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Journal ArticleDOI

Make, buy, organize: The interplay between research, external knowledge, and firm structure†

01 Mar 2014-Strategic Management Journal (John Wiley & Sons, Ltd)-Vol. 35, Iss: 3, pp 317-337

Abstract: We bridge current streams of innovation research to explore the interplay between R&D, external knowledge, and organizational structure�three elements of a firm's innovation strategy, which we argue should logically be studied together. Using within-firm patent assignment patterns, we develop a novel measure of structure for a large sample of American firms. We find that centralized firms invest more in research, and patent more per R&D dollar, than decentralized firms. Both types access technology via mergers and acquisitions, but their acquisitions differ in terms of frequency, size, and integration. Consistent with our framework, their sources of value creation differ: while centralized firms derive more value from internal R&D, decentralized firms rely more on external knowledge. We discuss how these findings should stimulate more integrative work on theories of innovation. Copyright © 2013 John Wiley & Sons, Ltd.
Topics: Mergers and acquisitions (52%)

Summary (4 min read)

1 Introduction

  • Understandably, researchers must often cede the pursuit of a richer understanding of strategic interrelationships in exchange for "analytical precision and theoretical rigor" (Zollo and Singh, 2004).
  • Using a novel largescale dataset, the authors explore whether rms demonstrate distinct and coherent combinations of R&D organizational structure and knowledge-sourcing strategies, as would be expected given the concatenated predictions of these emerging theories of innovation.
  • The authors ndings extend and clarify prior results.
  • The implied coherence, however, does not necessarily imply a particular causal structure.

2 Three Pillars of Innovation Strategy

  • The authors draw upon important streams in the innovation literature that have explored dyadic relationships between research, external knowledge and structure.
  • Firms that invest heavily 3 in basic research have been shown to have more centralized R&D, whereas decentralized R&D, managed by business units and divisions, tends to be more applied and incremental (Argyres and Silverman, 2004).
  • Though Argyres and Silverman (2004) hint at this issue by exploring how structure conditions a rm s propensity to "build on.
  • Nonetheless, Microsoft has struggled with large acquisitions, such as aQuantive, an online advertising technology rm bought in 2006.
  • A rm will perform well (and survive) if organizational structure, internal research, and knowledge acquisition are aligned to support each other if they are coherent (Siggelkow, 2011;.

3 Sample and Data

  • The authors paper combines data from several sources: (i) patent-level information from the United States Patent and Trademark O¢ ce , (ii) ownership structure data from Icarus by Bureau van Djik (BvD), (iii) merger and acquisition data from Thomson Reuters SDC Platinum and Zephyr by BvD, (iv) scienti c publications data from Thomson s ISI Web of Knowledge, and (v) accounting information from Compustat.
  • The authors match rms to patents by matching assignee names and addresses.
  • Of these, 100,951 (or 17.5%) of their sample patents are decentralized by their measure.
  • Ownership data consists of two parts: cross-sectional ownership information from Icarus for 2008, and M&A data from SDC Platinum and Zephyr.
  • By matching to SDC, the authors can see that WebTV was purchased in 1997 by Microsoft, then dissolved and absorbed into Microsoft s MSN Networks.

3.1 Patent Assignment as a Proxy for Decentralization

  • Whereas a rm s research focus and external knowledge-sourcing activities can be tracked using patents, R&D spending or alliances (Arora, Fosfuri, and Gambardella, 2001; Henderson and Cockburn, 1994; Mowery, Oxley, and Silverman, 1996), the internal organization of R&D is extremely di¢ cult to observe.
  • As their new measure does precisely this, it promises to open a new window into the internal organization of rms R&D function.
  • As with any proxy measure that lends itself to large-scale empirical analysis, their measure is practical but imperfect, and the authors admit that there are trade-o¤s to consider.
  • A Vice President and Chief Patent Counsel for a global medical devices rm opined that patent assignment to a¢ liates "re ects the underlying structure of the rm," and that it indicates with high certainty that "a¢ liates enjoy autonomy regarding IP, choice of R&D projects, and perhaps also in the overall R&D investment by the division, (con dentiality prevents us from disclosing the managers and companies the authors interviewed).
  • The authors can see that these patterns are markedly di¤erent.

