adams et al.
2016). These spinouts represent a type of organiza-
tional structure through which knowledge is shared
and transferred between vertically related industries.
A key factor of their formation is the contextual
knowledge that spinouts inherit from their preentry
experience in a vertically related industry. Vertical
spinouts represent a form of organizational structure
that differs from full integration or specialization
through which knowledge resources are transferred
across industry boundaries within a single vertically
integrated firm or across two specialized firms in two
different markets. The carrier of this transfer, in fact,
is a specialized organization that operates in only one
industry. The knowledge held by vertical spinouts
and spanning over the two related industries gives
these spinouts a competitive advantage over other
start-ups, leading them to a higher survival and a
greater performance in the target industry.
4.4. Institutions and Innovation Systems
Another development in the evolutionary literature
has been to highlight the central role played by inno-
vation systems and institutions in industry evolution,
as recognized by Nelson (2021) and Winter (2017),
among others.6 For evolutionary theory, several
knowledge sources external to firms, many nonfirm
actors, and a variety of institutions support and orient
firms’ efforts at innovation and generate and spread
knowledge within a sector. This view is based on the
notion of innovation system, originally developed for
countries (for a discussion on national innovation sys-
tems, see Freeman 1987, 2019, Lundvall 1993, and Nel-
son 1993). When it comes to industries, it is appropri-
ate to consider sectoral systems (Malerba 2002).
Sectoral systems identify the variety of nonfirm actors
 Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
278
and institutions that affect innovation and the genera-
tion and diffusion of knowledge in a sector, as well as
the links, interactions, and feedbacks among these
different actors and institutions. The evolutionary lit-
erature recognizes that firms in terms of producers,
suppliers (Pavitt 1984), and users (von Hippel 1988,
Adams et al. 2013) are the main drivers of innovations
and growth in most sectors. This variety of firms and
their links are the focus of current analysis on business
or innovation ecosystems (Jacobides et al. 2018) and
on industry architectures (see Jacobides et al. 2021).
But in sectors, other nonfirm actors are often relevant
for innovation, the generation of new knowledge, and
the diffusion of technology: universities (Rosenberg
1982), public agencies and the government (Freeman
1987, Mazzucato 2011), and financial organizations, as
well as individuals, researchers, and scientists. There-
fore, the links and networks among firms and nonfirm
actors become of paramount importance for under-
standing innovation in a sector. In addition, another
group of factors greatly affects innovation and tech-
nology diffusion in a sector. They are the wide range
of formal and informal institutions that shape and ori-
ent innovation and competition: regulation and stand-
ards as well as common habits, established practices,
and rules (Edquist 1997, Nelson and Sampat 2001).
Finally, it must be remembered that also technological
regimes and demand regimes (as discussed earlier) are
components of a sectoral system (Malerba et al. 2016).
Therefore, nonfirm actors, institutions, and knowl-
edge, together with technology, knowledge, and de-
mand conditions, need to be taken into account for a
full analysis of innovation and the evolution of indus-
tries. These factors generate different structures of
sectoral systems and set in motion coevolutionary
processes that lead to specific sectoral paths. It does
not come as a surprise, therefore, that a first stage in
the evolutionary agenda on sectoral systems has been
devoted to in-depth case studies of the wide heteroge-
neity of structures and evolution, in both advanced
countries and developing ones (Malerba 2004,
Malerba and Mani 2009, Malerba and Nelson 2011).
More recently the attention has moved to industries
involved in the so-called fourth industrial revolution
(Li et al. 2021) and in the green transformation (Lema
et al. 2020). A second stage has concerned quantitative
analyses of sectoral systems along several dimensions
(see, e.g., Montobbio 2003, Park and Lee 2006,
Castellacci and Zheng 2010, and Choi and Park 2018).
Given the great diversity of sectoral systems, the de-
velopment of taxonomies represents a further move in
the evolutionary agenda, following the pioneering
work by Pavitt (1984) and Marsili (2001) on sectoral
patterns of innovation, but expanding the analysis to
nonfirm actors, institutions, and the knowledge and
demand contexts. A first step in this direction is taken
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
by Fontana et al. (2015), who identify four types of
sectoral systems based on an extensive survey con-
ducted on new firms. A second step (as will be dis-
cussed more in depth in Section 5) is to take into ac-
count the dynamics of all the links and feedback and
examine the coevolutionary processes that occur
among knowledge, firms, nonfirm actors, and institu-
tions, along the lines discussed and examined by
Nelson (1994), Murmann (2003), and Freeman (2019).
