Small is big in ICT: The impact of R&D on productivity

We examine the contribution of R&D to firm productivity in a large panel of European firms and study its variation with the age, size, and sub-sector of firms. We find that R&D capital in ICT firms has a larger effect on revenue when compared to non-ICT firms. At the firm level, our results suggest that, surprisingly, smaller and older ICT firms benefit the most from R&D. Small but mature ICT firms are likely to dominate market niches, and small size may enable them to be flexible and adaptable which helps them respond to technological opportunities to develop innovative products and services. This has important implications for public policy based upon firm age.     

Heterogeneous Firm‐Level Effects of Knowledge Exchanges on Product Innovation: Differences between Dynamic and Lagging Product Innovators*

Product innovation is the result of a constant interaction between the in‐house research and development (R&D) department and knowledge exchanges with the firm's environment. Knowledge exchanges come in different forms. They break down into information gathering applied in new product development, research cooperation on particular innovation projects, and managing information outflows allowing the consequent appropriation of the results of product innovation through specific methods. The way firms handle knowledge exchanges affects their performance. This paper looks at three related indicators of performance: (1) research intensity (a measure of innovative input); (2) the share of revenue realized through innovative product sales (a measure of innovative output); and (3) their impact on the growth in total revenue. The bulk of the econometric literature looking into these matters only allows general statistical statements on the behavior of an “average” firm. This paper takes on another view by using the quantile regression method to stress the heterogeneity of innovative firms in their dealing with knowledge exchange and the effect this has on their performance. A first key finding is that research intensity is positively influenced by knowledge externalities, research cooperation, and appropriability, and it is through this that these variables affect innovative revenue and also the growth in total revenue. By using quantile regression these relationships are further refined to screen for differences in behavior between dynamic and lagging innovators. This refinement indicates that, in the case of research intensity, the knowledge externalities gain in importance in the higher quantiles and are insignificant in the lower ones. Next, research cooperation remains important in all quantiles, but a higher significance is observed in the higher quantiles as well. Finally, appropriability is extremely important for the lower quantiles, but it becomes insignificant in the highest. These findings corroborate the assumptions made in the literature on open innovation: knowledge externalities and research collaboration are vital for those opening up their firm for new ideas and who are, at the same time, reluctant to protect their findings through specific appropriation measures. In the case of innovative revenue all variables on knowledge exchange operate through the research intensity irrespective of the quantile, although the impact of research intensity on this type of revenue is higher in the upper quantiles. As for the growth in revenue, the effect of the innovative revenue is, again, higher in the higher quantiles. This suggests that dynamic product innovators have the most efficient R&D process and the strongest growers are so, especially, because they are successful product innovators.     

Do leading or lagging firms learn more from exporting?

An interesting theoretical debate arises when considering firm heterogeneity in learning from exporting. One perspective intimates that technologically lagging firms stand to benefit more from exporting because exposure to technological knowledge in foreign markets allows these firms to close the gap with their more technologically endowed counterparts. A contrasting perspective posits that technologically superior firms benefit more from exporting since these firms are better equipped to translate knowledge acquired in foreign markets into innovation. Using a sample of 1,744 Spanish manufacturing firms from 1990–1997, this study empirically investigates how exporting differentially influences the patent output of technologically leading versus technologically lagging firms. We find that exporting is associated with the ex post increase in innovative productivity for both technologically leading and lagging firms. However, subsequent to exporting, technologically leading firms apply for more patents than technologically lagging firms. Copyright © 2010 John Wiley & Sons, Ltd.     

The impact of global and local cohesion on innovation in the pharmaceutical industry

In this paper, we examine how the configuration of intraorganizational networks, and in particular, cohesion among members of an organization, influences organizations' innovative output. We argue that the cohesion among R&D scientists could be at a local level or a global level, and that local and global cohesion may have different impacts on firms' innovation performance. We test our hypotheses by examining the structure of the R&D collaboration networks within firms that operated in the pharmaceutical industry between 1981 and 1989, and their innovative outcomes—patents that led to new product launches. We find that local cohesion has a positive impact on the innovative performance of a firm, and global cohesion has a negative impact. Copyright © 2011 John Wiley & Sons, Ltd.     

