Knowledge diversity and coordination: The effect of intrafirm inventor task networks on absorption speed

Research Summary: We combine the absorptive capacity and social network theory approaches to predict how intrafirm “whole” network characteristics affect the firm's speed of absorption of external knowledge to produce inventions. We start from the widely accepted view that distant, externally‐developed knowledge is difficult to absorb into the focal firm's own knowledge production. We suggest that high levels of intrafirm inventor task network diversity and task network density are essential for a diversity of knowledge inputs and coordinated actions regarding knowledge transfer, which in turn, reduces problems related to the absorption of knowledge—especially in the case of knowledge that is distant from the focal firm. The results of an event history study of 113 pharmaceutical firms that engaged in technology in‐licensing from 1986 to 2003 provide general support for our hypotheses. Managerial Summary: Firms keen to keep up with an uncertain and ever‐changing industry environment, can benefit from the speedy introduction of inventions. We examine how firms absorb licensed‐in technologies to nurture the rapid development of own related inventions. We show that a firm's absorption speed depends on the characteristics of the internal collaboration networks among the firm's inventor employees. More specifically, technologically diverse and well‐connected inventor networks improve the firm's ability to absorb external technologies quickly. This applies especially to externally acquired technologies that are unfamiliar to the firm. Depending on the distance of the acquired technology from the focal firm combined with speed‐inducing inventor network characteristics, our estimates suggest that firms can reduce the time needed for absorption by several months.     

Sunk Costs,Extensive R&D Subsidies and Permanent Inducement Effects

Using firm‐level data on Spanish manufacturing firms we estimate a model of the firm's optimal R&D decisions (whether to perform R&D and how much to invest). We quantify the fixed (proper fixed costs plus firms' outside option) and sunk costs of R&D and find the former to be substantially higher than the latter. While sunk costs act as a barrier to entry into R&D for some firms, fixed costs are the binding obstacle for many more firms. Simulation based on the estimated model reveals that one‐shot trigger subsidies cause a substantial increase in both the share of R&D firms and average R&D expenditures. This effect shows persistence over time, but totally fades away after seven years as firms are gradually hit by negative R&D profitability shocks.     

Strategic incentives to human capital

Motivating human capital in knowledge‐intensive activities is a serious managerial challenge because it is difficult to link rewards to actions or performance. Firms instead might motivate knowledge workers by offering them opportunities to increase personal benefits (e.g., learning, satisfaction) through autonomy in the decision‐making process. Our model shows that firms can offer less autonomy in projects closer to their core business: Because firm specialization raises the value of the project's outcomes, it also increases the benefits for knowledge workers, who derive motivation even though they make fewer decisions to support their realization of personal goals. Projects farther from the core offer weaker firm contributions, so firms can motivate knowledge workers by allowing them to benefit from greater autonomy. We discuss several implications of our analysis. Copyright © 2013 John Wiley & Sons, Ltd.     

Organizing for knowledge generation: internal knowledge networks and the contingent effect of external knowledge sourcing

Research summary : When faced with a new technological paradigm, incumbent firms can opt for internal development and/or external sourcing to obtain the necessary new knowledge. We explain how the effectiveness of external knowledge sourcing depends on the properties of internal knowledge production. We apply a social network lens to delineate interpersonal, intra‐firm knowledge networks and capture the emergence of two important firm‐level properties: the incumbent's internal potential for knowledge recombination and the level of knowledge coordination costs. We rely on firm‐level internal knowledge networks to dynamically track the emergence of these properties across 106 global pharmaceutical companies over a 25‐year time period. We find that a firm's success in developing knowledge in a new technological paradigm using external knowledge sourcing is contingent on these internal knowledge properties . Managerial summary : Incumbent firms in high‐tech industries often face competence‐destroying technological change. In their effort to adapt and develop new knowledge in a novel paradigm, incumbent firms have several corporate strategy options available to them: internal knowledge development and a wide array of external knowledge sourcing strategies, including alliances and acquisitions. In this study, we make an effort to address a critical question: How effective is external knowledge sourcing under different internal knowledge generation regimes? We find that external sourcing strategies are less effective when firms can already internally generate new knowledge or if they have high internal coordination costs. Therefore, when considering external sourcing, managers must carefully weigh the benefits of it vis‐à‐vis its commensurate costs as the benefits of external sourcing may be overstated . Copyright © 2015 John Wiley & Sons, Ltd.     

