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Research summary: This paper investigates the relationship between hiring and the ability of organizations to evolve their capabilities as they age. While prior research establishes that organizations become rigid to change as they age, it underemphasizes measures that they may take to renew their adaptive potential. I address this gap by investigating whether hiring stimulates change to the knowledge organizations possess. Learning by hiring, I argue, helps organizations to evolve their knowledge as they age by disrupting routine, introducing distant knowledge, and facilitating socialization. I test the effectiveness of these mechanisms using 38 years (1970–2007) of data from the U.S. biotechnology industry, and find that hiring stimulates more change as organizations age, enabling them to renew their knowledge and counter the effects of obsolescence. Managerial summary: As organizations age, they become less responsive to the needs of their environment, resulting in a trend for them to become technologically obsolete. Little is known as to how they may reverse this trend and counter obsolescence. I provide evidence that hiring may be used to stimulate change to organizational knowledge and capabilities as they age by disrupting routine activity, introducing new‐to‐the‐firm knowledge, and inducing incumbent members to learn. Copyright © 2015 John Wiley & Sons, Ltd.

In this paper, we argue that capabilities serve as shift parameters that result in a change in the critical value of asset specificity at which firms switch from in-sourcing to outsourcing. Capabilities have two effects: they result in a change in firm production costs and in firm governance costs relative to the market. As a result, the frontier at which market governance gives way to firm governance shifts. Three factors that produce such shifts are the value, rarity, and inimitability of capabilities employed in firm processes. Considered as shift parameters, the effect of capabilities integrates seamlessly into transaction costs reasoning and is not a competing view of firm governance. We demonstrate these arguments empirically using a sample of 180 information systems sourcing decisions.

I nnovative capability, the knowledge a firm uses to innovate, is an input into and an output of the process of innovation. In this paper, I put forward the notion that innovative capability, similar to experience in production, accumulates by learning by doing and that innovation is characterized by a learning curve. Using patent data from 20,886 scientists working in 611 biotechnology firms in the U.S. and Canadian biotechnology industry from 1970 to 2007, I estimate a learning curve in innovation and determine the loci of innovative capability. Although knowledge stocks in the different loci accumulate over time in day-today firm activities, empirical results suggest that the individual is the primary repository of innovative capability and that experience working together in teams has a secondary influence on productivity. Contrary to prior learning curve research, accumulated firm experience has no direct effect on productivity. However, when individuals possess relevant domain knowledge and have experience working together, they benefit from knowledge spillovers within the firm. This suggests that knowledge stocks in the different loci are complementary to one another and that the comingling of these disparate bins of knowledge is an important facet of innovative capability.

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