Theory of the Firm: Redux



PhD Programme

Academic Year 2011-2012

P4, March-April 2012

Professor Melissa Schilling

melissa.schilling@insead.edu

Assistant: Magalie Nkiani (Magalie.NKIANI@insead.edu)

Innovation and Industrial Dynamics

COURSE DESCRIPTION

This course will survey the literature on innovation and industry dynamics. We will draw from work in management, economics, and sociology to give you a sense of the major themes, methods and findings in the innovation research. Since we obviously cannot cover all of the work in this area in one course, we will focus on important papers and themes that will give you a foundation in the area. At the end of the syllabus is a more comprehensive list of articles which you may read at your own discretion to further pursue topics of interest.

Each week we will discuss in-depth the assigned readings, identifying strengths and weaknesses of the papers, drawing linkages or contrasts between ideas, and in general attempting to understand and integrate the existing research. Your preparation and active participation are crucial to creating and harvesting the value of the course.

COURSE REQUIREMENTS

Students are to demonstrate mastery of basic concepts covered in the course through active participation in class discussions, in-class presentation of assigned articles, writing a sole authored paper exploring some aspect of this syllabus, and by making a presentation on the paper in progress.

Class participation

Every week, each student will be assigned to lead the discussion of one of the assigned articles in class. To prepare, the student will write a two page memo, consisting of: 1) a summary of the article, 2) a critique of the article, and 3) a discussion of unanswered questions and future research directions. The summary of the article should pay particular attention to the research gap identified by the author(s) as well as the research strategy undertaken to deal with the research gap. The critique should focus on the execution of research strategy undertaken. The discussion should include, at the minimum, the limitations of the research strategy undertaken. One day before each session, discussion leaders are expected to distribute the memo electronically to each member of the class, including the course instructor. In addition to the presentation of assigned readings, students are expected to read all the required readings prior to coming to the class and actively engage in class discussions.

Research paper

In addition to the weekly presentations, all students will be required to pick one of the seminar topics and prepare a 10 to 20 page research paper. The paper should review some aspect of the literature (going beyond the assigned articles), identify unresolved or controversial issues, and propose a research strategy to deal with these. You need not limit yourself to a narrow interpretation of the issues covered in the course. This written assignment is intended to help you find thesis topics and to prepare for the comprehensive exam. The last session of this course will be devoted to the presentation of your research papers. One day before the last session, all students are expected to distribute an outline of their research paper electronically to each member of the class, including the course instructor. In the last session, we will collectively evaluate these unresolved or controversial issues as well as the proposed research strategies. The objective is to provide feedback on your work-in-progress. The research paper is due one week after the last session. All students are expected to submit the research paper electronically to the course instructor.

Performance Evaluation

The course grade will be weighted as follows:

Class participation and presentation of assigned readings 50%

Research paper and presentation of your work-in-progress 50%

COURSE SCHEDULE

1. Sources of Innovation

March JG. 1991. Exploration and exploitation in organizational learning. Organization Science 2(1) Special Issue: Organizational Learning: Papers in Honor of (and by) James G. March: 7187.

Stuart TE, Podolny JM. 1996. Local search and the evolution of technological capabilities. Strategic Management Journal 17: 519.

Ahuja G, Katila R. 2001. Technological acquisitions and the innovation performance of acquiring firms: A longitudinal study. Strategic Management Journal 22: 197220.

Fleming, L. 2001. “Recombinant uncertainty in technological search”, Management Science, 47(1): 117-132.

Singh J, Fleming L. 2010. Lone inventors as sources of breakthroughs: Myth or reality? Management Science 56(1): 4156.

2. Innovation and Industry Evolution

Klepper S, Grady E. 1990. The evolution of new industries and the determinants of market structure. Rand Journal of Economics 21(1): 2744.

Klepper S. 1996. Entry, Exit, Growth, and Innovation over the Product Life Cycle. The American Economic Review 86(3): 562583.