Knowledge structures of prospectors,analyzers, and defenders: content,structure, stability,and performance

The managerial cognition perspective argues that managers operating in complex, dynamic environments develop knowledge structures that help them focus their attention, interpretation, and actions. We explore the content and structure of top managers' strategic knowledge structures by measuring differences in the level of attention they give in annual reports to strategic issues and themes that Miles and Snow used to describe their main strategic types. Twenty-one themes that form seven main factors describing managers' strategic cognition are identified, and these demonstrate reasonable fit with the Miles and Snow model. We show that expert raters can recognize these factors when they read annual reports that contain them. Cluster analysis is then used to identify groups of firms that share similar profiles on these strategic dimensions which are interpreted as examples of cognitive strategic groups. These groups show alignment with Miles and Snow's strategic types, are relatively stable over time, and differ in financial performance. The sample comprises 1,038 listed Australian firms between the years 1992 and 2003. Copyright © 2007 John Wiley & Sons, Ltd.     

Knowledge,firm boundaries,and innovation: Mitigating the incumbent's curse during radical technological change

We explore the relationship between a firm's organization and its ability to face a radical technological change. We suggest that, during such a change, the presence of both in‐house upstream knowledge and downstream market linkages, within a firm's boundary, has its advantages. We test our predictions in the context of the robotics industry where manufacturers of mechanically controlled “brawny” robots, which were valued mainly for their payload capacity, faced the advent of electrically controlled “brainy” robots that emphasized accuracy and repeatability. We find that “preadapted” firms—the ones with prior relevant technological knowledge and with access to internal users of “brainy” robots—were the innovation leaders in the emerging new technology but were laggards in the old technology. Copyright © 2014 John Wiley & Sons, Ltd.     

MARKET COMPETITION,R&D AND FIRM PROFITS IN ASYMMETRIC OLIGOPOLY*

We investigate a Cournot model with strategic R&D investments wherein efficient low‐cost firms compete against less efficient high‐cost firms. We find that an increase in the number of high‐cost firms can stimulate R&D by the low‐cost firms, while it always reduces R&D by the high‐cost firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the low‐cost firms' profits may indeed increase with the number of high‐cost firms. An implication of this result is far‐reaching, as it gives low‐cost firms an incentive to help, rather than harm, high‐cost competitors. We relate this implication to a practice known as open knowledge disclosure, especially Ford's strategy of disclosing its know‐how publicly and extensively at the beginning of the 20th century.     

Knowledge,power, and hypermedia

Our paper explores the relationship between knowledge and power first articulated in the modern age by Francis Bacon, in terms of M. Foucault's postmodern critique of Power/Knowledge that seems to reverse the meaning of Bacon's “knowledge is power” maxim. We apply Foucault's critique to instructional technology concentrating especially on hypermedia. We remark on the many similarities between Foucault's postmodern critique and the concerns of Theodore Nelson who coined the words “hypertext” and “hypermedia.” We will combine Foucault's Nietzschian insights with Nelson's characterization of “the Information Lords” to conclude with the following postmodern questions: Who makes the categories and constraints that are translated into truth and power? Is God dead, and if so, who will become the Information Lord?     

