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Johannes M. Pennings and Farid Harianto Source: Organization Science, Vol CORE Metadata, citation and similar papers at core.ac.uk Provided by Research Papers in Economics Technological Networking and Innovation Implementation Author(s): Johannes M. Pennings and Farid Harianto Source: Organization Science, Vol. 3, No. 3, Focused Issue: Management of Technology, (Aug., 1992), pp. 356-382 Published by: INFORMS Stable URL: http://www.jstor.org/stable/2635278 Accessed: 09/04/2008 09:15 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=informs. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We enable the scholarly community to preserve their work and the materials they rely upon, and to build a common research platform that promotes the discovery and use of these resources. For more information about JSTOR, please contact [email protected]. http://www.jstor.org ORGANIZATION SCIENCE Vol. 3, No. 3, August 1992 Prinited int U.S.A. TECHNOLOGICAL NETWORKING AND INNOVATION IMPLEMENTATION* JOHANNESM. PENNINGSAND FARID HARIANTO The Wharton School, Universityof Pennsylvania, Philadelphia, Pennsylvania 19072 Institute P.P.M., Jakarta, Indonesia This paper presents a theory of innovation which presumes that new technologies emerge from a firm's accumulated stock of skills. Among these we distinguish technological and networking skills. We examine two aspects of innovating firms: their inclination to adopt a technological innovation, and their propensity to implement innovation alone or with other firms. Historical conditions pertaining to organizational skills are examined to account for these aspects. Among the most important are a firm's cumulative stream of technological projects that have some affinity to the new technology. A second important antecedent can be inferred from a firm's history of technological networking. Networking includes licensing, joint ventures and long-term contracts and can be formed for technological reasons, or for reasons having to do with the delivery of products and services. Networking is deemed important for facilitating access to strands of technology that are alien to a firm. Linkages are also conducive for contemplating strategic partnerships through which a firm can share the risks of innovation with others and which make such partnerships comparatively easy. The study examined a sample of United States commercial banks during the period 1977-1987, some of which were engaged in a new technology: home banking. The findings indicate that technological networking is the best predictor of technological innovation. They reveal also that firms with extensive networking are more likely to implement the innovation with strategic partners. Finally, the paper discusses the implications of the findings for organiza- tion design and proposes an expanded theoretical framework for organizational innovation. (INNOVATION; NETWORKING; NEW TECHNOLOGY; STRATEGIC ALLIANCES) Background Innovation in organizations follows from the skills or competencies which organiza- tions have accumulated over the course of their history. In the theory and research reported here, we start with this key assumption about innovation in organizations. The firm's stock of skills evolves from its past achievements, and, in turn, forms the foundation for a novel set of skills. Treating innovation as a developmental and ongoing phenomenon (Mohr 1982) should advance our understanding about its incidence. Central to the present study is the assumption that specific skills need to be present for an organization to implement a particular innovation. Although constrained, an organization can thus leverage its accumulated know-how to try out new ideas. The more a firm accumulates technological know-how, the better will be its capacity to innovate in the vicinity of that know-how. However, the stock of skills that can be leveraged by the firm to pursue innovations does not have an exclusive internal provenance. These skills might be complemented by extramural sources of know-how, leveraging the home grown skills all the more. This claim is particularly valid when innovations incorporate multiple technologies such as organic chemistry and molecular biology, or telecommunications and comput- ers. The absorption of external know-how is facilitated by the firm's own innovative efforts. For example, a pharmaceutical firm (with skills anchored in organic chem- istry) will have a better understanding of new developments in biotechnology if it *Accepted by Arie Y. Lewin; received June 1990. This paper has been with the authors for two revisions. 356 1047-7039/92/0303/0356/$01.25 Copyright ? 1992, The Institute of Management Sciences TECHNOLOGICAL NETWORKING AND INNOVATION IMPLEMENTATION 357 itself has engaged in such R & D. In addition, networking with firms in other industries enhances access to their technological know-how. External partners can provide complementary technology and may participate in strategic alliances to implement innovations spanning multiple technologies. Networking, like technologi- cal skills, is subject to learning; a firm's experience in dealing with external partners is therefore an integral component of its stock of skills. Networking requires us to examine the role of firm skills and innovation more carefully. Organizations often face the vexing choice of implementing innovation internally or through some external form. For example, some computer, banking and biotechnol- ogy firms have resorted to internal corporate ventures, while others have been prolific in forming all kinds of strategic alliances. There is a profound tension between these alternatives. A firm might be reluctant to relinquish control over innovative activities that are central to the maintenance of its competitive edge (Burgelman 1983). External implementation raises the danger of appropriability (Teece 1985), and provokes issues of ownership, governance structure and equity in the sharing of costs and benefits among the participating partners. In fact, internal implementation has been the rule and forms the basis of virtually all innovation research and theory. The choice between internal versus external form acquires additional significance when juxtaposed against the history of (inter)organizational skill building. Some firms have a tradition of solitary implementation and continue to preserve their exclusive control over current activities. Yet, when faced with new developments that require the integration of remote but indispensable strands of technology, a solitary firm may be hampered in its innovative efforts. Their competitors, with a history of networking, have a greater capacity to combine their proprietary technology with that of others. These latter firms might also have a greater propensity to innovate externally, since they are more familiar with forming strategic partnerships. These very considerations are central to the present study. Objectives The paper presents a theory on firm specific skills and innovation. Two problems are examined. First, we make an attempt to explain the incidence of a specific type of innovation due to the accumulation of firm specific skills. Second, we try to explain why firms innovate through some form of strategic alliance, while others choose to do so alone. We examine the firm's past, broken down into its technological experiences and interfirm networking, since we believe that their documentation informs us about competencies that explain a firm's propensity to innovate. A tally of these time- dependent competencies facilitates the explanation of innovation. They are also examined to account for the implementation of innovation in the form of internal corporate venture or strategic alliance. This approach required us to abandon a cross-sectional research tradition which is so common in innovation research. A longitudinal sample of organizations was obtained to examine how cumulative techno- logical skills and interfirm networking account for the rate and organizational form of implementation. The dependent variable takes, therefore, two forms: adoption of a new technology, and choice of structural arrangement (internal versus external) to implement the adoption. The research setting involves a sample of U.S. commercial banks, some of which have made attempts to introduce home banking. Home banking is a new technology. Its realization requires both banking and nonbanking skills and could therefore be labeled as "hybrid" innovation. Several technologies are being combined here, particularly telecommunication and computers with financial service delivery. Home banking is also a service that often is delivered through -an interfirm network, inducing banks to seek out partners to implement the innovation. Recently, the 358 JOHANNES M. PENNINGS AND FARID HARIANTO banking sector has shown an extensive amount of strategic partnering
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