Breadth-of-impact frontier: How firm-level decisions and selection environment dynamics generate boundary-spanning inventions

In this paper, we provide an ex-ante explanation for why some technologies such as James Watt’s steam engine move successfully across broad technological fields, while other technologies do not. Using a sample of VC-backed biotechnology firms, we examine firm knowledge exploration choices along three dimensions—the decision to build from technologies across broad fields, the decision to explore application domains that are new to the firm, and the decision to mix these two options at the same time. We argue that firm-level invention decisions find differing responses when received by the selection environment. We find evidence of a “breadth-of-impact frontier” for technologies, wherein the choice of whether a firm should enter into a new application domain than those of the past should be informed by the degree to which the technology is citing prior work narrowly or broadly. The findings suggest that the belief that broad sourcing diversity will always result in greater citation diversity requires some caveats. The results contribute to the understanding of not only how entrepreneurial firms evolve but also how individual firms contribute to collective progress.     

Editorial: Purchasing and innovation: Past,present and future of the field of research

This paper introduces the special topic forum (STF) on purchasing and innovation. Presenting the findings from a systematic literature review, we take stock of the current state of the field, delineating themes, theories and methods, and identifying key trends over time. Our study shows a take-off in research on purchasing and innovation during the last decade. This has predominantly focused on private sector manufacturing firms although a recent expansion into public sector research is evident. Large-scale surveys and case studies are still the dominant research methods where the unit of analysis is typically the ‘firm’ or ‘project’. The findings also show how in the past the field was driven by questions on how purchasing can facilitate different types of innovation projects, seeking to derive practical implications, and rarely making explicit statements regarding theories applied; this still characterises much of the research but we find an increasing focus on theory development. We also see a shift in the type of technological innovation being investigated: past studies tended to focus on the role of purchasing in new product development (NPD) projects, which reflected a relatively low degree of technological uncertainty, but we see a trend towards innovation projects facing technological uncertainty. Research shows how this requires new ways of sourcing innovations and therefore new ways for purchasing to facilitate innovation sourcing. On the basis of the review, we offer our guidance for future research avenues to 1) carry out more research on procurement of innovation in the public sector; 2) consider new theories and research methods, and 3) go beyond firm-level or dyadic analysis to research networks and ecosystems. We conclude by introducing the papers in the STF.     

Vertical integration and innovative performance: The effects of external knowledge sourcing modes

We set out in this study to analyze the impact of vertical integration on the innovative performance of a firm and to explore the interaction between vertical integration and different modes of external knowledge sourcing. Our empirical results reveal an initial increase in the effect of vertical integration on innovative performance up to a certain level of integration, although this is subsequently followed by a decline; that is, the relationship is characterized by an inverted U-shape. The results further reveal that external knowledge sourcing is positively related to the innovative performance of a firm, albeit with a negative interaction with the level of vertical integration. In other words, firms with higher levels of vertical integration may be faced with barriers to the acquisition of external knowledge. Our findings suggest that firms should be cautious in their pursuit of a strategy of vertical integration, given the non-monotonic impact on innovative performance, whilst an increase in the level of vertical integration is also likely to diminish the effectiveness of the external knowledge sourcing.     

Antecedents and relative performance of sourcing choices for new product development projects

Given the complexity of sourcing choices in R&D, driven by conflicting points of difference, scholars have struggled to formulate clear theoretical predictions about which sourcing choices lead to superior performance. Our study contributes to the elucidation of this question by studying both the antecedents and performance consequences (project cost and duration) of alternative sourcing choices in the context of new product development, thus bridging two rarely intersecting streams of research to discover unique insights. We draw from the transaction cost economics (TCE) and organizational learning theory to account for the interdependence of cost- and non-cost related factors in firms’ sourcing choices. Results from our empirical analysis, using data on clinical trials in the global biopharmaceutical industry, show that greater project complexity, project stage uncertainty, and prior sourcing experience determine the sourcing choices a firm makes. We also establish that alternative sourcing choices vary in their ability to minimize project cost versus project duration, and show that prior experience with a sourcing choice is an important moderator of project performance, in addition to being one of the determinants of sourcing choice.     

Cannibalization risk and limited liability: implications for firm valuation and capital budgeting

When two firms combine, the negative cash flows of some projects can cannibalize the positive cash flows of other projects. This may at least partly explain recently documented observations that there is value loss from diversification, value gain from splitting up an existing firm, and that the value loss is higher in the case of diversification into unrelated industries. Also, this may explain why the value and riskiness of an identical project can be different for firms with different assets in place and why the value of a project as stand-alone may be irrelevant for a firm’s investment decisions.     

