David L. Deeds

THE IMPACT OF STOCKS AND FLOWS OF ORGANIZATIONAL KNOWLEDGE ON FIRM PERFORMANCE: AN EMPIRICAL INVESTIGATION OF THE BIOTECHNOLOGY INDUSTRY

The knowledge‐based view of the firm is a recent approach to understanding the relationship between firm capabilities and firm performance. Specifically, this approach suggests that knowledge generation, accumulation and application may be the source of superior performance. Other research has conceptualized organizational knowledge in terms of stocks of accumulated knowledge in the firm and flows of knowledge into the firm. This paper tests the relationship between stocks and flows of organizational knowledge and firm performance in the biotechnology industry. We suggest that a firm’s geographic location, alliances with other institutions and organizations and R&D expenditures are representative of knowledge flows, while products in the pipeline, firm citations and patents are indicative of knowledge stocks. Through factor analysis, we develop an aggregated measure of location from several variables. A regression model suggests that location is a significant predictor of firm performance as are products in the pipeline and firm citations. A major contribution of this investigation is the operationalization of geographic location and its statistically significant link to firm performance. Copyright

DYNAMIC CAPABILITIES AND NEW PRODUCT DEVELOPMENT IN HIGH TECHNOLOGY VENTURES: AN EMPIRICAL ANALYSIS OF NEW BIOTECHNOLOGY FIRMS

Abstract In industries populated by entrepreneurial high technology firms, the rapid development of new products is viewed as a key determinant of success. Developing a portfolio of new products is necessary to gain early cash flows, external visibility and legitimacy, early market share, and increase the likelihood of survival (Schoonhoven, Eisenhardt, and Lymman 1990) . In addition, recent research has shown that new product development improves a firms ability to raise money through an initial public offering (Deeds, DeCarolis, and Coombs 1997) . This paper develops a model of new product development which is tested on a sample of 94 pharmaceutical biotechnology companies. We hypothesize that new product development capabilities are a function of a firms scientific, technological, and managerial skills. To test this relationship, we develop several firm specific measures in an attempt to triangulate in on the core construct of firm specific new product development capabilities. Some important implications for entrepreneurs/managers of high technology firms flow from our results. First, entrepreneur/managers need to view the choice of geographic location as an important strategic decision which will impact their firms access to the skilled technical personnel and the streams of knowledge. Our results indicate that a choice location has a significant concentration of similar firms, but the level has not yet reached a point where competition for resources in the local environment offsets any advantages of the location. In the case of biotechnology, this would seem to indicate that the prime locations would be expanding areas such as San Diego, Seattle, and Philadelphia rather then the established locations of Silicon Valley and Boston. Second, as scientific knowledge plays an ever more important role in a firms success the quality of the firms scientific team is a critical ingredient in a firms new product development capability. But how do you evaluate the quality of scientific personnel? Our results indicate that there is a strong positive relationship between the impact—as measured by citations—of a teams prior research in the academic community and the productivity of that team in a commercial research laboratory. Therefore, the judgement of a scientific field, captured by citations or perhaps expert judgement, should prove to be a useful tool when evaluating personnel for a firms research team. Third, the results from our measures of CEO experience and the percentage of the top management team with a Ph.D. are interesting. As expected the prior experience of CEO in managing a commercial research facility enhances a firms new product development capabilities. However, results for our top management team variable appears to indicate that the over reliance on technical personnel in the management of the organization detracts from the product development process. Taken together these results seem to imply that it is important that the leadership of the organization have knowledge of and experience in managing the new product development process, but that diverting the firms scientific personnels energies away from the laboratory and into the management of the organization maybe counter-productive. Therefore, what a high technology venture appears to need is leadership that understands and has experience in the new product development process, but which is separate and distinct from the scientific team. This type of leadership keeps the scientific team focused on research and development, and out of the boardroom.

What Drives New Ventures to Internationalize from Emerging to Developed Economies

The internationalization of new ventures from emerging economies to developed economies remains an unfilled gap at the intersection of the literature between international entrepreneurship and strategy in emerging economies. What drives some (but not all) new ventures from emerging economies to enter developed economies? We address this question by developing a comprehensive framework based on the three leading perspectives on strategy—industry–based, resource–based, and institution–based views. A series of propositions are proposed to explore the underlying logic behind new ventures’ entrepreneurial entries from emerging to developed economies.

