The dynamics of product innovation and firm competences

This study examines how product innovation contributes to the renewal of the firm through its dynamic and reciprocal relation with the firm's competences. Field research in five high‐tech firms of varying age, size, and level of diversification is combined with analysis of existing theory to develop the findings of the study. Based on the notion that new products are created by linking competences relating to technologies and customers, a typology is derived that classifies new product projects based on whether a new product can draw on existing competences, or whether it requires competences the firm does not yet have. Following organizational learning theory, these options are conceptualized as exploitation and exploration. These organizational learning concepts are used to gain a dynamic and path‐dependent view of product innovation and firm development, and to reveal the unique nature and challenges of different types of product innovation. Copyright © 2002 John Wiley & Sons, Ltd.     

The effect of learning approaches on the utilization of external knowledge in strategic alliances

Profiting from external knowledge is crucial for a firm's innovation, and strategic alliances are a well-recognized conduit for bringing the benefit of external knowledge as an input to a firm's innovation processes. This study investigates whether the approach a firm follows for learning from an external partner has an impact on the extent to which the learned knowledge is utilized. By contrasting the exploration and the exploitation learning modes in 114 strategic alliances formed by French firms, the authors show that exploration is positively associated with the utilization of knowledge learned from the partner. Furthermore, the findings show that even when the partners' knowledge profiles are alike, exploration is influential.     

Exploration or exploitation? Small firms' alliance strategies with large firms

How do small firms manage their alliance strategies with large firms? This study compares the relative impacts of exploration and exploitation alliances with large firms on small firms' valuation. Integrating the literatures on the exploration/exploitation paradigm and alliance governance, we argue that exploitation alliances with large firms will on average generate higher values for small firms than exploration alliances with large firms due to a heightened risk of appropriation in exploration alliances. However, if small firms can manage their alliances with large firms via proper alliance governance, they will increase their valuations from exploration alliances with large firms. Analyses of the U.S. biopharmaceutical industry from 1984 to 2006 largely support our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.     

Top Management Support and Initial Strategic Assets: A Dependency Model for Internal Corporate Venture Performance

Internal corporate venturing is frequently used by established companies desiring to innovate and grow. These ventures, however, often fail, and previous research has revealed surprisingly little about the antecedents to performance for this strategically important phenomenon. Using resource dependence theory and the resource‐based view, a model is developed wherein the positive relationship between top management support and the internal corporate venture's (ICV) initial strategic asset endowment is moderated by the amount of the venture's operations autonomy. We then argue how top management support, the venture's initial strategic asset endowment, and parent‐venture product similarity are related to ICV performance. Primary data were collected from 72 firms which furnished data on 145 ICVs. The results suggest that increases in the level of support provided by top management leads to higher levels of initial strategic assets endowed in the corporate venture. This relationship, however, is weakened the more corporate parents give their ICVs operations autonomy. Further, top management's support of the corporate venture, as well as the level of initial strategic assets endowed to the venture, increases the subsequent performance of the ICV. The performance benefit of these initial strategic assets, however, is lower the more there is an overlap between the parent's and the venture's products.     

RETRACTED: Integrated knowledge exploitation: The complementarity of product development and technology licensing

In light of increasing licensing, we challenge the common assumption that product development and technology licensing are substitutes. We develop a resource‐based framework, which distinguishes a firm's technological resource base and technology exploitation processes. We further combine survey, patent, and financial data of 228 medium‐sized and large industrial companies to examine the interactions of firms' product development processes and technology licensing processes in order to explain heterogeneity in new product revenues, licensing performance, and firm performance. The results underscore that product development, which indicates innovative capacity, and technology licensing, which indicates desorptive capacity, are complements rather than substitutes in integrated knowledge exploitation in medium‐sized and large firms. This complementarity is particularly pronounced in firms with an emphasis on cross‐licensing and with a strong patent portfolio. Copyright © 2012 John Wiley & Sons, Ltd.     

