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Interdependence and Innovation
Interdependence and Innovation
This article analyzes the relationships beyond the firm for their effects upon innova-
tion. It is argued that as technology becomes increasingly complex close interfirm
cooperation will be needed. In this study, twenty-two innovations were examined
particularly focusing on the interaction between the firm and the environment. It
was found that there was a significant correlation between innovation success and
the firms' use of other firms. The role of government, universities, and outside
inventors on innovation within the firm is also discussed.
I. I N T R O D U C T I O N
THE IMPORTANCE of the organization's dependency on external relationships
is receiving increased attention by authors. Similarly the subject of innovation
and the management of R & D has been the focus of many studies. The purpose
of this paper is to attempt to combine those two thrusts and consider the subject
of innovation by focusing on the firm's external linkages.
There are many examples in which the individual firm is no longer able to
have the necessary technological breadth essential for the development of
current complex products and processes. In the US a close working relationship
between K o d a k and Sylvania was necessary for the development of a highly
reliable flash cube for use with the 'instamatic' camera. Similarly a close organ-
izational interdependence exists today between the Zenith Radio Corporation
and the C o m i n g Glass Works for the development of a widely discussed new
color TV picture tube. This R & D project has involved an investment in excess
of $15 million to date.
I mean in no way to underestimate the importance of the firm's internal
organization and its effects upon innovation. Clearly, firm size, structure,
R & D intensiveness, source of ideas, degree of internal integration, as well as
other factors, are vitally important in affecting success or failure for R&D.
What I have set out to do in this paper is to add another dimension which I
feel has not received the attention that it should, namely the effects of external
linkages upon innovation within the firm.
1 Presented at the combined meeting of the Operations Research Society and the Institute
of Management Science, April 1976, in Philadelphia, PA.
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Gerstenfeld--Interdependence and Innovation
In doing so, I shall examine 22 innovations and trace the relationship beyond
the firm to outside entities. The particular external linkages that I shall consider
are:
• the firm's relationship with a university or consulting organization on a
particular R&D project;
• the firm's relationship with a government agency or laboratory on a
particular R&D project;
• the firm's relationship with other firms on a particular R&D project;
• the firm's relationship with an outside independent inventor on a parti-
cular R&D project.
The use of these external sources will be related to successful and unsuccessful
projects to enable the reader to focus on the possible value of particular inter-
organizational relationships for innovation.
lII. D A T A COLLECTION
The data was gathered by the author while teaching in West Germany and
partially sponsored under an NSF grant to the MIT Center for Policy Alterna-
tives. I limited my sample to the three most R&D intensive industries in West
Germany; namely, automotives, chemicals, and electronics. The total number
of companies interviewed was 11, although the total number of interviews was
55 or an average of 5 persons per firm. The interviews were with R&D managers,
engineers, and scientists.
While I used a carefully constructed and tested interview guide in the field
research, the range of questions usually discussed during the interviews was
more encompassing than that included in the formal interview guide. My work
was part of a large Five Country Study being conducted by MIT, but for the
purposes of this paper, I would like to focus only on the subject of the relation-
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Gerstenfeld--Interdependence and Innovation
ship between specific innovations and the firms' use of external sources. The
distribution of firms I investigated consisted of the two largest chemical com-
panies in West Germany, five automotive companies, and four electronics
companies.
The total number of innovations discussed during the interviews were 22, or
2 per firm and were generally more developmental than research oriented. The
critical incident approach was used, i.e. each firm was asked to describe a
successful and an unsuccessful innovation. For any number of reasons, res-
pondents might consciously or unconsciously bias their results when asked their
opinions concerning innovation and a firm's external linkages. To reduce this
bias, respondents were not asked for their opinions, but rather were asked to
recount what had happened in a specific incident. Innovation was defined as a
technological change that is new for the company.
