Essays on firms knowledge search, learning strategies and product innovation

ESSAYS ON FIRMS’ KNOWLEDGE SEARCH, LEARNING STRATEGIES AND PRODUCT INNOVATION ZHUANG WENYUE (B.A., M.A., Renmin University of China) A THESIS SUBMITTED FOR THE DEGREE OF DOCTOR OF PHILOSOPHY DEPARTMENT OF STRATEGY & POLICY NATIONAL UNIVERSITY OF SINGAPORE 2009 ACKNOWLEDGEMENT I would like to express my deepest appreciation to my supervisor, Professor Wong Poh Kam, who has guided and helped me from the very beginning of my NUS experience. This research would not have been possible without his constant support, encouragement and insightful guidance. I have also been fortunate to work closely with Dr. Lim Kwanghui, from whom I have learnt the nuts and bolts of research. He has inspired me to take the innovation studies seriously, and encouraged me throughout this process to read more, think more critically, and to keep pushing the analysis forward. I owe them much more than what these pages reflect. I also wish to thank the members of my thesis committee, Associate Professor Ishtiaq P. Mahmood and Dr. Kim Young-Choon for sharing their ideas and expertise with me, and providing helpful comments. I also thank Dr. Soh Pek Hooi, Dr. Sai Yayavaram, and Dr. Jasjit Singh for their helpful comments on the earlier draft of some of the chapters of this thesis. Another key partner in my work has been the professors and staff at the Data Storage Institute (DSI) and Institute for Infocomm Research (I2R). It would not have been possible for me to understand technological details of my research context without their generous sharing of knowledge. They helped me immensely even though they had little to gain in return. My colleagues and friends at NUS made the journey toward finishing this thesis more exciting and more fun. The days and nights I spent with my dear friend Annapoornima M. Subramanian discussing research have no doubt provided me enormous inspirations. My officemates brought light and color into what would otherwise have become a dull journey. While space constraints keep me from I acknowledging them individually, I am indebted to each one of them. I am grateful to NUS for providing a research scholarship for my PhD program and providing the conference funding, which made it possible for me to attend AOM and AIB, where I presented papers based on this research. I would also like to thank Woo Kim, Jenny, Windy and Koon Cheng for their warm support and help in the past few years. My deep gratitude extends to my parents, who have instilled in me a love of learning, along with a sense of getting on with it. Their love has provided the bedrock of support needed to weather the ups and downs of a Ph.D program. My in-laws have been wonderful. Finally, I thank my dear husband, Li Da, for his unfailing encouragement and support, for his tremendous patience and love, and for the dreams we will realize together in the rest of our lives. Words cannot express my gratitude. II TABLE OF CONTENTS ACKNOWLEDGEMENT I LIST OF TABLES V LIST OF FIGURES . VI SUMMARY . Chapter 1: Introduction . 1.1 Theoretical Background and Motivations 1.1.1 External, internal learning and knowledge search . 1.1.2 Exploration vs. exploitation and product innovation . 1.2 Overview of the Thesis 13 1.3 Key Findings 19 1.4 Organizing Structure of the Thesis . 22 Chapter 2: Heuristics for Evaluating External Knowledge: A Study of How Firms Search for Knowledge across Organizational and National Boundaries in the Information Storage & Communications Technology Industry . 23 2.1 Introduction 23 2.2 Theory and Hypotheses 28 2.2.1 Organizational and national boundaries as constraint of knowledge search 28 2.2.2 Two types of heuristics in cross-boundary knowledge search . 30 2.2.3 Prior records as indicators of knowledge quality . 34 2.2.4 Third party’s evaluation as indicators of knowledge quality . 37 2.2.5 Geography and resilience of two types of heuristics . 40 2.3 Methodology 44 2.3.1 Sample and data . 44 2.3.2 Dependent variable and analytical technique . 46 2.3.3 Independent variables 49 2.3.4 Control variables 54 2.4 Results 57 2.4.1 Tests of hypotheses—signaling effects 57 2.4.2 Tests of hypotheses—national boundary and heuristics in knowledge search . 62 2.4.3 Tests of control variables . 63 2.5 Discussion 66 2.6 Conclusions 68 Appendix 2-A: Descriptive Statistics and Correlations for Variables in Chapter 72 Appendix 2-B: USPTO Orders between 1999-12-31 and 2004-12-31 . 73 III Chapter 3: Learning Approach, Learning Locus and Product Innovation: A Longitudinal Study of the Relationship between Knowledge Search Processes and New Product Introductions in the Disk Drive Industry 74 3.1 Introduction 74 3.2 Theory and Hypotheses 77 3.2.1 Specific knowledge and generic knowledge 77 3.2.2 Learning approach and learning locus: a typology 82 3.2.3 Learning strategy and product innovation . 86 3.2.4 Hypotheses . 87 3.3 Methodology 94 3.3.1 Sample and data . 94 3.3.2 Innovations in rigid disk drive industry 1979-1998 . 98 3.3.3 Measures 100 3.3.4 Statistical method and analysis 108 3.4 Results 109 3.4.1 Hypothesis tests . 109 3.4.2 Robustness checks and additional tests 114 3.5 Discussion 118 3.6 Conclusions 119 Appendix 3-A: Descriptive Statistics and Correlations for Variables in Chapter 123 Chapter 4: Integration of the Two Essays and Contributions to the Literature . 