Networks and the Decision to Persist with Underperforming R&D Projects

Drawing on aspiration level theory and the networks literature, this paper develops a model toward decision makers' persistence with underperforming R&D projects based on the perceived properties of their personal network. The assumption is that positive feedback from network partners motivates persistence, and that this effect is multiplied when the decision makers' network is larger and denser, when network ties are predominantly strong, and when communication frequency within the network is high. The model is tested by a field experiment and conjoint methodology. Analysis of 1632 persistence decisions nested within 51 scientists responsible for R&D projects reveals that more positive feedback enhances persistence of underperforming R&D projects, and that this effect becomes stronger with increasing network size, network density, and communication frequency. These findings extend the project management literature by focusing on the social environment of the decision maker as one so far neglected factor in empirical studies on persistence decisions. Moreover, this study is among the first to investigate contingency relationships between feedback received from network partners and network structure. Finally, while most studies have emphasized that individuals and organizations can profit from their engagements in social networks, this paper suggests a potential dark side of networks by showing that networks can encourage decision makers to persist with their investment in an underperforming—and potentially failing—project. These results can help project managers involved in networking activities to better understand the effects of these activities on their decision policies, and thus draw better and more accurate decisions. Second, this study provides insights into how organizational strategy with respect to dissemination of R&D results and involvement of the organization's R&D managers in the scientific community influences the persistence of underperforming R&D projects, and thereby the organization's R&D expenditures. This can assist top managers to design financial controls and allocate financial resources to managers of underperforming R&D projects in line with the organization's networking strategy.     

The path of R&D efficiency over time

In this paper we investigate the pattern of R&D efficiency in terms of the number of product innovations achieved by firms over time. Using a panel dataset of Spanish manufacturing firms for the period 1990–2006, we follow the innovative performance of R&D active firms and observe that innovation rates change over firms' R&D histories. To explain these facts we propose a model that explicitly acknowledges the twofold composition of firms' R&D expenditures, comprising spending on both physical capital for R&D projects and payments to researchers. We regard this latter component of R&D as a source for dynamic returns to firms' R&D investments. Consequently firms' innovation outcomes clearly depend on how long they have been investing in R&D and also on whether there have been any interruptions in the temporal sequence of R&D activities. Our results suggest that R&D activities exhibit dynamic returns that are positive but at a decreasing rate, and that interruptions in R&D engagement reduce R&D efficiency.     

Does business group affiliation encourage R&D activities? Evidence from India

The decision to undertake investment in innovative activities is an important strategic choice made by firms. This study investigates the relationship between business group (BG) affiliation and research & development (R&D) activities of Indian firms. Using an empirical approach that accounts for endogeneity and selection bias, we observe that BG affiliation has significant positive influence on the sample firms’ R&D activities. Employing various proxies for institutional development, we show that the effect of BG affiliation on R&D declines with the improvements in institutional and regulatory mechanisms. Further, this study explores the linkages between diversification strategies at the group level and R&D investments by firms affiliated with BGs. Results show that degree of related diversification is positively associated with the affiliates’ innovation efforts.     

Measuring firms’ imitation activity

Although imitation is more abundant and prevalent than innovation in firms’ product and process development activities, it has been understudied in research on innovation and R&D management. For example, a valid and reliable objective firm-level measure of the intensity of imitation activity is lacking in the extant literature. This measure is necessary to understand the antecedents and consequences of firms’ imitation activity, which has implications for R&D management. In this paper, we present novel methods that employ patent infringement litigations data to improve on the validity and reliability of measuring firms’ imitation activity. We validate our proposed measure by presenting a first model and test of R&D as a multiple-output production function with R&D expenditure as the primary input, and innovation and imitation as joint outputs. This is in contrast to current R&D models as a single-output production function of either innovation or imitation. This study uses a sample of 227 public firms from the computer, semiconductor, and pharmaceutical industries in the United States during 1991–2010.     

Does the technological sourcing decision matter? Evidence from Spanish panel data

This paper extends previous analysis of the choice between internal and external R&D to consider the effect of this decision on productivity. Existing empirical research confirms that there is a positive relationship between technological assets and firm performance. However, few works have attempted to identify whether the technological sourcing decision taken by the firm affects productivity. The main finding of this paper is that the technological strategy developed by the firm does affect productivity. This issue is particularly novel as it incorporates the technological sourcing decision taken by the firm. The results we obtain indicate that the technological sourcing decision affects the relationship between technological capital and productivity. Thus, our findings suggest that the decision between internal and external R&D matters.     

