Strategic Management Journal

Strat. Mgmt. J., 33: 1090–1102 (2012)

Published online EarlyView in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.1959
Received 29 May 2009; Final revision received 20 January 2012

RESEARCH NOTES AND COMMENTARIES

HOW KNOWLEDGE AFFECTS RADICAL INNOVATION:

KNOWLEDGE BASE, MARKET KNOWLEDGE
ACQUISITION, AND INTERNAL KNOWLEDGE
SHARING
KEVIN ZHENG ZHOU1 * and CAROLINE BINGXIN LI2
1
School of Business, University of Hong Kong, Hong Kong
2
Daniels College of Business, University of Denver, Denver, Colorado, U.S.A.

This paper examines how existing knowledge base (i.e., knowledge breadth and depth) interacts
with knowledge integration mechanisms (i.e., external market knowledge acquisition and internal
knowledge sharing) to affect radical innovation. Survey data from high technology companies
in China demonstrate that the effects of knowledge breadth and depth are contingent on market
knowledge acquisition and knowledge sharing in opposite ways. In particular, a firm with a
broad knowledge base is more likely to achieve radical innovation in the presence of internal
knowledge sharing rather than market knowledge acquisition. In contrast, a firm with a deep
knowledge base is more capable of developing radical innovation through market knowledge
acquisition rather than internal knowledge sharing. Copyright  2012 John Wiley & Sons, Ltd.

INTRODUCTION (KBV) has recently gained prominence. The basic

Radical innovation is the novel, unique, or state-
of-the-art technological advance in a product cat-
egory that significantly alters the consumption
patterns in a market (Abernathy and Utterback,
1978; Gatignon et al., 2002). As radical innova-
tion reshapes the competitive landscape and cre-
ates new market opportunities, various approaches
have been proposed to identify its drivers (e.g.,
Chandy and Tellis, 1998; Smith and Tushman,
2005), among which the knowledge-based view
Keywords: knowledge-based view; knowledge breadth;
knowledge depth; radical innovation; China
∗
Correspondence to: Kevin Zheng Zhou, School of Business,
University of Hong Kong, Pokfulam, Hong Kong.
E-mail: kevinzhou@business.hku.hk
premise of the KBV is that new product cre-
ativity is primarily a function of the firm’s abil-
ity to manage, maintain, and create knowledge
(Grant, 1996). Whereas early KBV studies tend
to focus on how knowledge affects innovation
in general (e.g., Bierly and Chakrabarti, 1996;
DeCarolis and Deeds, 1999), more recent devel-
opments assert that a firm’s knowledge base rep-
resents its most unique resource for radical innova-
tion development (e.g., Hill and Rothaermel, 2003;
Miller, Fern, and Cardinal, 2007; Subramaniam
and Youndt, 2005; Zhou and Wu, 2010).
However, extant literature offers conflicting
views regarding how a firms’ existing knowledge
base, namely, its knowledge breadth and depth,
affects radical innovation. For example, Taylor

Copyright  2012 John Wiley & Sons, Ltd.


