Branching out

What happens when a company transforms its technological capabilities by entering a "new to the firm" niche?

What happens when a company transforms its technological capabilities by entering a "new to the firm" niche?
Branching out

In this interview, Gerry George, an associate professor of entrepreneurship at London Business School, tells Georgina Peters about a long-terms study to find the conditions that most favour branching out as a probable path towards innovations.

What was the goal of your research?

Basically, Yanfeng Zheng of Clemson University, Reddi Kotha of London Business School, and I wanted to determine the extent to which expansion of technological capabilities impact a firm’s innovative activity, especially a start-up firm. Old or new, when a company enters a “new to the firm” technological niche, either by invention or acquisition, we called that “branching”. In all, we analysed data from 128 public and private biotechnology firms over 20 years, beginning with their start-up phase.

You also focused on “branching distance”. What is that?

That is simply the distance of a firm’s technical exploration from where it is now. For example, if a company is adept at making a simple vaccine for a known virus – and then explores how to integrate an untested technology for curing a remote type of cancer – that would be extreme branching distance.

Why is this important?

It’s very important, and not just for start-ups. Every company, if it desires to grow (and what company does not?) must decide whether to stand on the technology upon which it was founded or to jump into new technologies. Even a company in a basic industry must confront this question. In the field of biotechnology, the question is one that is constantly confronted, by necessity.

Isn’t the answer, then – especially in high-tech companies – always going to be: “Yes, we have to move into new technologies”?

That may be the answer, but we found that this is not really the question. And this brings us back to branching distance. Yes, a company is always prudent to consider moving toward new technological knowledge in order to grow. But the question is how far it should explore. If a company’s inquisitive reach exceeds its grasp, it could lead either to a profound breakthrough or a profound setback. Branching is usually a given, but branching distance is the key to the puzzle. Have other studies affirmed branching as a good way to innovate? Yes. There has been much research on innovation. Several scholars have asserted that new knowledge is predictably created by unique recombinations of existing knowledge repositories. Thus, when “new to the firm” technology enters a company, it would appear logical that such a move increases the stock of opportunities to which the firm has access: the pieces of knowledge that the firm acquires in the new technical domain can then be recombined with its existing knowledge. Logically, there would be more variety in a company’s problem-solving capability, given the new technology and thinking about it. This could open up bottlenecks inside the company. In some cases, when new technology enters a company, the non-obvious applications of it can actually lead to a radical breakthrough in thinking. In short, the most reliable research shows that, when branching succeeds, it’s because organizational logjams in thinking have been opened or radical new thinking emerged.

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