The capabilities of a firm, or any organization, lie primarily in the organizing principles by which individual and functional expertise is structured, coordinated, and communicated. Firms are social communities which use their relational structure and shared coding schemes to enhance the transfer and communication of new skills and capabilities. To replicate new knowledge in the absence of a social community is difficult. A classic demonstration is the well-studied problem of the transfer across country borders of manufacturing capabilities that support production of new product innovations. We show in this article that the degree of codification and how easily capabilities are taught has a significant influence on the speed of transfer. What makes the question of knowledge codification particularly interesting is that firms compete not only through the creation, replication, and transfer of their own knowledge, but also through their ability to imitate the product innovations of competitors. The capacity to speed the internal transfer of a production capability to new markets (e.g., those in other countries) is, consequently, of fundamental significance in a competitive environment. In the attempt to speed the internal transfer of knowledge, the dilemma arises that capabilities which can be easily communicated within the firm are more likely to be easily imitated by competitors. This relationship is tested by analyzing the effects of the ease of codifying and communicating a manufacturing capability not only on the time to its transfer, but also on the time to imitation of the new product. The determinants of the time to imitation are found to be the extent to which knowledge of the manufacturing processes is ''common'' among competitors, and the degree of continuous recombination of capabilities leading to improvement of the product or the manufacturing process. We support this interpretation by a discussion of the results from field research. A wider implication of these findings is the proposition that the transfer and recombination of organizational capabilities are the foundation of an evolutionary theory of the firm. A critical element limiting the expansion of a firm is that the competitive value of codifying knowledge leads to the selection of organizing principles that are not functional in ail competitive environments. The pressure of speed is of critical importance to understand the evolutionary advantage of nonoptimal rules of coordinated action within a social community.