The architecture of coopetition: Strategic intent,ambidextrous managers,and knowledge sharing

The study investigates the significance of strategic intent, manager's ambidexterity, and knowledge sharing routines for firms in their quest to pursue coopetition. We utilize the resource-based view and the dynamic capabilities theory to ground our hypotheses. We test the hypotheses using the data collected from 313 firms that engage in coopetition relationships through an online survey. The findings forward knowledge sharing and ambidextrous managers as intervening variables, in that when complemented with knowledge sharing, a firm's strategic intent could better guide the firm's managers to pursue coopetition successfully. Findings further advocate that knowledge sharing complements to enable the relationship between a firm's strategic intent and its ambidextrous managers, as well as the relationship between strategic intent and coopetition. Furthermore, results also indicate that ambidextrous managers, with a skillset of a combination of exploration and exploitation, are positively associated to coopetition. Overall, the findings make important theoretical as well as empirical contributions to the coopetition and strategic alliance literature.     

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.     

When Do Employees Choose to Be Represented on the Board of Directors? Empirical Analysis of Board-Level Employee Representation in Denmark

Drawing on transaction costs economics and longitudinal data on Danish corporations, we analyse the distribution of board-level employee representation (BLER) and the characteristics of employee directors in a context where workers have the possibility (but not also an obligation) to nominate representatives to the board of directors. We show that BLER is less likely instituted in firms with CEO or family-related members on the board, but more likely observed in larger, older firms and in those with high firm-specific human capital and union density. Firm-specific human capital, qualifications and union membership also determine individual worker's probability to become a board member.     

Open innovation: Are inbound and outbound knowledge flows really complementary?

One novel implication of the open innovation paradigm is that inflows and outflows of knowledge are complementary. We argue that engaging simultaneously in buying and selling knowledge should allow firms to increase innovation outcomes. At the same time, we identify some of the relevant costs (cognitive, transaction, and organizational costs) that “open” firms can reduce by combining knowledge inflows and outflows. Empirically, however, we find no evidence for such complementarity in a sample of Belgian manufacturing firms. Firms buying and selling knowledge do increase their sales of new products, but at the same time their R&D costs increase more than proportionally. Our findings, therefore, indicate the need for research into a better understanding of the drivers of actual costs of organizing for open innovation. Copyright © 2015 John Wiley & Sons, Ltd.     

Firm growth,adaptive capability,and entrepreneurial orientation

Research summary: This paper posits adaptive capability as a mechanism through which a firm's prior growth influences the exhibition of future entrepreneurial action. Defined as the firm's proficiency in altering its understanding of market expectations, increased adaptive capability is a consequence of the new resource combinations that result from expanding organizational boundaries. Increased adaptive capability in turn corresponds to expansion of entrepreneurial activity, as firms increase their entrepreneurial orientation as the strategic mechanism to capitalize on their improved understanding of market conditions. We find support for our research model in a two‐study series conducted in South Korea and the United Kingdom. Managerial summary: Most would agree that entrepreneurially oriented firms—being innovative, entering new markets, and taking risk—grow faster. But how a firm becomes entrepreneurial is a complicated question. In this study, we flipped the growth relationship around and found support for growth contributing to a firm's entrepreneurial orientation. But between growth and being more entrepreneurial is the firm's ability to recognize changes in market expectations. We argue that as a firm grows, it acquires new resources and new knowledge of how to use those resources. These new resource combinations increase its ability to recognize changes in market expectations—its adaptive capability. This capability uncovers new entrepreneurial opportunities for value creation. To capture this potential value, firms expand their entrepreneurial orientation. Copyright © 2016 John Wiley & Sons, Ltd.     

Customer capabilities,switching costs,and bank performance

Customers develop switching costs when they invest time and effort to develop capabilities required to optimally use a given product. Such capabilities are likely to be firm specific and cannot be transferred perfectly to competitors' product offerings. Customers who face switching costs are likely to remain with the same firm and consume complementary products that meet their needs. Thus, firms can achieve competitive advantage by exploiting customers' switching costs. In this paper, we hypothesize that the extent to which firms can benefit from customers' switching costs is contingent upon the firms' internal cross‐selling capabilities. We use online banking data to test our hypotheses and find that customers' switching costs contribute to banks' profitability only in the presence of high levels of internal cross‐selling capabilities. Copyright © 2012 John Wiley & Sons, Ltd.     

