The effects of knowledge versus production boundaries on firm survival through systemic technological change

Firms that develop complex products are at greater risk from systemic technological change, which alters the way product components work together, and can also affect the nature of demand for a product. We ask what combinations of knowledge and production boundaries best position firms that make complex products to survive systemic change. Some work suggests that vertical integration might improve survival but other research posits that maintaining broad knowledge boundaries could be sufficient, as it enables efficiency through outsourcing yet retains effectiveness in integrating component technologies. We propose that the answer depends on whether we focus on technological or market boundaries, and that while in general broad boundaries favor adaptation to systemic change, integrating downstream from manufacturing can hinder adaptation. In addition, we argue that integration into the manufacture of components may be more critical than is suggested in prior work. Our longitudinal study of systemic change in the hard disk drive industry provides preliminary support for these predictions.