ABSTRACT
Dynamic capabilities play a critical role in shaping a firm’s co-evolutionary success. A fundamental tension remains, however, between adaptation perspectives (Lamark) and selection perspectives (Darwin) of industry and firm evolution. Do industry populations evolve because member firms have dynamic capabilities, or do populations change as the result of the death and replacement of member firms suffering from inertia that works against dynamic capabilities? This chapter focuses on both elements of the debate. We hypothesize that Darwinian principles of natural selection may operate inside firms to create dynamic capabilities. These in turn act to thwart the effects of internal inertia, thereby improving firm performance and reducing the effect, via death and replacement, of external natural selection forces on industry evolution. Directing attention to the intrafirm adaptive processes associated with firm performance illuminates the mechanisms underlying organizational evolution and suggests a rapprochement between selection and adaptation perspectives.
