Social networks, Learning, and Flexibility: Sourcing Scientific Knowledge in New Biotechnology Firms

TLDR: In this article, the authors examine how two highly successful new biotechnology firms (NBFs) source their most critical input, scientific knowledge, and find that scientists at the two NBFs enter into large numbers of collaborative research efforts with scientists at other organizations, especially universities.

Abstract: We examine how two highly successful new biotechnology firms (NBFs) source their most critical input—scientific knowledge. We find that scientists at the two NBFs enter into large numbers of collaborative research efforts with scientists at other organizations, especially universities. Formal market contracts are rarely used to govern these exchanges of scientific knowledge. Our findings suggest that the use of boundary-spanning social networks by the two NBFs increases both their learning and their flexibility in ways that would not be possible within a self-contained hierarchical organization.

Figures

Table 8: Frequency of collaboration in published research by scientists at Firm X and Firm Y by type of institution of external scientists’ affiliation for the ten years following firm founding,

Figure 1 The position of NBFs in the industry

Table 2: Market and quasi-market exchanges for sourcing scientific research at firms X and Y.

Table 6: Frequency of collaboration in published research between scientists at Firms X and Y and external scientists by type of institution of affiliation of external scientists.

Table 10: Exclusive versus shared patent rights of Firms X and 1’.

Table I were governed by market contracting, supporting Hypothesis 3. First, Panel A of Table 2 shows that Firms X and Y entered in very few formal market exchange agreements for

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UCLA
Volume VI. 1994-95 - Biotechnology Studies
Title
Social Networks, Learning, and Flexibility: Sourcing Scientific Knowledge in New
Biotechnology Firms
Permalink
https://escholarship.org/uc/item/4480h6s7
Authors
Liebeskind, Julia Porter
Oliver, Amalya Lumerman
Zucker, Lynne G.
et al.
Publication Date
1994-10-01
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University of California

Institute for
Social Science
Research
ISSR
Working Papers
in the
Social Sciences
7994-95, Vol. 6, Number 4
Social Networks, Learning,
and Flexibility:
Sourcing Scientific Knowledge
in New Biotechnology Firms
by
Julia Porter Liebeskind
Amalya Lumerman Oliver
Lynne G. Zucker
Marilynn B. Brewer
October 1994
Copyright 1994 by Julia Porter Liebeskind, Amalya Lumerman Oliver,
Lynne G. Zucker, and Marilynn B. Brewer
University of California
Los Angeles

