Journal of Management and Governance 3: 137–160, 1999. © 1999 Kluwer Academic Publishers. Printed in the Netherlands. 137 The Role of Knowledge Bases in Complex Product Systems: Some Empirical Evidence from the Aero Engine Industry MASSIMO PAOLI 1 and ANDREA PRENCIPE 2 1 Università ‘G. D’Annunzio’, Pescara, Italy and SSSUP, Pisa, Italy; 2 CoPS Innovation Centre, Sussex University, UK Abstract. In this paper we argue that the virtual corporation as understood in current management literature does not hold as a universal model throughout various industrial sectors. Complex product systems industries show peculiar features in terms of product characteristics, innovation dynamics and strategic and management options that may render the virtual corporation model inapplicable. The paper begins with a contrast between the simplistic neoclassical approach to the interpreta- tion of the concept of knowledge and the more in-depth evolutionary view. The former understands knowledge as information and its production process and outcomes as easily decomposable. Based on this, advocates of virtual corporation claim the viability of outsourcing strategies based on simple economic factors. The evolutionary approach, on the other hand, considers knowledge as a system of processes deeply rooted in their contexts of production. Tacitness and non-decomposability of the knowledge production processes are highly emphasised in this view. In the light of this contrast and relying on a study of the aero engine industry we reinterpret the notion of virtual corporation showing its limits. Key words: knowledge, processes, systems, complex products, aero-engine industry, systems inte- grator 1. Introduction In this paper we argue that the virtual corporation as understood in current manage- ment literature does not hold as a universal model throughout various industrial sectors. Complex product systems industries show peculiar features in terms of product characteristics, innovation dynamics, and strategic and management options that may render the virtual corporation model inapplicable. The paper begins with a contrast between the simplistic neoclassical approach to the interpretation of the concept of knowledge and the deeper evolutionary view. The former understands knowledge as information and its production process and its outcomes as easily decomposable. Based on this, advocates of virtual corpora- tion claim the viability of outsourcing strategies based on simple economic factors. The evolutionary approach, on the other hand, considers knowledge as a system of processes deeply rooted in their contexts of production. Tacitness and non-