Unbundling competitive heterogeneity: incentive structures and capability influences on technological innovation

Many studies argue that the continual creation of new ideas by small and young firms steadily destroys the competitive positions of their larger, more established rivals. Despite this attention, empirical results relating firm size to innovation remain exceedingly fragile. This study proposes three reasons for the empirical inconsistencies in the literature: that small and large firms differ in their: (1) stock of technological experiences, (2) use of own‐ and partner‐firm experiences, and (3) abilities to translate own‐ and partner‐firm experiences into innovation activity. Results from a 10‐year study of 463 semiconductor firms demonstrate that the mixed findings generated from prior work are partially attributed to these three general propositions. In particular, resource flows, in the form of operating experience developed internally and accessed through codevelopment partners, positively affect innovation activity; but these benefits diminish as a firm increases in size. The findings broadly support the notion that differences in the incentives and abilities of small and large firms give rise to heterogeneity in the firms' innovation activity. Copyright © 2008 John Wiley & Sons, Ltd.     

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.     

Technological acquisitions and the innovation performance of acquiring firms: a longitudinal study

This paper examines the impact of acquisitions on the subsequent innovation performance of acquiring firms in the chemicals industry. We distinguish between technological acquisitions, acquisitions in which technology is a component of the acquired firm's assets, and nontechnological acquisitions: acquisitions that do not involve a technological component. We develop a framework relating acquisitions to firm innovation performance and develop a set of measures for quantifying the technological inputs a firm obtains through acquisitions. We find that within technological acquisitions absolute size of the acquired knowledge base enhances innovation performance, while relative size of the acquired knowledge base reduces innovation output. The relatedness of acquired and acquiring knowledge bases has a nonlinear impact on innovation output. Nontechnological acquisitions do not have a significant effect on subsequent innovation output. Copyright © 2001 John Wiley & Sons, Ltd.     

Hiring new key inventors to improve firms’ post-M&A inventive output

Although merger and acquisitions (M&As) are acknowledged as an important means to access innovative assets and know-how, firms’ inventive output often declines in the post-M&A period. Financial, managerial and organizational constraints related to the M&A event contribute to inventive output declines and inventors’ departure. Prior literature treats the acquiring firm as a passive observer of invention declines. This study argues that acquiring firms can take measures by hiring new key inventors. We show that the hiring of new key inventors in the post-M&A period can counteract invention declines in two ways. First, these newly hired inventors are associated with an increase of corporate inventive output after the M&A. Second, they are also associated with an improved inventive output of inventors already working for the acquiring firm. These results suggest that an appropriate hiring policy can counteract the declining inventive output of firms in the aftermath of M&As.     

New Product Strategies of Large, Dominant Product Manufacturing Firms: An Exploratory Analysis

Although researchers have expended considerable effort exploring the links between new product strategy and firm-level performance, most studies of this subject focus on small- to medium-sized firms. Compared to smaller firms, however, large companies typically maintain broader portfolios of products and have easier access to capital markets. Such fundamental differences suggest the need for closer examination of the relationship between new product strategy and the performance of large firms. Based on a study of 459 new products introduced during a 5-year period, Richard W. Firth and V. K. Narayanan profile the new product strategies of 18 large companies. They examine the methods used to acquire new products (internal development or external sources) as well as three dimensions of each firm's new product introductions: newness of embodied technology, newness of market application, and innovativeness in the market. In other words, these profiles identify the degree to which a firm's new product introductions involve core technologies and markets that are new to the firm, as well as the degree to which the market views these products as innovative. Because new product strategy is an investment decision, the study also examines the relationship between these strategic profiles and two facets of firm-level performance: risk and return. The study identifies five archetypes of new product strategy: Innovators, who produce innovative products by using their existing resources; Investors in Technology, who focus on expanding their technological base. Searching for New Markets, firms that venture into unfamiliar markets by introducing products closely aligned with those in their existing portfolios; Business as Usual, firms that rely on existing technologies and products to serve existing markets; and Middle-of-the-Road, firms content to introduce new products rated as low to moderate along all three dimensions of the strategic profile. For new products closely aligned with their core markets and technologies, the firms in this study typically rely on internal development. To introduce products involving new technologies or market applications, they turn to acquisition from external sources. Firms that emphasized market innovativeness in their new product introductions enjoyed higher returns than less innovative firms. And contrary to conventional wisdom, they gained this advantage without an accompanying increase in risk. In other words, continual innovation might provide a large firm with the means for achieving higher returns without higher risk.     