During these processes, radical changes in technology
and knowledge, generated exogenously or endoge-
nously to the sector, may lead to misalignments
among firms, nonfirm actors, and institutions leading
to major transformations in the sectoral systems or to
emergence of new ones, as discussed by Mowery and
Nelson (1999), Freeman (2019), and Agarwal et al.
(2017).
At the modeling level, these coevolutionary pro-
cesses specific to the various industries have led to the
creation of a new generation of evolutionary models,
history-friendly models, which examine the factors
that affect innovation and the evolution of industries
and which take into account the characteristics of a
sector and its changes. In this special issue these mod-
els are examined by the paper by Capone and Li
(2021) and extensively discussed in Section 5.
Along all these lines of research, in this special issue
the contribution by Agarwal et al. (2021) looks at the
role of a key actor in a sectoral system—the public
sector—during the incubation stage of an industry
and in shaping an emerging sectoral system. Mission-
oriented grand challenges face complex and ambitious
problems whose solutions in the form of new technol-
ogies and products are critical to society in general or
to sectors’ unmet needs. In the paper the six case
studied indicate the extreme variety of evolution, ar-
ticulation of the mission by the public agencies, and
enactment of strategies for leveraging private enter-
prise. In all cases, however, relevant funding and a
lead use of key technologies by the sponsoring public
agency was common, regardless of whether the
knowledge deficiencies were in basic or applied sci-
ence. Agarwal et al. point out that the articulation of
the mission provided a significant positive path de-
pendency for later phases of the incubation process.
The success of the mission includes goal setting as a
lead user, effective strategies for coordination and for
leveraging private enterprise with respect to selection,
and extensive knowledge sharing.
4.5. Catch-up by Firms from Latecomer Countries
An area in which the evolutionary approach has pro-
gressed significantly in the past decades has been the
analysis of catch-up by firms from latecomer countries
(Malerba and Lee 2021). Here, the term “catch-up” fol-
lows the terminology of Abramovitz (1986) and
Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
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Mowery and Nelson (1999): closing the gap by late-
comer firms or countries in technologies and market
shares vis-à-vis the leading firms or countries. In these
analyses, catch-up does not mean simply cloning but
indicates a process of local learning that leads to the
creation of new products and technologies and even
to the development of divergent trajectories from
those of the leading firms or countries. This process
shares some of the characteristics already discussed in
Section 4, but at the same time, it is specific because it
takes place in an environment in which other firms
from advanced countries are already present and mul-
tinational corporations often dominate major markets.
Therefore, the acquisition of initial capabilities by late-
comer firms is of crucial importance. In this context,
firms from emerging economies are often defined as
resource-poor late entrants (Mathews 2002) and may
have to start the catching-up process in specific ways:
entering into segments left free by firms from the ad-
vanced economies, moving into specific stages of the
global value chain, or becoming original equipment
manufacturers (OEMs) (Lee 2013).
As a consequence, in many latecomer countries,
catch-up is driven by businesses groups that leverage
their own unique capability in sharing and coordinat-
ing the use of their resources (Chang and Hong 2000).
Specific learning strategies are associated with the
stages of development. Classical sequences are the
one from imitation to innovation (Kim 1997) and from
OEM to original design manufacturing to original
brand manufacturing (Hobday 1995). This process of
capability building is the result of the continuous
combination of multiple internal and external learning
processes (Figueiredo and Cohen 2019). In addition,
Kumaraswamy et al. (2012) find that latecomer firms
often move from strategies that focus on sourcing
technologies to strategies that focus on developing
customer relationships.
This process of learning and capability building
takes place in national systems or sectoral systems
that are not fully developed. The qualitative and
quantitative evidence clearly shows that the features
and level of development of a national or sectoral
system greatly affect the specific trajectory and the
success of catch-up (Fagerberg and Srholec 2008,
Malerba and Nelson 2011, Lee 2019). In a sense, there
is a strong complementarity between learning and
capabilities by domestic firms and the national and
sectoral systems in which firms operate. Firms’
learning and capabilities alone are not sufficient to
produce a successful catch-up without an effective
and working innovation system. However, the pres-
ence of a developed innovation system is a necessary
but not sufficient condition for a successful catch-up,
if this system does not trigger learning and capabili-
ty building by domestic firms.
279
4.6. Public Policy
One final remark concerns public policy for innova-
tion, technology diffusion, and industrial growth. Be-
cause policy addresses problems that emerge in
changing and uncertain environments and that have
to be confronted by heterogeneous and boundedly ra-
tional agents, evolutionary theory provides clear indi-
cations that move beyond the ones based on market
failure. In these environments, it is, in fact, more ap-
propriate to point to evolutionary and systems fail-
ures (Metcalfe 1995, Cimoli et al. 2009, Malerba 2009).