Improving sourcing decisions in NPD projects: Monetary quantification of points of difference

During new product development (NPD), firms make critical design and sourcing decisions that determine the new product's cost, performance, competitive position, and profitability. The purchase price of materials and components for the new product provides only part of the picture for design and sourcing decisions. All-encompassing analyses of cost and performance, such as total cost of ownership, are extraordinarily difficult to implement because they are demanding in terms of time, data and cooperation. We study monetary quantification of points of difference, which enables an NPD team to base its decisions instead on more focused, strategically-pertinent analyses of costs and performance. We propose a substantive model of its antecedents and consequences. We then test this model with data from matched samples of 144 project leaders and 144 cost analysts who participated in the same NPD projects. Using structural equation modeling, we also test hypothesized differences in perspectives between project leaders and cost analysts. Results demonstrate the pivotal role of monetary quantification of points of difference among the sourcing alternatives being considered, especially for cost analysts. Results also demonstrate that Decision Justification to senior management drives the NPD team's decision-making process. Finally, monetary quantification of points of difference leads to Uncertainty Reduction, which is found to be the primary antecedent of the judged success of applying analysis of cost and performance.     

The impact of a firm's make, pseudo-make, or buy strategy on product performance

The bulk of the product architecture and make-buy choice literature deals with product architecture changes from integral to modular form. This development is often associated with a firm's tendency to change from a make to a buy strategy. However, a few studies investigate the change of product architecture in the reverse direction - from modular to integral form - and the subsequent change in the firm sourcing decision from a buy to a make strategy. These studies hold to the presumption that a firm following a make strategy will outperform firms following a buy strategy in dealing with integral product architectures. Based on the knowledge-based view, we argue for the viability of a sourcing strategy between the pure make and buy strategies - a pseudo-make strategy. We also argue that as product architecture changes from a modular to integral form, firms adopting this pseudo-make strategy are likely to show better product performance than firms following a pure make or buy strategy due to the relative knowledge advantages of the pseudo-make strategy in dealing with the integral product architecture. We examine the impact of the make/pseudo-make/buy strategies on product performance in the U.S. bicycle derailleur and freewheel market from 1980 to 1992 and provide theoretical and managerial implications of our results. Our findings highlight an important distinction between the pseudo-make and make-buy strategies that has not previously been fully appreciated in the extant literature, and as a result increases our understanding of why some firms do not switch strategies from a buy to a make strategy when product architecture changes from modular to integral form as previously expected.     

Linking Individual‐Level Knowledge Sourcing to Project‐Level Contributions in Large R&D‐Driven Product‐Development Projects

This paper focuses on the link between individuals’ knowledge sourcing and their creative contributions, such as new ideas and solutions in R&D‐driven product‐development projects; creative contributions were both self‐ and peer‐assessed. The paper reveals that, for individuals, knowledge sources internal to the organization were generally regarded as more important than external knowledge sources. However, external parties such as customers, partners, and suppliers constitute the knowledge source that best predicted creative contributions at the project level. Informal external contacts were deemed the least important knowledge source by individuals; however, this was positively related to self‐assessed creative contributions. The paper thus finds that there is a discrepancy between the knowledge sources deemed important by individuals and the sources that are associated with creative contributions at the project level.     

Purchasing involvement in technologically uncertain new product development projects: Challenges and implications

This paper explores an emerging field of research within purchasing that concerns the changing role of purchasing when companies embark on technologically uncertain NPD projects. Where existing research has examined the role of purchasing in facilitating early supplier involvement in new product development, little research has been done to date on how purchasing's role might change when facing technologically uncertain NPD that require new capabilities and new technology. Based on an in-depth case study of a technologically uncertain NPD project in the passenger ship rescue equipment industry, the paper sheds light on how supplier involvement in NPD projects with a high degree of technological uncertainty impacts on a company's sourcing strategies and the challenges this poses for purchasing.Based on the case study findings, we propose a) that early purchasing involvement in technologically uncertain NPD projects requires a mature purchasing organization that possesses competences to interact effectively with R&D and b) that involving a new supplier from a different industry in NPD projects characterized by technological uncertainty requires a leap of faith from both innovating firm and supplier. The paper contributes to research in early supplier involvement in new product development, in particular the thin branch within this body of literature that now focuses on early purchasing involvement.     

External corporate venturing modes as new way to develop dynamic capabilities

Today, firms encounter scarce resources and rapid technology change which render formerly successful business models obsolete. Research shows that some firms perform better than others in continuously discovering, evaluating, and exploiting opportunities in volatile environments and that this is dependent on firm’s dynamic capabilities. Besides obtaining dynamic capabilities through internal R&D activities, firms have open up their innovation process to pursue dynamic capabilities outside their organizational boundaries through external corporate venturing by accessing startup's technological capabilities necessary to innovate. External corporate venturing is a means to develop new distinctive capabilities and businesses by exploring and exploiting business opportunities outside a firm’s existing boundaries. Drawing on the dynamic capability literature, we use a multiple case study approach to examine the contribution of external corporate venturing to firms’ dynamic capabilities. Our results reveal that firms indeed use corporate venturing to identify and exploit startup’s technological knowledge and competencies to increase firm’s dynamic capabilities. But our empirical data also shows that not every firm is fully profiting from all dynamic capability phases as their corporate venturing modes are not linked with each other and cumulative effects are not realized.     