The Mixed Blessings of Technological Innovativeness for the Commercial Success of New Products

This study addresses the contradiction that, although technological innovativeness of new products is often seen as a major driver of competitive advantage and commercial success, empirical research is not always able to show a significant performance influence. In order to find an explanation, the effects of technological innovativeness are decomposed as its influence on the market, the innovating firm, and the firm's environment is considered. The proposed model is tested on a sample of new product development projects. In order to avoid systematic biases, this paper uses a longitudinal survey design with two informants and a sample that includes both incremental and highly innovative projects. The results show that technological innovativeness has both positive and negative effects on the commercial success of new products. On the one hand, technological innovativeness can increase customer value, which in turn has a positive effect on success. On the other hand, incorporating new technologies into new products also implies changes in the innovating firm and potentially in its environment. These changes have a negative impact on commercial success. The positive and negative effects compensate for each other, so that the total effect of technological innovativeness on commercial success is close to zero. The findings imply that firms developing new products through incorporating radically new technologies often seem to underestimate the inherent complexities with respect to both internal and external changes. Developing and introducing new products with a radically changed technology also implies anticipating the need for new competences, processes, structures, and network partners. Social and political resistance against technological changes, large investments in new infrastructures, and the long duration of these changes additionally become frequent features of such innovation endeavors. Hence, firms embarking on a path of exploiting radically new technologies should consider those complexities very carefully when making their new product development decisions.     

Buyer Market Power and Innovative Activities

This empirical paper deals with the effects of supplier and buyer market concentration on the innovative behavior of suppliers within the German automobile industry. The data set contains firms from all size classes and covers measures of innovation input as well as innovation output. It can be shown that (a) firms' innovation and R & D-employment intensity will decline (increase) in buyer concentrations if supplier markets are low (high) concentrated; (b) buyers' pressure on input prices reduces suppliers' innovation expenditures and their incentive to develop new products; (c) a small number of competitors in suppliers markets and a large stock of customers stimulates innovative behavior; (d) small and medium sized suppliers invest more in their innovative activities but have less probability of realizing innovations than larger firms; and (e) higher technological capabilities lead to higher innovation input and output.     

Firm Adaptation,Preadaptation, and Sequential Ambidexterity in Firm Boundaries During an Era of Ferment and an Era of Incremental Change

We explore the relation between firms’ internal skills and knowledge from past applications and the mechanism they use to adapt during an era of ferment and then to an era of incremental change in a new technological domain. We extend current research on incumbent firms’ success at facing radical technological change by studying dynamic firm boundaries of incumbents within the industry along a new technological trajectory. We use the concepts of problem, search, and solution from the knowledge‐based view and foundational view of knowledge recombination to develop our theoretical framework. We propose that preadapted firms—the ones with accumulated internal skills and knowledge from past applications that prove relevant by chance to the new technological domain—are more likely to choose internal technology sourcing during an era of ferment (than nonpreadapted firms). Subsequently, firms that choose internal sourcing during an era of ferment are more likely (than firms that source externally) to choose external sourcing during an era of incremental change leading to greater market acceptance for their innovation. Analysis of a longitudinal data set of 161 U.S. banks provides support for our hypotheses. The findings of this study indicate an important temporal dependency between internal and external sourcing, thus contributing to the sequential ambidexterity literature. Our theoretical framework provides support to the foundational view of knowledge recombination and contributes to the knowledge‐based view of the firm.     