The cost of integrating external technologies: Supply and demand drivers of value creation in the markets for technology

A classic question faced by technology suppliers and buyers is whether to compete in the product markets or to cooperate through licensing. We address this question by examining an important, demand‐side barrier to licensing—the buyers' cost of integrating a licensed technology. We argue that this cost can be affected by suppliers' knowledge transfer capabilities, buyers' absorptive capacity, and the cospecialization between R&D and downstream activities in the buyers' industries. Following this argument and a stylized bargaining model, we hypothesize that the supplier's knowledge transfer capability stimulates licensing. Moreover, the importance of this capability increases when licensing to industries where potential buyers have weak absorptive capacity or R&D and downstream activities are cospecialized. We find support for our hypotheses using a panel dataset of small ‘serial innovators.’ Copyright © 2012 John Wiley & Sons, Ltd.     

Analysing clusters of skills in R&D — core competencies, metaphors, visualization, and the role of IT

Though it is now universally accepted that companies should try to align their R&D activities with their business objectives, achieving this alignment is notoriously difficult in practice. The rise of the core competence framework has been very helpful in creating, and legitimizing, a language in which issues of technical competence and R&D strengths can be followed through to their consequences for competitive advantage. Companies are starting to express their R&D priorities explicitly in terms of core competencies.
Without effective IT support, core competence concepts are often applied arbitrarily. This has led to accusations that core competence theory can become yet another battlefield upon which companies play out their internal political battles. Computer-based techniques can help counteract this danger by enabling large volumes of relatively objective data to be collected, then making it possible to analyse and draw out patterns from this data, and finally enabling the data to be represented effectively.
It is in this last area of data representation that information technology is now of particular benefit. In order to make the core competence approach sufficiently robust as a basis for decision making, it is necessary to collect and process large volumes of data. However, this data is normally difficult to represent in such a way that managers can assimilate it. In our recent experience, we have come to realize the particular importance of effective representations and metaphors, and have started to shift our own emphasis towards these areas in addition to analysis per se .
The paper shows how core competence approaches can support R&D management decision making by exploring the roles of data collection, analysis and representation. Information technology is an integral part of these approaches, and we draw out some generalized lessons for the successful use of IT in decision support.     

How Do Interaction Activities among Customers and between Customers and Firms Influence Market Performance and Continuous Product Innovation? An Empirical Investigation of the Mobile Application Market

Mobile application markets (MAMs) significantly differ from other existing marketplaces at least in two aspects. First, customers (app users) and firms (app providers) frequently interact with each other in real time, which is not common in the conventional marketplaces. Second, many app providers incorporate customers’ opinions or suggestions into their software upgrades, representing one of the most unique and interesting aspects of MAMs. Therefore, it has become critical to understand the impact of interaction activities not only among customers, but also between customers and firms on the market performances of new products in MAMs. One of the most significant issues firms face is whether firms reflect on customers’ postpurchase interaction activities, and the next interesting question is how firms respond to them. This study explores the effects of customer‐to‐customer (C2C), customer‐to‐firm, and firm‐to‐customer interaction activities on market performance. In addition, this study investigates how communication activities influence a firm's tendency to pursue continuous product innovation through research and development (R&D). Using data obtained from a major MAM, T store, three models that are respectively related to product sales, product lifetime, and a firm's R&D activity for product upgrades, are applied to empirically test hypotheses concerning the effects of interaction activities. In our analyses of market performance, a hierarchical log regression model with 10,840 weekly transactions data set related to product sales (model A) and 291 aggregate transactions related to product lifetime (model B) is used. Results indicate that C2C and customer‐to‐firm communication activities have a positive impact on sales, but little relationship with product lifetime. However, a firm's continuous product R&D has a positive impact on both sales and lifetime performance. Our analysis of a firm's R&D (model C) shows that C2C and customer–firm communication increases a firm's R&D activity. Taken together, these results have important implications for customer–firm interactions, market performance, and R&D strategies.     