For example, a lack of a rich technological context
may lead to policies designed for the generation of
high-technological opportunity conditions (Nelson
and Winter 1982), weak learning and inadequate ca-
pabilities may unleash policies of support for learning
by firms and accumulation of advanced capabilities
(Metcalfe 1995), and the presence of lock-ins in inferi-
or technologies (David 1985) may generate policies of
exploration and research promotion. Policies may also
try to intervene when a key element of the system that
is needed for the full working of sectoral complemen-
tarities is missing or has limited absorptive capabili-
ties, when connections among heterogeneous agents
and complementary activities are not effective, or
when the emergence of radically different innovation
systems creates major imbalances among firms or mis-
matches among parts of a sectoral system (Mowery
and Nelson 1999). In the discussion of policies, the
evolutionary approach indicates a wide range of pub-
lic interventions, ranging from support for basic re-
search, university research, or industrial R&D to hu-
man capital formation, mission-oriented grand
programs, promotion of entry of new firms, or back-
ing cooperation among different types of actors in
highly risky projects (Malerba 2004, Cimoli et al. 2009,
Mazzucato 2011, Winter 2017).
By addressing these failures confronted by the poli-
cy maker, the evolutionary approach points to several
relevant aspects not always discussed by the current
economic literature: the direct and indirect effects of
policies, as well as the possible unintended conse-
quences (Malerba et al. 2008); the short-run and the
long-run impact (Nelson 1993, Mowery and Nelson
1999, Mazzucato 2011); and the interaction and
complementarities among different types of policies
(Metcalfe 1995, Landini and Malerba 2017). Even the
traditional policy questions concerning the role of an-
titrust in monopolistic situations or the desirable fea-
tures of the patent system are seen and interpreted in
new ways (Winter 1993). For instance, rigorous antitrust
determinations require “a thorough understanding of
an industry and the economic, legal, and technical
institutions that govern it” (Slade 1986, pp. 291–292)
because the inherent complexity of markets and
market power “makes the use of multiple sources of
 Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
280
evidence particularly valuable” (Baker and Bresnahan
2008, p. 15). Similarly, in the presence of an industry at
the early stage of development or with increasing
returns, the timing of antitrust intervention become ex-
tremely important and may unleash indirect and per-
haps unintended consequences at different times or in
related markets (Malerba et al. 2001). This is where evo-
lutionary scholars—who share the belief that historical
contingencies and details matter—have an important
role to play.
The main conclusion from this discussion is that the
combination of detailed empirical analyses with appre-
ciative theorizing and simulation modeling has led evo-
lutionary scholars to discuss policies in an evidence-
based and a dynamic framework. The use of empirical-
ly validated simulation models also allows examining
the impact of alternative policy configurations and poli-
cy experiments that are robust to reasonable changes in
the parameters, such as in the case of models that link
the micro with the macro dimensions (Dosi et al. 2020)
and history-friendly models of policies concerning in-
dustries in advanced countries (Malerba et al. 2001) as
well as emerging latecomer countries (Landini et al.
2017, Landini and Malerba 2017).
5. Methodological Approaches
Many different methodological approaches have been
used to study evolutionary phenomena. Starting with
the seminal work by Nelson and Winter (1982), several
scholars have attempted to formally represent the styl-
ized patterns of industrial dynamics at a very general
level (Silverberg and Lehnert 1993, Silverberg and
Verspagen 1994, Dosi et al. 1995, Bottazzi et al. 2001,
Winter et al. 2003). These models are characterized by
heterogeneous and boundedly rational agents that learn
and interact. This joint process of firm learning and se-
lection generates specific patterns of industrial dynam-
ics. In most of these models, learning is represented as a
process of search in uncertain environments, whereas
selection is captured by some replicator dynamics
(Nelson and Winter 1982, Metcalfe 1998). By taking into
consideration the role of technological opportunity and
the presence of cumulativeness of learning, these mod-
els have been able to provide relevant insights on the
determinants of industrial concentration, asymmetries
in firm efficiency, and turbulence in market shares
(Dosi et al. 1995, Winter et al. 2000, Bottazzi et al. 2001.
