Paradigm-Changing vs. Paradigm-Deepening Innovation: How Firm Scope Influences Firm Technological Response to Shocks

We examine the direction of firms’ research efforts as they respond to the shock of a sharp increase in the price of a key input. In terms of direction, firms can respond to this shock with paradigm-changing investments that develop technologies to use substitute inputs or with paradigm-deepening investments that develop technologies to improve the utilization efficiency of the existing input. We develop a framework that suggests that firms’ emphasis on paradigm-changing versus paradigm-deepening investments depends on the degree of input-relatedness across their businesses. We test our hypotheses by examining the responses of large manufacturing firms in the United States to the oil shock of the early 1980s. Our framework predicts and our results show that the more related a firm’s businesses are, the larger its investments into paradigm-changing technologies are and the smaller its investments into paradigm-deepening technologies in response to the oil shock are. We identify the implications of these findings for technological evolution and diversification literatures.

[1]  James D. Thompson.  Organizations in Action , 1967 .

[2]  Devendra Sahal,et al.  Alternative conceptions of technology , 1981 .

[3]  J. Lorsch,et al.  Managing Diversity and Interdependence , 1973 .

[4]  B. Silverman,et al.  R&D, ORGANIZATION STRUCTURE, AND THE DEVELOPMENT OF CORPORATE TECHNOLOGICAL KNOWLEDGE , 2004 .

[5]  A. Arora,et al.  Ideas for rent: an overview of markets for technology , 2010 .

[6]  Melissa A. Schilling.  Technological Lockout: An Integrative Model of the Economic and Strategic Factors Driving Technology Success and Failure , 1998 .

[7]  John Hicks,et al.  The Theory of Wages , 1933 .

[8]  Robert W. Ackerman,et al.  Influence of Integration and Diversity on the Investment Process , 1970 .

[9]  Peter R. Richardson,et al.  Implementing the unrelated product strategy , 1982 .

[10]  M. Shubik,et al.  A Behavioral Theory of the Firm. , 1964 .

[11]  T. Kuhn.  The structure of scientific revolutions, 3rd ed. , 1996 .

[12]  J. Schumpeter.  Capitalism, Socialism and Democracy , 1943 .

[13]  W. Mitchell,et al.  Path-dependent and path-breaking change: reconfiguring business resources following acquisitions in the U.S. medical sector, 1978–1995 , 2000 .

[14]  Phanish Puranam,et al.  Integration Through Incentives Within Differentiated Organizations , 2008, Organ. Sci..

[15]  R. Pitts.  Strategies And Structures For Diversification , 1977 .

[16]  W. Labys,et al.  Divergences in manufacturing energy consumption between the North and the South , 1994 .

[17]  E. Johnsen.  Richard M. Cyert & James G. March, A Behavioral Theory of The Firm, Prentice-Hall, Inc., Englewood Cliffs, New Jersey, 1963, 332 s. , 1964 .

[18]  R. Blundell,et al.  Dynamic Count Data Models of Technological Innovation , 1994 .

[19]  D. Teece.  Dosi's Technological Paradigms and Trajectories: Insights for Economics and Management , 2008 .

[20]  David Popp,et al.  THEY DON'T INVENT THEM LIKE THEY USED TO: AN EXAMINATION OF ENERGY PATENT CITATIONS OVER TIME , 2005 .

[21]  Induced Innovation and Marginal Cost of New Technology , 2009 .

[22]  Margarethe F. Wiersema,et al.  The measurement of corporate portfolio strategy: analysis of the content validity of related diversification indexes , 2003 .

[23]  Donald E. Hatfield,et al.  Doomed from the start: what is the value of selecting a future dominant design? , 1999 .

[24]  Gregory G. Dess,et al.  Dimensions of Organizational Task Environments. , 1984 .

[25]  H. Ernst,et al.  External Technology Commercialization in Large Firms: Results of a Quantitative Benchmarking Study , 2007 .

[26]  G. Dosi,et al.  Technical Change and Economic Theory , 1989 .

