The growth and management of R&D outsourcing: evidence from UK pharmaceuticals

Outsourcing of research and development (R&D) activities has become a major management issue for R&D and technical managers within firms. It has also been of growing concern to academics who are trying to chart the implications of the increasingly distributed nature of research and innovative activities in advanced economies. This study is based on a survey of research-based pharmaceutical companies operating in the United Kingdom conducted in 2004–2006. The aim of this paper is to outline the main reasons for pharmaceutical firms to outsource R&D and the management practices followed by such companies in relation to outsourcing. The research results provide interesting findings in relation to, for example, the reasons behind outsourcing, the decision-making processes behind such practices and barriers to outsourcing arrangements. These issues are evaluated together with the characteristics of the firms and the specific project outsourced.     

Managerial Ties and Firm Innovation: Is Knowledge Creation a Missing Link?

Managerial ties, the personal networks of senior managers, have been found to be facilitators of firm performance because of their network benefits. However, social network theory suggests that managerial ties only play a “conduit” role by providing possibilities and opportunities to approach external resources. How can firms turn these possibilities and opportunities into internal knowledge assets and further transform them into firm innovation? Extant research constructs a direct mechanism for the managerial ties–firm innovation link. The research reported here, however, provides and investigates an indirect ties‐innovation argument where organizational knowledge creation processes, including knowledge exchange and knowledge combination, are mediators. And managerial ties are examined through two traditional dimensions, business ties and political ties. This study employs empirical data from 270 firms in China and uses structural equation modeling techniques to reveal interesting findings. First, the results support the key argument that the influence of managerial ties on firm innovation is indirect. Second, knowledge exchange and knowledge combination are different constructs and the former positively influences the latter. More interestingly, business ties can exert a significant direct impact on both knowledge exchange and knowledge combination, while political ties can only influence knowledge exchange directly. Although both knowledge exchange and knowledge combination impact product innovation directly, only knowledge combination can directly influence process innovation. These findings indicate that the role of political ties is declining, but business ties still have substantial influence on firm innovation in transitional China. Different processes of organizational knowledge creation, such as knowledge exchange and knowledge combination, make distinct contributions to firm innovation. Product innovation, as opposed to process innovation, is more externally oriented and needs more organizational level knowledge creation activities. This article extends the understanding of the ties–innovation link, organizational knowledge creation theory, and firm innovation in a transitional economy by providing a more complete understanding of how firms can access and internalize external resources and then transform them into product innovation and process innovation.     

Innovation and Product Development Strategies in the Italian Motorcycle Industry

The motorcycle industry in Italy offers fertile ground for anyone interested in developing a better understanding of the role innovation plays in enhancing a firm's competitive position. This industry includes both domestic and Japanese firms, with companies ranging from high-volume manufacturers to specialty or niche producers. Firms trying to gain a competitive edge in this crowded field must contend with not only advances in product and process technology, but also the whims of fashion. In a survey of top-level marketing and product development managers from eight leading firms in the Italian motorcycle industry, Moreno Muffatto and Roberto Panizzolo explore the innovation models these firms employ to enhance their competitive position. Their study has the following objectives: categorizing the various competitors in terms of their product and market strategies and their product development and innovation strategies; highlighting differences between the methods of Italian and Japanese firms competing in this market; analyzing the relationships between firms, as well as the roles suppliers play in the various innovation strategies; and identifying the various organizational models employed by the firms in this industry. Different product and market strategies are identified on the basis of three variables: total production volume, the number of different products offered, and the number of different engine capacities offered. Using these variables, the companies in the study are categorized as volume producers, specialists, or niche specialists. The firms are further differentiated on the basis of the relative emphasis each places on product technology and design, product innovation, product variety, and time-based competition. In the firms studied, partnerships play a key role in new product development. Nearly every firm participates in joint projects, most often involving development of either an entire vehicle or an engine. Other partnerships involve firms in countries that offer emerging markets for the motorcycle industry. Organizational structures and strategies employed by the volume producers in this study include: the large product leader, who oversees concept definition and product planning; the project leaders group, which coordinates all phases of development, including activities assigned to external groups; the project managers matrix, a matrix organizational structure with a strong product orientation; and the business unit program manager, who oversees all projects within an independent business unit.     