Anderson, P., & Tushman, M. L. 1990. Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change. Administrative Science Quarterly, 35(4), 604-633.

Adner R, Levinthal D. 2001. Demand heterogeneity and technology evolution: Implications for product and process innovation. Management Science 47(5): 611628.

Klepper S, Simons K. 2000. Dominance by birthright: Entry of prior radio producers and competitive ramifications in the U.S. television receiver industry. StrategicManagement Journal 21(10/11): 9971016.

3. Market entry

Lieberman MB, Montgomery DB. 1998. Firstmover (dis)advantages: Retrospective and link with the resourcebased view. Strategic Management Journal 19(12): 11111125.

Mitchell W. 1989. Whether and when? Probability and timing of incumbents' entry into emerging industrial subfields . Administrative Science Quarterly. 34(2) 208-230.

Gompers P, Lerner J, Scharfstein D. 2005. Entrepreneurial spawning: Public corporations and the genesis of new ventures, 1986 to 1999. The Journal of Finance 60(2): 577614.

Klepper S, Sleeper S. 2005. Entry by spinoffs. Management Science 51(8): 12911306.

Tripsas, M. 1997. Unraveling the process of creative destruction: Complementary assets and incumbent survival in the typesetter industry. Strategic Management Journal, 18 (Special Issue Supplement), 119-142.

4. Organization structure, interdependencies, and modularity

Henderson, R. M. & Clark, K. B. 1990. Architectural innovation: The reconfiguration of existing product technologies and the failure of established firms, Administrative Science Quarterly, 35(1): 9-30

Tushman, M.L. & O’Reilly, C.A. 1996. Ambidextrous organizations: Managing evolutionary and revolutionary change. California Management Review, 38:8-30

Hansen MT. 1999. The searchtransfer problem: The role of weak ties in sharing knowledge across organization subunits. Administrative Science Quarterly 44(1): 82111.

Schilling, M.A. 2000. Towards a general modular systems theory and its application to interfirm product modularity. Academy of Management Review, 25: 312-334.

Galunic, D.C. & Eisenhardt, K. Architectural innovation and modular corporate forms. Academy of Management Journal, 44:1229-1249.

5. Collaboration and Networks

Powell WW, Koput KW, SmithDoerr L. 1996. Interorganizational collaboration and the locus of innovation: Networks of learning in biotechnology. Administrative Science Quarterly 41(1): 116145.

Ahuja G. 2000. Collaboration networks, Structural holes, and innovation: A longitudinal study. Administrative Science Quarterly 45(3): 425455.

Stuart TE. 2000. Interorganizational alliances and the performance of firms: A study of growth and innovation rates in a hightechnology industry. Strategic Management Journal 21(8): 791811.

Schilling MA, Phelps C. 2007. Interfirm collaboration networks: The impact of largescale network structure on firm innovation. Management Science 53: 11131126.

Fleming L, King C III, Juda AI. 2007. Small worlds and regional innovation. Organization Science 18(6): 938 954.

6. Intellectual Property

Teece, D.J., 1986. “Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy”, Research Policy, 15: 285-306.

Levin, R.C. Klevorick, A.K., Nelson, R.R. & Winter, S.G. 1987. Appropriating the returns from industrial research and development. pages 783-831 in Brookings Papers on Economic Activity. The Brookings Institution.

Griliches, Z. 1990. Patent statistics as economic indicators: A survey, Journal of Economic Literature, 28: 1661-1707.

Jaffe, A. 1986. Technological opportunity and spillovers of R&D: Evidence from firms’ patents, profits, and market value. American Economic Review, 76: 984-1001.

7. Summary and Looking Ahead

Each student prepares a 20 mins presentation on his/her final project. Other students provide comments and suggestions.

The instructor reserves the right to change the syllabus as necessary.

SUGGESTED FURTHER READING

Dunne T, Roberts MJ, Samuelson L. 1988. Patterns of firm entry and exit in U.S. manufacturing Industries. Rand Journal of Economics. 19(4) 495515.