[27]  M. Hitt,et al.  Strategic Control Systems And Relative R&D Investment , 1988 .

[28]  David Popp,et al.  Induced Innovation and Energy Prices , 2001 .

[29]  Nicholas Argyres.  CAPABILITIES, TECHNOLOGICAL DIVERSIFICATION AND DIVISIONALIZATION , 1996 .

[30]  Vernon W. Ruttan,et al.  INDUCED INNOVATION, EVOLUTIONARY THEORY AND PATH DEPENDENCE: SOURCES OF TECHNICAL CHANGE* , 1997 .

[31]  T. Kuhn,et al.  The Structure of Scientific Revolutions , 1963 .

[32]  Devendra Sahal,et al.  Technological guideposts and innovation avenues , 1993 .

[33]  Matthew S. Kraatz,et al.  A diametric forces model of strategic change: Assessing the antecedents and consequences of restructuring in the higher education industry , 1993 .

[34]  J. Schumpeter,et al.  Capitalism, Socialism and Democracy , 1943 .

[35]  M. Tushman,et al.  Technological Discontinuities and Organizational Environments , 1986 .

[36]  Michael A. Hitt,et al.  Managerial Incentives and Investment in R&D in Large Multiproduct Firms , 1993 .

[37]  John T. Scott,et al.  Market Structure and Technological Change , 1987 .

[38]  Wesley M. Cohen,et al.  Empirical studies of innovation and market structure , 1989 .

[39]  D. Teece.  Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy , 1993 .

[40]  Constance E. Helfat,et al.  Evolutionary trajectories in petroleum firm R&D , 1994 .

[41]  O. Williamson.  The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting , 1985 .

[42]  Nathan Rosenberg.  Perspectives on Technology: Problems in the economist's conceptualization of technological innovation , 1975 .

[43]  A. Jaffe,et al.  The Induced Innovation Hypothesis and Energy-Saving Technological Change , 1998 .

[44]  R. Nelson.  The Simple Economics of Basic Scientific Research , 1959, Journal of Political Economy.

[45]  Robert E. Hoskisson,et al.  Strategy and Structure in the Multiproduct Firm , 1987 .

[46]  Paul Nightingale,et al.  Meta-paradigm change and the theory of the firm , 2008 .

[47]  F. J. Forcadell,et al.  Related diversification and R&D intensity dynamics , 2010 .

[48]  O. Williamson,et al.  The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting. , 1986, American Political Science Review.

[49]  J. Robins,et al.  A resource‐based approach to the multibusiness firm: Empirical analysis of portfolio interrelationships and corporate financial performance , 1995 .

[50]  Jacob Schmookler,et al.  Invention and Economic Growth , 1967 .

[51]  高橋 進.  サイアート, マーチの「A Behavioral Theory of the Firm」 , 1995 .

[52]  A. Jaffe.  Technological Opportunity and Spillovers of R&D: Evidence from Firms&Apos; Patents, Profits and Market Value , 1986 .

[53]  P. Lawrence,et al.  Differentiation and Integration in Complex Organizations , 1967 .

[54]  B. Wernerfelt,et al.  A Resource-Based View of the Firm , 1984 .

[55]  Robert E. Hoskisson,et al.  Cooperative Versus Competitive Structures in Related and Unrelated Diversified Firms , 1992 .

[56]  Vasudevan Ramanujam,et al.  Research on corporate diversification: A synthesis , 1989 .

[57]  Bart Nooteboom,et al.  Exploration and exploitation in innovation systems: The case of pharmaceutical biotechnology , 2006 .

[58]  G. Dosi.  Sources, Procedures, and Microeconomic Effects of Innovation , 1988 .

[59]  Yue Maggie Zhou.  Synergy, Coordination Costs and Diversification Choices , 2010 .

[60]  David J. Teece,et al.  Towards an economic theory of the multiproduct firm , 1982 .

[61]  Jacob Schmookler,et al.  Invention and Economic Growth , 1967 .