The Roles of Knowledge Providers,Knowledge Recipients,and Knowledge Usage in Bridging Structural Holes

Studies have suggested that firms can benefit from bridging two or more otherwise disconnected firms in their ego networks (i.e., structural holes) as a potentially useful source of external knowledge for innovation. However, past research also noted that the relationship between bridging structural holes and firm innovation varies significantly. Building on the earlier research that has examined the industrial, structural, and institutional dimensions of this relationship, the purpose of this research is to study how the different characteristics of the external knowledge provided by bridging structural holes in a focal firm’s ego network might moderate the relationship between bridging structural holes and firm innovation. Using longitudinal data from the U.S. computer industry, this study showed that focal firms that bridged otherwise disconnected firms in their ego networks enjoyed higher levels of innovation. In addition, it showed that this relationship was particularly stronger when the focal firms and the disconnected firms that they bridged operated in similar rather than different markets but when the focal firms and the disconnected firms worked on different rather than similar technological domains. The results also revealed that the relationship was stronger when the focal firms’ knowledge specialization was low rather than high and when the focal firms emphasized incremental rather than breakthrough innovation. These findings show companies how they can benefit from bridging otherwise disconnected firms in their ego networks and help them make more informed decisions pertaining to such bridging activities.     

Manufacturing Plants' Use of Temporary Workers: An Analysis Using Census Microdata

Using plant‐level data from the plant capacity utilization survey, we explore how manufacturing plants' use of temporary workers is associated with the nature of their output fluctuations and other plant characteristics. We find that plants tend to use temporary workers when their output is expected to fall; this may indicate that firms use temporary workers to reduce costs associated with dismissing permanent employees. In addition, we find that plants whose future output levels are subject to greater uncertainty tend to use more temporary workers. We also examine the effects of wage and benefit levels for permanent workers, unionization rates, turnover rates, seasonal factors, and plant size and age on the use of temporary workers; based on our results, we discuss various views of why firms use temporary workers.     

Search Costs and Investment in Quality

In this paper we analyze how lower search costs affect firms' incentives to invest in quality. We identify two conflicting effects. On the one hand, lower search costs increase incentives to invest in quality by eroding the market share of low quality firms and increasing the market share of high quality firms. On the other hand, by intensifying price competition, lower search costs adversely affect high quality firms more than low quality firms. The net effect of a change in the search cost on quality is shown to depend on the initial quality distribution. There is a critical value such that, if the proportion of high quality firms is initially below this value, lower search costs increase this proportion, whereas if the initial quality is above this value, lower search cost decreases the proportion of high quality firms. We show that our results are consistent with a ‘superstar effect.’     

Complementary assets,start-ups and incentives to innovate

We examine to what extent market conditions facilitating start-up formation affect firms' R&D investment and profits. We consider a model in which R&D efforts of an incumbent firm generate partly tacit technological know-how embodied in a key R&D employee, who might use it to form a start-up. The availability of complementary assets influences whether new firms are created and determine expected profits for start-up's founders. A large availability of complementary assets has the direct effect that the generation of start-ups is fostered. However, as a strategic effect, the incentives of incumbents to invest in R&D may be reduced because of the increased danger of knowledge loss occurring through start-up formation. We characterize the effects of an increase in the availability of complementary assets, showing that counter-intuitively there are cases in which it induces an increase in incumbents' R&D investment.     

The hidden costs of outsourcing: evidence from patent data

Drawing on patent data for approximately 500 firms over 20 years, we advance recent theory on firm boundaries and test these propositions for the first time. We first provide evidence for the existence of knowledge complementarities between vertically related activities in a firm's value chain by showing that firms face increasing (decreasing) performance in conducting downstream activities (i.e., patent litigation) the less (more) they outsource related upstream activities (i.e., patent filing). We then propose and empirically demonstrate that vertical integration benefits through learning differ from vertical outsourcing costs through forgetting. We show that firms can partly offset these hidden outsourcing costs by sourcing similar upstream products from internal and external suppliers. Copyright © 2010 John Wiley & Sons, Ltd.     

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

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