Knowing when to leap: Transitioning between exploitative and explorative R&D

Strategic Management Journal

Volumn 35, Issue 1, 2014, Pages 126-145

  Mudambi, Ram ^a   Swift, Tim ^b  

^a TEMPLE UNIVERSITY   (United States)

^b SAINT JOSEPH S UNIVERSITY   (United States)

Author keywords

exploitation; exploration; proactive R D management; punctuated equilibrium; R D expenditure volatility

Indexed keywords

COMPETITIVE ADVANTAGE; D-FUNCTION; EXPLOITATION; EXPLOITATION AND EXPLORATIONS; FIRM PERFORMANCE; PUNCTUATED EQUILIBRIUM;

COMPETITION; ECONOMICS; NATURAL RESOURCES EXPLORATION;

INDUSTRY;

EID: 84889668086     PISSN: 01432095     EISSN: 10970266     Source Type: Journal    
DOI: 10.1002/smj.2097     Document Type: Article

References (105)

1. Abramovitz M,. 1956. Resource and output trends in the United States since 1870. American Economic Review 46 (2): 5-23.
2. Acs ZJ, Audretsch DB,. 1989. Innovation in large and small firms: an empirical analysis. American Economic Review 78 (4): 678-690.
3. Ahuja G, Katila R,. 2001. Technological acquisitions and the innovation performance of acquiring firms: a longitudinal study. Strategy Management Journal 22 (3): 197-220.
4. Ahuja G, Katila R,. 2004. Where do resources come from? The role of idiosyncratic situations. Strategic Management Journal 25 (8-9): 887-907.
5. Ahuja G, Lampert CM,. 2001. Entrepreneurship in the large corporation: a longitudinal study of how established firms create breakthrough inventions. Strategic Management Journal 22 (6-7): 521-543.
6. Almeida P, Kogut B,. 1999. Localization of knowledge and the mobility of engineers in regional networks. Management Science 45 (7): 905-917.
7. Anderson P, Tushman M,. 2001. Organizational environments and industry exit: the effects of uncertainty, munificence and complexity. Industrial and Corporate Change 10 (3): 675-711.
8. Argyres N,. 1996. Capabilities, technological diversification and divisionalization. Strategic Management Journal 17 (5): 395-410.
9. Arrow K,. 1962. Economic welfare and the allocation of resources for invention. In The Rate and Direction of Inventive Activity: Economic and Social Factors. NBER and Princeton University Press: Princeton, NJ; 609-625.
10. Azoulay P, Ding W, Stuart T,. 2009. The effect of academic patenting on the rate, quality and direction of (public) research output. Journal of Industrial Economics 57 (4): 637-623.
11. Azoulay P, Graff Zivin J, Wang J,. 2010. Superstar extinction. Quarterly Journal of Economics 125 (2): 549-589.
12. Baber WR, Fairfield PW, Haggard JA,. 1991. The effect of concern on discretionary spending decisions: the case of research and development. Accounting Review 66 (4): 818-829.
13. Baird JS, Thomas H,. 1990. What is risk anyway? Using and measuring risk in strategic management. In Risk, Strategy and Management, Thomas RAB, (ed). JAI Press: Greenwich, CT; 21-52.
14. Barnett WP, Freeman J,. 2001. Too much of a good thing? Product proliferation and organizational failure. Organization Science 12 (5): 539-558.
15. Baum JAC, Li SX, Usher JM,. 2000. Making the next move: How experiential and vicarious learning shape the locations of chains' acquisitions. Administrative Science Quarterly 45 (4): 766-801.
16. Benner M, Tushman ML,. 2003. Exploitation, exploration, and process management: the productivity dilemma revisited. Academy of Management Review 28 (2): 238-256.
17. Berger PG, Ofek E,. 1995. Diversification's effect on firm value. Journal of Financial Economics 37 (1): 39-65.
18. Blundell R, Griffith R, Windmeijer F,. 2002. Individual effects and dynamics in count data models. Journal of Econometrics 108 (1): 113-131.
19. Bushee BJ,. 1998. The influence of institutional investors on myopic R&D investment behavior. Accounting Review 73 (3): 305-333.
20. Califf RM, Zarin DA, Kramer JM, Sherman RE, Aberle LH, Tasneem A,. 2012. Characteristics of clinical trials registered in ClinicalTrials.gov, 2007-2010. Journal of the American Medical Association 307 (17): 1838-47.
21. Campa JM, Kedia S,. 2002. Explaining the diversification discount. Journal of Finance 57 (4): 1731-1762.
