Building product diversification through contractual R&D agreements

Firms engage in contractual R&D agreements for several reasons, including product innovation motives, firm performance goals, and technological diversification. This article demonstrates that firms also might enter into external collaborations to penetrate new markets. This study therefore explores both the effects and the strategic risks of contractual R&D agreements and their related knowledge structures for a firm's capacity to diversify into new markets. Drawing on a novel panel data set obtained from 102 Fortune high‐tech firms, the authors demonstrate that strategic alliances enable knowledge‐integrated firms to penetrate new businesses; however, these organizations should be cautious about engaging in licensing‐in agreements, which have negative effects on product diversification.     

External control,corporate strategy,and firm performance in research-intensive industries

This paper explores the proposition that the divergence of interest between managers and stockholders has implications for corporate strategy and firm profitability. Stockholders prefer strategies which maximize their wealth. Managers prefer strategies which maximize their utility. It is theorized that in research-intensive industries, when stockholders dominate, innovation strategies are favored. When managers dominate, diversification strategies are favored. In addition, innovation is argued to be associated with greater firm profitability than diversification. This theory is tested on 94 Fortune 500 firms drawn from research-intensive industries. The results largely confirm theoretical expectations.     

Corporate diversification and the value of individual firms: A Bayesian approach

Research summary: Prior theory suggests that the performance effects of a firm's diversification strategy depend on a firm's individual resources and capabilities and the setting within which it is operating. However, prior tests of this theory have examined the average diversification‐performance relationship across all firms, instead of estimating the diversification‐performance relationship at the individual firm level. Efforts to estimate this average relationship are inconsistent with a central assumption of much of strategic management theory—that firms maximize value by choosing strategies that exploit their heterogeneous resources and individual situation. By adopting an approach that allows an evaluation of the diversification‐performance relationship for individual firms, this article shows that firms, both focused and diversified, tend to choose that diversification strategy—focus, related diversification, or unrelated diversification—that maximizes value. Managerial summary: Instead of a universal diversification discount or premium, this article shows that the effect of diversification on performance is heterogeneously distributed across firms and that firms tend to be rational in their diversification decisions. Copyright © 2015 John Wiley & Sons, Ltd.     

Determinants of technological innovation in the small firms of Korea

This study identifies the factors determining technological innovations in the small firms in Korea. Two groups of 24 innovative and 25 noninnovative small firms are compared on four categories of variables: environmental, strategic, structural, and top management characteristics, which were found to be important determinants of technological innovation in prior research in developed countries. A multiple discriminant analysis reveals that two top managerial characteristics (risk-taking propensity and tolerance for ambiguity), environmental heterogeneity, environmental scanning strategy, and professionalization of organizational structure are the most significant factors discriminating innovative from noninnovative small firms in Korea. The findings suggest that predominant determinants of technological innovation vary according to the types of organization and, in the case of small firms, managerial attitudes toward innovation is the most critical factor. Other strategic and policy implications for the management of innovation in the small firm context are discussed.     

Learning Capability,Technological Parity,and Innovation Mode Use*

The purpose of this research was to examine whether a firm's learning capability interacts with industry technological parity to predict innovation mode use. Learning capability is conceptualized in the current research as a firm's ability to develop or acquire the new knowledge‐based resources and skills needed to offer new products. Industry technological parity is conceptualized as the extent to which similarity and equality exist among the technological competencies of the firms in an industry. Three generic modes of innovation are considered: internal, cooperative, and external innovation. These modes reflect the development of new products based solely on internal resources, the collaborative development of new products (i.e., with one or more development partners), and the acquisition of fully developed products from external sources, respectively. The premises of this research are that (1) technological parity can create incentives or disincentives for innovating in a particular mode, depending upon the value of external innovative resources relative to the value of internal innovative resources and (2) firms will choose innovation modes that reflect a combination of their abilities and incentives to innovate alone, with others, or through others. Survey research and secondary sources were used to collect data from 119 high‐technology firms. Results indicate that firms exhibit greater use of internal and external innovation when high levels of industry technological parity are matched by high levels of firm learning capability. By contrast, a negative relationship between learning capability and industry technological parity is associated with greater use of the cooperative mode of innovation. Thus, a single, common internal capability—learning capability—interacts with the level of technological parity in the environment to significantly predict three distinct innovation modes—modes that are not inherently dependent upon one another. As such, a firm's internal ability to innovate, as reflected in learning capability, has relevance well beyond that firm's likely internal innovation output. It also predicts the firm's likely use of cooperative and external innovation when considered in light of the level of industry technological parity. A practical implication of these findings is that companies with modest learning capabilities are not inherently precluded from innovating. Rather, they can innovate through modes for which conditions in their current environments do not constitute significant obstacles to innovation output. In particular, modest learning capabilities are associated with higher innovative output in the internal, cooperative, and external modes when industry technological parity levels are low, high, and low, respectively. Conversely, strong learning capabilities tend to be associated with higher innovative output in the internal, cooperative, and external modes when industry technological parity levels are high, low, and high, respectively.     

