Gary P. Pisano

The R&D Boundaries of the Firm: An Empirical Analysis

Investigates the decisions of large, established pharmaceutical companies to develop new biotechnology-based pharmaceutical products with in-house research and development (RD (2) are more likely to internalize RD (3) that tended to use in-house RD (4) are more likely to undertake a biotechnology RD and (5) with a higher percentage of their business in pharmaceuticals will be more likely to internalize biotechnology-pharmaceutical R&D projects. Data were gathered from the fifty largest pharmaceutical companies in the world on R&D project-level procurement decisions. Findings indicate that small-numbers-bargaining hazards in the R&D markets do motivate the internalization of R&D. However, it was found that rivalry among established pharmaceutical firms does not lead to internalization. Also supported is the notion that firm-level factors influence R&D procurement patterns, but a firms history in regard to technological procurement was not a significant indicator of its behavior in new technology. Finally, size was not found to be a significant factor in procurement decisions. (SFL)

Disrupted Routines: Team Learning and New Technology Implementation in Hospitals

This paper reports on a qualitative field study of 16 hospitals implementing an innovative technology for cardiac surgery. We examine how new routines are developed in organizations in which existing routines are reinforced by the technological and organizational context All hospitals studied had top-tier cardiac surgery departments with excellent reputations and patient outcomes yet exhibited striking differences in the extent to which they were able to implement a new technology that required substantial changes in the operating-room-team work routine. Successful implementers underwent a qualitatively different team learning process than those who were unsuccessful. Analysis of qualitative data suggests that implementation involved four process steps: enrollment, preparation, trials, and reflection. Successful implementers used enrollment to motivate the team, designed preparatory practice sessions and early trials to create psychological safety and encourage new behaviors, and promoted shared meaning and process improvement through reflective practices. By illuminating the collective learning process among those directly responsible for technology implementation, we contribute to organizational research on routines and technology adoption.

The governance of innovation: Vertical integration and collaborative arrangements in the biotechnology industry☆

Abstract This paper analyzes and compares the various governance structures through which new biotechnologies have been developed and commercialized over the past decade and a half. These governance structures include (1) forward vertical integration by new biotechnology firms (NBFs) from RD (2) backward integration by established firms from downstream industries into biotechnology RD and (3) various forms of collaboration between NBFs and established firms involving R&D, technology transfer, production, and distribution. The institutional, technological, and organizational forces affecting the incidence of these governance structures over time are discussed and examined with data from several sources.

Learning How and Learning What: Effects of Tacit and Codified Knowledge on Performance Improvement Following Technology Adoption

This paper examines effects of tacit and codified knowledge on performance improvement as organizations gain experience with a new technology. We draw from knowledge management and learning curve research to predict improvement rate heterogeneity across organizations. We first note that the same technology can present opportunities for improvement along more than one dimension, such as efficiency and breadth of use. We compare improvement for two dimensions: one in which the acquisition of codified knowledge leads to improvement and another in which improvement requires tacit knowledge. We hypothesize that improvement rates across organizations will be more heterogeneous for dimensions of performance that rely on tacit knowledge than for those that rely on codified knowledge (H1), and that group membership stability predicts improvement rates for dimensions relying on tacit knowledge (H2). We further hypothesize that when performance relies on codified knowledge, later adopters should improve more quickly than earlier adopters (H3). All three hypotheses are supported in a study of 15 hospitals learning to use a new surgical technology. Implications for theory and practice are discussed.

The Firm Specificity of Individual Performance: Evidence from Cardiac Surgery

In many settings, firms rely on independent contractors, or freelancers, for the provision of certain services. The benefits of such relationships for both firms and workers are often understood in terms of increased flexibility. Less understood is the impact of freelancing on individual performance. While it is often presumed that the performance of freelancers is largely portable across organizations, it is also possible that a given workers performance may vary across organizations if he or she develops firm-specific skills and knowledge over time. We examine this issue empirically by considering the performance of cardiac surgeons, many of whom perform operations at multiple hospitals within narrow periods of time. Using patient mortality as an outcome measure, we find that the quality of a surgeons performance at a given hospital improves significantly with increases in his or her recent procedure volume at that hospital but does not significantly improve with increases in his or her volume at other hospitals. Our findings suggest that surgeon performance is not fully portable across hospitals (i.e., some portion of performance is firm specific). Further, we provide preliminary evidence suggesting that this result may be driven by the familiarity that a surgeon develops with the assets of a given organization.