Does peripheral knowledge complement control? An empirical test in technology outsourcing alliances

While the normative logic for forming technology outsourcing alliances is that such alliances allow outsourcing firms to specialize deeper in their domain of core competence without being distracted by noncore activities, recent empirical studies have reported the puzzling phenomenon of some firms continuing to invest in R&D in domains that are fully outsourced to specialized alliance partners. An underlying—and widely made—assertion that can potentially reconcile this contradiction is that ‘peripheral’ knowledge (specialized knowledge in the domain of outsourced activities) complements control in technology outsourcing alliances. However, this assertion is untested; and empirically testing it is the objective of this research study. Using data from 59 software services outsourcing alliances, we show that such peripheral knowledge and alliance control are imperfect complements: peripheral knowledge complements outcomes‐based formal control but not process‐based control. Thus, outsourcing firms might sometimes need knowledge outside their core domain because such knowledge facilitates effective alliance governance. Our theoretical elaboration and empirical testing of the assumed complementarities between peripheral knowledge and control in technology outsourcing alliances has significant implications for strategy theory and practice, which are also discussed. Copyright © 2007 John Wiley & Sons, Ltd.     

Organizing for Inbound Open Innovation: How External Consultants and a Dedicated R&D Unit Influence Product Innovation Performance

Firms increasingly acquire technological knowledge from external sources to improve their innovation performance. This strategic approach is known as inbound open innovation. The existing empirical evidence regarding the impact of inbound open innovation on performance, however, is ambiguous. The equivocal results are due to moderating factors that influence a firm's ability to acquire technological knowledge from external sources and to transform it into innovation outputs. This paper focuses on a relevant yet overlooked category of moderating factors: organization of research and development (R&D). It explores two organizational mechanisms: one informal and external‐oriented (involvement of external consultants in R&D activities) and one formalized and internal‐oriented (existence of a dedicated R&D unit), in the acquisition of technological knowledge through R&D outsourcing, a particular contractual form for inbound open innovation. Drawing on a capabilities perspective and using a longitudinal dataset of 841 Spanish manufacturing firms observed over the period 1999–2007, this paper provides a fine‐grained analysis of the moderating effects of the two organizational mechanisms. The involvement of external consultants in R&D activities strengthens the impact of inbound open innovation on innovation performance by increasing marginal benefits of acquiring external technological knowledge through R&D outsourcing. Moreover, it reduces the level of inbound open innovation to which the highest innovation performance corresponds. Instead, the existence of a dedicated R&D unit makes the firm less sensitive to changes in the level of inbound open innovation, by reducing marginal benefits of acquiring external technological knowledge through R&D outsourcing, and increases the level of inbound open innovation to which the highest innovation performance corresponds. The results regarding the role of informal and formalized R&D organizational mechanisms contribute to research on open innovation and absorptive capacity, and also inform managers as to what organizational mechanism is recommended to acquire external technological knowledge, depending on the objectives that the firm pursues.     

The supplier's side of outsourcing: Taking over activities and blurring organizational boundaries

Since most of the literature on outsourcing focuses only to the buying (outsourcing) company, this paper aims to highlight the supplier's side from a relational perspective. The paper stresses the importance of business relationships between suppliers of outsourced activities and their customers. The paper's purpose is specified in two research questions: (1) how is value created within outsourcing and (2) how does the supplier interact with the outsourcing company? Our method relies on an in-depth qualitative case study of Logoplaste, a Portuguese packaging company which supplies large consumer goods manufacturers through complex outsourcing activities. Our analysis identifies three key dimensions of outsourcing relationships: (1) value co-creation via inter-firm coordination (as opposed to unilateral externalization of activities); (2) mutual dependence between supplier and customer due to the supplier's taking over activities; and (3) the blurring of organizational boundaries because of mutual dependence. These dimensions manifest themselves, even though in different degrees, after the initiation of any outsourcing relationship: these variables are new to the literature on outsourcing, which focuses on the ex ante dimensions that influence the customer's pre-relational choices such as “make or buy” and relationship type.     

