Firms as the source of innovation and growth: the evolution of technological competence

It is argued that the firm is the principal source of innovation and growth , a device for the establishment of technological competence, and for its c ontinued development over time. Markets, products and background knowledge may change quite dramatically over time. Yet as a result of the cumulative nature of learning in the production processes of firms, the profile of cor porate technological competence will tend to persist over quite long period s, provided there is institutional continuity. Within the same firm, compet ence may evolve into related areas, but the firm's technological origins wi ll remain identifiable in its subsequent trajectories. However, if the inst itution itself changes more dramatically, this technological persistence ma y be disrupted. Supporting evidence is provided from data on the patenting of 30 large US and European companies,which have been continuously active s ince the interwar period. The science and the knowledge base, and the compo sition of products and markets may shift quite radically, but the firm's pr oductive and technological system itself is potentially more stable. The fi rm provides a vehicle for potential institutional continuity and a device f or managing transitions within the economic system.