Industry Evolution and Entrepreneurship: Steven Klepper's Contributions to Industrial Organization, Strategy, Technological Change, and Entrepreneurship

• Published date: 01 December 2015
• Date: 01 December 2015
• DOI: http://doi.org/10.1002/sej.1179
• Author: Serguey Braguinsky,Rajshree Agarwal

INDUSTRY EVOLUTION AND ENTREPRENEURSHIP:

STEVEN KLEPPER’S CONTRIBUTIONS TO

INDUSTRIAL ORGANIZATION, STRATEGY,

TECHNOLOGICAL CHANGE,

AND ENTREPRENEURSHIP

RAJSHREE AGARWAL1* and SERGUEY BRAGUINSKY2

1Robert H. Smith School of Business, University of Maryland, College Park,

Maryland, U.S.A.

2Social and Decision Sciences, Carnegie Mellon University, Pittsburgh,

Pennsylvania, U.S.A.

In this review of Steven Klepper’s contributions in industry evolution, employee entrepreneur-

ship, and geographical clusters, we trace the evolution of his scholarly career. Combining

insights from an in-depth interview, our own experiences with him, and our retrospective

review, we also note some salient characteristics of the process that Klepper employed

while undertaking his research projects, an approach we believe was integral to the funda-

mental insights evidenced in the content of his scholarly work. Copyright © 2014 Strategic

Management Society.

INTRODUCTION

StevenKlepper passed away on May 27, 2013, at only

64 years of age. The three decades of his career

represent pioneering research in several streams

related to the fields of industrial organization, strat-

egy, technological change, and entrepreneurship. In

contrast to the neoclassical economics paradigm,

Klepper’s lifelong work focused on the dynamics

of industries and on Schumpeterian competition,

encompassing individual, firm, industry,and regional

levels of analysis. His aim was to shed light on some

critical underpinnings of a capitalist economy.

In this article, we review Klepper’s seminal con-

tributions and highlight some features of his work-

ings as a scholar, to help crystallize his legacy. To

accomplish this goal, we adopt the prism of his own

thoughts, structuring the article based on his reflec-

tions during our interview with him, just a week

before his death (Klepper, 2013a). These reflections

set the stage for our review of Klepper’s work on

industry and firm evolution, employee entrepreneur-

ship, and development of regional clusters, its foun-

dational impact for work by other scholars, and for

research agendas deserving of attention by future

generations.

As summary observations, we note some hallmark

characteristics of Steven Klepper and his work. A

pioneer, Klepper broke away from traditional

approaches in both economics and strategy. In doing

so, he chartered new territory at their interface,

which highlights the critical role of innovation and

entrepreneurship in the evolution of firms and indus-

tries and, hence, of regions and economies. Klepper

did so by staying loyal to certain tenets: he coupled

careful theorizing, often using formal mathematical

Keywords: industry evolution; strategy; entrepreneurship;

technological change

*Correspondence to: Rajshree Agarwal, Robert H. Smith

School of Business, University of Maryland, 4512 Van Munch-

ing Hall, College Park, MD 20742, U.S.A. E-mail: rajshree@

umd.edu

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Strategic Entrepreneurship Journal

Copyright © 2014 Strategic Management Society

Strat. Entrepreneurship J., 9: 380–39 (2015)

Published online 26 April 2014 in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1179

7

logic, with painstaking, often hand-collected, data

deep dives that spanned across hundreds of years and

thousands of data points. His work never wavered

from using the process of seamless integration of

inductive data insights with deductive theorizing,

representing an evolution of content and, thus, dem-

onstrating an exceptional meld of disciplined dili-

gence and intellectual curiosity. The chronological

sequence of research areas Klepper pursued shows

purposeful inquiries into altogether new domains

that are nonetheless anchored in his established areas

of expertise. There is a clear and logical connection

between individual papers, which creates a coher-

ency of concepts and theories even as they encom-

pass multiple units of analysis, spanning across

disciplinary and research boundaries.

