Organisational Capabilities and Interfirm Relations

The co‐ordination problem is a consequence of the division of labour and the division of knowledge; what is to be co‐ordinated is the generation and testing of novel conjectures. The firm provides one means of doing this, and of developing a set of capabilities which can be deployed to cope with structural uncertainty. Any firm's capabilities are inevitably limited, and must be supplemented; this requires the development of market relationships, and, where success depends on closely‐complementary activities founded on a different knowledge base, the organisation of interfirm co‐operation. The additional value thus created may justify additional transaction costs.