Examining cross-functional coopetition as a driver of organizational ambidexterity

Despite the growing number of articles on coopetition, research in the area still lacks insights into this phenomenon on an intraorganizational level. Therefore, this study examines the effect of cross-functional, firm-internal coopetition on organizational ambidexterity (i.e., exploitation and exploration) and the moderating role of social cohesion. Drawing on organizational learning theory and analyzing survey data obtained from 392 department heads and project leaders of new product development teams, we demonstrate that cross-functional coopetition has a significant positive effect on exploratory innovation. Moreover, we find support for the moderating influence of social cohesion on the relationship between coopetition and exploitative innovation. These results not only provide valuable insights for managers in the fields of new product development and innovation, they also highlight the need for further research on the dynamic interplay of competitive and cooperative elements within firms.     

Control of intellectual assets in client relationships: implications for innovation

This empirical study of business‐to‐business service firms examines the determinants and effects of control rights to intellectual assets in a property rights theoretic framework. Regression analyses using survey data suggest that service suppliers that retain control over their intellectual output are more innovative. In long‐term relationships, service firms' clients may thus be better off balancing their need to control outsourced activities with the suppliers' incentives to invest in learning and innovation. Additionally, and aligned with property rights theoretic predictions, service suppliers' bargaining power and their indispensability in service projects are positively associated with their ability to retain control rights. In contrast, innovation capabilities are not very significant in determining control rights allocation between service suppliers and their clients. Copyright © 2008 John Wiley & Sons, Ltd.     

Global Outsourcing Relationships and Innovation: A Conceptual Framework and Research Propositions

Increasing globalization and the rapid growth of information technologies, including the Internet, have resulted in drastic changes in international activities of companies. Once limited to manufactured goods, currently, global outsourcing encompasses a wide variety of knowledge‐based services, such as accounting, financial services, taxation, customer service, information technology, engineering drawings, human resources, research and development (R&D), data processing, and sales. The domain of outsourcing knowledge‐based services is the focus of this paper. Moving beyond the inevitability of global outsourcing, this research takes the perspective of the outsourcer and focuses on managing its transition to providers in the context of innovation. In addition to delivering projected cost benefits to outsourcers, effective transition management can facilitate the generation of innovations. This research attempts to extend the current academic research on global outsourcing in three ways: (1) It offers a framework for understanding the transition process in outsourcing and its relationship to innovation; (2) it takes a broader perspective of outsourcing, including globalization, knowledge‐based services, and core activities of the firm; and (3) using a parsimonious set of theoretical concepts based on control theory, it develops several research propositions to clarify the linkages between variables. Based on our theorizing, outsourcing top management should ask two questions when planning outsourcing of knowledge‐based services to generate innovations in a globalized world. These two questions are: (1) How close is the task to our core competence? And (2) how much tacit knowledge is involved in doing the outsourced task? Next, managers must identify global providers and then spend considerable thought in operational execution of the transition of the task for that is the only time that both complete teams will work together. For tasks that are close to core competence, rigid‐explicit behavioral controls should be put in place; however, for tasks that have high tacit knowledge content, high norms‐based relational control would be more effective. These different types of controls would lead to different innovation outcomes. Rigid‐explicit behavioral controls would produce incremental innovation while relational norms‐based controls would encourage radical innovation.     

Value innovation in business markets: Breaking the industry recipe

The industrial marketing as well as the strategic management literature stresses the importance of “value innovation” in order to create/sustain competitive advantage and to rejuvenate the organization.In the first part of this article the construct of value innovation is operationalized within the context of selected business-to-business markets. We report the results of an ongoing research project; starting from traditional ways of value creation, the study reveals different types of value innovation initiatives undertaken by industry participants. We observe, however, that networks, firms and managers are embedded in industry recipes. These recipes block the creation and realization of value innovation. Some firms are trying to break out of existing frames and their experiences pinpoint to specific ways of markets sensing, strategic marketing and different marketing-mix tools. As such, the research frames value innovation initiatives in the existing industry contexts and managerial frames, and identifies drivers, barriers and perceived success factors for the process of value innovation.The second part of the article then looks at the stages of value innovation and their impact on marketing, organizations and networks. Based on the data analysis, the paper posits propositions which stress the concept of “multilevel absorptive capacity”.     