The impact of R&D‐specific factors on the attractiveness of small‐ and medium‐sized enterprises as partners vis‐à‐vis alliance formation in large emerging economies

This study examines the impact of research and development (R&D)‐specific factors in determining the likelihood of small‐ and medium‐sized enterprises (SMEs) from developed countries to be attractive partners vis‐à‐vis forming alliances with SMEs from large emerging economies (LEEs). This study is founded on the knowledge‐accessing theory of alliance formation, which emphasises the higher efficiency gains of knowledge application as opposed to knowledge generation. We extend this theory to SMEs on the basis that smaller firms, because of their resources constraints and drive to survive, are likely to use alliances to access external knowledge bases leading to new product development (NPD) opportunities because of the low feasibility of acquiring knowledge. As a mix of complex knowledge is necessary to develop most modern products and services, SMEs are also likely to adopt a more flexible operational approach and to accept compromises to forge knowledge‐accessing alliances. We illustrate this theoretical development using primary data collected from British and German biotechnology SMEs, declaring the intention prospectively to form alliances with their counterparts in Brazil. Binary logistic regression was used to identify the factors influencing the likelihood of a firm as an attractive alliance partner. Our results indicate that R&D‐specific factors influence the likelihood of firms to be attractive alliance partners. In particular, firms showing an in‐house innovation history focused on one or few products are more likely to be attractive alliance partners with LEE firms than those that do not. Another R&D‐specific predictor that enhances the chances of alliance partner attractiveness with LEE firms is the firm's focused searching and identifying capability relative to technology or equipment that demonstrates good prospects to improve the firm's line of products. A third predictor refers to the firm's awareness regarding non‐cost obstacles for its own technological development. Implications for policy makers and practitioners are also discussed.     

Biotechnology Commercialization Strategies: Risk and Return in Interfirm Cooperation

The management and exploitation of biotechnological product innovation have proven to be more difficult than initially expected because the number of currently marketed biotechnological products is far from sufficient to counter deficits in pharmaceutical innovation. This study provides insight into the role of governance structures in interfirm cooperation and their effects on biotechnological product innovation and company success. Most of the existing literature regarding alliances and mergers and acquisitions (M&A) examines their effects on technology recipients' innovation performance. Here, the effects of alliances and M&A on both the innovation success and financial performance of technology suppliers (i.e., sources) are examined. Drawing from a sample of 220 human therapeutic biotechnology and biopharmaceutical firms over a period of 32 years (1980–2011), an analysis of the effects of biotechnology clusters, strategic alliances, and acquisitions is provided. This study reveals the existence of a risk‐return trade‐off for strategic alliances between biotech companies and larger, more established firms. Increased biotech company involvement in product development alliances decreases risk by increasing the likelihood of future product introductions. The trade‐off, however, is that biotech companies earn lower returns when their products are developed through such alliances. A similar risk‐return trade‐off effect is found for clusters. However, acquisitions generally affect both product introductions and product returns in a negative way. These findings have strategic implications not only for managing the development of biotechnological product innovations and technology platforms but also for commercialization strategies with respect to interfirm cooperation and risk reduction.     

Building and leveraging competence exploitation and exploration for firm new product success

We theorize that industry conditions of collaboration intensity and innovation intensity drive the development of competence exploitation and exploration in manufacturer-manufacturer collaborations, and that such competencies can be leveraged to increase firm-level new product sales and market share, contingent on the firm's establishment of non-proprietary knowledge transfer capability. We test our model using a survey of 224 manufacturer-manufacturer collaborations. Our findings indicate that collaboration intensity drives firms to build both competence exploration and exploitation while innovation intensity drives neither. We also find that while non-proprietary knowledge capability enhances the influence of competence exploration on a firm's new product sales and market share, it dampens the firm's ability to leverage competence exploitation for firm-level new product success.     