Fostering knowledge management deployment in R&D workspaces: a five-stage approach

In recent years, R&D institutes have encountered various intensified challenges. New instruments are needed to manage knowledge-related activities more effectively and efficiently. This paper presents and discusses the lessons learned from a case study in fostering knowledge management (KM) initiatives and systems in a research-oriented institute serving the metal industry, specifically the Metal Industries Research and Development Centre (MIRDC) in Taiwan. We perform a comparative review of the experience of embarking on KM among Taiwanese R&D institutes, a very rarely performed job. Following this, we investigate, by conducting the primary and secondary researches, how MIRDC has adopted a five-stage approach to develop a deliberate framework of KM deployment in order to manipulate the KM operations in the context of a Chinese R&D institute. The MIRDC case demonstrates a sophisticated KM process that provides an activity-based perspective of the plan, control, coordination and evaluation framework in an R&D workspace. This paper argues that well-defined deployment frameworks embody qualities of goal pursuing that are important to KM activities and compel managers to examine more closely how to realize the KM initiatives. This paper also reveals that a rigid hierarchical R&D structure inhibits the dynamics of the knowledge cycle due to technology segmentation. A parallel R&D structure supported by mission offices and a 'pioneer and innovation program' that is cross-departmental and industry-focused can positively motivate horizontal 'coopertition' networking so as to better exploit and leverage knowledge assets. The practices applied in these elemental KM activities are useful to other R&D organizations by suggesting how each of the KM activities can be configured and implemented.     

The importance of internal and external R&D network linkages for R&D organisations: evidence from Singapore

This paper examines the importance of internal and external R&D networks for R&D organisations of multinational firms (MNCs) in Singapore and investigates corresponding R&D management requirements in this context, namely a late-industrialising country in Asia. A unique feature of Singapore is its ability to attract 'high quality' foreign direct investment, involving activities of higher value added and more complex technology without having developed full-fledged R&D activities among its business organisations, thus creating a challenging situation for subsidiary R&D managers, both in the internal R&D organisation as well as in the external research environment. This paper analyses these issues.
Based on in-depth interviews with 53 R&D subsidiaries of MNCs operating in Singapore, this paper identifies internal and external R&D management needs. Through our analysis of data gleaned from these interviews, we found that subsidiary R&D managers need to increase and/or maintain the strategic importance of their R&D site internally within their global corporate R&D organisation. This requires constant upgrading of the technological level at the R&D subsidiary and intense communication with headquarters as well as other R&D subsidiaries. Furthermore, our findings indicate that in the external research environment, subsidiary R&D managers need to create an efficient local network of external players. If these internal and external issues are properly addressed, the R&D subsidiary can effectively contribute to the corporate R&D organisation and be a critical partner in the local research network. Lessons learned from the Singapore experience include the need to develop sufficient local expertise as well as to change the mindset of managers to focus on creativity rather than precise execution.     

OVERSEAS R&D ACTIVITIES AND HOME PRODUCTIVITY GROWTH: EVIDENCE FROM JAPANESE FIRM‐LEVEL DATA*

This paper investigates the impact of overseas subsidiaries' R&D activities on the productivity growth of parent firms using firm‐level data for Japanese multinational enterprises. Based on survey responses, we classify each overseas subsidiary's R&D as either ‘innovative R&D,’ which we hypothesize is likely to lead to the acquisition of foreign knowledge, or ‘adaptive R&D,’ which is more likely to lead to adaptation to local conditions. We find that overseas innovative R&D raises the parent firm's productivity growth, while adaptive R&D has no such effect. In addition, overseas innovative R&D does not improve the rate of return on home R&D.     

Managing academic R&D as a business at K.U. Leuven: context, structure and process

In this paper, we elaborate on how academic R&D can be managed as a business. Based on the case of K.U. Leuven Research and Development, it is shown how an academic institution can develop the context, structure and processes conducive to managing academic R&D as a business. It is argued that universities that intend to take advantage of the economic opportunities of their R&D programmes, should leverage their innovation potential through appropriate strategies, organizational structures and management processes that allow them to manage part of their R&D portfolio as a business without hampering though the fundamental academic values and activities of research and teaching. This balancing act has been the responsibility of K.U. Leuven Research and Development for the last 28 years. It is the subject of the case study reported in this paper.     

How do country‐level governance characteristics impact the relationship between R&D and firm value?