An inquiry on dimensions of external technology search and their influence on technological innovations: evidence from Chinese firms

A central part of technological innovation for industrial firms involves search for new external knowledge. A well‐established stream of literature on firms' external knowledge search has demonstrated that firms investing in broader search may have a great ability to innovate. In this paper, we explore the influences of technology search on firms' technological innovation performance along three distinctive dimensions: technical, geographic, and temporal dimensions, using a unique panel data set containing information on Chinese firms that were active in technology in‐licensing and patenting during the period 2000–2009. Our findings reveal that Chinese firms' technological innovation performances are related to external technology search in quite different ways from the ones suggested in the extant literature using evidence from developed countries. We find that Chinese firms searching ‘locally’ along the technical dimension have better technological innovation performance than those searching ‘distantly’. However, when a Chinese firm in‐license relatively old (mature) technologies or those from geographically nearby areas, it will be less bounded to searching familiar technical knowledge.     

The Decision to Exploit an R&D Project: Divergent Thinking across Middle and Senior Managers

Research and development (R&D) generates projects, but the question often remains: which projects should be exploited? Building on the innovation, strategy, and managerial cognition literatures, we use a conjoint field experiment to collect data on 4032 decisions made by 126 R&D managers to test how project attributes, strategic context, and managers' characteristics influence innovation exploitation decisions. Using hierarchical linear modeling, we find that (1) experience impacts project exploitation decision policies of middle managers more than senior managers, (2) divergent thinking across middle and senior managers increases with experience, and (3) experienced middle managers diverge from experienced senior managers in their decisions to exploit opportunities by placing greater emphasis on strategic context (relative to competitors and fit within the portfolio) and lesser emphasis on uncertainty (technological and demand). These findings have implications for the strategy and innovation literature.     

Strategic Mutual Learning Between Producing and Buying Firms During Product Innovation

The product innovation activities and strategies employed by successful innovators often differ from those used by firms having more mature products. Marketing strategies for innovating firms can vary along two dimensions of knowledge: technological development (stable and evolving) and market needs (known and emerging). In addition, producers often commit to forms of strategic relationships with their buyers because of the difficulties encountered when buying firms adopt and implement technological innovations. Starting with these two orienting constructs from the literature, Patricia Meyers and Gerard Athaide describe the kinds of learning that develop between producers and buyers when markets for a technological innovation are forming.     

Organizing for continuous technology acquisition: the role of R&D geographic dispersion

External technology acquisition has been proved to be an important strategy to enhance firms’ innovation performance. However, previous studies claim that companies acquiring technologies tend to not carry on with this strategy over time, thus limiting their attitude toward continuous technology acquisition. Moreover, the extant literature also highlights that this attitude is strongly influenced by their organizational structure. Therefore, in the present paper, we investigate the relationship between how firms organize R&D activities and continuous technology acquisition. Specifically, given the increasing globalization of technological development, we focus on the role of R&D geographic dispersion, and how its influence is moderated by firms’ technological diversification. We tested our hypotheses on longitudinal data of 303 biotechnology firms that acquired, at least, one USPTO patented technology over the period 1982–2012. Results reveal that R&D geographic dispersion is curvilinearly (inverted U-shaped) related to continuous technology acquisition, with negative returns occurring earlier in technology-diversified companies.     