22. Cantwell J, Mudambi R,. 2005. MNE competence-creating subsidiary mandates. Strategic Management Journal 26 (12): 1109-1128.
23. Chesher A,. 1979. Testing the law of proportionate effect. Journal of Industrial Economics 27 (4): 403-411.
24. Chung KH, Pruitt SW,. 1994. A simple approximation of Tobin's q. Financial Management 23 (3): 70-74.
25. Clark KB, Fujimoto T,. 1991. Product Development Performance: Strategy, Organization and Management in the World Auto Industry. Harvard Business Press: Boston, MA.
26. Clark KB, Chew WB, Fujimoto T,. 1987. Product development in the world auto industry. Brookings Papers on Economic Activity 3: 729-771.
27. Cockburn I, Henderson R,. 1998. Absorptive capacity, coauthoring behavior, and the organization of research in drug discovery. Journal of Industrial Economics 46 (2): 157-182.
28. Cockburn I, Henderson R, Stern S,. 2003. Untangling the origins of competitive advantage. Strategic Management Journal 21 (10-11): 1123-1145.
29. Cohen WM, Levinthal DA,. 1990. Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly 35 (1): 128-152.
30. Coombs R, Narandren P, Richards A,. 1996. A literature-based innovation output indicator. Research Policy 25 (3): 403-413.
31. Cyert R, March JG,. 1963. A Behavioral Theory of the Firm. Prentice-Hall: Englewood Cliffs, NJ.
32. Dechow PM, Sloan RG,. 1991. Executive incentives and the horizon problem: an empirical investigation. Journal of Accounting and Economics 14 (1): 51-89.
33. Dierickx I, Cool K,. 1989. Asset stock accumulation and sustainability of competitive advantage. Management Science 35 (12): 1504-1511.
34. DiMasi JA, Feldman L, Seckler A, Wilson A,. 2010. Trends in risks associated with new drug development: success rates for investigational drugs. Nature: Clinical Pharmacology and Therapeutics 87: 272-277.
35. DiMasi JA, Grabowski HG,. 2007. The cost of biopharmaceutical R&D: is biotech different? Managerial and Decision Economics 28 (4-5): 469-479.
36. DiMasi JA, Hansen W, Grabowski HG,. 2003. The price of innovation: new estimates of drug development costs. Journal of Health Economics 22 (2): 151-185.
37. Dosi G,. 1982. Technological paradigms and technological trajectories: a suggested interpretation of the determinants and directions of technological change. Research Policy 11 (3): 147-162.
38. Dunlap-Hinkler D, Kotabe M, Mudambi R,. 2010. A story of breakthrough vs. incremental innovation: corporate entrepreneurship in the global pharmaceutical industry. Strategic Entrepreneurship Journal 4 (2): 106-127.
39. Dyer JH,. 1996. Specialized supplier networks as a source of competitive advantage: evidence from the auto industry. Strategic Management Journal 17 (4): 271-292.
40. Erickson T, Whited TM,. 2000. Measurement error and the relationship between investment and q. Journal of Political Economy 108 (5): 1027-1057.
41. Folta TB, O'Brien JP,. 2004. Entry in the presence of dueling options. Strategic Management Journal 25 (2): 121-138.
42. FDA. 1998. Guidance for Industry: Standards for the Prompt Review of Efficacy Supplements, Including Priority Efficacy Supplements. Review Management Working Group, Center for Drug Evaluation and Research (CDER) and Center for Biologics Evaluation and Research (CBER), U.S. Food and Drug Administration: Washington, DC.
43. Gagnon M, Lexchin J,. 2008. The cost of pushing pills: a new estimate of pharmaceutical promotion expenditures in the United States. PLoS Medicine 5 (1): 29-33.
44. Gibson CB, Birkinshaw J,. 2004. The antecedents, consequences, and mediating role of organizational ambidexterity. Academy of Management Journal 47 (2): 209-226.
45. Gilsing V, Nooteboom B,. 2006. Exploration and exploitation in innovation systems: the case of pharmaceutical biotechnology. Research Policy 35 (1): 1-23.
46. Giovannetti GT, Morrison SW,. 2000. Convergence: The Biotechnology Industry Report. Palo Alto, CA: Ernst & Young.
47. Grabowski HG,. 1968. The determinants of industrial research and development: a study of the chemical drug and petroleum industries. Journal of Political Economy 76: 292-306.
48. Grabowski H, Vernon J,. 1990. A new look at the returns and risks to pharmaceutical R&D. Management Science 36 (7): 804-821.
