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  Why Your Company Should Look Within When Acquiring New Knowledge 

Moreira, Solon; Markus, Arjan; Laursen, Keld
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Which companies spend the most on R&D?

Tech giants Amazon and Alphabet (parent company of Google) top the global list. These leading companies aim to discover more about artificial intelligence, robotics and other future game-changers.

Designating a healthy portion of the financial pie to R&D is considered a sound strategy for innovation these days, not just for tech companies, but also in pharma, automotive and other many industries. With substantial R&D budgets, companies seemingly have a better chance to not only grow innovations in-house but also keep pace with technological shifts coming from outside their four walls.

And yet, absorbing and making good use of external knowledge has proven notoriously difficult, with too many firms failing to leverage their acquired patents and knowledge. According to management theory, "absorptive capacity" is key -- that is, a firm's ability to recognize, assimilate and exploit external knowledge.

So how might absorptive capacity be improved to keep pace with innovations today? According to research by IESE's Solon Moreira, Arjan Markus and Keld Laursen, forthcoming in the Strategic Management Journal, two factors are key:
  1. The diversity of the skills and base knowledge of the team who will work to absorb the new knowledge; and
  2. The density of the network of the team who will work to absorb the new knowledge.
In other words, the more technologically diverse and well-connected the networks that will handle the acquired innovations are, the greater the firm's ability to absorb external technologies quickly -- especially when the innovation is distant from the firm's core focus.

Keeping Up in Pharma
Building on existing theory, Moreira et al. identify network diversity and density as two key factors and then test their hypotheses in the rapidly changing, highly competitive pharmaceutical industry, where acquired or licensed patents may or may not be put to good use by the acquiring firm.

In this realm, the co-authors examine how pharmaceutical firms absorb licensed-in technologies to nurture the rapid development of their own related inventions. They show that a firm's absorption speed depends on the characteristics of the internal collaboration networks among the firm's relevant employees in R&D. When firms have higher network diversity and density, the time to put external knowledge to use is cut by several months in the firms studied.

Managers, take note: The co-authors conclude that the collaborative behavior of employees is important. They advise, "although managers cannot directly control their employees' collaborative interactions with other employees, they can assign inventors to temporary projects to foster collaboration among otherwise unconnected employees." By working to better connect R&D staff with diverse technical expertise, new knowledge may be put to good use faster.

Methodology, Very Briefly
The co-authors analyze 113 pharmaceutical firms that engaged in technology in-licensing from 1986 to 2003. The researchers isolate the effects of their explanatory variables (intrafirm inventor task network diversity and inventor task network density) by including several firm-, technology-, contract-, and industry-level control variables which could affect the time it takes to absorb knowledge. The authors' findings provide overall support for their hypotheses.
This article is based on:  Knowledge Diversity and Coordination: The Effect of Intrafirm Inventor Task Networks on Absorption Speed
Publisher:  John Wiley & Sons
Year:  2018
Language:  English

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