THE EFFECTS OF KNOWLEDGE VERSUS PRODUCTION BOUNDARIES ON FIRM SURVIVAL THROUGH SYSTEMIC TECHNOLOGICAL CHANGE by Jean Lauren Woroniecki Bachelor of Science, Cornell University, 2005 Submitted to the Graduate Faculty of Katz Graduate School of Business in partial fulfillment of the requirements for the degree of Doctor of Philosophy University of Pittsburgh 2013 UNIVERSITY OF PITTSBURGH KATZ GRADUATE SCHOOL OF BUSINESS This dissertation was presented by Jean Lauren Woroniecki It was defended on April 22, 2013 and approved by Dissertation Advisor: Susan K. Cohen, Ph.D., Associate Professor, University of Pittsburgh Frits K. Pil, Ph.D., Professor, University of Pittsburgh Ravi Madhavan, Ph.D., Professor, University of Pittsburgh Mark Kryder, Ph.D., University Professor, Carnegie Mellon University Jorge Walter, Ph.D., Assistant Professor, George Washington University ii Copyright © by Jean Lauren Woroniecki 2013 iii THE EFFECTS OF KNOWLEDGE VERSUS PRODUCTION BOUNDARIES ON FIRM SURVIVAL THROUGH SYSTEMIC TECHNOLOGICAL CHANGE Jean Lauren Woroniecki University of Pittsburgh, 2013 Firms that develop complex products are at greater risk from systemic technological change, which alters the way product components work together, and can also affect the nature of demand for a product. We ask what combinations of knowledge and production boundaries best position firms that make complex products to survive systemic change. Some work suggests that vertical integration might improve survival but other research posits that maintaining broad knowledge boundaries could be sufficient, as it enables efficiency through outsourcing yet retains effectiveness in integrating component technologies. We propose that the answer depends on whether we focus on technological or market boundaries, and that while in general broad boundaries favor adaptation to systemic change, integrating downstream from manufacturing can hinder adaptation. In addition, we argue that integration into the manufacture of components may be more critical than is suggested in prior work. Our longitudinal study of systemic change in the hard disk drive industry provides preliminary support for these predictions. iv TABLE OF CONTENTS PREFACE .................................................................................................................................... IX 1.0 INTRODUCTION................................................................................................................ 1 1.1 THEORETICAL BACKGROUND ........................................................................... 5 1.1.1 Typology of Technological Change ................................................................ 5 1.1.2 Systemic Change's Effects on a Firm's Systems ............................................ 7 1.1.3 Systemic Change’s Effects on a Firm’s Technological Boundaries ............. 9 1.1.4 Systemic Change’s Effects on a Firm’s Market Boundaries ...................... 11 1.1.5 Adaptation through Knowledge and Production Boundaries ................... 13 2.0 HYPOTHESES .................................................................................................................. 16 2.1 TECHNOLOGY KNOWLEDGE AND PRODUCTION BOUNDARIES .......... 16 2.2 MARKET KNOWLEDGE AND PRODUCTION BOUNDARIES ..................... 19 3.0 METHODS ......................................................................................................................... 24 3.1 INDUSTRY CONTEXT ........................................................................................... 24 3.1.1 Manufacturing/Production of Disk Drives .................................................. 25 3.1.2 Firm Typology ................................................................................................ 26 3.1.3 Market Typology ............................................................................................ 27 3.1.4 Typology of Technological Changes in the Industry .................................. 28 3.1.5 Vertical Integration into Technology Production in the HDD Industry ... 31 v 3.1.6 Vertical Integration into Market Production in the HDD Industry.......... 34 3.2 SOURCES .................................................................................................................. 34 3.3 DEPENDENT VARIABLE ...................................................................................... 38 3.4 INDEPENDENT VARIABLES ................................................................................ 38 3.5 CONTROLS ............................................................................................................... 42 4.0 ANALYSIS AND RESULTS ............................................................................................ 44 5.0 DISCUSSION ..................................................................................................................... 59 6.0 LIMITATIONS AND FUTURE RESEARCH ................................................................ 63 APPENDIX A .............................................................................................................................. 66 APPENDIX B ............................................................................................................................ 103 APPENDIX C ............................................................................................................................ 107 BIBLIOGRAPHY ..................................................................................................................... 118 vi LIST OF TABLES Table 1. Examples of Qualitative Data Coded for Main Effects .................................................. 37 Table 2. Basic Statistics ................................................................................................................ 46 Table 3. Simple Correlations for Main Effects and Controls ....................................................... 47 Table 4. Survival Models .............................................................................................................. 51 Table 5. Simple Correlations for Matrices .................................................................................... 53 Table 6. Survival Models for Matrices ......................................................................................... 54 Table 7. Survival Models with Inverse Mills Ratio ...................................................................... 58 vii LIST OF FIGURES Figure 1. Organizational Systems/Functions Affected by Systemic Change ................................. 7 Figure 2. Chronology of Technological and Market Changes in the HDD Industry: 1977-2009 25 Figure 3. Form Factor/Architecture Introduction Dates ............................................................... 29 Figure 4. Component Change Introduction Dates ........................................................................ 31 Figure 5. An HDD Firm’s Vertical Boundary Choices in a Stable Environment........................ 33 Figure 6. An HDD Firm’s Reduced Vertical Boundary Choices after Systemic Change ........... 33 Figure 7. Lists of Established Firms at Beginning of Study, 1976 ............................................... 41 Figure 8. Percentage of Broad and Narrow Boundaries from 1976-1999 .................................... 52 Figure 9. Matrix 1 ......................................................................................................................... 55 Figure 10. Matrix 2 ....................................................................................................................... 56 viii PREFACE I first want to thank my mom, Colleen Woroniecki, who has always been my biggest supporter. I don’t know what I would do without you, I could never wish for a better Mom. I also want to thank my brother Eric and my aunts, uncles and cousins for always keeping me grounded and cheering me on. To my wonderful friends (Kate Kraszewski, Katie Miller, Darcie Gillespie, Danielle Devereaux, Mike Rose, Linda Camacho, Justin Henck, Lacey Halpern, Laura Siemers, Alisha Hart, Catherine Deneke, Christian Hughes, Jen Shloming, Mei Li)- I absolutely would not have gotten this far without your support, friendship, and kindness. To Whitney Douglas Fernandez, who is on his own PhD journey at Florida International University, I want to thank you for consistently making me feel better whenever there was a bump in the road (and there were many). To my professors at Cornell’s Hotel School and my former colleagues at Lehman Brothers, who have always gone above and beyond to give me help whenever I’ve asked for it. And finally, I want to acknowledge my dissertation committee members, especially my advisor, Dr. Susan K. Cohen, who have all been great sounding boards throughout my time in graduate school. ix DEDICATION This dissertation is dedicated to my cousin, Shaun Patrick Walsh (1985-2012), whose life was cut much too short. x 1.0 INTRODUCTION A small but promising stream of research has argued that firms can ‘know’ more than they ‘do’ and has suggested that this might be a beneficial configuration of organizational boundaries for complex products comprised of many component technologies (e.g. Brusoni, Prencipe, Pavitt, 2001; Granstrand, Patel, & Pavitt, 1997; Prencipe, 1997). While firms may be incapable of efficiently producing all of the components comprising complex products (i.e. they might lack the requisite scale or relevant skills), they nonetheless need to understand the component technologies to effectively