For the definition of successful, the innovation was to have been complete,
the product or process on the market, or in use, with every expectation of
continuing sales [13]. The unsuccessful innovation was to have been a project
in which a minimum of one man year was expended and the project is now
stopped with no expectation of continuing. Each of the innovations was to
have taken place recently with no project starting more than five years ago.
The innovations are not necessarily representative. However, the critical incident
approach does permit one to examine certain relationships.
Although many questions were asked regarding the relationship between the
firm and the external environment for a particular innovation, the key questions
were as follows:
• For this particular innovation, was outside assistance sought from any of the following:
a. Universities and consulting organizations ?
b. Government organizations (agencies and laboratories)?
c. Other firms ?
• Did the idea for the project come from an outside inventor ?
more expertise inhouse, and, therefore, seldom used consultants for technical
problems. (It was, however, pointed out that the use of consultants for manage-
ment issues is common.) It must also be remembered that the companies
sampled were large and that for smaller companies, it is possible that different
findings might have resulted.
Other firms
It was found that outside assistance from other firms was used often and was
associated with successful projects in nine out of eleven successful innovations
(see Table 1). Needless to say, this may not be cause and effect, but the data
TABLEI. ASSISTANCE OF OTHER FIRMS IN INNOVATION
Project Project
success failure
Use of other firms 9 1 10
No use of other firms 2 10 12
11 11 22
The Fisher exact probability test shows P < 0.005.
seems to show a high use of other firms which is statistically significant. These
findings are consistent with Allen's findings showing the importance of outside
firms to innovation [I]. The use of other firms by the innovating firm was
generally a substantial part of the total research effort.
inventions is due to the fact that the companies sampled were large companies.
The argument was that large companies can afford their own inventors and
research groups so one might expect to find a low frequency of outside inventors.
That is, of course, possible, and one can only conjecture what the results would
be with smaller companies. My belief is that the use of independent inventors
is very limited although perhaps not quite as limited in small companies as in
larger ones. It has been found in other studies that 80-90 ~ of all inventions
are made by employed inventors [14].
Mansfield states, " . . . independent inventors continue to produce a significant
share of the important inventions, although their relative importance seems to
have declined." [7] I found that the decline is even more significant than
suggested, although none of the companies I interviewed were willing to close
the doors to the possibility of the use of outside inventions.
As another issue regarding the use of outside inventors, it is important to
consider that the invention is but a small part of the innovative process [3]. As
such, it represents a small portion of the cost of innovation. Since innovation is
defined as a given technological change, innovation can exist with or without
invention. Schmookler points out that "Society generally uses far more of its
resources to disseminate technology than to advance it. This is plain from the
far greater manpower, including that of students, devoted to formal and informal
technological education than to discovery and invention." [16] We can dis-
tinguish four kinds of technology-producing activities: research, inventive
activity, development, and marketing. It is clear that the inventive activity may
or may not be present in innovation, but the major costs are generally in
development and marketing. The firms may, therefore, hesitate to invest the
larger costs on a technological change from an outside invention in which they
have limited confidence. This is rightly so since the 'in-house' invention is better
understood by the personnel. Perhaps equally important is the strong commit-
ment that is concomitant with one's own invention. Funds can then be
invested in the more expensive portions of the innovative process.
The well established concept of internal commitment also adds to the diffi-
culty faced by the firms when trying to use outside inventions. It is too often
that this commitment is lacking when the invention is from the outside. In my
investigation of the cases in which an outside invention was used and the
project was unsuccessful, I had further evidence of the 'not-invented-here'
syndrome which I am afraid is still often used as the excuse for failure.
V. S U M M A R Y A N D CONCLUSIONS
This study focuses on the use of interorganizational links and innovation. It
was found that only a very small number of the projects studied used the direct
assistance of universities or consulting organizations. Furthermore, none of
the projects investigated used the assistance of government laboratories.
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Omega, Vol. 5, No. 1
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Gerstenfeld--Interdependence and Innovation
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