All of these models have been quite general and
have been successful at generating and explaining ob-
served empirical regularities. The model discussed in
Nelson and Winter (1982) is an exemplar of this
modelling approach. Different production efficiencies
imply different firm-specific unit costs. The latter (pos-
sibly modulated by some behavioral rules governing
output) determine different unit profit margins for
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
each firm. If the relation between profit margins and
investments in future production capacity is mono-
tonic, higher efficiency yields higher investment,
which entails higher relative shares in the overall
output (for more details, see Dosi and Nelson
2010). Incidentally, it must be noted that also in the
more mainstream literature on industrial dynamics,
the Schumpeterian and evolutionary metaphors are
increasingly and explicitly used (Jovanovic 1982,
Ericson and Pakes 1995, Lenox et al. 2007).
A substantial body of theoretical work in the inno-
vation and strategy literature makes use of the meta-
phor of search on a rugged landscape as a way to
think about organizational decisions (for a review, see
Baumann et al. (2019). In this literature, the modeling
approach builds directly on the NK model developed
by biologist Stuart Kauffman (1993) and then further
extended by Altenberg (1996) to deal with more gen-
eral systems (e.g., technologies with multiple func-
tions). Levinthal (1997) was the first to use the NK
model to examine search and adaptation, spurring a
series of subsequent efforts to model a broad range of
evolutionary phenomena. One stream has probed the
implications of different search/adaptation strategies
(e.g., Rivkin 2000), including search guided by cogni-
tive representations of the problem structure and solu-
tion space (e.g., Gavetti and Levinthal 2000). A second
stream has studied how search can be enhanced
through problem decomposition by reducing either
the dimensionality of the problem or its internal inter-
dependencies through modularization (e.g., Ethiraj
and Levinthal 2004). A third stream has examined dis-
tributed search—namely, search procedures across
firms or across organizational units and actors inside
the firms (e.g., Rivkin and Siggelkow 2003 and Maren-
go and Pasquali 2012).
One approach that is particularly attractive is based
on the “holey” landscapes. Introduced by Gavrilets
(1997), the approach of holey landscapes aims to over-
come the limitations of fitness landscapes, whose
main objective is to explain how adaptation happens
under the influence of forces such as recombination,
mutation, and selection. The fundamental premise of
the holey approach is the high dimensionality of
spaces as a result of the infinite number of possible
genotypes. The key implication is that one cannot ex-
pect all genotypes “to have different fitnesses—there
should be a lot of redundancy in the genotype-to-fit-
ness relationship, so that different genotypes must
have similar fitnesses” (Gavrilets 2009, p. 55). Holey
landscapes have a qualitatively different type of struc-
ture, as they consist of a surface of high and relatively
flat fitness filled with holes of very low fitness rather
than a rugged surface of peaks and valleys. For this
reason, holey landscapes are especially suitable for
modeling the emergence of novelty via speciation
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(Gavrilets 2009) and exaptation (for an in-depth dis-
cussion, see Cattani and Mastrogiorgio 2021).
Most of this research, however, typically general-
izes away from the details of specific technologies,
market, and organizational contexts. That is why
some evolutionary researchers have embraced
“history-friendly” modeling (HFM)—a new form of
evolutionary modeling that aims to explain particular
patterns of evolution observed in certain industries
(Malerba et al. 1999, 2007, 2008, 2016).7 The main ob-
jective of HFM is to “capture the gist of the apprecia-
tive theory put forth by analysts of the history of an
industry or a technology, and thus to enable its logical
exploration” (Malerba et al. 1999, p. 5). By recreating
the realized history of a market’s emergence and gen-
erating counterfactual histories, HFM can test the ro-
bustness of an appreciative theory of the market’s
evolution. Malerba et al. (1999), for example, develop
a history-friendly simulation to generate both realized
and alternative histories of the U.S. computer industry
from the first commercialization of transistor-based
mainframes through the emergence and evolution of
microprocessors and personal computers. Unlike the
previously discussed evolutionary models that are
only roughly consistent with stylized characteriza-
tions of empirical phenomena, HFMs aim to “generate
time paths that fit the empirical phenomena qual-
itatively” (Malerba et al. 2016, p. 36). At the same
time, they take into account a broader set of factors re-
lated to firm-level capabilities, radicalness or incre-
mentalism of technological change, demand regimes,
appropriability conditions, and so on, that generate
and explain the empirically observed dynamics in
specific industries. Thus, HFMs are quite appropriate
for modelling the evolution of sectoral systems and
disentangling the coevolutionary process among
firms, nonfirm organizations, and institutions. Albeit
tailored to specific industries, these models share
some generic mechanisms that drive evolution: the
relationship between a firm’s characteristics and
growth and industrial structure, the link between in-
novation and increasing returns, and the role of
technological and demand regimes. However, modi-
fied versions of industry-specific history-friendly
models can be built and used to investigate more
general issues, which can prove relevant for broader
contexts and for different industries.