Project Suspensions and Failures in New Product Development: Returns for Entrepreneurial Firms in Co‐Development Alliances

Entrepreneurial biotech and large pharmaceutical firms often form alliances to co‐develop new products. Yet, new product development (NPD) is fraught with challenges that often result in project suspensions and failures. Considering this, how can firms increase the chances that their co‐development alliances will create value? To answer this question, the authors build on insights from signaling theory to argue that prior project suspensions provide positive signals leading to an increase in value creation, while project failures have the opposite effect. In addition, drawing on insights from temporal construal theory, this research predicts that the strength of these effects is contingent on the stage along the exploration–exploitation continuum at which the alliance is formed. The authors undertook event study analyses of 248 alliances formed by 104 biotechnology firms from the United States and Europe listed on eight stock exchanges over an 8‐year period between 1996 and 2003. The results confirm that prior NPD project suspensions have a stronger value creation effect (or prior failures have a weaker value destruction effect) in the case of exploration alliances in the upstream of NPD processes than in the case of moderate‐scale exploitation alliances in the downstream of NPD. This study is among the first to examine how both prior NPD project suspensions and failures of firms affect the abnormal returns achieved from co‐development alliances. This research therefore contributes to the innovation literature by honing a better understanding of setbacks and failures in NPD. Moreover, the findings contribute to the literature on strategic alliances by identifying new conditions under which firms can create or preserve value. This research also contributes to signaling theory by providing evidence of the moderation effect caused by the signaling environment. Finally, this study contributes to the entrepreneurial literature on value creation for entrepreneurial firms in alliances following adverse events.     

Small fish,big fish: The performance effects of the relative standing in partners' affiliate portfolios

This study examines whether the value a venture derives from an affiliation depends on its relative standing in the portfolio of all affiliations held by its partner. Relative standing refers to how the venture ranks among other ventures in the partner's portfolio with respect to expected returns. The relative standing of a venture in its partner's portfolio influences the venture's access to the partner's resources and the venture's performance. We also argue that a venture's relative standing becomes more important to performance when the partner has a larger portfolio or higher status. In addition to a field study, we test the effect of a venture's relative standing in a venture capital portfolio on its exit likelihood, controlling for endogeneity. We find support for our hypotheses. Copyright © 2014 John Wiley & Sons, Ltd.     

Alliance portfolio diversity and firm performance

In this paper, we offer a comprehensive alliance portfolio diversity construct that includes partner, functional, and governance diversity. Grounding our work primarily with the resource‐ and dynamic capabilities‐based views, we argue that increased diversity in partners' industry, organizational, and national background will incur added complexity and coordination costs but will provide broadened resource and learning benefits. Increased functional diversity results in a more balanced portfolio of exploration and exploitation activities that expands the firm's knowledge base while increased governance diversity inhibits learning and routine building. Hypotheses were tested with alliance portfolio and performance data for 138 multinational firms in the global automobile industry during the twenty‐year period from 1985 to 2005. We found alliance portfolios with greater organizational and functional diversity and lower governance diversity were related to higher firm performance while industry diversity had a U‐shaped relationship with firm performance. We suggest firms manage their alliances with a portfolio perspective, seeking to maximize resource and learning benefits by collaborating with a variety of organizations in various value chain activities while minimizing managerial costs through a focused set of governance structures. Copyright © 2010 John Wiley & Sons, Ltd.     

Development of Novel Products Through Intraorganizational and Interorganizational Networks