49. Haleblian J, Finkelstein S,. 1993. Top management team size, CEO dominance and firm performance: the moderating roles of environmental turbulence and discretion. Academy of Management Journal 36 (4): 844-863.
50. Hall BH, Griliches Z, Hausman JA,. 1986. Patents and R&D: is there a lag? International Economic Review 27 (2): 265-284.
51. Hall BH, Jaffe A, Trajtenberg M,. 2001. The NBER patent citations data file: lessons, insights and methodological tools. NBER Working Paper Series. National Bureau of Economic Research: Cambridge, MA.
52. Hall BH, Jaffe A, Trajtenberg M,. 2005. Market value and patent citations. Rand Journal of Economics 36 (1): 16-38.
53. Hambrick DC, MacMillan IC, Barbosa RR,. 1983. Business unit strategy and changes in the product R&D budget. Management Science 29 (7): 757-769.
54. Hansen GS, Hill CWL,. 1991. Are institutional investors myopic? A time-series study of four technology driven industries. Strategic Management Journal 12 (1): 1-16.
55. Harryson SJ, Dudkowski R, Stern A,. 2008. Transformation networks in innovation alliances-the development of Volvo C70. Journal of Management Studies 45 (4): 745-773.
56. Heckman J,. 1979. Sample bias as a specification error. Econometrica 47 (1): 153-162.
57. Helfat C,. 1994. Firm specificity in corporate applied R&D. Organization Science 5 (2): 173-184.
58. Henderson R, Cockburn I,. 1994. Measuring competence? Exploring firm effects in pharmaceutical research. Strategic Management Journal 15: 63-84.
59. Hitt MA, Hoskisson RE, Kim H,. 1997. International diversification: effects on innovation and firm performance in product-diversified firms. Academy of Management Journal 40 (4): 767-798.
60. Jaffe A,. 1986. Technology opportunity and spillovers of R&D: evidence from firms' patents, profits and market value. American Economic Review 76 (5): 984-1001.
61. Klepper S,. 1996. Entry, exit, growth and innovation over the product life cycle. American Economic Review 86 (3): 562-583.
62. Kor Y, Mahoney JT,. 2005. How dynamics, management, and governance of resource deployments influence firm-level performance. Strategic Management Journal 26 (5): 489-496.
63. Lang L, Ofek E, Stulz R,. 1996. Leverage, investment and firm growth. Journal of Financial Economics 40 (1): 3-29.
64. Leonard-Barton D,. 1992. Core capabilities and core rigidities: a paradox in managing new product development. Strategic Management Journal 13: 111-125.
65. Levinthal DA, March J,. 1993. The myopia of learning. Strategic Management Journal 14: 95-112.
66. Lexis-Nexis. 2007. Lexis-Nexis Academic database: Reed Elsevier. Available at: http://academic.lexisnexis.com/online-services/academic-overview. aspx (accessed 15 November 2007).
67. Lilien GL, Yoon E,. 1990. The timing of competitive market entry: an exploratory study of new industrial products. Management Science 36 (5): 568-585.
68. Mao JCT,. 1970. Survey of capital budgeting: theory and practice. Journal of Finance 25 (2): 349-360.
69. March JG,. 1991. Exploration and exploitation in organizational learning. Organization Science 2 (1): 71-87.
70. March JG,. 1996. Continuity and change in theories of organizational action. Administrative Science Quarterly 41 (2): 278-287.
71. March JG,. 2006. Rationality, foolishness, and adaptive intelligence. Strategic Management Journal 27 (3): 201-214.
72. March JG, Shapira Z,. 1987. Managerial perspectives on risk and risk taking. Management Science 33 (11): 1404-1418.
73. McGahan AM, Porter ME,. 1997. How much does industry matter, really? Strategic Management Journal 18 (Summer Special Issue): 15-30.
74. Menezes C, Geiss C, Tressler J,. 1980. Increasing downside risk. American Economic Review 70 (5): 921-932.
75. Miller D, Friesen P,. 1984. Organizations: A Quantum View. Prentice-Hall: Englewood Cliffs, NJ.
76. Miller KD, Leiblein MJ,. 1996. Corporate risk-return relations: returns variability versus downside risk. Academy of Management Journal 39 (1): 91-122.
77. Miller KD, Reuer JJ,. 1996. Measuring organizational downside risk. Strategic Management Journal 17 (9): 671-691.