ISSR
Working Paper Vol. 6, No. 4
October 1994
Social Networks, Learning, and Flexibility:
Sourcing Scientific Knowledge in New Biotechnology Firms
ABSTRACT
This paper examines the organizational arrangements used by New Biotechnology Firms
(NBFs)
to source scientific knowledge. Using data from two highly successful
NBFs,
the paper shows that both
firms relied principally on hierarchies and networks to source scientific knowledge; market arrangements
were insignificant. Most interesting, each firm had a very large, diversified set of boundary-spanning
collaborative research arrangements, mostly involving university scientists. It is argued that these external
research networks enabled the two firms studied to compete more successfully in a highly turbulent and
highly competitive industry environment.
ACKNOWLEDGEMENTS
We thank Paul Adler, Michele Bolton, two anonymous referees, and participants at presentations
at the Academy of Management Meetings in Dallas, August 1994, and the Whittemore Conference on
Hypercompetition held at the Amos Tuck School, Dartmouth College, September 1994, for useful
comments and suggestions. The research reported in this paper was partly funded by a National Science
Foundation dissertation improvement grant to Dr. Oliver, and by research grants from the National Science
Foundation (SES 90-12925) and from the University of California Systemwide Biotechnology Research
Program to Dr. Zucker and Dr. Brewer (principal investigators).
Julia Porter Liebeskind
School of Business Administration
University of Southern California
Los Angeles, CA 90089-1421
Amalya Lumerman Oliver
Department of Sociology
&
Anthropology
Hebrew University of Jerusalem
Mont Scopus
Jerusalem, 91905, Israel
Lynne G. Zucker
Marilynn B. Brewer
Director, Organizational Research Program
Department of Psychology
Institute for Social Science Research
Ohio State University
University of California, Los Angeles
1885 Neil Avenue
Los Angeles, CA 90024-l 484
Columbus, OH
43210-1222
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SOCIAL NETWORKS, LEARNING, AND FLEXIBILITY:
SOURCING SCIENTIFIC KNOWLEDGE IN NEW BIOTECHNOLOGY FIRMS
1. INTRODUCTION
The biotechnology industry is an archetypical “hypercompetitive” environment There are
many competing firms, which face intense time
pressure
as they race one against the other to
obtain patents on new products. Knowledge obsolesces at a rapid rate. Investment capital is
scarce and investments are highly risky. The potential
for
appropriation of valuable knowledge
by rivals is high. High
quality
human capital, essential for competitive success, is scarce. In
such a hypercompetitive environment, firms will be pressured to
form
new innovative
organizational forms in order to survive and succeed
(D’Aveni,
1994). In this study, we
investigate the organizational arrangements used by biotechnology
firms
to source the input
which is critical to their survival and success: scientific knowledge.
A number of prior studies have examined organization in the biotechnology industry. Shan
(1990)
Kogut, Shan and Walker
(1992),
Powell and Brantley (1992) and Oliver (1993)
examined the inter-organizational exchange
arrangements
of focal biotechnology firms such as
long term contracts, joint ventures, and equity
investments
Pisano
(1990) and
Arora
and
Gambardella (1990) analyzed the exchange arrangements of focal chemical and pharmaceutical
firms
with biotechnology firms. Barley, Freeman and
Hybels
(1992) examined the network
structure of inter-organizational exchanges in the biotechnology industry using a large sample
of biotechnology firms, other firms, universities, hospitals, government agencies, and trade
associations.
Zucker,
Brewer, Oliver and Liebeskind (1991)
examined
the spatial distribution
of founding of new biotechnology
firms
in relation to their exchanges with universities.
This study differs
from
these previous studies in both purpose and scope. Rather than
concentrating on market exchanges alone, this study examines the relative
importance
of three
different types of exchange
-
hierarchies, markets and networks --
used
by biotechnology
firms. Building on transactions-costs theory, we argue that social networks may constitute the

2
most efficient organizational arrangements for exchanges involving scientific knowledge.
given the
hypercompetitive
conditions which pertain in
the
biotechnology industry. We
also
restrict our investigation only to exchanges in which biotechnology firms source scientific
knowledge. Transaction costs theory suggests that the most efficient form of exchange will be
determined by the characteristics of the goods or services being exchanged, and by the
organizational options which exist for conducting
that
exchange (Coase, 1937; Williamson,
1979). We therefore clearly distinguish in this study between exchanges in which
biotechnology
ftrms
source scientific knowledge, and other types of exchange, for which other
organizational arrangements may be preferable.
The data we present in this study is based on detailed case studies of two
highly
successful
biotechnology
firms.
These data include data on scientific collaborations among the
firms’
own
scientists and with external scientists; data on the
firms’
external exchanges of scientific
knowledge through formal contracting, licensing etc.; data on the scientists employed by the
two
firms;
and data on the number, type and geographical scope of institutions with which the
firms
conduct market or network exchanges. These data
show
that the two
firms
studied rely
very heavily on sourcing scientific knowledge through the social networks to which their own
scientistemployees and other scientists belong. In terms of external exchanges, the number of
exchanges which take place through social networks in the two
firms
vastly outweighs the
number of market exchanges
sourcing
scientific knowledge. In addition, external network
exchanges of scientific knowledge extensively supplement the
firms'
hierarchical exchanges
We argue here that social networks have assumed such importance because conducting
exchanges of scientific knowledge through social networks overcomes problems of
uncertainty,
appropriability
and human capital immobility which cannot be effectively resolved
by conducting such exchanges exclusively through either hierarchies or markets.
This paper
proceeds
as follows. Section 2 presents some background information
on
the
biotechnology industry, and discusses a number of prior studies on the organ&ion of the
industry. Section 3 discusses
hypercompetition
in the biotechnology industry. Section 4

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Q1. What are the contributions in this paper?

This paper examines the organizational arrangements used by New Biotechnology Firms ( NBFs ) to source scientific knowledge. Using data from two highly successful NBFs, the paper shows that both firms relied principally on hierarchies and networks to source scientific knowledge ; market arrangements were insignificant. It is argued that these external research networks enabled the two firms studied to compete more successfully in a highly turbulent and highly competitive industry environment.