3.2 Other variable de nitions and measures

  • Scienti c publications are a commonly accepted measure of a rm s basic science orientation (Gambardella, 1995; Stern, 2004), and rms such as DuPont, IBM, Merck, and Microsoft, which have traditionally relied upon internally generated innovations, have also tended to produce a great number of scienti c publications.
  • The authors use three supplemental measures to probe the robustness of their results to alternate measures, since the literature suggests a variety of empirical proxies.
  • Typically, rms that rely upon internal research to fuel growth have higher levels of R&D intensity.
  • The authors classify rms according to tertiles of share of patents assigned, and operationalize using categorical variables.
  • The authors use the centralized category as their baseline in all regressions.

3.3 Descriptive statistics and evidence of persistence

  • Average value of sales in their sample is $3.4 billion, and market value is $5.9 billion (of which $3 billion are in physical assets).
  • An analysis of variance (not presented in a table) indicates that between- rm variation accounts for 87%, 81%, and 88% of the total variance for share patents acquired, share patents assigned, and publication intensity, respectively.
  • This strongly supports the view that there are reinforcing interactions among the various choices, which may make it di¢ cult or undesirable for rms to abruptly change any of their core strategies.
  • This way of assessing persistence obviates the need to control for changes in the environment or changes in rm size or other such variables.
  • About 4 percent of all rms move down the distribution, but none drops by more than a single quartile.

3.4.1 Non-parametric analysis

  • The authors begin by exploring the relationships between organization, acquisitions, and internal research in Table 2.
  • Speci cally, the authors look at how both share patents acquired and publication intensity vary across rms with varying levels of decentralization.
  • Centralized rms are smaller than decentralized rms in terms of sales, but they have close to double the number of patents.
  • It is important to note that this relationship is also driven by how the rm deals with acquisitions, not simply by how acquisitive the rm is.
  • These ndings are important because structural integration is one of the levers that managers use to shape both the nature of research and the structure of the rm (Haspeslagh and Jemison, 1991; Puranam, Singh, and Zollo, 2006).

3.4.2 Parametric analysis

  • The authors ndings thus far serve as large-scale validation and extension of earlier studies.
  • In unreported speci cations the authors explore the extent to which structure conditions the publications-acquisitions relationship.
  • This supports the notion that centralized rms would acquire more nascent external technology to integrate into their existing research (Capron et al., 1998; Karim, 2006), whereas decentralized rms may acquire more developed technology that is closer to being commercialized (e.g., Cisco s "acquire and develop" model).
  • The authors also nd a negative relation between publications and share patents acquired (column 9), however, it is not statistically signi cant when controlling for structure.
  • Organization structure thus is signi cantly associated with investment in internal research, even after conditioning on external knowledge sourcing.

3.5 Firm Market Value

  • The authors have shown that centralization is associated with investment in basic research while decentralization is associated with a strong emphasis on accessing external innovations.
  • In fact, this drop is mostly attributed to controlling for sales growth: when excluding sales growth but still controlling for sales, the coe¢ cient estimate on external patents stock is 0.07 and is statistically signi cant at the 1 percent level.
  • Among the set of technically diversi ed rms, centralized rms derive considerable value from internal R&D, whereas decentralized rms derive little value from internal R&D (coe¢ cient estimates of 0.16 versus -0.01).
  • Conversely, external patents are associated with value in decentralized rms but not in centralized rms (coe¢ cient estimate of 0.10 compared to 0.03).
  • 21 Overall, their ndings support the interpretation that rms that rely upon internal research to create value are best served by a centralized organization, in contrast to rms that rely upon external knowledge, especially in large or technically diversi ed rms.

3.6 Robustness

  • The authors checked the sensitivity of their results to rm size by excluding very small and very large rms from the sample (lowest and highest sales deciles).
  • Geography.
  • Though there is a growing literature on the geographical location and management of R&D activities (Leiponen and Helfat, 2011; Singh, 2008), the question of geography is logically distinct from the question of internal organization.
  • As Singh (2008) puts it, a rm could have a decentralized formal organization even with relatively small number of R&D locations, while another rm might have a much more centralized organization despite having a much greater number of R&D locations.
  • To test whether their set of relationships is driven by the distinction between rms with and without a¢ liates, the authors estimate the main speci cations 22 for a sample that includes only rms with at least one a¢ liate, regardless of whether the a¢ liate patents or not.
  • Demonstrating that their results continue to hold also within a sample of rms that have at least one a¢ liate eliminates the concern that the results are driven by comparing rms with and without a¢ liates.

4 Discussion and Conclusion

  • External knowledge sourcing, and internal research focus.the authors.
  • This yields some important contributions.
  • It is likely that rms that innovate primarily by developing knowledge internally favor investments in more basic, long-term research and do not rely much on incremental research that merely improves existing goods and services.
  • Given the role of structure in conditioning the relationship between internal development and external knowledge 24 integration, it is unlikely that innovation strategy can be charted using a simple "make vs. buy" logic, if this does not take into account the complex role played by organizational structure.

