Introduction
The primary thesis of this research is that the boundaries of an organization’s efficiency are always shifting. This article uses theories from dealing with cost economics and the cognition-based theory of the company to show that following a technological revolution that wipes out enterprises’ and suppliers’ competence, the survivors will be the ones with vertical integration into the new technology. Companies that had invested heavily in the vertical integration of outdated technology would also see lower returns. This essay stresses the significance of technological advancements in retrofitting (Afuah, 2001). According to his theory, businesses that have adopted new technologies and are vertically integrated will thrive, while those that have not will struggle. This article also demonstrates how the underlying technology of a company’s capabilities and products typically transitions from a state of flux and high uncertainty to incremental innovation and low uncertainty. It demonstrates how businesses must adapt to technological change by learning about and using novel technologies. Moreover, it delves into why and how computer workstation manufacturers have embraced reduced instruction set computing.
Model, Hypothesis & Methods
Model
Products A, B, and C form a system that serves as the basis for the model. The product is assembled by two workers, X and Y. X may design and manufacture component A in-house, while Y must get it from the market. The group inside X responsible for creating Part A has acquired, through trial and error, the knowledge necessary to develop Part A and to collaborate with the group within X accountable for creating the system employing Parts A, B, and C. The assembler group is internally connected to the component group in X (Afuah, 2001). The system group at X has honed its knowledge and expertise to better collaborate with the component group at X. Parallel to X’s efforts, Y has honed the competence and expertise necessary to acquire A commercially. Some of A’s vendors could also provide content tailored to Y’s needs.
Hypothesis
Hypothesis 1
In the wake of a technological shift that destroys suppliers’ competency in providing a key component, established businesses that were more deeply embedded in the prior technology’s supply chain tend to do poorly than those that were not. Companies that manufacture carburetors via vertical integration are predicted to underperform than those that do not exist in this hypothesis because of the advent of electronic fuel injection as a new technology.
Hypothesis 2
Companies that have begun perpendicularly integrating into the new technology before a technological shift eliminates suppliers’ expertise in producing a key component and will fare better than those that have yet to.
Hypothesis 3a
After a technological transition that destroys competency for suppliers of a crucial component, incumbent businesses vertically integrated into the prior technology but not vertically integrated into the new technology would fare the worst.
Hypothesis 3b
Suppose a technological shift causes large component suppliers to lose their expertise. In that case, the incumbent enterprises who were not vertically entrenched in the previous technology but are now in the new technology will fare the best.
Methods
To test the predictions, researchers analyzed the rise of RISC computer workstations as the industry shifted from supporting complex to simplified instruction sets.
Key Findings
- The most successful companies in the face of technological development that destroy their and their suppliers’ expertise have been intertwined up and down into the newest technology, producing an “efficient frontier.”
- In the age of constant technological advancement, businesses must be ready to adapt to both gradual and sudden shifts in the industry.
- Businesses need flexible capacities that let them rapidly develop the appropriate skills for the variety of changes they must adapt to.
Article 2
Absorptive Capacity: A New Perspective on Learning and Innovation
Introduction
The article’s main argument is that a business can only be innovative if it recognizes the value of new information from other sources, assimilates it, and puts it to use. First, the essay examines the mental foundations of one’s receptive skills, such as familiarity with the topic and the breadth of one’s life experience. The article defines what influences an organization’s absorptive capacity, how it varies from the total of its members, and the value of having a wide range of knowledge. It argues that putting resources into a certain topic at a young age might stunt that field’s eventual growth of technical knowledge and that the maturation of one’s ability to absorb information and, in turn, perform creatively are path- or history-dependent. (Cohen & Levinthal, 1990). This article examines the role of absorbent ability in evaluating central research, the uptake and spread of creativity, and the choice to participate in collaborative R&D projects. This article demonstrates how a company’s history in Production gives it the context to understand the benefits of and put strategies for reorganizing or automating specific manufacturing processes into practice.
Model, Hypothesis & Methods
Methods
Cross-sectional survey data, which depends on technical possibility, was utilized to test the predictions. Industry mean scores were calculated by averaging responses from all respondents within an industry to reveal disparities in technical possibility and appropriability across sectors. Three hundred eighteen companies and 151 industries are represented among the 1,719 businesses in the sample (Cohen & Levinthal, 1990). Also utilized were generalized least squares (GLS) with an adjustment for heteroscedasticity and the Tobit technique.
Model
The concept is based on a static ratio of R&D spending to revenue (a company’s “R&D intensity”). This framework is built on the three groups of industry-level drivers of R&D intensity that are generally agreed upon by practitioners of applied economics: demand, appropriability, and technical opportunity conditions.
Hypothesis
The -model presupposes, centrally, that a business may take advantage of its rivals’ research results by interacting between its absorptive capacity and the spillovers of its rivals. Another theory suggests that a wide range of experiences and perspectives can serve as a solid foundation for learning in situations where it is unclear which areas of expertise will yield valuable insights. This is because there is a greater chance that new information will build upon prior understanding (Cohen & Levinthal, 1990). Another argument is that as an organization grows in size and complexity, its members will become more conscious of the skills and expertise of others around them.
Key findings
- There are significant delays in integrating new technical workers, especially those working with process and product development. The amount of external contact and communication with other project groups decreases with project-group tenure.
- How well a new development fits into people’s established frameworks of understanding significantly impacts how quickly it will be adopted.
- Companies do take into account the features of their local learning environment. Therefore, absorptive ability is included in a company’s decision equation when allocating resources for innovation.
References
Afuah, A. (2001). Dynamic boundaries of the firm: Are firms better off being vertically integrated into the face of a technological change? Academy of Management Journal, 44(6), 1211-1228. doi:10.5465/3069397
Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128. doi:10.2307/2393553
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