Real options game models of R&D competition between asymmetric firms with spillovers

Using real options game models, we consider the characterization of strategic equilibria associated with an asymmetric Research and Development (R&D) race between an incumbent firm and an entrant firm in the development of a new innovative product under market and technological uncertainties. The random arrival time of the discovery of the patent protected innovative product is modeled as a Poisson process. Input spillovers on the R&D effort are modeled by the change in the leader’s hazard rate of success of innovation upon the follower’s entry into the R&D race. Asymmetry between the two competing firms include sunk costs of investment, stochastic revenue flow rates generated from the product, and hazard rates of arrival of success of R&D efforts of the two firms. Under asymmetric duopoly, we obtain the complete characterization of the three types of Markov perfect equilibria (sequential leader–follower, preemption and simultaneous entry) of the firms’ optimal R&D entry decisions with respect to various sets of model parameters. Our model shows that under positive input spillover, preemptive equilibrium does not occur in the R&D race due to the presence of dominant second mover advantage. The two firms choose optimally to enter simultaneously if the sunk cost asymmetry is relatively small; otherwise, sequential equilibrium would occur. When the initial hazard rate is low relative to the level of input spillover, simultaneous entry would occur as an optimal decision, signifying another scenario of dominant second mover advantage. On the other hand, when the initial hazard rate is sufficiently high so that the first mover advantage becomes more significant, simultaneous equilibrium does not occur even under high level of positive input spillover.     

Exploring early purchasing involvement in discontinuous innovation: A dynamic capability perspective

This paper aims to address the gap concerning our knowledge about early purchasing's involvement (EPI) in new product development (NPD) projects in contexts characterized by discontinuous innovation. We adopt a dynamic capability perspective to explore how existing sourcing and supplier relationship management capabilities are adapted when purchasing agents become involved in discontinuous innovations projects. We use an embedded case-study approach to study four NPD projects in a heating, ventilation, and air conditioning (HVAC) company. The case studies are based on interviews with managers and staff from the research and development, purchasing, and marketing departments, as well as suppliers involved in the projects. Our empirical findings capture emerging purchasing practices including a “reversed” sourcing process, purchasing-marketing interaction, and the coordination of “a learning atmosphere” between the R&D department and suppliers through proactive innovation meetings and creativity workshops. We derive propositions to conduct further research into the role of the purchasing department in times of discontinuous innovation. We also provide a framework of sourcing and supplier-relationship practices that firms can use when embarking on discontinuous innovation.     

Limits to global sourcing?: Strategic consequences of dependency on international suppliers: Cluster theory,resource-based view and case studies

This paper argues for the inclusion of an analysis of industry clusters when making decisions about global or local sourcing. Suppliers are viewed as valuable resources that can contribute to a firm's competitive advantage. Two contrasting case studies illustrate that, contrary to common expectations, a high global sourcing quota does not necessarily improve a firm's competitiveness. Rather, there may be limits to global sourcing, if a firm is unable to become a preferred customer of its strategic suppliers. Achieving preferred customer status is easier for firms located in the same regional or national cluster than it is for foreign firms attempting to access a remote supplier. This paper contributes a new and more differentiated approach to global sourcing decisions by integrating the cluster concept. Furthermore, our findings enrich the discourse of strategic management by supporting the view that resources which enable a firm to achieve sustainable competitive advantages can be located beyond its legal boundaries.     

Entrepreneur location decisions across industries

In this paper we analyse whether entrepreneur location decisions differ across industries and identify the factors determining the choice of location between rural and urban environments. Firm location is based on a new taxonomy developed over the influential three dimensions of Hayter’s (1997) approach. The paper uses data from sample of one thousand Portuguese firms. We present a stylized theoretical model to determine how these new five dimensions influence firm’s location and test the model through a logistic regression. Our results show that that the location decisions depend on the sector of activity, type of area (urban vs. rural) and the characteristics of the entrepreneur. We find that companies engaged in knowledge intensive business services prefer to locate in urban areas. From an institutional point of view, firms prefer to locate in rural areas.     

