THE DYNAMICS OF ROUTINES AND CAPABILITIES IN NEW FIRMS

ABSTRACT Organizational routines and capabilities play a key role in organizational survival and prosperity. This inductive paper explores the interplay between the development of routines and capabilities in new firms. We draw on data from transcripts of in-depth interviews in sixty young knowledge based firms; founding teams included scientists, business people and mixtures of both. The data revealed a surprising variety of processes through which new ventures develop routines and these routines intertwine with capabilities. Our findings show several distinct trajectories between routines and capabilities in new firms. For example, in some cases capabilities preceded supporting routines, rather th an the other way around. Further, non-routine behavior including improvisational actions could provide foundations for capabilities. Our propositions advance theories of organizational learning and entrepreneurship. First, we uncovered a rich set of patterns through firms succeeded or failed to learn from their own experience in developing new routines and capabilities. Learning from failure in new ventures is aided by declarative knowledge but inhibited by procedural knowledge within founding team. Second, we also found a pattern of absorptive inertia – some new firms developed the capacity to absorb knowledge from outside the firm, but at the same time developed an unwillingness to absorb external knowledge.

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