Technological Uncertainty and Firm Boundaries: The Moderating Effect of Knowledge Modularity

IEEE Transactions on Engineering Management, Forthcoming

40 Pages Posted: 22 Dec 2016 Last revised: 26 Dec 2016

See all articles by Sebastian K. Fixson

Sebastian K. Fixson

Babson College - Technology, Operations, and Information Management Division

Davit Khachatryan

Babson College - Mathematics and Science Division

Wonhee Lee

Samsung Economic Research Institute

Date Written: November 1, 2016

Abstract

One fundamental challenge of technology and innovation management is for firms to decide which future technologies to develop in-house vs. buying them outside. This challenge is particularly pertinent when industries emerge, typically a time of high levels of technological uncertainty. It has been long understood that technological uncertainty functions as important stimulus for firms to manage their boundaries. However, two to some extent competing strategy perspectives – governance and competence – predict that firms faced with uncertainty would either increase or decrease their scope of activities, respectively. To reconcile these conflicting positions, we propose a model in which knowledge modularity moderates the effect of technological uncertainty on firms’ R&D scope decisions. We develop new measures for R&D scope, knowledge modularity, and technological uncertainty, drawing on population ecology, network theory, and technology management. We test our model empirically using data on patenting activity and firm boundary location in the emerging automotive airbag industry. Our results generally support our model, and show that in case of knowledge-generating activities such as R&D, scope decisions under technological uncertainty are more driven by concerns about the risk of obsolescence than the risk of opportunistic behavior. We discuss implications for managerial practice and future research.

Keywords: Modularity, Technological uncertainty, Technology management, Firm boundary, Complex technological products, Industry emergence

JEL Classification: D22, D23, D83, L22, L62, O32, O34

Suggested Citation

Fixson, Sebastian K. and Khachatryan, Davit and Lee, Wonhee, Technological Uncertainty and Firm Boundaries: The Moderating Effect of Knowledge Modularity (November 1, 2016). IEEE Transactions on Engineering Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2888522

Sebastian K. Fixson (Contact Author)

Babson College - Technology, Operations, and Information Management Division ( email )

231 Forest St.
Babson Park, MA 02457
United States

Davit Khachatryan

Babson College - Mathematics and Science Division ( email )

Babson Park, MA 02157
United States

Wonhee Lee

Samsung Economic Research Institute ( email )

28~31th Fl., Samsung Life Seocho Tower
1321-15, Seocho 2-dong, Seochoro 402, Seocho-gu
Seoul, 137-072
Korea, Republic of (South Korea)

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