Effects of a firm's and their partners' alliance ego–network structure on its innovation output in an era of ferment

Abstract

A technological discontinuity can disrupt an existing technological regime and it has a profound effect on firms' economic activities and outcomes. The period between the discontinuity and the establishment of the new regime is defined as an era of ferment, which can unleash significant innovation opportunities while creating great uncertainty in the business environment. Although it is well-known that firms often use alliances both to respond to uncertainty and facilitate innovation, little is known about the alliance behavior of firms during an era of ferment and how it can affect their exploratory and exploitative innovation output. The article tests this relationship using as large panel sample of alliances during the era of ferment in the biotechnology industry and the exploitative and exploratory innovation output of biotechnology firms during that time. The results suggest that managers in charge of innovation and alliance formation should proactively optimize the design their firms' ego-network structure as follows: First, alliance ego-network centrality supports exploitative innovation because a central firm coherently and reliably performs experiential search to source complementary knowledge through 'pipeline' alliances to the 'whole' network. Moreover, very high centrality offers little additional gains in coherence and reliability of knowledge received from the network because it restricts access to novel information beyond the focal firm's ego-network neighborhood. Second, ego-network structural holes support exploratory innovation because they provide efficient access through cognitive search to non-redundant flows of information and knowledge, offering ample opportunities for knowledge recombinations. Third, a focal firm's partners' centrality positively affects its exploratory innovation because the focal firm can learn by observing and cognitively evaluating the behavior and associated innovation outcomes of their central partners.

Determinants of radical drug innovation: a systematic literature review

“…They argue that radical innovation is associated with a higher level of organizational ambidexterity and absorptive capacity than incremental innovation, which “reduces the knowledge complexity and diversity within the firm, which dampens the need for effective communication and coordination, which is necessary for new learning and technological change” (Dunlap-Hinkler et al 2010 , p. 121). However, the empirical findings of Karamanos ( 2016 ), conversely, do not support a positive relationship between existing radical innovations and new ones.…”

“…Knowledge creation in the pharmaceutical industry is expensive, risky, and time consuming, making it very challenging for a single company to comprehensively create knowledge on its own (Karamanos 2016 ). Because of this, pharmaceutical firms frequently collaborate with other pharmaceutical companies, universities, and/or public research institutes (Cohen and Caner 2016 ; Fagerberg et al 2005 ; Karamanos 2016 ; Quintana-García and Benavides-Velasco 2011 ). Through R&D collaborations, participating parties can effectively combine internal with external knowledge (Jong and Slavova 2014 ).…”

“…The experience that a pharmaceutical firm has with managing R&D collaborations seems to positively impact the firm’s ability to develop radical innovations (Karamanos 2016 ), particularly when R&D alliances are repeated with the same partner (Wuyts et al 2004 ). Managing alliances can be difficult due to the frequent information asymmetry between the partners.…”

“…Sorescu et al ( 2003 ) note that research on the relationship between firm size and innovation is the “second largest body of literature in industrial organization economics” (p. 82). While some argue that small pharmaceutical companies deliver more radical innovations than large ones (e.g., Dunlap-Hinkler et al 2010 ; Kamuriwo et al 2017 ; Malva et al 2015 ), other studies come to the opposite conclusion that large firms are more likely to produce radical drug innovations (e.g., Fernald et al 2017 ; Jong and Slavova 2014 ; Karamanos 2016 ; Quintana-García and Benavides-Velasco 2011 ; Sorescu et al 2003 ). On the one hand, the arguments to support the claim that small firms deliver more radical innovations are centered around their nimbleness and lack of bureaucracy (Dunlap-Hinkler et al 2010 ).…”

Research on Structural Holes: An Assessment on Measurement Issues

“…However, such information might be risk biased, transformed, or delayed (Van den Bossche et al ., 2014). For others, the presence of an intermediary results in a situation of relative control which provides opportunities for a more efficient network structure (Narayanam and Narahari, 2011; Karamanos, 2016). Competitive advantage in resources and/or information results from actors located at the extremes of the gaps in the social structure rather than from other players in the same social structure (Brass and Labianca, 2012).…”