Unravelling the internal and external drivers of digital servitization: A dynamic capabilities and contingency perspective on firm strategy

Despite the increased interest in using digital technologies for servitization purposes, little is known about what drives firms towards a digital servitization strategy. Using a dynamic capabilities lens, we look into the relationships between two organizational mechanisms – exploitation and exploration – and firms' orientation towards digitization, servitization and digital servitization. On top, we examine the influence of two environmental contingencies – technological turbulence and competitive intensity – as potential influencers of these relationships. We collected and analyzed data of 139 Belgian firms through hierarchical regressions. Exploitation and exploration are positively associated with digital servitization, but exploration trumps the effect of exploitation when firms do both. Technological turbulence is positively associated with digitization regardless of the firm's level of exploration or exploitation, and competitive intensity only relates positively with servitization when firms emphasize exploration. Theoretically, we contribute to the literature by unravelling the relationship between firms' dynamic capabilities and their environment. In order to fully understand firms' strategic transition towards digital servitization, both should be considered. As managerial implications, we suggest that firms pay close attention to adapting their strategy to fit an increasingly changing environment.     

Technological Diversification, Coherence, and Performance of Firms

Technological diversification at the firm level (i.e., the expansion of a firm's technology base into a wide range of technology fields) is found to be a prevailing phenomenon in all three major industrialized regions,—the United States, Europe, and Japan—prompting the term multitechnology corporation. Whereas previous studies have provided insights into the composition of technology portfolios of multitechnology firms, little is known about the relationship between technological diversification and firms' technological performance. Against a backdrop of the technology and innovation management literature, the present article investigates the relationship between technological diversification and technological performance, taking into account the moderating role of technological coherence in firms' technology portfolios. Hereby, technological coherence is defined as the degree to which technologies in a technology portfolio are technologically related. To measure the technological coherence of portfolios, a measure of technological relatedness of technology fields is constructed based on patent citation patterns found in 450,000 European Patent Office (EPO) patent grants. Two hypotheses are presented here: (1) Technological diversification has an inverted U‐shaped relationship with technological performance; and (2) technological coherence moderates the relationship between technological diversification and technological performance positively. These hypotheses are tested empirically using a panel data set (1995–2003) on patent portfolios pertaining to 184 U.S., European, and Japanese firms. The firms selected are the largest research and development (R&D) actors in five industries: pharmaceuticals and biotechnology; chemicals; engineering and general machinery; information technology (IT) hardware (i.e., computers and communication equipment); and electronics and electrical machinery. Empirical results, obtained by fixed‐effects negative binomial regressions, support both hypotheses in the present article. Technological diversification has an inverted U‐shaped relationship with technological performance. Technological diversification offers opportunities for cross‐fertilization and technology fusion, but high levels of diversification may yield few marginal benefits as firms risk lacking sufficient levels of scale to benefit from wide‐ranging technological diversification, and firms may encounter high levels of coordination and integration costs. Further, the results show that the net benefits of technological diversification are higher in technologically coherent technology portfolios. If firms build up a technologically coherent diversified portfolio, the presence of sufficient levels of scale is ensured and coordination costs are limited. At the same time, technologically coherent diversification puts firms in a better position to benefit form cross‐fertilization between technologies. The present article clearly identifies the important role of technological coherence in technology diversification strategies of firms.     

The impact of diversification strategy on risk-return performance

This study examines the impact of diversification strategy on risk and return in diversified firms. Following an assessment of previous research on strategic risk, relationships between risk, return, and diversification strategy are hypothesized. Regression analysis shows that differences in risk-return performance among diversified firms are more closely associated with structural factors associated with markets and businesses than with the particular diversification strategy chosen. Returns also influence the choice of diversification strategles which, in turn, do not get rewarded with higher profits. A curvilinear risk-return relationship is also observed which is consistent with previous theoretical suggestions. Implications for the strategic management of risk are then drawn.     