and Greve (2006) suggest that firms with diverse
knowledge domains are more likely to gener-
ate cutting-edge ideas and novel combinations of
knowledge components. A broad knowledge base
with varied, accumulated observations and cues
facilitates understanding of new information and
potential changes, which enhances the firm’s abil-
ity to detect remote technological or market oppor-
tunities for its radical innovation (Chesbrough,
2003). In contrast, Laursen and Salter (2006) posit
that though diverse knowledge may stimulate a
variety of ideas, without sufficient synthesis and
utilization efforts, those ideas will just touch on
shallow surfaces rather than drill down to the
essence of an emerging breakthrough, which pro-
motes incremental but not radical innovation.
Regarding the role of knowledge depth, Zahra
and George (2002) believe that in-depth knowl-
edge in a specific industrial field is essential for
radical innovation because it facilitates the effec-
tive realization of substantial new ideas. Many
firms produce promising novel ideas but fail in
the midst of implementation because they lack
sufficient expertise to resolve complex or unusual
problems (Katz and Du Preez, 2008). In contrast,
Tripsas and Gavetti (2000) warn that deep knowl-
edge in a specialized field may generate cogni-
tive inertia, which constrains the firm to its cur-
rent market segment or established technology for
minor improvement (Levinthal and March, 1993)
but deteriorates its ability to pioneer using emerg-
ing technologies (Christensen and Bower, 1996).
To address these inconsistencies, we propose
that the effect of a firm’s existing knowledge
base must be considered together with its exter-
nal and internal knowledge integration mecha-
nisms. As Ahuja and Katila (2001) indicate, many
knowledge sources necessary to trigger radical
innovation can be found only outside the firm,
with customers, competitors, and suppliers (see
also Laursen and Salter, 2006). Others empha-
size that knowledge sharing may nurture interunit
cooperation and mutual learning, stir up existing
knowledge repositories, and stimulate new ideas
for radical innovations (e.g., Tsai, 2001; Zander
and Solvell, 2000). Therefore, we examine how
external market knowledge acquisition and inter-
nal knowledge sharing may condition the effect of
the knowledge base on radical innovation. Because
knowledge breadth reflects the horizontal dimen-
sion, whereas knowledge depth captures the ver-
tical dimension of knowledge, we posit that their
Copyright  2012 John Wiley & Sons, Ltd.
Research Notes and Commentaries 1091
effects on radical innovation are likely moderated
by market knowledge acquisition and knowledge
sharing in opposite ways.
We test our propositions with two studies of high
technology firms in China. As China becomes inte-
grated into the global economy, competition has
intensified substantially, forcing both local and for-
eign firms to develop radical innovations to survive
and succeed (Atuahene-Gima, 2005; Zhang and
Li, 2010; Zhou, Yim, and Tse, 2005). In 2009,
China filed 7,946 international patent applications,
up 29.7 percent from the previous year, such that
it ranks first in terms of growth and fifth in total
number of international patent filings (World Intel-
lectual Property Organization, 2010). The complex
and dynamic nature of the transitional Chinese
market makes it a rich context to test the impact
of knowledge on radical innovation.
THEORY AND HYPOTHESES
According to the KBV, a firm’s existing knowl-
edge base delimits its scope and capacity to com-
prehend and apply novel knowledge to radical
innovations (Hill and Rothaermel, 2003). Knowl-
edge breadth and depth are two distinct dimensions
of a knowledge base that reveal both the structure
and content of the knowledge a firm holds. Knowl-
edge breadth refers to the extent to which the firm’s
knowledge repository contains distinct and multi-
ple domains; knowledge depth refers to the level
of sophistication and complexity of knowledge in
key fields (Bierly and Chakrabarti, 1996). The
breadth attribute captures the horizontal dimen-
sion of knowledge and heterogeneous knowledge
content, whereas the depth attribute reflects a ver-
tical dimension and unique, complex, within-field
knowledge content (De Luca and Atuahene-Gima,
2007).
Verona (1999) further proposes that a knowl-
edge base alone may not be sufficient for suc-
cessful product development; the firm also must
use knowledge integration mechanisms to cap-
ture, interpret, and deploy its knowledge resources.
In particular, market knowledge acquisition is an
external integration mechanism that facilitates the
absorption of critical knowledge from external
market sources (Laursen and Salter, 2006). Knowl-
edge sharing entails an internal integration mecha-
nism, involving the dissemination and synthesis of
individually and organizationally held knowledge
Strat. Mgmt. J., 33: 1090–1102 (2012)
DOI: 10.1002/smj
1092 K.Z. Zhou and C. B. Li
through established processes and routines (Kale