Sectoral Heterogeneity in New Service Development: An Exploratory Study of Service Types and Success Factors

The service industry is of fundamental relevance for the economies of industrialized countries, as the service industry produces the highest growth in the gross domestic product. In this regard, new service development (NSD) represents a critical resource for competitive survival and a decisive factor of growth in the service industry. However, service firms across many industries are increasingly faced with the challenge of determining how best to manage their development of new service offerings. Although researchers have shown growing interest in NSD issues, this area is still underutilized. Furthermore, although the heterogeneity of the service industry has been emphasized for years, the current body of research on NSD mainly focuses on specific service environments, providing data that are often not comparable across different service sectors. Additionally, there is no study to date that comprehensively examines innovation activities and the relevance of service innovations’ success factors within different service industries. The aim of this exploratory study is to establish a more balanced picture of the nature of innovation activities in terms of NSD characteristics and success factors in the heterogeneous service industry. From this perspective, this paper begins with an examination of the factors that contribute to the success of NSD. Based on a meta‐analysis of new service success factor studies, 17 different success determinants are classified and aggregated to service‐related success determinants. Subsequently, a cluster analysis of 1016 service companies is used to identify different service innovation types. For the service sector, four service innovation types are determined: efficient developers, innovative developers, interactive adopters, and standardized adopters. Furthermore, based on interviews with service innovation managers, the previously identified success factors are examined for each innovation type using a standardized survey. Finally, based on the results of this exploratory study, the paper concludes with recommendations for NSD management and research propositions for each service innovation type. These propositions support innovation managers to successfully manage service innovations for the innovation type they are operating in.     

Toward a capability‐based conceptualization of business model innovation: insights from an explorative study

Although business model innovation (BMI) is more and more being acknowledged as key strategic task, current research is missing a conceptualization of core elements and relevant organizational capabilities. These research gaps impede a full theoretical understanding and a systematic and purposeful managerial application. By drawing on dynamic capability literature, this study addresses the question of how firms systematically and purposefully pursue BMI. Empirical analysis is based on six case studies in the specialized publishing industry, in which technological change has triggered numerous opportunities for new business models. The findings demonstrate that BMI can be conceptualized as a distinct dynamic capability. This capability can be disaggregated into a firm's capacity to sense business model opportunities, seize them through the development of valuable and unique business models, and reconfigure the firms' competences and resources accordingly. The present study outlines how distinct organizational routines and processes undergird these capacities. A conceptualization as dynamic capability contributes to a theoretical underpinning of BMI by integrating previously discussed dimensions of this phenomenon. Moreover, managers can gain concrete guidelines about how to systematically and purposefully approach BMI.     

Understanding types of organizational networking behaviors in the UK manufacturing sector

This research is aimed at understanding firms' different types of ‘networking behaviors’, i.e., how and why firms affect their strategic network position by activities/routines/practices aimed not just at their business partners, but beyond such direct relationships. Thus, we adopt a network perspective to examine how firms exploit their webs of direct and indirect business relationships in order to assess and embrace the potential opportunities and constraints in the network. Based on the industrial network approach (INA), this exploratory research specifically focuses on networking behaviors in the UK manufacturing sector. Thirty-one semi-structured interviews with executive managers from fifteen firms were conducted. We identify four types of organizational networking behaviors by the way in which firms utilize their web of relationships to achieve certain goals. By using the concept of networking behaviors based on the INA as well as the strong-and-weak-tie argument in economic sociology, purposeful networking behaviors can be categorized into the following: information acquisition, opportunity enabling, strong-tie resource mobilization and weak-tie resource mobilization. These four ‘types’ of organizational networking behaviors provide a deeper understanding of how firms operating in business-to-business exchanges relate to and exploit their webs of direct and indirect relationships, taking into consideration the embeddedness and interconnectedness of the network context.     

