Know-How and Asset Complementarity And Dynamic Capability Accumulation: The case of R&D

Constance E. Helfat– 1997, SMJ

KNOW-HOW AND ASSET

COMPLEMENTARITY AND DYNAMIC

CAPABILITY ACCUMULATION:

THE CASE OF R&D

Dynamic capabilities – “The subset of the competences/ capabilities which allow the firm to create new products and processes and respond to changing market circumstances” (Teece & Pisano)

The Question - “When firms seek to alter their stock of knowledge in response to change in the environment, do such efforts depend on the firms’ existing stocks of complementary know-how and other assets?”

DYNAMIC CAPABILITIES

26 largest US energy firms (1976 to 1981)

Experienced two large spikes in oil price & OPEC supply restrictions

Industry responded in many ways, including research into synthetic oil production

Efforts to create new processes and products involved a high amount of rapid R&D investments

THE STUDY

Two types of R&D The attempt to make incremental improvements to

conventional technologies The attempt to create major improvements to less

developed technologies

The US energy industry spent time and money on both Conventional – Resource location & extraction Novel – Gasification/liquefaction

Nearly 6x was spent on coal over shale or tar

R&D: CONVENTIONAL VS. NOVEL

R&D: CONVENTIONAL VS. NOVEL

1a: Firms that had larger stocks of knowledge from past refining R&D were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

1b: Firms that had larger accumulated refinery assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

1c: Firms that had larger stocks of knowledge from past R&D on other synthetic fuels were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

2: Firms that had larger accumulated coal assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

HYPOTHESES

Basically: Dierickx and Cool were correct in saying that ‘firms must accumulate assets such as technological expertise over time (by undertaking R&D) and that increments to asset stocks may depend on the level of

complementary asset stocks within the firm’.

VARIABLES TESTED

R&D into coal conversion rose during 1976 through 1981, partly in response to higher oil prices

The industry as a whole looked to benefit from complementary knowledge acquired from past refining R&D (rather, prior refining knowledge led to greater R&D spending)

Larger preexisting stocks of coal assets led to higher coal conversion R&D spending

Prior R&D into coal conversion had a significant impact on coal conversion R&D spending

REGRESSION FINDINGS

1a: Firms that had larger stocks of knowledge from past refining R&D were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

1b: Firms that had larger accumulated refinery assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

1c: Firms that had larger stocks of knowledge from past R&D on other synthetic fuels were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

2: Firms that had larger accumulated coal assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

RESULTS

In response to rising oil costs, firms with larger amounts of complementary technological knowledge and physical assets also undertook larger amounts of R&D on coal conversion

For the large diversified US energy firms, novel R&D benefited from complementary R&D-based knowledge and assets

Results of this study may not apply to smaller, more focused firms performing R&D

Results may also not hold outside of the unique environment experienced by energy firms during the 1970s energy crisis

CONCLUSION