I especially thank Will Mitchell, Mark Mizruchi, and Anand Swaminathan for their many inputs into this research. Additionally, for their research assistance and/or helpful comments I thank Riitta Katila, Jennifer Keene, Curba Morris Lampert, and Sai Yayavaram. An earlier version of this paper received the West Publishing Best Paper Award and the Sage-Louis Pondy Best Dissertationbased Paper Awards from the OMT Division of the Academy of Management. The dissertation on which this paper is based received the Best Dissertation Award from the BPS Division of the Academy of Management and the Best Dissertation Proposal Award from the INFORMS College on Organization Science. I gratefully acknowledge the financial support of the University of Texas and the Center for International Business Education and Research at the University of Michigan. I especially thank Don Palmer and three anonymous reviewers of this journal whose insightful feedback immeasurably improved this paper. Finally, I would like to thank Linda Johanson for her editing, which significantly enhanced the readability and clarity of the final paper. I Other studies that have examined the relationship between collaboration and innovation include Berg, Duncan, and Friedman (1982) and Hagedoorn and Schakenraad (1994), albeit from slightly different perspectives. Berg, Duncan, and Friedman (1982) examined the impact of research collaboration on research expenditures and profitability. Similarly, Hagedoorn and Schakenraad (1994) related collaboration to profitability. Neither of these studies, however, directly examined the impact of collaboration on innovative output or used a network perspective.

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This paper examines the impact of acquisitions on the subsequent innovation performance of acquiring firms in the chemicals industry. We distinguish between technological acquisitions, acquisitions in which technology is a component of the acquired firm's assets, and nontechnological acquisitions: acquisitions that do not involve a technological component. We develop a framework relating acquisitions to firm innovation performance and develop a set of measures for quantifying the technological inputs a firm obtains through acquisitions. We find that within technological acquisitions absolute size of the acquired knowledge base enhances innovation performance, while relative size of the acquired knowledge base reduces innovation output. The relatedness of acquired and acquiring knowledge bases has a nonlinear impact on innovation output. Nontechnological acquisitions do not have a significant effect on subsequent innovation output.

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We present a model that explains how established firms create breakthrough inventions. We identify three organizational pathologies that inhibit breakthrough inventions: the familiarity trap – favoring the familiar; the maturity trap – favoring the mature; and the propinquity trap – favoring search for solutions near to existing solutions. We argue that by experimenting with novel (i.e., technologies in which the firm lacks prior experience), emerging (technologies that are recent or newly developed in the industry), and pioneering (technologies that do not build on any existing technologies) technologies firms can overcome these traps and create breakthrough inventions. Empirical evidence from the chemicals industry supports our model. Copyright © 2001 John Wiley & Sons, Ltd.