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Research Summary

Riitta Katila My research lies in the intersection of technology, innovation, and business strategy. My research philosophy is to investigate relevant, high-impact problems that engineering and technology-based firms face in the area of innovation and technology strategy, and combine theory with longitudinal large-sample data, background fieldwork, and state-of-the-art quantitative methods. My work focuses on strategies that enable organizations to discover, develop and commercialize technologies. In particular, I study such strategies in established firms (those typically large and rich in resources), which often innovate too little and too late, despite substantial investments in R&D. The goal is to understand how established technology-based firms can become more successful at innovation. To answer this question, I conduct research on two interrelated streams: (1) strategies that help firms leverage their existing resources (my leverage stream of research), and (2) strategies through which these firms can acquire new resources (my acquisition stream of research) to create innovation. My contributions redefine the role of existing resources and show their value for innovation (Stream 1), and identify how the success of resource acquisition depends on other organizations such as acquisition targets, alliance partners, and industry rivals (Stream 2). Figure 1 summarizes the research questions I have addressed and the articles in which I have addressed them. Research Stream 1: Leveraging Existing Resources An intriguing paradox of innovation is that established firms often own the technical resources necessary for innovation but do not fully use them. In fact, firms often undervalue what they already have. My work explores how firms can leverage their existing resources better and thus contradicts the long-held belief that new resources are the primary, if not the only, source of innovation. In particular, I focus on three issues: innovation strategies that combine new and existing resources (Katila and Ahuja, 2002), the unexpected potential of existing resources (Katila, 2002), and environments in which it is most advantageous to use existing resources to innovate (Katila and Shane, 2005; Katila and Chen, 2009). The key implication of my findings for technology-based companies is to differentiate not only by exploring the new (i.e., finding the next new technology), but also by mastering the old. Something Old, Something New in Academy of Management Journal (the first paper in Stream 1), changed thinking about the role of existing resources in the innovation process. In particular, the study showed that firms that introduce the most new products do so by leveraging a combination of existing and new technology resources, not by relying solely on new resources. This finding was influential because research had focused on the dysfunctions (such as inertia) but not the benefits of existing resources. New Product Search Over Time: Past Ideas in Their Prime? in Academy of Management Journal demonstrated that the role of existing resources was much richer and more versatile than previously thought. By comparing resources from different sources, this study showed that existing resources have unexpected value for innovation. Whereas resources that came from competitors depreciated quickly, and resources that originated from outside the industry gained value slowly, the firms existing resources were an unexpectedly flexible source of innovation that could be redeployed over time for a variety of uses. The research sample in these studies was 12 years of longitudinal data on 124 robotics firms in U.S., Europe and Japan. The study used a novel method: Measures of technological resources (patents) were combined with success-based measures of commercialization (products), thus tracking an innovation from its invention to its introduction in the market. Longitudinal studies usually focus on one or the other, but do not link the two. 1