The pendulum appears to be swinging away from the merger mania of the 1980s, with many leaner-and meaner organizations refocusing on their core competencies. However, these more focused organizations often lack the breadth of skills and expertise necessary for developing products and services which cut across traditional technological and marketing boundaries. Complex product systems such as those under development in the home automation industry include elements from such disparate sectors as consumer electronics, telecommunications, construction, and energy. A narrow focus may prevent the novel forms of innovation necessary for successful development of such products. Using the home automation industry as an example, Joe Tidd examines the challenges involved in the development of complex product systems. When products and services cut across traditional marketing and technological boundaries, radical innovation is difficult because different firms and industries are typically responsible for developing the various subsystems and components. Successful development efforts may require novel forms of innovation–for example, architectural innovation and technology fusion. Architectural innovation involves changes in the way the components of a product are linked together, but leaves the core design concepts untouched. Technology fusion creates new products and market opportunities through the blending of diverse technologies from various fields. Two organizational factors affect a firm's ability to develop and commercialize new products based on novel forms of innovation: the internal organization of the firm, and the firm's links with other organizations, including suppliers, customers, and networks of collaborating organizations. Within a firm, the development of complex product systems is likely to require managing across traditional product-division boundaries. The breadth of competencies required may necessitate strong interfirm linkages. Comparing organizational approaches and the networks of alliances for home automation in the United States, Europe, and Japan, it appears that European firms tend to be more narrowly focused then American and Japanese firms. A rigid focus on core competencies may cause these European firms to overlook the potential for new products. Because various technologies and industries are involved, open networks are more effective than closed networks or alliances. European and American firms tend to favor closed strategic alliances, while Japanese firms typically participate in open networks and overlapping consortia. This approach gives Japanese firms an edge in the home automation industry.     

The role of supplier relationships in the development of new business ventures

New business ventures have rather limited resources, generally suffer from liabilities of smallness and newness and rely on external business relationships, typically with suppliers, for developing and acquiring necessary resources. Yet, to date, research on how new ventures develop initial relationships with suppliers and how these affect the nascent business has been limited. Taking the business network perspective and relating it to studies of supply chain and supplier involvement in product development, our study contributes to the rather limited body of knowledge on new ventures' supplier relationships. Empirically, we draw on a longitudinal, in-depth single-case study of the first two years of operation of a start-up. Our study shows that the development of the key initial supplier relationships starts from open-ended expectations of mutual future relational benefits and involves a stepwise ‘inter-definition’ of solutions in interaction between the parties. We observe that interdependences arise between the new venture and its key suppliers and these enable but also limit, the development paths of both partners. We argue that the key initial supplier relationships extend a new venture's resource and capability base and are an integral part of a new venture's business model.     

Whether and when do alliance terminations pay off?

Engaging in multiple strategic alliances, a firm forms an alliance portfolio. While a larger alliance portfolio signals investors a firm's ability to exploit new opportunities and improve financial performance, having multiple alliances may also undermine financial performance due to a firm's limited ability to effectively manage these alliances. Announcing an alliance termination, a firm signals an intention to increase the effectiveness of a larger alliance portfolio. This article examines the extent to which alliance termination announcements create value for firms with multiple alliances. Building on the resource-based view of the firm and organizational learning literature, the paper hypothesizes a U-shaped relationship between alliance portfolio size and a firm's cumulative abnormal stock return following an alliance termination announcement. This effect is moderated by the amount of a firm's alternative resources and partner-specific experience that affect its ability to effectively manage multiple alliances. The results show that alliance termination announcements create firm value when an alliance portfolio is large.     

Nonmimetic Knowledge and Innovation Performance: Empirical Evidence from Developing Countries

The knowledge‐based view suggests that the innovative performance of a firm is a function of the utilization and recombination of internal and external knowledge. The process of knowledge utilization and recombination to create new products can occur internally, through research and development activities, as well as externally, by making investments in creating links with suppliers, universities, customers, and a wide range of actors in the innovation system. This study focuses on the impact of unique, nonmimetic external knowledge, which is defined as unique technological knowledge that is not tapped by other firms in the new venture's operating environment, on the new venture's innovative performance. The purpose of the research is to investigate whether firms really benefit from utilizing and recombining unique, nonmimetic knowledge in creating innovative products in a developing country context. Drawing on the knowledge‐based view and institutional theory, this study argues that entrepreneurs in their utilization and recombination of unique, nonmimetic knowledge are not always successful at creating new products. The empirical context is drawn from the Enterprise Survey produced by the Investment Climate Group of the World Bank. The findings based on a large sample of new ventures in developing countries reveal a curvilinear relationship with marginal diminishing returns between the degree of unique, nonmimetic knowledge and innovative performance. The results also show significant moderating effects of strategic product planning and economic and regulatory policy uncertainty. Specifically, strategic product planning helps in converting very unique, nonmimetic knowledge into new products. In addition, policy uncertainty can also positively moderate the process of recombining and converting unique, nonmimetic knowledge into new products. This study provides a more complete account of how unique, nonmimetic external knowledge affects innovative performance of new ventures in developing countries.     