The paper by Capone and Li (2021) in this special is-
sue reviews the HFM literature, traces its intellectual
roots in evolutionary economics, and elucidates how
this modeling approach can shed important light on
the key mechanisms shaping innovation and industry
evolution. To elucidate the intellectual roots of HFMs,
Capone and Li conduct a cocitation analysis that re-
veals how HFM scholars often draw on a wide range
of research domains and can be clustered around six
281
main research communities. Although the cocitation
analysis highlights how these communities share the
same evolutionary conceptual roots, the paradox is that
history-friendly models have not entered yet the meth-
odological tool kit of strategy scholars. For an exception,
see Engler et al. (2020). Capone and Li argue that the
unique features of HFMs should make it particularly at-
tractive for all major themes in strategy. To this end,
they discuss three strategic areas (i.e., catch-up, innova-
tion, and global strategies) where the application of
HFMs might prove particularly useful.
On the empirical side, the availability of large longitu-
dinal databases on firms and technologies has allowed
evolutionary researchers to unveil robust stylized facts
concerning innovation and industry dynamics. These
scholars have conducted thorough statistical analyses
that have revealed regularities across firms and indus-
tries and have identified important sources of persistent
firm heterogeneity across industries. Indeed, one major
field of exploration has been the mapping between re-
gimes of learning and the ensuing industrial dynamics,
from Nelson and Winter (1982) on the Schumpeterian
trade-offs and Winter (1984) on the properties of differ-
ent innovative regimes to Dosi et al. (1995), Marsili
(2001), Winter et al. (2000, 2003), and Bottazzi et al.
(2001) on the statistical properties of industrial dynamics
and the mapping between regimes of learning and
selection.
In addition, the use of various measures and indica-
tors has shed light on several aspects of the dynamics
of industries. Patents and patent citations at the firm
and individual levels have led researchers to discuss
technological trajectories, technological capabilities,
radical versus incremental innovation, and networks
of knowledge (Powell et al. 1996, Balconi et al. 2004).
Scientific publications have shed light on the role of
universities and science in various fields and indus-
tries (Orsenigo et al. 2001). R&D and trademark data
at the firm level have been used to examine formal in-
novative efforts and commercialization and marketing
activities by firms. Microlevel surveys and the rich
data sets of the various community innovation
surveys for many countries and industries have
broadened the analysis to more qualitative aspects in
the innovation process and led to the incorporation of
these dimensions into longitudinal quantitative analy-
sis (see, e.g., Breschi et al. 2000 and Castellacci and
Zheng 2010). An example of these attempts to use pat-
ent databases to shed light on broad conceptual ques-
tions is the paper by Sarnecka and Pisano (2021),
which relies on a unique database to characterize in
detail the search strategies of firms and examine how
breakthrough and nonbreakthrough innovations are
associated with different search strategies. As previ-
ously mentioned, from the analysis of patent data
they find that breakthrough innovations evolve
 Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
282
through a process of both exploration (initially) and
exploitation (subsequently).
In parallel, a wealth of case studies of firms and indus-
tries has provided detailed new understanding and
knowledge, and at the same time it has identified puz-
zles and even led to exciting hypotheses to be further de-
veloped (Rosenberg 1976, 1982; Freeman 2019). Several
scholars have adopted a historical case study design to
empirically expose the genesis of radical innovation, the
emergence of a new industry and its incubation period.
For example, focusing on the dynamics of technological
speciation and exaptation, Cattani (2006) conducts an
in-depth historical analysis of the micro-organizational
processes and evolutionary forces (internal and external
to the firm) responsible for the emergence of fiber-optics
technology, which then paved the way for the internet
revolution. The paper by Murmann and Zhu (2021)
explores the organizational mechanisms that allowed
Tencent to achieve a new-to-the-world innovation with
its WeChat smartphone application and come up with
some new interpretations of the co-opetition processes
within the firm and in the market.
Long-term analysis of industries and longitudinal
case studies has started to shed light on patterns of in-
dustry evolution that go in parallel and inspire history
friendly modeling. The whole work by Klepper (2016)
is a clear example in this respect. In general, longitudi-
nal case studies that rely on a variety of data and
original documents can shed light on idiosyncratic and
transient contingencies that may be highly consequen-
tial and, in fact, very often stand as alternative causal
explanations for any large sample effect. For example,
recognizing the influence of the institutional context on
patterns of industry evolution, Murmann (2003) illus-
trates the role of the German institutions of advanced
education in shaping the origins of the modern, science-
based chemical industry. Looking at firms’ technologi-
cal investments during an industry’s incubation stage—
the period between a technological breakthrough and
the first instance of its commercialization—in the agri-
cultural biotechnology context, Moeen and Agarwal
(2017) emphasize how decisions, events, and conditions
that occur prior to the first commercialization set the
foundation for market emergence and subsequent
evolution. Within the conceptual framework about in-
cubation of industries, the paper by Agarwal et al.