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Make, Buy, Organize: The Interplay Between Research,
External Knowledge, and Firm Structure
Ashish Arora
y
Sharon Belenzon
z
Luis A. Rios
x
December 11, 2012
Abstract
We bridge current streams of innovation research to explore the interplay between
R&D, external knowledge, an d organizational structure–three elements of a rm’s inno-
vation strategy which we argue should logically be studied together. Using within-…rm
patent assignment patterns, we develop a novel measure of structure for a large sample of
American rms. We nd that centralized rms invest more in research and patent more
per R&D dollar than decentralized rms. Both types acc ess technology via mergers and
acquisitions, but their acquisitions di¤er in terms of frequency, size, and integration. Con-
sistent with our framework, their sources of value creation di¤er: while centralized rms
derive more value from internal R&D, decentralized rms rely more on external knowl-
edge. We discuss how these ndings s hould stimulate more integrative work on theories of
innovation.
Keywords: decentralization, organizational structure, mergers and acquisitions, patents,
R&D, market value
JEL Classi…cation: D23 D83 L22
1 Intro duction
How do rms allocate resources between R&D and external technology in order to maximize
value and drive growth? And in turn, do their ensuing growth trajectories themselves shape
such future resource allocation? Over the past three decades, the eld of innovation strategy
All authors contributed equally and are listed in alphabetical order.
y
Duke University, Fuqua School of Business, 100 Fuqua Drive, Durham, NC 27708, U.S.A. E-mail:
ashish.arora@duke.edu
z
Duke University, Fuqua School of Business, 100 Fuqua Drive, Durham, NC 27708, U.S.A. E-mail:
sharon.belenzon@duke.edu
x
Corresponding author. Duke University, Fuqua School of Business, 100 Fuqua Drive, Durham, NC 27708,
U.S.A. E-mail: luis.rios@duke.edu
1

has isolated a set of important dyadic relationships in an ort to understand these interrelated
questions. For example, a substantial body of work has advanced our understanding of the
relationship b etween internal R&D and external knowledge, (e.g. Cohen and Levinthal, 1990;
Pisano, 1990; Katz and Allen, 1982). More recently, a small literature on the structure of R&D
has explored how the resource allocation decision is related to the centralization or decentraliza-
tion of R&D (e.g. Argyres and Silverman, 2004; Lerner and Wulf, 2007). Separately, work on
structural integration and resource recon…guration has lo oked at how organizations are shaped
by acquisitions and absorption (e.g., Ahuja and Katila, 2001; Puranam, Singh, and Zollo, 2006;
Karim and Mitchell, 2000).
Surprisingly, there remains little integration of the aforementioned streams. This lack of
synthesis may be due to data constrains, since most work that considers such organizational
dynamics tends to rely on small samples (Karim and Mitchell, 2004, and Cohen and Levinthal,
1990 are notable exceptions). Understandably, researchers must often cede the pursuit of a richer
understanding of strategic interrelationships in exchange for "analytical precision and theoretical
rigor" (Zollo and Singh, 2004). Nonetheless, this lacuna is an important and understudied
limitation, since the very word "organization"from the Greek organon ("tool, instrument, set
of rules")–denotes a coherent system or unit where interdependent parts work as one. In fact,
a central tenet of organization theory holds that the structures, systems, and processes of a rm
should be interdependent and must be mutually supportive and coherent (Drazin and Van de
Ven, 1985; Nadler and Tushman, 1997; Rivkin and Siggelkow, 2003; Siggelkow, 2011).
It is the pursuit of this coherence logic that motivates our paper. Using a novel large-
scale dataset, we explore whether rms demonstrate distinct and coherent combinations of
R&D organizational structure and knowledge-sourcing strategies, as would be expected given
the concatenated predictions of these emerging theories of innovation. We propose that rms
pursuing a particular approach to innovation (e.g., a strong focus on internal research like
IBM or an "acquire and develop" approach like Cisco) also need a well-matched supporting
organizational structure (e.g., centralized or decentralized). Empirically, we exploit a sample
that includes nearly all patenting public American rms, and develop a new measure of R&D
organizational structure which uses the ratio of patents assigned to liates versus corporate
parents as a proxy for the decentralization of R&D. This involves matching 576,052 patents
to 1,014 publicly traded American corporations and their 2,768 liates. By do cumenting the
types of choices that rms make, we bridge streams of the literature that have previously studied
dyadic relationships b etween internal and external knowledge sourcing, between organizational
2