Product competence exploitation and exploration strategies: The impact on new product performance through quality and innovativeness

The ability to manage existing assets and capabilities (exploitation) and the development of new capabilities (exploration) are arguably among the most relevant new product success factors. However, while exploitation-related capabilities are based on certainties regarding the efficiency of a company, exploration-related capabilities require the analysis of new technologies and processes. In existing literature, there is a gap concerning the trade-off between the exploitation and exploration of competences. Based on the theoretical background of Resource Based Theory, Dynamic Capabilities Theory and Discovery and Creation Theory, a model is proposed to analyze this gap. In this study, which examines 197 manufacturing organizations, we build on the dualities of the two types of competences and their impact on speed-to-market and market performance. The findings indicate that the choice between exploitation and exploration depends on the goals of new product development. While exploitation increases product objective quality, exploration enhances product innovativeness to the firm. Furthermore, we found that both exploitation and exploration constitute important success factors when it comes to launching new products. Finally, moderate effects of competitive intensity and market turbulence are also examined. High levels of market turbulence improve the results of exploitation, while low levels of competitiveness may encourage exploration.     

Stock Market Response to Strategic Technical Alliances between Drug and Biotechnology Firms

Traditionally, firms in the pharmaceutical industry have depended on their internal research and development (R&D) capabilities to maintain a productive new product pipeline. During the past two decades, however, the industry's pipeline productivity has decreased compromising the industry's ability to meet shareholder expectations. As a strategy to invigorate pipeline productivity, and impact financial performance, pharmaceutical firms have increased utilization of strategic technical alliances. Earlier research shows that the degree of financial impact resulting from strategic technical alliances varies in terms of partnership type and differences between client and partner firms. This research studies strategic technical alliances between pharmaceutical and biotechnology firms from 1985 to 2012. Event study methodology is used to determine the relationship between stock market response to alliance announcements, measured as cumulative abnormal returns, and factors representing the absorptive capacity of the pharmaceutical firms in the sample. Then, variables indicating the development stage of the drugs included in the alliances are added to assess the effect of project risk on the market response. The study finds that, in general, the stock market responds in a positive manner to strategic technical alliances in the pharmaceutical industry reflecting the market's immediate response, and expectations of future firm value, resulting from the alliance. The degree of the market's response varies in terms of the client firms’ absorptive capacity with new product introductions being the strongest driver. The market responds similarly to alliances across different drug development stages, however, a stronger response is observed in preclinical and extension stages.     

Those Who Know,Do. Those Who Understand,Teach. Disseminative Capability and Knowledge Transfer in the Automotive Industry

Innovations in the automotive industry are increasingly building on contributions from different technological fields. Correspondingly, firms in this industry more than ever tend to form research and development (R&D) alliances that aim at innovating new products through integrating separate fields and transferring knowledge. While, in symmetrical R&D alliances, each partner intends to ultimately maintain their distinctive and specialized knowledge base, overlapping knowledge facilitates cooperation and ultimately alliance success. Thus, the capability for knowledge transfer between partners is crucial in such R&D alliances. The literature provides ample evidence that such knowledge transfer is more likely to succeed if the recipient firm has absorptive capability. However, whereas the characteristics of the knowledge transfer process and the recipient firm are well understood, limited attention has so far been given to the issue of the knowledge source firm's ability to transfer knowledge to R&D alliance partners. This study focuses on the impact of source firm capability on successful knowledge transfer in R&D alliances. The study develops a theoretical framework of disseminative capability consisting of five dimensions and tests it on a sample of 59 projects in R&D alliances in the automotive industry. To ensure content validity and avoid common source bias, data were collected from both alliance partners. To test the hypotheses, multiple regression analyses were performed. The results reveal that the source firm's disseminative capability including the attainment of expert knowledge, assessing the recipient firm's knowledge base, and encoding knowledge are positively related to knowledge transfer success, while, surprisingly, detaching knowledge and support of knowledge application in the recipient firm are negatively related. Intentionally or unintentionally, disseminating knowledge across firm boundaries is widely perceived as detrimental to a firm's competitive advantage. Accordingly, the literature tends to downplay disseminative capability as an important means of exploiting external knowledge in collaborative settings. By demonstrating potential benefits for the source firm to transfer knowledge to the allying R&D partner firm, this paper reinvigorates the collaborative dimension in knowledge transfer. Further, the paper is the first of this kind to theoretically explain and empirically show that dimensions of disseminative capability of collaborators in R&D alliances are important for knowledge transfer, whereas disseminative capability is the complementary inverse of an organization's absorptive capacity.     