It Won't Fit! For Innovative Products,Sometimes That's for the Best

The degree of overlap (i.e., fit) between product development organizations' resources and the product development projects pursued has powerful performance implications. Drawing on organizational learning theory and the resource‐based view, this research conceptualizes and empirically tests the interrelationships between the levels of fit, innovativeness, speed to market, and financial new product performance. After reviewing the research literature relevant to resource fit and new product performance, the level of innovativeness is posited to be an important moderating and mediating factor, which is validated by analysis of data gathered from 279 product developing firms. Technological fit has a negative direct effect on both technological and market innovativeness, while the use of existing marketing resources (i.e., a high degree of marketing fit) positively impacts technological innovativeness. This suggests, consistent with findings from market orientation research, that a deep, long‐held customer understanding can promote technological innovativeness. The moderating hypotheses proposed are also well supported: First, a high degree of marketing fit has a more positive impact on performance for market innovative products (e.g., products which address a new target market or use a nontraditional channel for the firm). Drawing on a deep customer understanding is more critical to performance for market innovative products. Conversely, the benefits of marketing fit are limited where market innovativeness is lacking. Interestingly, the counterpart moderating role of technological innovativeness on technological fit's performance effect is not significant; the level of technological innovativeness does not significantly impact the performance impact of technological fit. There are also significant moderating effects across dimensions. Our results show that the financial benefit of using existing marketing resources is lessened for technologically innovative products. Technological innovations necessitate drastic adaptation of marketing resources (i.e., channel and brand); firms drawing only on existing marketing resources for a technologically innovative new product will incur reduced profit. Similarly, the positive implications of using existing technological resources are limited for products which are highly market innovative. Generally, resource fit is seen to have an (oft‐overlooked) dark side in product development, though several of our findings suggest that marketing resources are more flexible than are technological resources.     

The influence of firms' technological capabilities on export performance in supplier-dominated industries: the case of ceramic tiles firms

In this paper, we study the effects that firms' technological capabilities, as an expression of their technological innovation strategy, have on their international competitiveness. In doing so, we draw on export and international trade literature to justify the influence that the firms' technological activity has on their export performance. In addition, we use concepts derived from the literature on technological innovation to identify different capabilities that the firms may develop to manage their innovation process, i.e., those related to investment, production and co-operation. These constitute the basis of our hypothesis, in which the technological innovation capabilities identified are related to firms' export performance. Empirical work is carried out on a sample of 88 Spanish exporting firms belonging to the ceramic tiles industry, which is characterized as being a supplier-dominated industry. Data were mainly gathered through a postal survey directed at firm managers. Our findings show that technological innovation capabilities have a positive impact on export performance. Specifically, results show that investment in internal non-R&D innovative activities, such as engineering design and pre-production, exerts a positive influence on export performance. However, neither investment in R&D nor investment in external acquisition of technology exerts any influence on export performance. In addition, our findings show that production capabilities have a positive effect linked to both improvement and imitation of products and processes. Regarding co-operation, export performance is related to capabilities that derive from co-operation with universities and research institutes rather than co-operation with other companies.     

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.     

Incubation of an industry: Heterogeneous knowledge bases and modes of value capture

Research summary : We examine firms' technological investments during an industry's incubation stage—the period between a technological breakthrough and the first instance of its commercialization. Using the agricultural biotechnology context, we develop stylized findings regarding the understudied knowledge evolution preceding product evolution in an industry's life cycle, the trend and diversity of firms undertaking technological investments in anticipation of industry emergence, their leverage of markets for technology and corporate control, and their use of alternative modes of value capture. We juxtapose these stylized findings with existing literature to identify new theoretical insights, and set the stage for future scholarly work to develop and test new theories for the incubation period, examine its existence in other industries, and study its impact on subsequent firm and industry evolution. M anagerial summary : New technological breakthroughs present managers of existing firms and aspiring entrepreneurs with opportunities to create altogether new industries. During the vibrant incubation period, we find that multiple firms capitalize on diverse knowledge bases to shape the industry's knowledge evolution and also capture economic value in diverse ways. Existing firms in the obsolescing industry are more likely to become targets in acquisitions given their complementary knowledge. Science‐based start‐ups are more likely to engage in acquisitions and collaborations with established firms. Diversifying firms are more likely to commercialize products after leveraging of internal development, acquisitions, and alliances. Our study highlights the importance for managers to think about “success” and “failure” across multiple yardsticks of performance, rather than only as product commercialization as the sole goal. Copyright © 2016 John Wiley & Sons, Ltd.     