124 4.1 An integrated framework and the position of my thesis in this framework . 124 4.2 Contributions to the Literature . 128 BIBLIOGRAPHY . 131 IV LIST OF TABLES Table - 1: List of prior studies and the unanswered questions in the field of organizational learning and knowledge management 10 Table - 2: Summary of the two essays 18 Table - 1: Frequency of events per patent 48 Table - 2: Definition of independent variables and control variables . 52 Table - 3: Tests for hypotheses—signaling effects . 59 Table - 4: Additional tests of signaling effects by using alternative variables 61 Table - 5: Tests for hypotheses—signaling effects across national boundary 64 Table - 1: Firms in the sample (72 firms) . 96 Table - 2: Specific technology of magnetic rigid disk drive 97 Table - 3: Generic technology of magnetic rigid disk drive . 97 Table - 4: Six waves of architectural change from 1979 to 1998 100 Table - 5: Names and definitions of variables 101 Table - 6: Learning impact on subsystem improvements . 111 Table - 7: Learning impact on architectural changes . 113 Table - 8: Robustness checks (learning impact on subsystem improvements) 116 Table - 9: Robustness check (learning impact on architectural changes) . 117 V LIST OF FIGURES Figure - 1: Hypotheses model of essay 43 Figure - 2: Spell construction 51 Figure - 3: Geographic distribution of patents in information storage and communication industries 57 Figure - 1: A typology of learning strategies 82 Figure - 2: Hypothesized relationships between learning strategies and new product innovation 94 Figure - 3: Number of rigid disk drive manufacturers worldwide from 1979 to 1998 99 Figure - 4: Seagate and Toshiba’s learning strategy 1979-1998 . 106 Figure - 1: Integrative framework for organizing literature of organizational learning and knowledge management . 125 VI SUMMARY This thesis examines the relationship between knowledge search, learning strategies and product innovation. Prior research has emphasized that the acquisition of knowledge from external sources is crucial to product innovation. Such innovation is a central mechanism through which firms adapt to changing market and technological conditions (Argote et al, 2003; Kogut and Zander, 1992). This thesis explores the heuristic rules that drive a firm' s search for external knowledge across organizational and geographic boundaries, and how learning strategies affect firms’ product innovations. The chief contribution of this thesis is the conceptualization of different types of heuristic rules in knowledge search and learning strategies for product innovation. It also contributes to the literature by filling in a number of empirical gaps in the area of organizational learning and innovation. While a key function of firms’ R&D is to combine and recombine knowledge that is generated both internally and externally, it is much more difficult for firms to identify, assess and absorb externally generated knowledge. This is because of limitations in their resources, bounded rationality (Simon, 1991; March, 1994) and incomplete information. In the first essay (Chapter 2), I investigate the heuristic rules that guide a firm’s knowledge search across organizational and national boundaries. Based on a review of extant research, I propose that the heuristic factors followed by knowledge seeking firms can be classified into two groups with distinct theoretical basis. I further examine how national boundaries alter the relative strength of each group of factors. To empirically test my theory, I trace inter-firm patent citations of 182 firms in the information storage and communication industries over 20 years. The analysis shows that heuristic factors derived from a knowledge originating firm’s previous innovations become less effective when the knowledge search is conducted across national boundaries. In contrast, factors based on a high status third party’s recognition strengthen when geographic distances increase. The second essay (Chapter 3) presents a longitudinal study of the relationship between firms’ learning strategies and their product innovation. A typology of learning strategies is proposed that considers both learning approaches (“explorative learning” or “exploitative learning”) and learning locus (“specific knowledge” or “generic knowledge”). I further examine the comparative effects of different learning strategies under different product innovation requirements (subsystem improvement or architectural innovation). By tracing the new product information of 72 manufacturers in the magnetic rigid disk drive industry over 20 years, and using patent citation data to measure firms’ learning strategies, I find that learning approaches and learning loci jointly influence firms’ product innovation. Specifically, exploitative learning in specific technologies creates the highest impact for incremental subsystem improvement. However, when the innovation is architectural, absorbing new knowledge in the generic technology areas becomes the most impactful learning strategy. Chapter 1: Introduction This chapter reviews the organizational learning and knowledge management literature, introduces the thesis, summarizes the key findings, and provides an organizing framework for the following chapters. 