Agarwal R, Gort M. 1996. The evolution of markets and entry, exit and survival of firms. The Review of Economics and Statistics 78(3): 489498

Agarwal R, Bayus BL. 2002. The market evolution and sales takeoff of product innovations. Management Science. 48(8) 10241041.

Baum J, Amburgey T. Organizational ecology. J. Baum, ed. Companion to Organizations, Blackwell, 2002. (For a brief introduction on organizational ecology perspective, see: )

Klepper S. 1997. Industry life cycles. Industrial and Corporate Change 6(1): 145-182.

Helfat CE, Peteraf MA. 2003. The dynamic resource-based view: Capability lifecycles. Strategic Management Journal 24(10) Special Issue: Why Is There a Resource Based View? Toward a Theory of Competitive Heterogeneity: 997-1010

Teece DJ, Pisano G, Shuen A. 1997. Dynamic capabilities and strategic management. Strategic Management Journal 18(7) 509533.

Eisenhardt KM, Martin JA. 2000. Dynamic capabilities: What are they? Strategic Management Journal 21(10/11): 11051121.

Winter SG. 2003. Understanding dynamic capabilities. Strategic Management Journal 24(10): 991995.

Siggelkow N. 2001. Change in the presence of fit: The rise, the fall, and the renaissance of Liz Claiborne. Academy of Management Journal 44(4): 838.

King AA, Tucci CL. 2002. Incumbent entry into new market niches: The role of experience and managerial choice in the creation of dynamic capabilities. Management Science 48(2): 171186.

Sterman JD, Henderson R, et al. 2007. Getting big too fast: Strategic dynamics with increasing returns and bounded rationality. Management Science 53(4): 683696.

Klepper S, Simons K. 2000. Dominance by birthright: Entry of prior radio producers and competitive ramifications in the U.S. television receiver industry. Strategic Management Journal 21(10/11): 9971016.

Carroll GR, Bigelow LS, et al. 1996. The fates of de novo and de alio producers in the American automobile industry 18851981. Strategic Management Journal 17: 117137.

Dosi, G. 1982. Technological paradigms and technological trajectories. Research Policy 11(3): 147162.

Suárez FF, Utterback JM. 1995. Dominant designs and the survival of firms. Strategic Management Journal 16(6): 415430.

Henderson R. 1993. Underinvestment and incompetence as responses to radical innovation: Evidence from the photolithographic alignment equipment industry. Rand Journal of Economics 24(2): 248270.

Christensen CM, Bower JL. 1996. Customer power, strategic investment, and the failure of leading firms. Strategic Management Journal 17(3): 197218.

de Figueiredo JM, Kyle MK. 2006. Surviving the gales of creative destruction: The determinants of product tunrover. Strategic Management Journal 27: 241264.

Adner R, Zemsky P. 2005. Disruptive technologies and the emergence of competition. Rand Journal of Economics 36(2): 229254.

Rivkin J, Siggelkow N. 2003. Balancing search and stability: Interdependencies among elements of organizational design. Management Science, 49(3): 290311.

Rivkin J, Siggelkow N. 2003. Balancing search and stability: Interdependencies among elements of organizational design. Management Science, 49(3): 290311.

Gatignon H, Tushman ML, Smith W, Anderson P. 2002. A structural approach to assessing innovation: Construct development of innovation locus, type, and characteristics. Management Science 48(9): 11031122.

Rosenkopf, L., & Almeida, P. 2003. Overcoming local search through alliances and mobility. Management Science 49(6): 751766.

Ahuja, G., & Katila, R. 2004. Where do resources come from? The role of idiosyncratic situations. Strategic Management Journal 25(89): 887907

Katila, R. and Shane, S. 2005. When does lack of resources make new firms innovative? Academy of Management Journal, 48(5): 814829.

Greve, H., & Taylor, A. 2000. Innovations as catalysts for organizational change: Shifts in organizational cognition and search. Administrative Science Quarterly 45: 5480.