Innovations,Prices and Employment: A Theoretical Model and an Empirical Application for West German Manufacturing Firms

In this paper a theoretical model of the impact of product and process innovations on output, capacity utilization, employment and prices is developed. The model is estimated with a unique set of micro-data from West German manufacturing firms. The empirical results reveal that innovative firms are more successful. They show a higher utilization and more output and employment growth than non-innovative firms. Innovations also change market behaviour. In sectors with a large share of product innovators, firms more often change employment and less often change prices, i.e. product innovations reduce price competition.     

Strategic planning as a complex and enabling managerial tool

Research summary : The role of the strategic planning process in the ongoing generation of innovative knowledge is vital to the survival and growth of a firm, especially when technologies and market conditions are rapidly changing. We analyze data from a survey of firms in high‐technology industries to determine whether it is possible to break the commonly experienced trade‐off between strategic planning's positive influence on firm profitability and its negative influence on firm innovation. We draw on Adler and Borys's (1996) conceptualization of bureaucratic process types to identify several firm characteristics that have the potential to affect whether employees perceive strategic planning as enabling to their creative endeavors. We find that contingent effects between strategic planning and the identified firm characteristics exist that can break the trade‐off. Managerial summary : A tension exits in the literature about whether strategic planning hurts or helps innovative activity. Our analysis of data from 227 business units in high‐technology industries indicates that strategic planning is a complex process that can be perceived by employees as enabling or coercive. Our results confirm that strategic planning negatively affects innovative activity but positively affects profitability for average firms. We find, however, controllable firm characteristics—risk‐taking and knowledge‐based reward systems—affect the trade‐off. Given the higher levels of risk‐taking and knowledge‐based reward systems, firms can use strategic planning to achieve both high returns on investment and a high level of innovative activity. Copyright © 2015 John Wiley & Sons, Ltd.     

Supply function equilibria with capacity constraints and pivotal suppliers

The concept of a supply function equilibrium (SFE) has been widely used to model generators' bidding behavior and market power issues in wholesale electricity markets. Observers of electricity markets have noted how generation capacity constraints may contribute to market power of generation firms. If a generation firm's rivals are capacity constrained then the firm may be pivotal; that is, the firm could substantially raise the market price by unilaterally withholding output. However the SFE literature has not fully considered the impact of capacity constraints and pivotal firms on equilibrium predictions. We characterize the set of symmetric supply function equilibria for uniform-price auctions when firms are capacity constrained and show that this set is increasing as capacity per firm rises. We provide conditions under which asymmetric equilibria exist and characterize these equilibria. In addition, we compare results for uniform-price auctions to those for discriminatory auctions, and we compare our SFE predictions to equilibrium predictions of models in which bidders are constrained to bid on discrete units of output.     

The Effects of Knowledge Depth and Scope on the Relationship between R&D Alliances and New Product Development

In this study, we extend the new product development (NPD) literature that proposes that firms' knowledge depth, defined as the reuse of well understood technical knowledge, and scope, defined as the use of newly acquired technical knowledge, and new knowledge accessed from R&D alliances all positively impact NPD. Building on the knowledge‐based view of the firm, we posit that the impact of firms' R&D alliances is limited when their internal knowledge depth and scope are adequate for NPD needs. We suggest that although firms form R&D alliances to gain the right to access external knowledge of R&D alliance partners, they are not obligated to invest in resources to integrate external knowledge from R&D alliances. We propose that they wait to see if their internal knowledge depth and scope prove sufficient for NPD. If the external knowledge proves to be unnecessary, firms choose not to invest the resources required to integrate this knowledge with their internal knowledge. Alternatively, we suggest an increased impact of R&D alliances on NPD when firms are more limited in their internal knowledge depth and scope. We propose that when knowledge depth and scope prove insufficient, firms make the additional investments required to integrate external knowledge from R&D alliances with their internal knowledge stock. This reasoning is consistent with real options theory as it has been applied in alliance research, where strategic alliances are characterized as real options. We find support for our hypotheses using panel data of 738 firm year observations for 143 U.S. biopharmaceutical firms operating in 2007. Our study contributes to the NPD literature and suggests new directions for future research.