Know-How and Asset Complementarity And Dynamic Capability Accumulation: The case of R&D

1. Know-How and Asset Complementarity And Dynamic Capability Accumulation:The case of R&D Constance E. Helfat– 1997, SMJ

2. Dynamic Capabilities • Dynamic capabilities – “The subset of the competences/ capabilities which allow the firm to create new products and processes and respond to changing market circumstances” (Teece & Pisano) • The Question - “When firms seek to alter their stock of knowledge in response to change in the environment, do such efforts depend on the firms’ existing stocks of complementary know-how and other assets?”

3. The Study • 26 largest US energy firms (1976 to 1981) • Experienced two large spikes in oil price & OPEC supply restrictions • Industry responded in many ways, including research into synthetic oil production • Efforts to create new processes and products involved a high amount of rapid R&D investments

4. R&D: Conventional vs. Novel • Two types of R&D • The attempt to make incremental improvements to conventional technologies • The attempt to create major improvements to less developed technologies • The US energy industry spent time and money on both • Conventional – Resource location & extraction • Novel – Gasification/liquefaction • Nearly 6x was spent on coal over shale or tar

5. R&D: Conventional vs. Novel

6. Hypotheses 1a: Firms that had larger stocks of knowledge from past refining R&D were likely to have undertaken larger amounts of coal gasification/liquefaction R&D 1b: Firms that had larger accumulated refinery assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D 1c: Firms that had larger stocks of knowledge from past R&D on other synthetic fuels were likely to have undertaken larger amounts of coal gasification/liquefaction R&D 2: Firms that had larger accumulated coal assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D Basically: Dierickx and Cool were correct in saying that ‘firms must accumulate assets such as technological expertise over time (by undertaking R&D) and that increments to asset stocks may depend on the level of complementary asset stocks within the firm’.

7. Variables Tested

8. Regression Findings • R&D into coal conversion rose during 1976 through 1981, partly in response to higher oil prices • The industry as a whole looked to benefit from complementary knowledge acquired from past refining R&D (rather, prior refining knowledge led to greater R&D spending) • Larger preexisting stocks of coal assets led to higher coal conversion R&D spending • Prior R&D into coal conversion had a significant impact on coal conversion R&D spending

9. Results 1a: Firms that had larger stocks of knowledge from past refining R&D were likely to have undertaken larger amounts of coal gasification/liquefaction R&D 1b: Firms that had larger accumulated refinery assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D 1c: Firms that had larger stocks of knowledge from past R&D on other synthetic fuels were likely to have undertaken larger amounts of coal gasification/liquefaction R&D 2: Firms that had larger accumulated coal assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

10. Conclusion • In response to rising oil costs, firms with larger amounts of complementary technological knowledge and physical assets also undertook larger amounts of R&D on coal conversion • For the large diversified US energy firms, novel R&D benefited from complementary R&D-based knowledge and assets • Results of this study may not apply to smaller, more focused firms performing R&D • Results may also not hold outside of the unique environment experienced by energy firms during the 1970s energy crisis