Decomposing Technological Change at the Twilight of the Twentieth Century: Evidence and Lessons from the World's Largest Innovating Firms

By Mendonça, Sandro; Fai, Felicia | Innovation : Management, Policy & Practice, October 1, 2007 | Go to article overview

Decomposing Technological Change at the Twilight of the Twentieth Century: Evidence and Lessons from the World's Largest Innovating Firms


Mendonça, Sandro, Fai, Felicia, Innovation : Management, Policy & Practice


(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

The last decades of the twentieth century were turbulent for the capitalist economic system. These dramatic, hectic times were characterised by the twin phenomena of global competition and technological revolution. How industries reacted to, adapted to, and took advantage of these intertwined and unfolding transformation processes remains a poorly understood question.

This paper attempts to exploit the advantages of fresh hindsight to shed some light on the knowledge dynamics of broadly defined industries as characterised by the world's largest innovative companies over the course of the 1980s and 1990s. As time moves on and we gain distance from this defining period of recent history it becomes pertinent to uncover new insights into what really happened across industries in dynamic markets in the wake of rapidly mutating knowledge bases. To this end, we mobilise data pertaining to over half a million patents by 463 globally oriented and technologically active US, European and Japanese firms. To this raw material we apply a well known technique traditionally applied in the field of empirical international economics, but still largely under-utilised in the context of neo-Schumpeterian analysis of technological capabilities: structural decomposition analysis.

What we observe is evidence of a strongly stylised fact of contemporary industrial change that has been captured in a number of other investigations (e.g. Granstrand et al., 1997; Cantwell et al., 2004): the knowledge base of large manufacturing companies across industries has become more complex over time (Cantwell and Fai, 1999) and the management of innovation itself has become more complex. The sources of this complexity are attributed to the ever-increasing levels of technical sophistication in products (Brusoni et al., 2001) processes and the need to coordinate transnational networks of highly heterogeneous and dynamic component suppliers (Mendonça, 2005). Notwithstanding, what we begin to unveil are industry specific patterns of response to the new technological challenges. Using structural decomposition analysis (SDA) we are able to identify information and communication technologies (ICTs), New Materials, and Pharmaceutical & Biotechnology as the most subversive technologies to challenge the a priori industrial knowledge profiles. We are also able to assess the extent to which different industries facing this shifting technological landscape responded by internally nurturing those disruptive new technologies.

The next section sets the basic theoretical underpinnings upon which this research rests. Section 3 describes the data, section 4 the methodology, and section 5 discusses the results. The novelty of paper consists in the application on the SDA method to unpacking the technology diversification phenomenon (subsection 5.1), and in the specific application of the method to the technology fields (subsection 5.2). Section 6 offers some concluding comments.

2. TECHNOLOGY STRATEGY FOR SCHUMPETERIAN SELECTIVE ENVIRONMENTS

Simply stated this paper sees the large global innovating industrial firm as a system of technologies evolving in different directions and at different rates. Building on Freeman's (1987) and Lundvall's (1992) systemic view of technical change, we assume that innovative business organisations may be regarded as open systems of innovation. For the strict purposes of this paper, a corporate innovation system will be understood as the intertwined set of activities and interactions that allow the organisation as whole to develop new technologies, products, markets and new ways of conducting business.

This general framework is given empirical substance by a body of applied work which has denoted the major business organisations of the contemporary economy as multi-technological corporations. The key observation in this literature, pioneered by Granstrand and Sjölander (1990) and Patel and Pavitt (1994), is that modern industrial firms are characterised by internal variety in their technological capabilities, harbouring technologies that go well beyond those directly related to their major product lines. …

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