An analysis of the critical role of public science in innovation: the case of biotechnology

Examines the link between public science and thebiotechnology industry in the United States. As knowledge plays an increasingrole in our innovation-based economy, firms at the forefront of industry mustexploit their absorptive capacity, defined as the ability to recognize newinformation, assimilate it, and apply it commercially. The most importantsource of external knowledge centers on public science, which is scientificresearch performed in and supported by governmental, academic and charitableresearch institutions. Previous studies have found that biotechnology, as a relevantly recent industrycomposed of mainly small, innovative firms, plays an important role intransferring knowledge from the university to the marketplace. In an effort toexamine this link more closely, this study focuses on scientific citations,funding sources and countries of origin, and a comparative analysis ofdedicated biotechnology firms and large pharmaceutical companies in theirlinkages to public science. Using the IPO prospectuses of U.S. biotechnologycompanies that were public traded as of 1993, 119 firms were identified. AllU.S. patents they acquired from the date they went public through 1997 wereidentified. Analysis of this patent data shows that the biotechnology industry relies moreheavily on publicly funded science than do other industries, including largepharmaceutical companies, though mostly for basic as opposed to appliedresearch purposes. The National Cancer Institute and National Institute ofGeneral Medical Sciences were identified as the two largest funding sources.Examination of the scientific papers listed in these industry-held patentsfound that the majority of citations emanate from U.S.-based authors at publicresearch institutions. Concludes that as biotechnology continues to develop andrevolutionize many fields of industry, continued public support of basicresearch will give the U.S. a strategic advantage economically. (CJC)

An examination of opportunistic action within research alliances: Evidence from the biotechnology industry

Abstract Like a photographer trying to take a perfect picture, an entrepreneur trying to increase the odds of survival must learn very quickly that focus is everything. And what demands an entrepreneur’s immediate focus is the development of new products. Entrepreneurial ventures depend on the rapid creation of new products to gain access to early cash flows, create legitimacy, grab early market share, and increase their odds of survival (Schoonhoven, Eisenhardt, and Lymman 1990) . However, the increasing costs and complexity of new product development are making it difficult for entrepreneurial ventures to contain the assets needed for successful R&D within their boundaries, forcing them to reach beyond their borders to access resources. Barley et al. (1992) document the use of more than 900 contractual research agreements within the biotechnology industry alone. Recent research has also found a positive relationship between the use of alliances in the R&D process and the rate of new product development Deeds and Hill 1996 , Shan, Walker, and Kogut 1994 . This particular study focuses on the use of relational contracts in the R&D process and extends the prior work on relational contracts to create an explanatory model of the deterrents to opportunism within a relational contract. The article begins with a discussion of the traditional modes of deterring opportunism and of modes of deterring opportunism based on the development of a strong cross-boundary relationship. From this discussion, hypotheses are derived that relate certain characteristics of the alliance (frequency of communication, strength of contractual deterrents, hostage investments, age of the relationship, etc.) to the level of opportunism within the relationship. These hypotheses are then tested on a sample of 109 research alliances in the biotechnology industry. We found significant evidence that a strong relationship between the partners serves as a much more effective deterrent to opportunistic action than the creation of hostage investments or contingent claims contracts. In particular, the results for frequency of communication and the background of the firm highlight the importance of the top management team’s understanding and involvement in the management of research alliances. The strong results for background congruence indicates the importance of shared expectations and understandings between the partners. The strong empirical results for the hypothesized U-shaped relationship between age and opportunism provide support for the existence of both a honeymoon period in the relationship and a liability of adolescence among research alliances. The data also suggest that the honeymoon period for an alliance will last about 4.6 years. We also find that the honeymoon period for alliances that are of little importance to the future of the firm is only 4.1 years, and in our sample of alliances that were important to the future of the firm, the honeymoon period extended from 4.6 years to 6.1 years.

The role of R&D intensity, technical development and absorptive capacity in creating entrepreneurial wealth in high technology start-ups

Abstract This study uses 80 newly public pharmaceutical biotechnology companies to explore the relationship between a high technology venture’s R&D intensity, technical capabilities and absorptive capacity and the amount of entrepreneurial wealth created by the venture. A novel measure of absorptive capacity based on co-citation analysis of a firm’s scientific publications is developed and several indicators of technical capabilities are used to develop early and late stage measures of a firm’s technical capabilities. The results provide strong evidence of a positive relationship between a high technology venture’s R&D intensity, late stage technical capabilities and absorptive capacity and the amount of entrepreneurial wealth created by a high technology venture.

