Servant Firms in Drug Discovery: a Neglected Project Based Organizational Form

Abstract

This paper seeks to clarify the theory of project based organisations by highlighting a previously overlooked organizational form - temporary project based firms that are valued for their capabilities rather than their products. Such firms exhibit different characteristics from firms in existing typologies that focus on firms producing products, or subsystems of products, for a profit. ‘Servant firms’ by contrast create value by developing project capabilities, externally for their acquirers, and capture value as a capital gain for their investors at acquisition. The paper positions the firms in a new theoretical typology that is supported by a detailed study of five UK drug discovery firms that serve as examples of our typology in action. We also use our analysis to solve some empirical puzzles, such as why the biotech sector has attracted so much investment despite the dire profitability of so many of its firms.

Keywords: Project Based Organising, Biotechnology

JEL Classification: M10