78. Minton BA, Schrand C,. 1999. The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing. Journal of Financial Economics 54 (3): 423-460.
79. Montgomery C, Wernerfelt B,. 1988. Diversification, Ricardian rents, and Tobin's q. Rand Journal of Economics 19 (4): 623-32.
80. Mudambi R,. 2008. Location, control and innovation in knowledge intensive industries. Journal of Economic Geography 8 (5): 699-725.
81. Mudambi R, Swift T,. 2009. Professional guilds, tension and knowledge management. Research Policy 38 (5): 736-745.
82. Mudambi R, Swift T,. 2011. Proactive R&D management and firm growth: a punctuated equilibrium model. Research Policy 40 (3): 429-440.
83. Oriani R, Sobrero M,. 2008. Uncertainty and the market valuation of R&D within a real options logic. Strategic Management Journal 29 (4): 343-361.
84. Pakes A,. 1985. On patents, R&D and the stock market rate of return. Journal of Political Economy 93 (21): 390-409.
85. PhRMA. 2011. Pharmaceutical Industry Profile 2011. PhRMA: Washington, DC. Available at: http://catalyst.phrma.org/wp-content/uploads/fromPhrma/phrma- profile-2011-final.pdf (accessed 7 December 2012).
86. Porter M,. 1985. Competitive Advantage: Creating and Sustaining Superior Performance. Free Press: New York.
87. Roberts PW, Amit R,. 2003. The dynamics of innovative activity and competitive advantage: the case of Australian retail banking, 1981 to 1995. Organization Science 14 (2): 107-122.
88. Romanelli E, Tushman ML,. 1994. Organizational transformation as punctuated equilibrium: an empirical test. Academy of Management Journal 37 (5): 1141-1166.
89. Rosenberg N,. 1990. Why do firms do basic research with their own money? Research Policy 19 (2): 165-174.
90. Rosenkopf L, Nerkar A,. 2001. Beyond local search: boundary spanning, exploration, and impact in the optical disk industry. Strategic Management Journal 22 (4): 287-306.
91. Rumelt RP,. 1974. Strategy, Structure and Economic Performance. Harvard Business School Press: Boston, MA.
92. Scherer FM,. 2001. The link between gross profitability and pharmaceutical R&D spending. Health Affairs 20 (5): 216-220.
93. Schumpeter J,. 1942. Capitalism, Socialism and Democracy (2nd edn). Harper and Row: New York.
94. Shan W, Walker G, Kogut B,. 1994. Interfirm cooperation and startup innovation in the biotechnology industry. Strategic Management Journal 15 (5): 387-394.
95. Sheremata WA,. 2004. Competing through innovation in network markets: strategies for challengers. Academy of Management Review 29 (3): 359-377.
96. Smith KG, Smith KA, Olian JD, Sims HP Jr, O'Bannon DP, Scully JA,. 1994. Top management demography and process: the role of social integration and communication. Administrative Science Quarterly 39 (3): 412-438.
97. Solow RM,. 1957. Technical change and the aggregate production function: a contribution to the theory of economic growth. Review of Economics and Statistics 39 (3): 312-320.
98. Sorenson O, McEvily S, Rongrong Ren C, Roy R,. 2006. Niche width revisited: organizational scope, behavior and performance. Strategic Management Journal 27 (10): 915-936.
99. Standard & Poors. 2009. Compustat North America. McGraw-Hill: New York.
100. Theil H,. 1967. Economics and information theory. North-Holland: Amsterdam, Netherland.
101. U.S. Census Bureau. 2002. 1997 Economic Census. U. S. C. Bureau, Ed. Available at: http://www.census.gov/epcd/www/econ97.html (accessed June 2009) http://www.census.gov/epcd/www/econ97.html (accessed 1 November 2007).
102. US Patent and Trademarks Office. 2007. PTMB Products and Services Brochure. United States Department of Commerce: Alexandria, VA.
103. Wang HC, He J, Mahoney JT,. 2009. Firm-specific knowledge resources and competitive advantage: the roles of economic- and relationship-based employee governance mechanisms. Strategic Management Journal 30 (12): 1265-1285.
104. Wilde J,. 2008. A simple representation of the Bera-Jarque-Lee test for probit models. Economics Letters 101 (2): 119-121.
105. Zucker L, Darby M, Armstrong J,. 2002. Commercializing knowledge: university science, knowledge capture and firm performance in biotechnology. Management Science 48 (1): 138-154.