Coevolution of Firm Capabilities and Industry Competition

This paper proposes that rival firms not only search for new capabilities within their organization, but also for those that rest in their competitive environment. An integrated analysis of these search processes at both firm and industry levels of analysis shows how their interaction makes industries and firms coevolve over time. To contribute to an enhanced understanding of the concept of coevolution, a dynamic and integrative framework crossing meso and micro levels of analysis is constructed. This framework is applied to a longitudinal study of the music industry with a time-span of 120 years. The first part, a historical study, covers the period 1877 - 1990. The second part, a multiple-case study, covers the period 1990 - 1997. We conclude that search behavior drives coevolution through competitive dynamics among new entrants and incumbent firms and manifests itself in the simultaneous emergence of new business models and new organizational forms.