Two recent papers in this stream, When Does Lack of Resources? and Effects of Search Timing have started to set the necessary boundary conditions on reusing existing resources. For example, Effects of Search Timing, in Administrative Science Quarterly was based on a simple yet potentially powerful idea: Established firms do not innovate in isolation but in a dynamic interaction with their competitors. The study thus focused on an overlooked but important boundary condition for leveraging existing resources: competition. In particular, the main finding was that firms that leveraged their existing (rather than new) resources out of sync (but not in lock step) with their competitors created the most innovative blockbuster products. The implication was that innovation does not require new resources, rather, it pays to differentiate from the opponent. The research sample in Effects of Search Timing extended my original robotics sample to a longer time period (15-years of longitudinal data) and novel measures of innovation (such as design-based measures of blockbuster products). The data were also unprecedented because instead of focusing on a small set of competitors in an oligopolistic setting, competitive interactions of over 100 firms in an industry were analyzed. I am currently extending this research on robotics as an Alfred P. Sloan Industry Studies Fellow. Research Stream 2: Acquiring New Resources My second stream of research focuses on how established firms can improve innovation by acquiring new resources. The central challenge facing scholars of innovation is to better understand why such efforts often fail (for example, why more than half of all acquisitions and alliances are ineffective), and how to reduce the failure rate. Prior research has sought to explain failure by studying the characteristics of the established firm that is acquiring resources; for example, the firms degree of experience. My contribution is to show that successful acquisition of resources also depends on anticipating the other firms perspective an insight that arose directly from the work in my first stream of research. Because target firms that own the best resources have many potential suitors, the firm that is acquiring the resources needs to identify what makes it a uniquely attractive buyer. It needs to understand its own resources (Stream 1) and to identify which of its resources the other side needs (and other buyers do not provide). Therefore, in this stream I focus on understanding those third parties that provide or co-create the resources with established firms, such as acquisition targets (Ahuja and Katila, 2001), alliance partners (Katila and Mang, 2003; Katila, Rosenberger, and Eisenhardt, 2008) and users (Ahuja and Katila, 2004). The first paper, Technological Acquisitions and Innovation in Strategic Management Journal was a study of resource acquisition through technology acquisitions. This study was the first to show that in contrast with the commonly held belief that firms cannot become more innovative by acquiring other firms, acquisition targets that were moderately related in technology and of small size (i.e., carefully matched targets) actually made the acquiring firm more innovative. These targets were easier to integrate and yet able to create innovation value. To make our point, we tracked the performance of 1,287 acquisitions in the worldwide chemicals industry over time. Specific measures of technology were developed to quantify the resource positions of both the acquirer and the acquired. This study appeared as a lead article in the Strategic Management Journal, and its results were reviewed in the MITs Sloan Management Review. Two recent and related papers, Timing of Collaborations and Swimming with Sharks focused on another path through which established firms can acquire new resources, i.e., inter-organizational relationships with young firms. These papers emphasized the need to understand resource acquisition from the perspective of both partners: For collaborations to be more fruitful, established firms need to take the time to get to know their young partners. In particular, Swimming with Sharks, in Administrative Science Quarterly centered around established firm investments in young firms (i.e., 2

corporate venture funding relationships). By challenging the common assumption that such successful investment relationships were akin to financial transactions, the study discovered that success depended on understanding the partner perspective, i.e., what the young firm was hoping to gain from the investment, and anticipating the ways in which it tries to protect its resources. The main finding was that unique and reciprocal resource exchange rather than one-sided investment was necessary to woo the young firms with the best technology. Swimming with Sharks reported on corporate investments in 701 new firms in five high-technology industries (medical, biotechnology, communications, electronics, and software) over a 25-year period. This multi-industry sample was combined with extensive fieldwork to create a uniquely comprehensive dataset. Supported by the National Science Foundation, I am currently extending my research on resource acquisition by incorporating the effects of different environments. Summary of Research Contributions Theoretically, my work focuses on the difficult but important problem of established firm innovation. This is an especially relevant question for many large engineering and technology-based firms. These firms often struggle to stay innovative, and look for ways to improve the predictability and effectiveness of their innovation processes. My research contributes an evolutionary perspective on the issue. More specifically, I have developed theory in two directions. The first is to uncover the potential of existing resources for innovation; the second is the insight that successful resource acquisition requires understanding the perspective of others. Methodologically, there are several contributions. First, I have introduced several new measures that make studying complex innovation behaviors tractable such as the patent-based measures of search depth and search scope. I have also introduced new measures of product innovativeness using design characteristics of products. Overall, I measure technological resources using traditional patent-based measures, and uniquely combine these measures with new product and sales-based measures of commercialized innovation. Second, I employ a unique combination of methods (e.g., statistical largesample data analysis and simulation) that enables an in-depth analysis of innovation. Third, I have conducted research in multiple high-technology industries, including single-industry studies in industrial robotics, chemicals and biotechnology, and multi-industry studies in electronics, computer, telecommunications, software, and medical industries. This combination of research settings makes the results generalizable, and makes it possible to identify technology-specific patterns that would not be observable in a single setting.

Figure 1. Research Streams and Related Articles: Innovation in Established Technology-Based Firms

1. How should technology firms leverage existing resources?

2. How should technology firms acquire new resources?

Something old, something new Katila & Ahuja 2002 AMJ

Technological acquisitions and innovation Ahuja & Katila, 2001 SMJ

Search over timePast ideas in their prime Katila 2002 AMJ

Timing of collaborations Katila & Mang 2003 RP

When does lack of resources? Katila & Shane 2005 AMJ

Swimming with sharks Katila, Rosenberger, & Eisenhardt, 2008 ASQ

Not being in sync Katila & Chen 2009 ASQ

Where do resources come from? Ahuja & Katila 2004 SMJ