1.1 Theoretical Background and Motivations There has been dramatic increase of interest in the issues of organizational learning and knowledge management in recent years, from both academics and practitioners. On the practical side, the increased competition, dynamic market shift, technologies proliferation, globalization and almost overnight obsolescence of products brought the issues of organizational learning and knowledge management to the center stage for organizations. Successful companies are those that consistently absorb and create new knowledge, disseminate it widely throughout the organization, and quickly embody it in new technologies and products (Nonaka and Takcuchi, 1995). 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Management Science 52(8), 1185-1199. 146 [...]... effects of learning locus and learning method on firms innovation performance, especially in the context of product innovation This is therefore the focus of my second essay of this thesis 1.2 Overview of the Thesis This thesis consists of two essays, each of which focuses on different learning aspects Together the studies fill several conceptual and empirical gaps in the organizational learning and knowledge. .. organizations retain the knowledge they absorb and create? How is knowledge transferred within and across organizational and national boundaries and what factors facilitate the transfer? How does learning lead to better performance, e.g financial performance and product innovation? 1.1.1 External, internal learning and knowledge search The balance of external learning and internal learning is one of the... Differentiating learning locus within a firm’s knowledge base not only advances our knowledge of how a firm’s knowledge base is constructed, but this new construct complements the existing construct of exploration and exploitation in explaining firms learning behaviors While the construct of exploration and exploitation emphasize the learning method, the learning locus emphasizes the content of learning. .. processes of learning and knowledge transfer and their effects on organizational outcomes, but also how learning strengthens firms competitive advantages (Argote and Ingram, 2000; Helfat 2000, Kogut and Zander, 1996) The fundamental set of questions asked in the research on organizational 5 learning and knowledge management include: How do organizations search for both internal and external knowledge and what... should firms adjust their learning approaches and learning loci in the face of differing product innovation requirements? New product introductions are essential for firms to adapt to changing market and technological conditions, yet few studies have directly examined the learning effects on new product introductions2 More importantly, new product innovations are heterogeneous in nature Some new products... treating new product introductions as homogenous may lose the information on different innovation requirements and lead to mixed results of learning effects Another important phenomenon observed by previous studies is that firms tend to expand their knowledge boundaries beyond their product domain (Brusoni and Prencipe, 2001; Granstrand, Patel and Paitt, 1997) This implies that learning occurs not only within... The relationship between exploration / exploitation and new product innovation, what is the introduction: most effective learning under different Firms that explore are more likely to generate innovative technologies strategy Firms that exploit introduce new technologies more frequently innovation requests? Baldwin & Clark (2000) Product innovation can be categorized as modular innovation and Tushman... Exploitative learning of specific knowledge has the highest impact for subsystem improvement among all four different learning strategies Explorative learning of generic knowledge has the highest impact on architectural innovation among all four different learning strategies Introduce learning locus as a separate, independent concept to the existing exploration vs exploitation construct and enhance... industry These continuous innovations at both subsystem and architectural levels in this industry make it a suitable setting in which to test the learning effects on product innovations The results show that subsystem improvements and architectural changes require very different learning strategies When the innovation is on the subsystem level and is focused on improving existing products, learning that... Hypotheses Organizational and national boundaries as constraint of knowledge search The organizational learning literature suggests that firms have a propensity 28 to engage in “local” search (March and Simon, 1958; Nelson and Winter, 1982), both organizationally and geographically (Stuart and Podolny, 1996; Rosenkopf and Nerkar, 2001; He, Lim and Wong, 2006) While local search retains firms expertise . external knowledge across organizational and geographic boundaries, and how learning strategies affect firms product innovations. The chief contribution of this thesis is the conceptualization of. (1988) Henderson & Clark (1990) Product innovation can be categorized as modular innovation and architectural innovation, depending on whether the innovation occurs on components or the. presents a longitudinal study of the relationship between firms learning strategies and their product innovation. A typology of learning strategies is proposed that considers both learning approaches