structure and innovation, and between acquisitions and structure.
Our ndings extend and clarify prior results. We nd evidence that strongly supports the
coherence logic. Knowledge sourcing strategies appear to be systematically related to orga-
nizational structure. Moreover, the market valuation of these knowledge sourcing strategies
strongly correlates with structure. We nd con…rmatory large-scale evidence that research-
oriented rms are signi…cantly more centralized than others, consistent with earlier small-sample
ndings (Hoskisson, et al. 1993; Kay, 1988; Argyres and Silverman, 2004). But we also nd
that organizational structure seems to strongly condition the relationship between rms re-
search focus and their external knowledge acquisition strategy. Though both centralized and
decentralized rms acquire external technology, centralized rms do so less frequently and tend
to make smaller acquisitions. Moreover, they manage acquisitions di¤erently. Acquisitions by
centralized rms frequently undergo full structural integration (Puranam et al., 2006), whereas
decentralized rms tend to keep acquisitions as discrete entities.
Importantly, the logic underlying these patterns of choice is re‡ected in measurable di¤er-
ences in the composition of rms’market value. Whereas centralized rms draw most of their
intangible value from internal R&D stocks, decentralized rms derive relatively more value
from externally acquired patents. This nding is especially strong for large rms and rms with
higher technological diversity.
Our results imply that a successful innovation strategy requires careful alignment both be-
tween internal and external knowledge sourcing, and between the internal/external mix of inputs
and organizational structure. The implied coherence, however, does not necessarily imply a par-
ticular causal structure. Establishing causality is important, but given the nature of our data,
it is beyond the scope of our project. Furthermore, it is just as important to develop a fuller
theory of innovation that accounts for the dynamics we highlight in this study. By developing a
new empirical measure and systematically exposing the relationships between internal research,
external knowledge, and organizational structure among a nearly comprehensive set of rms,
we take an important step towards the development of such theory.
2 Three Pillars of Innovation Strategy
We draw upon important streams in the innovation literature that have explored dyadic relation-
ships between research, external knowledge and structure. The rst explores how the nature of
research inside a rm is related to how the activity itself is organized. Firms that invest heavily
3

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Journal ArticleDOI
Rene Belderbos1, Rene Belderbos2, Bruno Cassiman3, Bruno Cassiman2  +6 moreInstitutions (6)
Abstract: Combining both interview data and empirical analyses at the patent and firm levels, we explore the value-appropriation and value-creation implications of R&D collaboration resulting in the co-ownership of intellectual property (i.e. co-patents). We make an explicit distinction between three different types of co-patenting partners: intra-industry partners, inter-industry partners, and universities. Our findings indicate that the value-appropriation challenges of IP sharing are clearly evident with intra-industry co-patenting, where partners are more likely to encounter overlapping exploitation domains. Co-patenting with universities is associated with higher market value, since appropriation challenges are unlikely to play a role and collaboration may signal novel technological opportunities. Although we find some evidence that co-patenting corresponds to higher (patent) value, patents co-owned with firms are significantly less likely to receive self-citations, indicating constraints on the future exploitation and development of co-owned technologies.

179 citations


Cites background from "Make, buy, organize: The interplay ..."

  • ...…of firm stocks (Benner and Ranganathan, 2012). e follow prior literature on the market valuation effects of R&D nd patents (e.g. Hall et al., 2005; Arora et al., 2013) by calculating tock variables for all R&D and patent-related variables (includng patent data from 1978 and R&D data from 1985)....

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Journal ArticleDOI
TL;DR: It is found 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-a-vis its commensurate costs.
Abstract: 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-a-vis its commensurate costs as the benefits of external sourcing may be overstated. Copyright © 2015 John Wiley & Sons, Ltd.

141 citations


Cites background from "Make, buy, organize: The interplay ..."

  • ...Future research can uncover additional ways of capturing these attributes and capture other sources of internal production costs such as internal social frictions (Capron and Mitchell, 2009), social envy, and comparison costs (Nickerson and Zenger, 2004) as well as organizational structure (Arora et al., 2014)....

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  • ...…10.1002/smj effectiveness of external sourcing is contingent on the state of a firm’s internal knowledge process resonates with the recent study by Arora, Belenzon, and Rios (2014), demonstrating that firms with centralized R&D derive more value from internal R&D, but less from external R&D via…...