How Information Technology Assimilation Promotes Exploratory and Exploitative Innovation in the Small‐ and Medium‐Sized Firm Context: The Role of Contextual Ambidexterity and Knowledge Base

This research sheds new light on how information technology (IT) assimilation affects exploratory and exploitative innovation in the context of small‐ and medium‐sized firms (SMEs). This contextualization is important in establishing the boundary conditions for the theory, as well as generating specific managerial insights for SME managers. A sample of 248 U.K.‐based SMEs in the manufacturing industry demonstrates contextual ambidexterity (CA) mediates the relationship between IT assimilation and two types of innovation. This finding highlights that IT assimilation does not automatically promote innovation. Instead, IT assimilation represents a critical resource that enables the effective implementation of CA, which in turn affects innovation. This implies that SMEs cannot fully realize the potential of their IT assimilation and use it to enable innovation without implementing CA. Furthermore, this study differentiates between two different dimensions of knowledge base: knowledge breadth and knowledge depth. This study finds that knowledge breadth moderates the indirect IT assimilation–exploratory innovation relationship by influencing the effect of CA on exploratory innovation. Knowledge depth, on the other hand, moderates the indirect IT assimilation–exploitative innovation relationship by influencing the effect of CA on exploitative innovation. This finding implies that SMEs can benefit from their IT assimilation that enables them to engage in CA, which in turn allows them to perform innovation. However, it is apparent that the dimension of knowledge that SMEs hold internally can determine what types of innovation that they are able to perform.     

The Interplay of Customer and Product Innovation Dynamics: An Exploratory Study

The challenges of successfully developing radical or really new products have received considerable attention from a variety of marketing, strategic, and organizational perspectives. Previous research has stressed the importance of a market‐driven customer orientation, the resolution of market and technological uncertainty, and organizational processes such as cross‐functional teams and organizational learning. However, several fundamental issues have not been addressed. From a customer's perspective, a more innovative product tends to have uncertain benefits and requires customers to learn new behaviors. Customer preferences can, therefore, change as product experience and learning increase. From a firm's perspective, it is unclear how to be customer‐oriented under such dynamic preferences, and product strategies using evolving technologies will tend to interact with how customers learn about an innovation. This research focuses on identifying unresolved issues about these customer and product innovation dynamics. A conceptual framework and series of propositions are presented that relate both changing technology and customer learning to a firm's strategic decisions in developing and launching really new products. The framework is based on in‐depth interviews with high‐tech product managers across several sectors, focusing on the business‐to‐business context. The propositions resulting from the framework highlight the need to consider relevant customer dynamics as integral to a firm's product innovation process. Successful innovation strategies and future research challenges are discussed, and applications to better understanding customer needs and theories of disruptive innovation are examined. Several key insights for innovation success hinge on a broad, downstream orientation to customer needs and product innovation dynamics. To be effective innovators, firms must know their customers' customers and competitors as well as or better than their immediate customers do. Market research must extend downstream for a comprehensive understanding of customer needs dynamics. In the context of disruptive innovation, new dimensions of customer needs may become more valuable based on perceived downstream customer trends. Firms may also innovate on secondary needs because mainstream customers do not always give firms the design freedom to radically innovate on primary features. Understanding customer commitments and how they develop under evolving needs can help firms focus resources on innovative efforts more likely to be accepted by customers.     

Profitability Goals,Control Goals,and the R&D Investment Decisions of Family and Nonfamily Firms

Research and development (R&D) investments can help build sustainable competitive advantages and improve firm performance. Nevertheless, managers also acknowledge the difficulties associated with managing R&D and the low chances of success of innovation programs. For this reason, researchers have long been interested in understanding how managers make R&D investment decisions. Research grounded in the behavioral theory of the firm suggests that a primary driver of R&D investment decisions is profitability: when profitability goals have not been met, managers are more likely to initiate a problemistic search through increasing R&D investments. While emphasizing profitability goals and their relationship with R&D investments, prior research largely downplays the role of goals beyond profitability that exist in a significant number of firms (family firms) that are owned and managed by family members whose primary concern is preserving their control over the organization. Research indicates that these family‐centered noneconomic goals lead family managers to minimize R&D investments and that the coexistence of multiple goals produces highly variable R&D investment behavior. Yet, how family‐centered goals for control and profitability enter decision‐making in family firms is not fully understood. In this study, we propose that family managers form distinctive reference points that capture supplier bargaining power and are used to evaluate the degree of external obstruction to their managerial control. The empirical analysis of panel data on 431 private Spanish manufacturing firms observed over the period 2000–2006 shows that the importance of profitability and control goals follows a sequential logic in family firms, such that family firms react more strongly to increasing supplier bargaining power when their profitability reference points have been reached. This study extends current understanding of the distinctive organizational processes engendered by family management in business organizations leading to new research opportunities at the intersection of the innovation management and family business literatures.     

