The New Competitive Advantage

Abstract The New Competitive Advantage book presents a conceptual framework, the capabilities and innovation perspective, to address the organizational and technological sources of regional growth and decline. The productivity and income level of any region is explained in terms of the implementation and diffusion of universal principles of production and organization amongst its business enterprises. High‐tech regions such as Silicon Valley and Route 128 in Massachusetts have raised performance standards in new product development and innovation by application of the principle of systems integration to product design, production, and business organization. Systems integration emerged in high‐tech regions in response to the product‐led competition emanating from Japan and East Asia in high volume, flexible mass production systems organized according to the principle of multi‐product flow. An older variant of systems integration can be found in middle‐tech (design‐intensive) industrial districts, particularly in European regions such as those in the ‘third Italy’ In a region where systems integration predominates, industry is organized into networked groups or clusters of entrepreneurial firms in which design is decentralized within the enterprise and diffused across open‐system enterprise networks. Networked groups of specialist firms can demonstrate a regional capability to innovate and rapidly reinvent products. In the case of high‐tech regions, the regional innovation system is advanced by the integration of basic research, much of which is located in universities, with technological, developmental, and applied research, most of which is located in entrepreneurial firms. The result is the application of the principle of systems integration to both production and the organization of industry and the establishment of an ongoing technology management capability at the enterprise and regional levels. Whereas principles of production are universal, the protean character of technology marks each region with unique technological capabilities. Thus, a region's current generation of business enterprises is an expression of the region's unique technology genealogy, its international position on a ten‐scale production capability spectrum, and the underlying knowledge base in technology‐related disciplines, engineering curricula, and skills. Audits of technology, production capabilities and skills provide the raw material for designing policies to foster industrial transitions, technology diffusion, and productivity growth..