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  • ...…can uncover additional ways of capturing these attributes and capture other sources of internal production costs such as internal social frictions (Capron and Mitchell, 2009), social envy, and comparison costs (Nickerson and Zenger, 2004) as well as organizational structure (Arora et al., 2014)....

    [...]

  • ...While Arora et al. (2014) focused on acquisitions, we also look at strategic alliances in a fine-grained manner....

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Journal ArticleDOI
Abstract: Research summary: In this article, we document a shift away from science by large corporations between 1980 and 2006. We find that publications by company scientists have declined over time in a range of industries. We also find that the value attributable to scientific research has dropped, whereas the value attributable to technical knowledge (as measured by patents) has remained stable. These trends are unlikely to be driven principally by changes in publication practices. Furthermore, science continues to be useful as an input into innovation. Our evidence points to a reduction of the private benefits of internal research. Large firms still value the golden eggs of science (as reflected in patents), but seem to be increasingly unwilling to invest in the golden goose itself (the internal scientific capabilities). Managerial summary: There is a widespread belief among commentators that large American corporations are withdrawing from research. Large corporations may still collaborate with universities and acquire promising science-based start-ups, but their labs increasingly focus on developing existing knowledge and commercializing it, rather than creating new knowledge. In this article, we combine firm-level financial information with a large and comprehensive data set on firm publications, patents and acquisitions to quantify the withdrawal from science by large American corporations between 1980 and 2006. This withdrawal is associated with a decline in the private value of research activities, even though scientific knowledge itself remains important for corporate invention. We discuss the managerial and policy implications of our findings.

119 citations


Cites background from "Make, buy, organize: The interplay ..."

  • ...Such isolation from the business can result in corporate research diverging from the rm s strategic needs, making it less relevant to the rm (Hounshell and Smith, 1986; Argyres and Silverman, 2004, Arora et al., 2014)....

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Journal ArticleDOI
TL;DR: This study describes the development of a European telecom firm's scouting unit in Silicon Valley during the 2000s, focusing on the specific approaches used by the scouting managers to build effective connections between Silicon Valley start-ups and the firm's business units back in Europe.
Abstract: Over the years, many multinational corporations (MNCs) have created overseas “scouting” units to tap into new ideas and opportunities in leading-edge markets, but with mixed outcomes. In this study, we describe the development of a European telecom firm's scouting unit in Silicon Valley during the 2000s, focusing on the specific approaches used by the scouting managers to build effective connections between Silicon Valley start-ups and the firm's business units back in Europe. We identify four distinct approaches for different types of opportunities, and we observe a clear sequencing of effort over time as the scouting managers built the necessary capabilities and credibility.

93 citations


Journal ArticleDOI
Abstract: 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.

79 citations


References
More filters

Journal ArticleDOI
Wesley M. Cohen1, Daniel A. Levinthal2Institutions (2)
Abstract: In this paper, we argue that the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. We label this capability a firm's absorptive capacity and suggest that it is largely a function of the firm's level of prior related knowledge. The discussion focuses first on the cognitive basis for an individual's absorptive capacity including, in particular, prior related knowledge and diversity of background. We then characterize the factors that influence absorptive capacity at the organizational level, how an organization's absorptive capacity differs from that of its individual members, and the role of diversity of expertise within an organization. We argue that the development of absorptive capacity, and, in turn, innovative performance are history- or path-dependent and argue how lack of investment in an area of expertise early on may foreclose the future development of a technical capability in that area. We formulate a model of firm investment in research and development (R&D), in which R&D contributes to a firm's absorptive capacity, and test predictions relating a firm's investment in R&D to the knowledge underlying technical change within an industry. Discussion focuses on the implications of absorptive capacity for the analysis of other related innovative activities, including basic research, the adoption and diffusion of innovations, and decisions to participate in cooperative R&D ventures. **

29,672 citations


"Make, buy, organize: The interplay ..." refers background in this paper

  • ...Internal research helps …rms identify, evaluate, and assimilate external knowledge (Rosenberg, 1979; Cohen and Levinthal, 1990), which often comes via acquisitions (Kogut and Zander, 1993; Fleming, 2001)....

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  • ...This lack of synthesis may be due to data constrains, since most work that considers such organizational dynamics tends to rely on small samples (Karim and Mitchell, 2004, and Cohen and Levinthal, 1990 are notable exceptions)....

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  • ...For example, a substantial body of work has advanced our understanding of the relationship between internal R&D and external knowledge, (e.g. Cohen and Levinthal, 1990; Pisano, 1990; Katz and Allen, 1982)....