Configurations of Innovations across Domains: An Organizational Ambidexterity View

How do firms balance explorative and exploitative innovation for superior firm performance? While most prior studies have approached this issue by focusing on technology‐related innovation, the role of balancing exploration and exploitation in other important organizational domains, i.e., marketing, and the interaction effect of ambidexterity across different domains have been overlooked. This study contributes to this line of research by investigating how firms simultaneously balance exploration and exploitation across two critical domains, namely technology innovation and market innovation. The study distinguishes four types of configurations: market leveraging (technology exploration and market exploitation), technology leveraging (technology exploitation and market exploration), pure exploitation (technology exploitation and market exploitation), and pure exploration (technology exploration and market exploration). From an organizational ambidexterity perspective, the current work investigates whether and how these different combinations exert distinctive effects on firm performance. Specifically, the article posits that (a) technology exploration and market exploitation complement each other, and (b) technology exploitation and market exploration also complement each other, such that both market leveraging and technology leveraging strategies have positive effects on firm performance. The article also maintains that such positive relationships are fully mediated by differentiation and low cost advantages. Conversely, it is argued that (c) technology exploration and market exploration conflict with each other, and (d) so do technology exploitation and market exploitation, such that both pure exploration and pure exploitation have negative effects on firm performance. Hypotheses were tested using survey data collected from 292 manufacturing and service firms in China. The results supported most of the hypotheses, except that pure exploration demonstrated no significant relationship with firm performance.     

Honeymoons and Liabilities: The Relationship between Age and Performance in Research and Development Alliances

The use of strategic alliances by technology ventures has increased dramatically over the last 20 years. During this period companies not only have increased the use of alliances but also have used them in more strategically important areas, particularly in research and development (R&D) and new product development. Thus, successful management of strategic alliances in high‐technology industries has become critical to a firm's new product development and ultimately to firm performance. Yet little is known about what determines the performance of individual alliances. This article examines the relationship between the age of an alliance and the performance of the alliance. Two competing hypotheses regarding the form of the functional relationship between alliance age and alliance performance are developed and are tested. First, a liability of newness hypothesis, which posits that alliance performance increases in a linear fashion over time, is tested. Then a honeymoon hypothesis, which posits that the relationship between age and alliance performance is nonlinear with alliance performance decreasing initially but increasing over time, is tested. It is proposed further here that alliances that are more important to the focal firm exhibit longer honeymoon periods. A measure of individual alliance performance is developed based on our field study in the biotechnology industry. The competing hypotheses are tested using regression analysis on the sample of 115 R&D alliances. Then the analysis is extended by splitting the sample into high‐ and low‐importance alliances to enhance the robustness of the findings. Further, such a split‐sample approach enables testing for a potential moderating effect of alliance importance on the hypothesized relationship between alliance age and alliance performance. The results suggest that the relationship between age and alliance performance seems to be U‐shaped curvilinear rather than linear, with the minimum point of alliance performance occurring after approximately four and one‐half years. Thus, the results indicate that strategic alliances appear to face a liability of adolescence rather than a liability of newness. Contrary to expectations, it also is found that important alliances exhibit generally shorter honeymoons.