(2021) focuses on six cases of mission-oriented grand
challenges launched by the public sectors.
Recent advancements in textual analysis seem to be
especially suitable for the articulation of a narrative
perspective on complex evolutionary phenomena.
Textual analysis has been used to trace emerging nar-
ratives and their role in inducing technological exap-
tation (Garud et al. 2016). But this analysis could also
be extended to studying the relation between exapta-
tion and effectuation, particularly how effectuators
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
not only fabricate but also recognize and discover,
new investment opportunities (Dew and Sarasvathy
2016), or how individual perceptions result in the iden-
tification of new uses or functions for existing artifacts
or technologies (Felin et al. 2016)—important precur-
sors of many (radical) innovations and, in some cases,
even the emergence of new markets or industries.
The greatest potential for advancing evolutionary
theory and research lies not in a single methodological
approach but in the integration of different ap-
proaches that can jointly penetrate and describe the
inherent complexity of evolutionary phenomena. The
variety of methodologies, in fact, are linked and inter-
connected, and each of them exploits its relative and
complementary advantage in shedding light on some
aspects of evolutionary phenomena. However, all
these methodologies share a common set of guiding
evolutionary principles that link the case studies; the
quantitative analyses of technologies, firms, and in-
dustries; and the empirically based theories and
models. Taken all together, they provide a persuasive
understanding and explanation of innovation and the
innovation process, the capabilities, organization and
strategies of firms, and the dynamics of industries.
The paper by Coad (2021) in this special issue offers
a rich discussion of the relevant econometric tools that
can be used to study the building blocks of evolution-
ary theory in the context of firm growth and perfor-
mance. For instance, in economies where innovation,
uncertainty, and creative destruction are pervasive,
calculations of optimal behavior by firms in static
equilibrium are of limited use. That is why the emer-
gence of statistical tools for quantitative analysis of
text data and the spread of artificial intelligence and
machine learning techniques for analyzing big data
will contribute to the development of new time-
varying explanatory variables for firm growth.
6. The Way Ahead
From the discussion in the previous pages, it becomes
evident that the evolutionary approach to innovation,
the firm, and the dynamics of industries has generated
a quite rich array of contributions that span over a
wide set of issues and topics. This array of contribu-
tions forcefully points to very fertile areas of research
also for the future. In fact, from the discussion in this
article, the future deepening of themes related to
knowledge and technological regimes, the various
evolutionary processes leading to innovation, and the
long-term dynamics of technologies remains a rele-
vant research trajectory. The same can be said for the
potentially rich research trajectory on the topics relat-
ed to firm capabilities, broadly defined evolutionary
strategies, dynamic capabilities, vertical integration,
diversification, niche construction, and the role of
Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
authority and power in organizations. Also, major
avenues of future research will continue to concern
the analysis of the variety of evolutionary trajectories
of industries, the link between industry architecture
and industry dynamics, the different types of knowl-
edge of entrants, the role of focal and vertical spinouts
and their impact on performance and growth, the ar-
ticulated role of institutions and sectoral innovation
systems in industry dynamics, and the catch-up by
firms from latecomer countries.
In this broad array of topics, all the future develop-
ments in the evolutionary camp should be character-
ized by eclecticism and multidisciplinarity, as well as
by the integration of different methodologies with a
strong link between cases, stylized facts, quantitative
analyses, appreciative theorizing, and formal model-
ling. However, the contributions will have to follow
the guiding principle of evolutionary economics, mas-
terfully summarized by Winter in a talk in 2000: (a) re-
alism is an important component of economic theory;
(b) dynamics is key for any analysis; (c) firms are best
viewed as profit seeking rather than as profit maxi-
mizing; (d) rather than optimizing a given set of con-
straints or possibilities, firms can and do innovate, in
effect creating new opportunities and possibilities; (d)
firms are historical entities and typically display iner-
tia; (e) firms are repository of technological and
organizational knowledge; (f) firms do not innovate in
isolation; and (g) search processes are affected by a va-
riety of institutions.
