Knowledge and Competitive Advantage: The Coevolution of Firms, Technology, and National Institutions (review)

In Knowledge and Competitive Advantage, Johann Murmann has laid out an ambitious project, which he clearly intends for business historians to take as a model. Drawing on the rich body of historical material coming from the study of the synthetic dye industry in Great Britain, Germany, and the United States, he proposes a unified theory of the origins and growth of science-based industry as the coevolution of technology, companies, and key knowledge-related institutions. By demonstrating how historical scholarship, systematically applied, can uncover the dynamic processes that transform industries, Murmann hopes to influence three scholarly audiences—economic historians, business historians, and management theorists. Such ambitious projects are bound to have some weaknesses, and this one is no exception, but to an astonishing degree Murmann has achieved his primary objectives.

As his title indicates, Murmann's work focuses on the collective and evolutionary dimensions of the synthetic dye industry as it developed in three different countries. His analysis shows how each nation's university and patent systems contributed to the relative success of the national industrial systems they supported. By emphasizing these particular institutions he offers a new answer to an old question: Why was it that France and England, where synthetic dyes were invented, lost leadership of the dye industry to Germany? According to Murmann, this question cannot be understood by looking only at developments inside individual firms—for example, the institutionalization of R&D. By extending his analysis across national and international levels—tracing relationships among companies, between companies and licensees, and between companies and universities—Murmann offers an important modification to Alfred Chandler's theory of managerial hierarchy, which attributes company success largely to the efforts of individual companies. Murmann contends that the German synthetic dye industry dominated the international marketplace not simply because of German government policies toward intellectual property and university education, but because the synthetic dye companies themselves took an active part in shaping these institutions in their own interest. Working through associations such as the Association for the Protection of the Interests of the German Chemical Industry, the synthetic dye firms turned their relationships with universities and with the patent system into powerful instruments of collective action. Their British and U.S. counterparts, on the other hand, were hampered by active resistance from such established opponents as the mainstream chemical companies, suppliers to the empire of natural dyes such as indigo, and established industrial preferences for the "practical man" over the university trained one.

For this reader, a weakness of Murmann's argument lies in his narrow definition of firm success. In light of the welcome emphasis on collective action and a broader national perspective, Murmann's characterization of individual companies as successes and failures, especially in the formative phases of a knowledge-based industry, seems oddly discordant. Chandler's account of organizational innovation and managerial hierarchy may indeed admit of only one kind of success story—the giant integrated firm exploiting economies of scale. But Murmann's acceptance of the Chandlerian definition of success when focusing on knowledge and competitive advantage causes him to dismiss as failures firms that may have both met their own objectives and contributed significantly to the industry's knowledge base. Family firms like Jager, for instance, might have aimed at profitable novelty rather than scale. Does this constitute failure? As Philip Scranton has pointed out with respect to industrial development in the U.S. during the same era (Philip Scranton, Endless Novelty, 1998), avoidance of direct competition and pursuit of niche strategies over decades is a legitimate strategy that both relies on and generates a different kind of knowledge, based on expertise. For such firms secrecy was a valid option, and the amassing of patents a waste of resources, but from a collective perspective their contribution to the growth of an industry might still have been significant. Without access to Murmann's data...