Honeymoons and Liabilities: The Relationship between Age and Performance in Research and Development Alliances

The use of strategic alliances by technology ventures has increased dramatically over the last twenty years. During this period companies not only increased the use of alliances, but have also used them in more strategically important areas, particularly in R&D and new product development. Thus, successful management of strategic alliances in high-technology industries has become critical to a firms new product development and ultimately to firm performance. Yet, little is known about what determines the performance of individual alliances. This article examines the relationship between the age of an alliance and the performance of the alliance. We develop and test two competing hypotheses regarding the form of the functional relationship between alliance age and alliance performance. First, we test a liability of newness hypothesis, which posits that alliance performance increases in a linear fashion over time. We then test a honeymoon hypothesis, which posits that the relationship between age and alliance performance is non-linear with alliance performance decreasing initially but increasing over time. We further propose that alliances that are more important to the focal firm exhibit longer honeymoon periods. We develop a measure of individual alliance performance based on our field study in the biotechnology industry. We test the competing hypotheses using regression analysis on our sample of 115 R&D alliances. We then extend the analysis by splitting the sample into high and low importance alliances to enhance the robustness of our findings. Further, such a split-sample approach enables us to test for a potential moderating effect of alliance importance on the hypothesized relationship between alliance age and alliance performance. The results suggest that the relationship between age and alliance performance seems to be U-shaped curvilinear rather than linear, with the minimum point of alliance performance occurring after approximately four and one-half years. Thus, the results indicate that strategic alliances appear to face a liability of adolescence rather than a liability of newness. Contrary to our expectation, we also find that important alliances exhibit generally shorter honeymoons.

Trends in the Market for Entrepreneurship Faculty, 1989-1998

The popularity of entrepreneurship programs in the last decade can be measured both in the number of entrepreneurship programs in schools of business and management, and courses taken by graduate and undergraduate students. This popularity has been fostered by several factors: an increase in the popularity of entrepreneurship, an increase in the status of entrepreneurs, and an increase in the recognition of the importance of entrepreneurship in the larger economy by the business press. Acknowledging both the increasing popularity of and resistance to the field of entrepreneurship, it is examined whether entrepreneurship is moving toward institutionalization or has already been institutionalized as part of the curriculum and research in schools of business management. In order to assess the institutionalization of the field, the change in the number of and level of entrepreneurship positions, the quality of the recruiting institutions, and the number, level, and training of entrepreneurship candidates between 1989 and 1998 are analyzed using data obtained from the Academy of Management Placement Roster and The Chronicle of Higher Education. The results show that both the demand and supply of entrepreneurship faculty have increased during the time-span examined. Between 1989/90 and 1997/98, the number of entrepreneurship positions increased 253%, while the number of candidates increased by 94%. These figures point to the fields significant progress towards institutionalization. At the same time, as entrepreneurship remains an elective in most schools, it may be too soon to conclude that the commitment to entrepreneurship by schools of business and management is definitive.(CBS)

Firm-Specific Resources and Wealth Creation in High-Technology Ventures: Evidence from Newly Public Biotechnology Firms

We explore the relationship between wealth creation in high-technology ventures and firm-specific resources. We argue that Market Value Added is a particularly appropriate measure of entrepreneurial performance because of its focus on wealth creation, which is the essence of entrepreneurship. We present a model of wealth creation in new ventures based on the resource-based theory of firm behavior. The model suggests that firm-specific research and scientific capabilities are associated with wealth creation. The model is tested on a sample of 89 biotechnology firms. The results provide strong evidence for the hypothesized relationship between firm-specific capabilities and wealth creation in new ventures.

International alliances as sources of capital: Evidence from the biotechnology industry

Abstract This study empirically tested the relationship between three signaling mechanisms (scientific capabilities, firm location and top management team international experience) and the amount of capital raised through international strategic alliances. The number of patents held by the firm, firm location and the number of products in stage III of development were found to be significant. Implications for managers and researchers are discussed.