Firms exist to share and transfer knowledge among individuals and groups, not just to reduce transaction costs. Knowledge is not just what individuals know, but also how they work together. When firms grow by replicating technology, they risk being copied. To stay ahead, firms must innovate and combine their existing skills. The way people cooperate within a firm determines its success in new markets. The firm's past actions shape its future capabilities. This shows that a firm's accumulated knowledge helps it expand into new, uncertain areas. The make/buy decision is a key example of how firms decide what to do themselves and what to outsource.