In addition to the deepening of all the research
topics and areas discussed in the preceding in the
realm of innovation, the firm, and the dynamics of in-
dustries, some relevant avenues to be tackled by fu-
ture research can be highlighted. The first one regards
coevolution. In the last few decades, one strand of evo-
lutionary research has progressed in laying out some
fundamentals regarding the coevolutionary processes
that take place inside the firm and across firms. For
example, March (1994) and Baum and Singh (1994)
discuss the evolutionary dynamics of organizations;
Lewin and Volberda (1999) and Lewin et al. (1999),
the coevolution of strategies and new organizational
forms; Levinthal and Myatt (1995), the coevolution of
capabilities and industries; and Jacobides and Winter
(2005), the coevolution of firms’ capabilities, transac-
tion costs, and industry architecture. Another strand
of literature has focused on the coevolution of firms,
industry structure, technology, and supporting insti-
tutions, as in the case of Nelson (1995), Metcalfe
(1998), and Murmann (2003). This last type of coevolu-
tionary process is sector specific. Here, local learning
and adaptation; mutual interactions; and feedback
among various types of firms, nonfirm actors, and in-
stitutions set in motion coevolutionary processes in
sectoral systems, often shaped by country-specific
283
factors, with the possible presence of increasing re-
turns and irreversibilities in industries. In a detailed
study of the synthetic dyes industry from 1857 to
1914, Murmann (2003) examines companies and insti-
tutions in five countries and identifies three causal
mechanisms (exchange of personnel, commercial ties,
and lobbying) that affect the variation, selection, and
retention processes in industries and in the other pop-
ulations under investigation. The move forward in co-
evolutionary analyses requires longitudinal studies
based on careful measurement and detailed data.
These studies will provide evidence for the detection
of the key processes and actors involved in coevolu-
tion and for the identification of key empirical stylized
findings. In turn, this will allow for the development
of appreciative theorizing and formal dynamic mod-
els. All these analyses have to take into account that
coevolution may take place at different levels: within
the firm, across firms, and between firms and the envi-
ronment in terms of nonfirm actors and institutions.
These levels are connected in various ways, with
different types of feedback and mutual causation,
creating nested processes and the possibility of posi-
tive feedback mechanisms and path-dependent
processes (Kauffman 1993, Baum and Singh 1994,
McKelvey 1997).
A second area of future evolutionary research re-
gards the relationship of processes and structures in
evolutionary biology and evolutionary economics. The
analogy between biological and cultural evolution has
long been a matter of heated discussion. Critical disa-
nalogies have haunted biological analogies, raising
concerns about their usefulness in generating novel
ideas that are then built into new theories. For
instance, Penrose’s (1952) classic critique of the ten-
dency to impose sweeping biological models upon
economic phenomena was premised on the assump-
tion that the structures and processes underlying
organic and cultural evolution are substantively dif-
ferent. According to Darwin (1859), biological evolu-
tion follows a bifurcating evolutionary process whose
branches are the result of descent with modification—
through vertical gene transmission or inheritance—
from a common root or ancestor, as represented by
the so-called tree of life. The model of evolution is not
entirely consistent with the evolution of many cultural
phenomena, including technology, as it does not neat-
ly fit this pattern, which exhibits instead a reticular
structure (Ziman 2000). However, the developments
in evolutionary biology discussed earlier—punctuated
equilibrium, speciation, and exaptation, as well as the
mechanisms responsible for their occurrence (e.g.,
horizontal transfer)—have revealed “greater substan-
tive similarity underneath the surface similarity
between biological and cultural—including techno-
logical—evolution” (Cattani and Mastrogiorgio 2021,
 Cattani and Malerba: Evolutionary Approaches: Innovation, Firms, Industry Dynamics
284
p. 214). A systematic investigation of those mechanisms,
therefore, can help reconcile some of the differences be-
tween biological and cultural evolution, recasting the old
debate about the usefulness of building biological analo-
gies and possibly bringing to an end what has long been
considered an intractable disanalogy between biological
and technological evolution.
This brings to a third area of interest for future re-
search: network analysis. If the most striking similarity
between evolutionary processes in biological and
technological evolution is their reticulate structure,
aptly described by a phylogenetic network rather than
the tree of life (Carignani et al. 2019), a more systemat-
ic use of network theory and analytic tools seems
appropriate to study the processes through which
knowledge and ideas move within and across organi-
zations and the role of networks in facilitating or hin-
dering this transfer. For instance, Powell et al. (1996)
show that when the knowledge base of an industry is
both complex and expanding, and the sources of ex-
pertise are widely dispersed, the locus of innovation
will be found in networks of learning rather than in
individual firms. Stuart and Podolny (1996) propose a
network-analytic approach for identifying the evolu-
tion of firms’ technological position. Indeed, a rela-
tional construction of technological positions—in
which firms that have developed portfolios consisting
of similar technologies are located near to one another
and, therefore, draw from very similar knowledge—
sheds light on their behavior, particularly their abili-
ties to develop similar or different inventions. Using a
social network lens, a growing number of studies
have also probed the relationship between science
and technology, looking at the role of publishing in-
ventors in shaping innovation (e.g., Orsenigo et al.