How does the partner type in R&D alliances impact technological innovation performance? A study on the Korean biotechnology industry

The number of strategic alliances for R&D activities in the biotechnology industry is sharply increasing. Some studies show that each alliance partner type has different alliance motives, resources and capabilities, organizational structures and cultures, and degrees of competition with partners, which can lead to different performances of strategic alliances. In this regard, this study conducts an empirical analysis of the different impact of each type of alliance partner on technological innovation performance and finds the moderating effect of absorptive capacity and potential competition by categorizing strategic alliances for R&D activities in the biotechnology industry into three types: vertical-downstream alliances, vertical-upstream alliances, and horizontal alliances. This study analyzed 206 Korean biotechnology firms and their strategic alliances for a total of 292 R&D activities. The results of the analysis showed that vertical alliances have a positive impact on technological innovation performance, while horizontal alliances have an inverted U-shaped relationship with technological innovation performance caused by the effect of competition. Additionally, it was confirmed that the R&D intensity of biotechnology firms has a moderating effect of increasing the impact of vertical-upstream alliances on technological innovation performance.     

Technological capability, social capital and the launch strategy for innovative products

The Launch strategy for innovative products is a crucial strategic typology adopted by many high tech firms, and which has been identified in prior research focusing on new product introduction to the market. However, the nexus between launch strategies and firm resources has gained little research attention. This article therefore aims to investigate the influence of technological capability and social capital, two key resources for innovation in high tech firms, on the adoption of a launch strategy for innovative products. Furthermore, prior research has revealed that market characteristics play a moderating role on the relationship between firm resources and company strategies; thus, this study also examines the moderating effect of market characteristics. This study takes Taiwan's integrated circuit design firms as the analytical sample. Based on a sample of ninety companies, two interesting findings have been found. First, both technological capability and social capital are associated positively with the launch strategy for innovative products. Second, while the market growth rates increase, the positive relationship between technological capability and the launch strategy for innovative products becomes weaker.     

Strategic investments in Japanese corporations: do foreign portfolio owners foster underinvestment or appropriate investment?

This paper investigates the effect of foreign ownership on strategic investments in Japanese corporations. Foreign owners are typically portfolio investors who frequently buy and sell shares and hold diversified portfolios of small stakes in many firms. Prior research has presented two conflicting perspectives on the role of such investors: (a) their frequent trading leads to pressure for short‐term returns that fosters underinvestment; (b) their active trading fosters appropriate investments. We investigated the relationship between foreign ownership and strategic investments using dynamic panel data analysis of a sample of 146 Japanese manufacturing firms from 1991 to 1997. We found that foreign ownership enhances strategic investments (in R&D and capital intensity) to a greater extent when firms have growth opportunities than when they lack such opportunities. We conclude that foreign ownership fosters appropriate investment. Copyright © 2006 John Wiley & Sons, Ltd.     

Cooperative Innovation Projects: Capabilities and Governance Mechanisms*

This paper is concerned with how firms in a project‐based industry cooperate in technological innovation projects in the construction industry. The main focus of the paper is on the sharing of capabilities in cooperative innovation projects and how these cooperations are governed. A knowledge‐based perspective is applied, and four cooperative innovation projects in the construction industry are compared. Based on the case studies, a set of propositions is defined. First, a cooperation aimed at a mutual strategic benefit in mutually gaining access to the knowledge bases of the involved firms, while maintaining their own differentiated knowledge base, can result in more stable and long term relationships with mutual trust between the cooperating firms. Second, in a cooperation aimed at a mutual strategic benefit in mutually gaining access to the knowledge bases of the involved firms, partners not only gain access to each other's technological capabilities but also develop and share knowledge about organizational aspects and market situations and gain knowledge about the way of working of the partner firm. Third, in a cooperation aimed at mutual strategic benefit in mutually gaining access to the knowledge bases of the involved firms, noncodifiability of the capabilities is conditional to create a win–win situation. And fourth, cooperation aimed at a mutual strategic benefit in mutually gaining access to the knowledge bases of the involved firms is based on mutual competence and intentional trust as its main governance mechanism, whereas contracting between market parties aimed at knowledge–output transactions is represented by limited trust and arms' length (contractual) relationships as its main governance mechanism.     