Toward a Theory of Behavioral Operations

Human beings are critical to the functioning of the vast majority of operating systems, influencing both the way these systems work and how they perform. Yet most formal analytical models of operations assume that the people who participate in operating systems are fully rational or at least can be induced to behave rationally. Many other disciplines, including economics, finance, and marketing, have successfully incorporated departures from this rationality assumption into their models and theories. In this paper, we argue that operations management scholars should do the same. We explore the theoretical and practical implications of incorporating behavioral and cognitive factors into models of operations management and suggest fruitful avenues for research in behavioral operations.

The Dynamic Capabilities of Firms

An expanded paradigm is needed to explain how competitive advantage is gained and held. Firms resorting to ‘resource-based strategy’ attempt to accumulate valuable technology assets and employ an aggressive intellectual property stance. However, winners in the global marketplace have been frms demonstrating timely responsiveness and rapid and flexible product innovation, along with the management capability to effectively coordinate and redeploy internal and external competences. This source of competitive advantage, ‘dynamic capabilities’, emphasizes two aspects. First, it refers to the shifting character of the environment; second, it emphasizes the key role of strategic management in appropriately adapting, integrating, and re-configuring internal and external organizational skills, resources, and functional competences toward a changing environment. Only recently have researchers begun to focus on the specifics of developing firm-specific capabilities and the manner in which competences are renewed to respond to shifts in the business environment. The dynamic capabilities approach provides a coherent framework to integrate existing conceptual and empirical knowledge, and facilitate prescription. This chapter argues that the competitive advantage of firms stems from dynamic capabilities rooted in high performance routines operating inside the frm, embedded in the firm’s processes, and conditioned by its history. It offers dynamic capabilities as an emerging paradigm of the modern business firm that draws on multiple disciplines and advances, with the help of industry studies in the USA and elsewhere.

How to Capture Value from Innovation: Shaping Intellectual Property and Industry Architecture

Capturing value from innovation requires innovators to figure out how to blunt inroads into the profit stream by imitators, customers, suppliers, and other providers of complementary products and services. In making strategic decisions around technology commercialization, managers often assume that the intellectual property environment and the architecture of the industry are beyond their control. This need not be so. This article shows how managers can shape both the appropriability regime and the architecture of the industry in ways that can benefit the innovator by blunting the actions of others who may endeavor to tap into the stream of profit generated by innovation. Even small firms can play important roles. Tools include putting information into the public domain, helping to shape standards, and promoting modularity.

Learning-before-doing in the development of new process technology

Abstract The concept of learning-by-doing has featured prominently in the literature on manufacturing improvement and technological innovation. Much of the focus of this literature is on the ‘doing’ or ‘using’ that takes place in an actual commercial production or usage environment. But problem-solving can also occur long before a new product or process design is introduced into the factory through computer simulations, laboratory experiments, prototype testing, pilot production runs, and other experiments. These approaches to problem-solving are referred to in this paper as ‘learning- before -doing.’ Although there is an extensive literature on prototyping and technical problem-solving in R&D, there have been few attempts to determine the type of conditions under which different approaches to learning are most effective. This paper explores the impact of different learning strategies on development performance with detailed data on 23 process development projects from pharmaceuticals and biotechnology. The empirical analysis focuses specifically on how the timing of technology transfer to the factory influences development costs. The results of the analysis indicate learning-by-doing is essential for efficient development in an environment like biotechnology where underlying theoretical and practical knowledge is relatively thin. In contrast, the need for learning-by-doing is far lower in environments like chemical synthesis where underlying theoretical and practical knowledge is deep enough to enable the design of laboratory experiments that effectively model future production experience. The paper concludes with a discussion of the implication of these findings for the management of process development and learning.

R&D Performance, Collaborative Arrangements and the Market for Know-How: A Test of the

This paper examines the relative performance of vertically integrated projects versus collaborative projects in the bio-pharmaceuticals industry. Using Akerlof’s (1970) model of the impact of asymmetric information on quality, this paper suggests that a potential “lemons” problem exists in the market-for-know-how. It hypothesizes that projects with poorer prospects for reaching the market tend to be licensed to collaborative partners while those with better prospects are commercialized internally. This hypothesis is tested with data on 260 bio-pharmaceutical projects that have either been successfully completed or terminated in progress over the past 15 years. After controlling for a variety of factors, the paper shows evidence of an apparent “lemons” problem in the market-for-know-how in biotechnology: the rate of termination for partnered projects is significantly higher than the failure rate of projects undertaken via vertical integration. Further empirical analysis also suggests that the higher rate of failure of partnered projects is attributable to ex ante project selection biases rather than differences in ex post execution of partnered versus nonpartnered projects. Implications for technology strategy and future research are discussed.