2001, Gittelman and Kogut 2003, Balconi et al. 2004,
Bonaccorsi and Thoma 2007, Breschi and Catalini
2010, and Lissoni 2010). Located at the intersection be-
tween scientific (coauthorship) and technological (co-
invention) networks, publishing inventors have been
found to enhance innovation by facilitating the trans-
fer of information and knowledge between the two
networks. These are just a few examples of how social
network theory and analytic tools can be applied to
address questions that are at the heart of evolutionary
theory. We hope that future research will continue
further along this path.
Acknowledgments
The authors thank Giuseppe Carignani, Giovanni Dosi, Dan-
iel Levinthal, Mariano Mastrogiorgio, and Richard Nelson
for feedback and suggestions on earlier drafts of the paper.
Endnotes
1
For a recent and systematic review of this literature, we refer to
Andriani and Cattani (2016). We also refer the reader to Dew et al.
Strategy Science, 2021, vol. 6, no. 4, pp. 265–289, © 2021 INFORMS
(2004) for a definition of the phenomenon, its economic significance,
and several anecdotal examples. We then refer to Cattani (2006) for
an in-depth historical case study on the exaptation of capabilities
from glass manufacturing to fiber optics. Finally, we refer to An-
driani and Carignani (2014) and Mastrogiorgio and Gilsing (2016)
for a discussion of the microdrivers of exaptation, such as modulari-
ty. A recent discussion on the meaning of exaptation and its impli-
cation for innovation and technology can be found in La Porta et al.
(2020) and Cattani and Mastrogiorgio (2021).
2
“In the turbojet case the historical records show how initially the
necessary ‘preadapted’ functional modules came both from the
aero-engines industry and from diverse and hardly related techno-
logical lineages. For instance, in 1936 Power Jets’ industrial partners
were British Thompson-Houston, a manufacturer of heavy steam
turbines for the electric industry, and Laidlaw, Drew and Company,
a Scottish manufacturer of industrial burners” (Carignani et al.
2019, p. 523).
3
Routines are distinct from standard operating procedures. A stan-
dard operating procedure can be viewed as “a ‘nominal routine’,
i.e. a prescriptive characterization of a procedure for doing some-
thing” as distinct from “the true routine, i.e. the repetitive behavior-
al pattern” (Winter 2017, p. 728).
4
Indeed, the main advantage of a replication strategy lies “in
breadth (reaching large markets quickly) rather than depth (size of
the excess return) or length (long-term sustainability)” (Winter and
Szulanski 2001, p. 740).
5
“The hypotheses that firm capabilities are somehow randomly
distributed among firms or determined invariably by their past
are not supported by the available empirical evidence” (Pisano
2017, p. 751).
6
As Richard Nelson claims, “More generally, in my view one of the
most important achievements of evolutionary economics has been
the development of the concept of an innovation system” (Nelson
2021, p. 1107). And in his 2019 talk at the NYU seminar series on
evolutionary theory, Sidney Winter identifies innovation systems as
one of the three pillars of evolutionary theory.
7
“HFM are based on the historical reconstruction of the main ele-
ments that characterize the evolution of an industry; on the identifi-
cation of the key factors that might explain the specific observed
patterns; on the construction of a model that incorporates the cru-
cial explanatory assumptions suggested by the historical analysis;
on the testing of the ability of such a model to broadly simulate the
observed phenomena ad to produce distinctively different patterns
when one or some of the key assumptions are removed or mod-
ified” (Malerba et al. 2016, p. 3).
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Gino Cattani is professor of Strategy and Organizations
at the Stern School of Business, New York University. He re-
ceived an M.A. in Management Science and Applied Eco-
nomics from the Wharton School at the University of
Pennsylvania in 2001 and a PhD in Management from
Wharton in 2004. His research focuses on creativity, innova-
tion, social network, and social evaluation.
Franco Malerba is professor of applied economics at Boc-
coni University and a previous president of the International
Schumpeter Society. He received his PhD in economics from
Yale University. His research interests include innovation
and industrial dynamics, entrepreneurship, innovation sys-
tems, modeling industry evolution, and catching up.