Team vision in product development: How knowledge strategy matters

In today’s more complex multinational and technologically sophisticated environment, the group has re-emerged in importance as the project team. Work teams are important to organizations in general, but are especially critical in product development because they span many functional areas including engineering, marketing, manufacturing, finance, etc., and new product teams must frequently be composed of individuals from different backgrounds and perspectives. In these circumstances, this paper addresses the contingency role that knowledge strategy plays in explaining the relationship between team vision and product development performance. After studying the team vision on 78 new product developments from a wide variety of firms, we found that effective team vision varies depending on the knowledge strategy—defined in terms of punctuated equilibrium in the explorative cycle, low ambidexterity and high ambidexterity. Our results demonstrate that while trade-off is positively associated with success in all strategies, clarity is only associated with low ambidexterity strategies and strategy-fit is only associated with high ambidexterity strategies.     

The peer-firm effect on firm’s investment decisions

This study investigates the effect of peer firms on firm investment strategies. We test the peer group effect hypothesis along differing levels of financially constrained firms as well as differing degrees of industry competition. Using idiosyncratic equity returns as the instrument variable, we use 2-stage least squares regression to identify the influence of peer firms’ investment decisions on a firm’s own investment policies. Our analyses empirically confirm that there is a peer group effect in making firm investment decisions. More financially constrained firms show greater dependency on peers’ investment decisions. Tests of peer sensitivity to the increase in industrial competition, however, displayed a U-shaped quadratic curve, which shows that firms have the lowest peer group effect in medium-competition markets. We claim that imitative behavior in investment is presumably weak in the mid-competition market because firms are yet to be distinguished in this market.     

Price and quality competition with quality positions

In this study, we investigate price and quality decisions in a duopoly in the presence of firms’ quality positions , which are determined by the quality levels of their existing core products. Into a standard model of vertical differentiation, we incorporate a “repositioning cost” that is proportional to the quality differences between firms’ current and new products. By varying the levels of quality positions, we analyze the impact of this cost on the equilibrium outcomes. Our results show that the presence of repositioning costs restricts firms’ abilities to improve profitability and differentiate themselves vertically. As a result, a high‐positioned firm does not necessarily have a competitive advantage over a low‐positioned firm, even if the former offers a superior new product in equilibrium. In addition, if a low‐positioned firm is significantly cost‐efficient compared with its rival with regard to repositioning, then that firm can earn higher profits than those of a high‐positioned firm by strategically offering its low‐end product. These results contrast sharply with those based on the standard vertical differentiation model.     

Green innovation and knowledge: The role of size

This paper reports research on relationship between firm's knowledge sourcing strategy and green innovation. The data are taken from Spanish Technological Innovation Panel survey during 2007–2011. The study contributed to the literature by focusing on the moderating role of firm size on the relationship between knowledge sources and green innovations. Results from over 5,000 firms indicate a shift in the focus from internal knowledge to external knowledge when developing green innovations as firms grow in size. Despite benefits from broad knowledge search on green innovations, the relationship has an inverted U shape. The diminishing returns of knowledge breadth on green innovations are present for smaller firms and disappearing as firms get larger. Government policies promoting more coordination and knowledge complementarity between private and public sector will help to influence more knowledge transfer, ensuring a more sustainable and green economy.     

Interplay between reputation and growth: the source,role and audience of reputation of rapid growth technology-based SMEs

Abstract

Drawing on resource-based view and signalling theory, this paper presents a comparative case of four (young vs. old; small vs. medium-sized) business-to-business firms to examine how (i.e. through which sources), why (i.e. for which managerial purposes) and for whom (i.e. for which audiences) do technology-based small and medium-sized enterprises build their reputation along the process of rapid growth? The results indicate that in the pre-growth stage product awards as well as technological and financial partners are important sources of reputation for demonstrating technological capabilities and firm sustainability to potential customers especially for young firms. Older firms, in turn, rely on technology partners and acquisitions in the rapid growth stage to convince existing customers that the firms’ can keep up with their customer’s changing needs. Moreover, the reputation gained from the first well-known customer and a focused clientele appear to be two critical antecedents of rapid growth whereas patents do not seem to have a significant reputational role in rapid growth. Our study informs the theory of reputation development of growing technology-based firms by abstracting a more nuanced understanding of stakeholder- and stage-contingent reputation that fosters rapid growth, and provides new insight into the literature on small firm growth.     

Investment decisions and managerial compensation design in the presence of product market rivalry

We consider an economy where firms operate in an imperfectly competitive industry and mutually affect each others’ investment opportunities. Each firm is assumed to face a mutually exclusive choice of investing in either a short‐ or a long‐term project. For example, firm i's commitment to a short‐term project cuts into firm j's market in the short‐term but frees‐up firm j's long‐term market, and vice versa. Our results show that, even in the absence of an owner–manager conflict, the owner anticipates the product market rivalry and optimally compensates their managers with short‐ as well as long‐term compensation. Although the optimal compensation design induces myopic investment decisions, it is shown to be in the owners’ best interest. Copyright © 1999 John Wiley & Sons, Ltd.