Our final observation is to the future generation

of scholars, who may know Steven Klepper only

through his published work. By providing an account

of significant milestones in his career, we hope to

provide you with Steven’s intellectual legacy. By

prefacing every section of our review with Steven’s

own thoughts and ruminations, we share with you his

words of wisdom and his aspirations for the intellec-

tual community he helped create. It is our hope that

Steven’s traits, which we were fortunate to experi-

ence and learn from firsthand, inspire you in your

quest to conduct impactful work and, in doing so,

touch lives in the manner he did ours and so many

others.

INDUSTRY EVOLUTION

An in-depth empirical examination of

the phenomenon

Q: ‘What was it that made you interested in industry

evolution to begin with?’

A: ‘Well, certainly what sparked my interest in industry

evolution was Michael Gort. When I started at SUNY-

Buffalo, he had this incredible dataset that now hardly

seems like much, but it was a very, very clever way of

tracking the number of producers in markets at the time.

He used this trade volume that was actually for marketing

purposes, found and counted the number of firms listed

under a particular manufacturing product line, and did that

for years. He was able to come up with a list of about 45

or 46 products for which you could get a comprehensive

list of producers every year.When he gave me the data, the

product histories had lots of randomness in them, for a lot

of reasons, including that the phenomena were highly

random. But it looked to me like you could fit a real

shakeout-like process to these data over and over again. It

was very complicated by the fact that some products were

younger than others, so they may not have progressed very

far. But I was pretty convinced that the patterns were

incredibly distinctive. I didn’t really know what it meant,

but I thought it was a great opportunity.So that’s how I got

involved in industry evolution.’

Steven Klepper joined SUNY-Buffalo as a young

assistant professor in 1974. For six years, he worked

with Michael Gort, until he left in 1980 for Carnegie

Mellon University,where he stayed for the rest of his

life. This collaboration opened up the field of study

now known as industry evolution. The ‘incredible

dataset’ Klepper mentions resulted in their seminal

study on trends in the diffusion of product innova-

tions (Gort and Klepper, 1982). The paper repre-

sented the first instance in the literature where the

‘product cycle’ notion, a concept that can be dated

back to Kuznets (1930), was combined and extended

by linking it to the producer-level analysis and to the

notion of the endogenous evolution of industry. Gort

and Klepper documented ‘stylized facts’ about the

trends in the number of firms from year to year in

46 different products, recording the relationship

between the market structure of the industry and its

innovations, patenting, and net entry over the

product life cycle. The paper has inspired an entire

literature stream investigating industry life cycle pat-

terns (e.g., Winter, 1984; Nelson, 1994; Agarwal,

1998; McGahan and Silverman, 2001; Murmann,

2003; see also reviews by Caves, 1998; Geroski,

1995; Sutton, 1997). When writing about Michael

Gort’s contribution to economics, Boyan Jovanovic

observed that ‘Fifteen years later, the Gort-Klepper

paper is still state of the art’ (Jovanovic, 1998: 329).

Sixteen more years have passed, but we can only

repeat this assessment here.

Gort and Klepper (1982) also marked Klepper’s

first challenge to the neoclassical framework (more

on this later) inasmuch as it was the first of the

papers in economics to bring in Schumpeterian

dynamics and the explicit recognition of heteroge-

neity among firms, as they represent internal and

external repositories of information. In this process,

Gort and Klepper documented what has now become

widely accepted as ‘stylized facts’ pertaining to the

evolution of an industry; an industry life cycle starts

with Stage I, during which one or more major inno-

vations by the product’s first producer (or producers)

are commercialized. It then goes through Stage II,

the period of a sharp increase in both the number of

Copyright © 2014 Strategic Management Society

DOI: 10.1002/sej

Strat. Entrepreneurship J.,9: 380–397 (2015)

Industry Evolution and Entrepreneurship 381