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  • ...Internal research helps rms identify, evaluate, and assimilate external knowledge (Rosenberg, 1979; Cohen and Levinthal, 1990), which often comes via acquisitions (Kogut and Zander, 1993; Fleming, 2001)....

    [...]


Journal ArticleDOI
Bruce Kogut1, Udo Zander2Institutions (2)
Abstract: Firms are social communities that specialize in the creation and internal transfer of knowledge. The multinational corporation arises not out of the failure of markets for the buying and selling of knowledge, but out of its superior efficiency as an organizational vehicle by which to transfer this knowledge across borders. We test the claim that firms specialize in the internal transfer of tacit knowledge by empirically examining the decision to transfer the capability to manufacture new products to wholly owned subsidiaries or to other parties. The empirical results show that the less codifiable and the harder to teach is the technology, the more likely the transfer will be to wholly owned operations. This result implies that the choice of transfer mode is determined by the efficiency of the multinational corporation in transferring knowledge relative to other firms, not relative to an abstract market transaction. The notion of the firm as specializing in the transfer and recombination of knowledge is the foundation to an evolutionary theory of the multinational corporation.

3,320 citations


"Make, buy, organize: The interplay ..." refers background in this paper

  • ...Internal research helps rms identify, evaluate, and assimilate external knowledge (Rosenberg, 1979; Cohen and Levinthal, 1990), which often comes via acquisitions (Kogut and Zander, 1993; Fleming, 2001)....

    [...]


Journal ArticleDOI
Bruce Kogut1, Udo Zander2Institutions (2)
Abstract: Firms are social communities that specialize in the creation and internal transfer of knowledge. The multinational corporation arises not out of the failure of markets for the buying and selling of knowledge, but out of its superior efficiency as an organizational vehicle by which to transfer this knowledge across borders. We test the claim that firms specialize in the internal transfer of tacit knowledge by empirically examining the decision to transfer the capability to manufacture new products to wholly owned subsidiaries or to other parties. The empirical results show that the less codifiable and the harder to teach is the technology, the more likely the transfer will be to wholly owned operations. This result implies that the choice of transfer mode is determined by the efficiency of the multinational corporation in transferring knowledge relative to other firms, not relative to an abstract market transaction. The notion of the firm as specializing in the transfer and recombination of knowledge is the foundation to an evolutionary theory of the multinational corporation

3,242 citations


Journal ArticleDOI
Abstract: This paper examines interfirm knowledge transfers within strategic alliances. Using a new measure of changes in alliance partners' technological capabilities, based on the citation patterns of their patent portfolios, we analyze changes in the extent to which partner firms' technological resources ‘overlap’ as a result of alliance participation. This measure allows us to test hypotheses from the literature on interfirm knowledge transfer in alliances, with interesting results: we find support for some elements of this ‘received wisdom’—equity arrangements promote greater knowledge transfer, and ‘absorptive capacity’ helps explain the extent of technological capability transfer, at least in some alliances. But the results also suggest limits to the ‘capabilities acquisition’ view of strategic alliances. Consistent with the argument that alliance activity can promote increased specialization, we find that the capabilities of partner firms become more divergent in a substantial subset of alliances.

3,214 citations


"Make, buy, organize: The interplay ..." refers background in this paper

  • ...…a rm s research focus and external knowledge-sourcing activities can be tracked using patents, R&D spending or alliances (Arora, Fosfuri, and Gambardella, 2001; Henderson and Cockburn, 1994; Mowery, Oxley, and Silverman, 1996), the internal organization of R&D is extremely di¢ cult to observe....

    [...]


Posted Content
Adam B. Jaffe1, Adam B. Jaffe2, Adam B. Jaffe3Institutions (3)
Abstract: This paper presents evidence that firms' patents, profits and market value are systematically related to the"technological position" of firms' research programs. Further, firms are seen to "move" in technology space in response to the pattern of contemporaneous profits at different positions. These movements tend to erode excess returns."Spillovers" of R&D are modelled by examining whether the R&D of neighboring firms in technology space has an observable impact on the firm's R&D success. Firms whose neighbors do much R&D produce more patents per dollar of their own R&D,with a positive interaction that gives high R&D firms the largest benefit from spillovers. In terms of profit and market value, however, their are both positive and negative effects of nearby firms' R&D. The net effect is positive for high R&D firms, but firms with R&D about one standard deviation below the mean are made worse off overall by the R&D of others.

3,164 citations


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202121
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