The 18C's model for a successful long-term outsourcing arrangement

The purpose of this paper is to identify the factors that contribute to a successful long-term outsourcing arrangement, particularly in the facilities management area. Organisations expect to achieve many benefits from outsourcing, despite the fact that there are significant risks associated with unsuccessful outsourcing. The paper analyses a successful multiple activity outsourcing case study. Six managers and team leaders, who have initiated and managed the sixteen outsourced activities during an eight year period, were interviewed. In order to complement and confirm the interviews, the observation of four monthly performance review meetings was conducted. Eighteen key success factors for a long-term outsourcing arrangement have been identified and approved by the interviewees. They have been used to construct the 18C's model.     

Leveraging micro‐ and macro‐structures of embeddedness in alliance networks for exploratory innovation in biotechnology

Researchers agree that alliance networks can be an important instrument in a firm's innovation process, but there is limited empirical evidence on actually how they facilitate the creation of new knowledge for exploratory innovation. The research question is what alliance network configuration is optimal for exploratory innovation. The present study investigated the interaction between a firm's alliance portfolio structure (the micro‐level) and the industry alliance network structure (the macro‐level), and it empirically tested how their interaction may be affecting the exploratory innovation outcome of network participating firms in the biotechnology industry. The paper uses data from exploratory patents filed by 455 dedicated biotechnology firms in 1986–1999 and an overall network comprising 2,933 technological alliances over the same period. The results indicate that, in the case of biotechnology, firms with high exploratory innovation output have short path indirect access to many other firms (micro‐level), and operate in dense industry alliance networks centralized around a few key firms (macro‐level), and that these effects are curvilinear.     

Beyond invention: the additive impact of incubation capabilities to firm value

Incubation is a process whereby the firm nurtures breakthrough discoveries and inventions to test their potential as new business platforms. The recent emergence of organizational roles associated with innovation incubation shows that internal incubation is becoming recognized as an important organizational capability. This development also suggests that firms that invest in discovery for competitive advantage recognize a need to leverage that investment more fully. While case studies describe incubation activities and note their importance, empirical research linking this capability to firm performance is limited. The current study represents an initial attempt at exploring the relationship empirically. Our main finding is that financial markets have difficulty valuing a firm's exploratory discovery investments and that the presence of an incubation capability positively moderates the impact of such investments on firm market valuation. The implication of this result is that investments in certain types of R&D may be suboptimized if there is not a parallel investment in a capability to incubate the opportunities that arise from potentially breakthrough inventions.     

The R&D and marketing cooperation across new product development stages: An empirical study of Taiwan's IT industry

This study extends the new product development (NPD) process research to a new environmental context (Taiwan's IT industry) and a new business type (original design manufacturing, ODM). Taiwan's IT industry has achieved a very outstanding performance during the last two decades. The island's experience is quite valuable for those emerging countries that are struggling to transform themselves from producing low-value goods to making high-technology products. After analyzing the data collected from 153 research and development (R&D) and marketing managers in Taiwanese IT firms, this study finds that the higher the perceived importance of R&D-marketing cooperation is, the higher the attained level of R&D-marketing cooperation will be. Consequently, a better NPD performance can be achieved. This study additionally reports that a firm that has adopted a Defender innovation strategy attains a lower level of R&D-marketing cooperation, and has a poorer NPD performance than those firms that adopted either Prospector or Analyzer innovation strategies. Finally, environmental uncertainty has no significant impacts on the perceived importance and the attained level of R&D-marketing cooperation.