Rumelt RP. 1982. Diversification strategy and profitability. Strategic Management Journal 3(4): 359369.

Montgomery CA, Wernerfelt B. 1988. Diversification, Ricardian rents, and Tobin's q. The RAND Journal of Economics 19(4): 623632.

Villalonga, B. 2004. Diversification discount or premium? Journal of Finance

Bowman EH, Helfat CE. 2001. Does corporate strategy matter? Strategic Management Journal 22(1): 123.

Geroski PA. 1995. What do we know about entry? International Journal of Industrial Organization. 13(4) 421440.

C.E. Helfat and M.B. Lieberman 2002. The birth of capabilities: market entry and the importance of prehistory. Industrial and Corporate Change. 11(4) 725760.

Bernardo & Chowdhry, "Resources, Real Options and Corporate Strategy" Journal of Financial Economics, 2002

Maksimovic & Phillips. 2002. Do conglomerate firms allocate resources inefficiently across industries? Theory and evidence Journal of Finance

Villalonga B. 2004. Does diversification cause the "diversification discount?" Financial Management 33(2): 527.

de Figueiredo, J. M. and Silverman, B. S. 2007. Churn, baby, churn: Strategic dynamics among dominant and fringe firms in a segmented industry. Management Science, 53(4): 632650.

Franco, A. M., Sarkar, M., Agarwal, R. and Echambadi, R. 2009. Swift and smart: The moderating effects of technological capabilities on the market pioneeringfirm survival relationship. Management Science, 55(11): 1842 1860.

Zucker, LG, Darby MR, Brewer MB. 1998. Intellectual human capital and the birth of US biotechnology enterprises. The American Economic Review 88(1): 290306.

Agarwal R, Echambadi R, Franco A, Sarkar, MB. 2004. Knowledge transfer through inheritance: Spinout generation, development, and survival. Academy of Management Journal 47(4) 501522.

Katila R, Rosenberger J, Eisenhardt K. 2008. Swimming with sharks: Technology ventures and corporate relationships. Administrative Science Quarterly 53(2): 295332.

Sampson RC. 2007. R&D alliances and firm performance: The impact of technological diversity and alliance organization on innovation. Academy of Management Journal 50(2): 364–386.

Nerkar A, Paruchuri S. 2005. Evolution of R&D capabilities: The role of knowledge networks within a firm. Management Science 51(5): 771785.

Lee GK. 2007. The significance of network resources in the race to enter emerging product markets: The convergence of telephony communications and computer networking, 19892001. Strategic Management Journal 28(1): 1737.

Singh J. 2005. Collaborative networks as determinants of knowledge diffusion patterns. Management Science 51(5): 756770.

Joseph Schumpeter, “The fundamental phenomenon of economic development,” in Schumpeter, The Theory of Economic Development, 1934, ch. 2: 57-94.

Utterback, James M. and Abernathy, William J. 1975. “A dynamic model of process and product innovation”, OMEGA. 3(6): 639-657.

Dosi, G. 1988. “Sources, procedures, and microeconomic effects of innovation”, Journal of Economic Literature, 26: 1120-71.

Cowan, Robin, Paul A. David and Dominique Foray, 2000. “The explicit economics of knowledge codification and tacitness” Industrial and Corporate Change, 9: 211-253

Yayavaram, Sai and Chen, Wei-Ru, 2008. “Component change and architectural change in the search for firms’ technological inventions”, Academy of Management Best Paper Proceedings.

Rivkin, J.W. & Siggelkow, N. 2007. “Patterned interactions in complex systems: Implications and exploration”, Management Science, 53 (7): 1068-1085.

Levinthal, D. & March, J. G. 1981. A model of adaptive organizational search. Journal of Economic Behavior and Organization, 2: 307-333.

Chen, W-R and Miller, K, 2007, “Situational and institutional determinants of firms’ R&D search intensity.” Strategic Management Journal. 28(4): 369–381.