Emergent patterns of strategy,environment and performance in a transition economy

Insights from the resource dependence approach, dynamic fit, and strategic choice theories are used to explore the strategies adopted by Chinese enterprises, their settings, and the relationship between strategy, environment, and performance. Results from 959 firms indicate that respondents operating under ‘more marketized’ institutional settings tend to locate themselves in more munificent environments and place greater emphasis on meeting customer needs. Firms in China do not trade off one strategic direction against another, and certain strategy/environment coalignments have significant implications for performance. In particular, performance is better in more marketized and munificent environments and amongst firms who adopt an ‘aggressive’ strategic posture. Copyright © 2004 John Wiley & Sons, Ltd.     

Contingency view on technological differentiation and firm performance: evidence in an economic downturn

Although the importance of strategy for firm performance has been studied, little evidence has been offered regarding this linkage in hostile environments characterized by a lack of exploitable market opportunity and fiercer competition. This study aims to examine the viability of strategic postures of technological differentiation in such a setting using data from 1,054 samples across 32 industries in 30 countries during 2001–2002, when global economies suffered a downturn. The empirical results show that differentiation-oriented firms underperformed efficiency-oriented ones during this period. However, in the face of deteriorating market conditions, a strategic orientation toward technological differentiation, in concert with an internal commitment to R&D investment or external munificence toward technological opportunity, yields better performance. Finally, this study finds that firms with tight coupling between differentiation and efficiency outmaneuver those with a pure strategy or no strategy at the time of an economic downturn.     

Networking as a Means to Strategy Change: The Case of Open Innovation in Mobile Telephony

The purpose of this article is to investigate how innovation networks can be used to deal with a changing technological environment. This study combines different concepts related to research and development (R&D) collaboration strategies of large firms and applies these concepts to R&D alliance projects undertaken by Nokia Corporation in the period 1985–2002. The research methodology is a combination of in‐depth semistructured interviews and a large‐scale quantitative analysis of alliance agreements. For the empirical analysis a distinction is made between exploration and exploitation in innovation networks in terms of three different measures. As a first measure, the difference between exploration and exploitation strategies by means of the observed capabilities of the partners of the contracting firms is investigated. The second measure is related to partner turnover. The present article argues that in exploration networks partner turnover will be higher than in exploitation networks. As a third measure, the type of alliance contract will be taken; exploration networks will make use of flexible legal organizational structures, whereas exploitation alliances are associated with legal structures that enable long‐term collaboration. The case of Nokia has illustrated the importance of strategic technology networks for strategic repositioning under conditions of change. Nokia followed an exploitation strategy in the development of the first two generations of mobile telephony and an exploration strategy in the development of technologies for the third generation. Such interfirm networks seem to offer flexibility, speed, innovation, and the ability to adjust smoothly to changing market conditions and new strategic opportunities. These two different strategies have led to distinctly different international innovation networks, have helped the company in becoming a world leader in the mobile phone industry, and have enabled it to sustain that position in a radically changed technological environment. This study also illustrates that Nokia effectively uses an open innovation strategy in the development of new products and services and in setting technology standards for current and future use of mobile communication applications. This article presents one of the first longitudinal studies, which describes the use of innovation networks as a means to adapt swiftly to changing market conditions and strategic change. This study contributes to the emerging, but still inconsistent, literature on explorative and exploitative learning by means of strategic technology networks.     

Contingency Organizations and Shared Values: Multiple Logics in Managing Diversification

Two logics of managing diversification have been suggested in the strategic management literature. The first is a very economic and structural approach that emphasizes the contingency fit between strategy and structural arrangements to maximize organizational effectiveness, while the second is a cultural approach that focuses on the use of strong shared values to minimize opportunistic behaviors of members. This paper empirically examines and compares the efficacy of two approaches to managing diversification, by using Taiwanese business groups as the sample. It is found that both approaches can lead to satisfied economic performance and they are supplementary. Diversified firms employing simultaneously two management logics will outperform firms with only one logic.