This article addresses the question of how country‐level governance characteristics moderate the market valuation of research and development (R&D). Using a valuation model and panel data from companies in the European Union, United States, and Japan, we find that effective corporate governance allows the market to better assess a firm's R&D investments. This finding is the conjunction with the effect of the legal system, the financial system, and mechanisms of control. First, as effectiveness of investor protection increases, the market valuation of R&D projects also increases. Second, more developed financial systems do a better job assessing R&D. Third, effective control mechanisms reinforce the positive effect of R&D on a firm's market value. In sum, our findings shed light on how policymakers can increase the benefits from firms' R&D spending and thus foster economic growth and social welfare using these country‐level governance characteristics.     

Achieving contextual ambidexterity in R&D organizations: a management control system approach

Research on how managers control R&D activities has tended to focus on the performance measurement systems used to exploit existing knowledge and capabilities. This focus has been at the expense of how broader forms of management control could be used to enable R&D contextual ambidexterity, the capacity to attain appropriate levels of exploitation and exploration behaviors in the same R&D organizational unit. In this paper, we develop a conceptual framework for understanding how different types of control system, guided by different R&D strategic goals, can be used to induce and balance both exploitation and exploration. We illustrate the elements of this framework and their relations using data from biotechnology firms, and then discuss how the framework provides a basis to empirically examine a number of important control relationships and phenomena.     

Determinants of increasing R&D complexity in affiliates of manufacturing multinational corporations in the UK

The aim of this paper is to evaluate the technological trajectories of the UK subsidiaries of manufacturing multinational corporations as measured by changes in their R&D complexity over a five year period. The data was gathered from a postal survey of 500 randomly selected subsidiaries in the UK; of the respondents that had been established in Britain for at least five years, 16 were found to demonstrate decreasing and 48 increasing complexity of R&D activities. These 64 firms were compared across a number of strategic variables, and a powerful logistic regression model developed that predicts technological trajectories with great precision.
The key variables in the model were differences (over five years) in sales volume, decision making autonomy about human resource matters in the subsidiary, sensitivity to the needs of sister subsidiaries when developing new products, heterogeneity of the subsidiary's markets, and the degree of localization of certain control functions. The central lesson for the subsidiary R&D manager is that HQ undertakings about R&D strategy as it concerns the subsidiary may be fairly accurately evaluated via the model and its five strategic variables.     

Utilizing the balanced scorecard for R&D performance measurement

R&D programs are critical for many firms to achieve and sustain competitive advantage. Yet, measuring R&D performance over time can be quite complex due to inherent uncertainty. The paper responds to calls in the R&D literature to explore integrated performance measurement systems that capture financial and nonfinancial performance. We integrate the Stage-Gate approach to R&D management with the Balanced Scorecard to present a framework to show how firms can link resource commitments to these activities and the firm's strategic objectives. In this paper, we provide specific examples of how firms can apply this integrated performance measurement system to the R&D function.     

Toward the development of benchmarking tools for R&D project management

This paper presents an audit model for the process of R&D project management that can be used to check the robustness and repeatability of processes and provide a template for internal and external benchmarking. The intention is to offer a 'fine-grained' model focusing rather closely on the R&D activities within the broader innovation process, thus complementing the more widely based innovation audit models that already exist.
Based on field-work in six business units in ICI and five companies from other industries, the paper sets out three major variants of the R&D project management process. These variants reflect the fact that R&D projects take place in different circumstances and have different objectives.     

How mergers affect innovation: Theory and evidence

This article analyses how horizontal mergers affect innovation of the merged entity and its non-merging competitors. Using data on horizontal mergers among pharmaceutical firms in Europe and applying propensity score matching estimators, we find that average patenting and R&D of the merged entity and its rivals declines substantially in post-merger periods. We show that this result is consistent with the predictions from an oligopoly model with heterogeneous firms, as well as a patent race model, when pre-merger R&D intensity is sufficiently high. Consistent with our theoretical model, we find that negative effects of mergers on innovation are concentrated in markets with high R&D intensity and in technology classes with overlap in pre-merger innovation activities of merging and rival firms.     

Motivations and barriers of foreign R&D activities in China

The continued growth of the Chinese economy accompanied with the expansion of international investment in China has led to an increase in foreign research and development (R&D) activities in the country. Aside from the rising importance of R&D internationalization, research on foreign R&D in China has been neglected in the past due to its emerging status. In this article we examine drivers and barriers for conducting R&D in China. The focus of our research is on transnational companies typically characterized by decentralized R&D activities. Our research is mainly based on qualitative interviews with senior R&D managers. The success of foreign R&D activities in China strongly depends on the realistic estimation of its advantages and the proper identification and handling of barriers.