Levinthal, D. A., & March, J. G. 1993. “The myopia of learning”, Strategic Management Journal, 14: 95-112.

Chen, W. -R, 2008. Determinants of firms’ backward- and forward-looking R&D search behavior. Organization Science, 19:609-622.

Nerkar, A. 2003. “Old is gold? The value of temporal exploration in the creation of new knowledge”, Management Science, 49 (2): 211-229.

Rosenkopf, L. & Nerkar, A. 2001. Beyond local search: Boundary-spanning, exploration, and impact in the optical disk industry. Strategic Management Journal, 22: 287-306.

Wang, H. & Chen W.-R., 2008. “Does firm-specific innovation increase value appropriation? The roles of environmental dynamism and technological diversity”, working paper.

Leonard-Barton, D., 1992. „Core capabilities and core rigidities: A paradox in managing new product development”. Strategic Management Journal, 13(2): 111-125.

Stuart, T. E. & Podolny, J. M. 1996. “Local search and the evolution of technological capabilities”. Strategic Management Journal, 17: 21-38.

Greve, H. R. & Taylor, A. 2000. “Innovations as catalysts for organizational change: Shifts in organizational cognition and search”. Administrative Science Quarterly, 45: 54-80.

Helfat, C. E. 1994. “Firm-specificity in corporate applied R&D”, Organization Science, 5(2): 173-184.

Katila, R. & Ahuja, G. 2002. “Something old, something new: A longitudinal study of search behavior and new product introduction”, Academy of Management Journal, 45: 1183-1194.

Adner, Ron and Levinthal, Daniel. 2002. “The emergence of emerging technology.” California Management Review. 45(1): 50-66.

Adner, Ron and Levinthal, Daniel. 2001. “Demand heterogeneity and technology evolution: Implications for product and process innovation.” Management Science. 47(5): 611-628.

Adner, Ron. 2002. “When are technologies disruptive: A demand-based view of the emergence of competition” Strategic Management Journal. 23: 667-688.

Adner, Ron and Zemsky, Peter. 2005. “Disruptive technology and the emergence of competition.” Rand Journal of Economics. 2005. 36(2): 229-254.

Adner, Ron and Zemsky, Peter. 2006. “A demand-based view of sustainable competitive advantage: The evolution of substitution threats, resource rents and competitive positions.” Strategic Management Journal. 27: 215-239.

Bower, Joseph L. and Christensen, Clayton M. 1995. Disruptive technologies: Catching the wave. Harvard Business Review. Jan-Feb: 43-53.

Henderson, Rebecca. 1995. Of life cycles real and imaginary: The unexpectedly long old age of optical lithography. Research Policy. 24:631-643

Klepper, Steven. 1997. “Industry life cycles”, Industrial and Corporate Change. 6: 145-181.

Dosi, Giovanni. 1982. Technological paradigms and technological trajectories. Research Policy. 11:147-162.

Richard Nelson, “The Co-evolution of technology, industrial structure, and supporting institutions,” Industrial and Corporate Change, 3, 1994: 46-63.

Franco Malerba, “Innovation and the evolution of industries,” Journal of Evolutionary Economics, 16, 1-2, 2006: 3-23.

Cool, K. 2001. “Strategy in markets with demand-side increasing returns”, in Strategic Management, edited by Saloner, G. Shepard, A., and Podolny, J. Willey & Sons.

Alvarez SA, Barney JB. 2007. Discovery and creation: Alternative theories of entrepreneurial action. Strategic Entrepreneurship Journal 1(12): 1126.

Katila R, Chen E. 2008. Effects of search timing on product innovation: The value of not being in synch. Administrative Science Quarterly 53(2): 593625.

Cohen, W., & Levinthal, D. 1990. Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35: 128152.

Lee GK. 2008. Relevance of organizational capabilities and its dynamics: What to learn from entrants’ product portfolios about the determinants of entry timing. Strategic Management Journal 29(12): 12571280.

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