and Singh, 2007; Verona, 1999). Such external and
internal knowledge integration mechanisms likely
affect how firms fully utilize the potential of their
knowledge bases.
Knowledge breadth and radical innovation
To develop radical innovations, firms must fulfill
two requirements: generating breakthrough ideas
that enable firms to discover nascent technologies
and real opportunities hidden within miscellaneous
information; and implementing the breakthrough
ideas into commercial technologies through
resource synthesis and utilization (Hill and
Rothaermel, 2003; Zahra and George, 2002).
In line with this logic, we posit that a firm with
broad knowledge may benefit more from knowl-
edge sharing than from market knowledge acqui-
sition in developing radical innovation. A firm
with broad knowledge has accumulated know-how
across a variety of disciplines and heterogeneous
market domains through its extensive knowledge
exploration (Prabhu, Chandy, and Ellis, 2005).
Because the firm already has information about
heterogeneous market segments, the marginal ben-
efits of additional market knowledge acquisition
for generating breakthrough ideas decline. The
inflow of overlapping market information likely
brings in ideas for minor refinement or extension
of existing knowledge, but not the discovery of
breakthrough ideas for radical innovation.
In contrast, knowledge sharing offers the poten-
tial for new, truly innovative combinations of
knowledge by evoking a ‘kaleidoscopic thinking’
(Kanter, 1988): when a firm’s knowledge base
comprises diverse domains, the firm needs a good
‘shake’ to create a new perspective on its exist-
ing pieces of knowledge. Just like a kaleidoscope,
the same fragments form completely new patterns
when shaken. Knowledge sharing provides such a
shaking process, through which the firm can con-
nect and integrate its broad knowledge across dis-
parate fields in unforeseen and unusual patterns to
generate breakthrough ideas for radical innovation
(Zahra and George, 2002).
For the idea implementation stage, additional
information acquired from the external market can
lead to information overload for a firm with broad
knowledge. Because a firm’s cognitive attention is
a limited resource, working on too many ideas may
cause insufficient attention to any individual idea
Copyright  2012 John Wiley & Sons, Ltd.
(Laursen and Salter, 2006). Moreover, the com-
plexity of managing a variety of knowledge and
their relationships makes it difficult to utilize diver-
sified know-how. Without a sufficient understand-
ing and full utilization of acquired knowledge,
incremental improvement and refinement, but not
the development of true breakthroughs, is more
likely (Katz and Du Preez, 2008).
In contrast, knowledge sharing involves the hor-
izontal integration of disparate knowledge, and a
broad knowledge base provides diverse knowl-
edge interfaces among functional units. Through
increased interactions and knowledge exchange,
individual members of different functions recog-
nize how others’ know-how bears on their own
work and how to synthesize it to serve the com-
mon goal of radical innovation creation (Schulz,
2001). The resulting communication of best prac-
tices across functional units enhances the firm’s
ability to commercialize ideas into radical innova-
tions.
Hypothesis 1: A firm with a broad knowledge
base benefits more from knowledge sharing than
from market knowledge acquisition for fostering
its radical innovation.
Knowledge depth and radical innovation
We posit that a firm with knowledge depth likely
benefits more from market knowledge acquisi-
tion than from knowledge sharing. First, a firm
with a deep knowledge base has accumulated
thorough experience and know-how about exist-
ing technologies and markets. Internal knowledge
sharing can further synthesize individually held
know-how and help construct a deeper and more
refined understanding of its existing knowledge
(Kale and Singh, 2007; Tsai, 2001). However, such
refined expertise likely prompts more incremental
improvement that yields immediate and foresee-
able returns but not rule-breaking ideas for radical
innovation. As Christensen and Bower (1996) doc-
ument, when a firm becomes deeply entrenched
with existing markets, it tends to focus on incre-
mental innovations that are favored by its existing
customers, but forgo explorations of new ideas for
emerging markets.
Market knowledge acquisition instead helps
expand the scope of information search beyond
existing customers or markets. The infusion of new
Strat. Mgmt. J., 33: 1090–1102 (2012)
DOI: 10.1002/smj

information from emerging markets likely gener-
ates new ideas for radical innovations (Laursen and
Salter, 2006). Moreover, by integrating knowledge
from potential markets into its deep understanding
of current segments, the firm may detect future
market trends and invest accordingly to explore
them.
Second, when a firm has developed deep knowl-
edge and core competencies, in the form of tech-
nical or professional expertise, it tends to engage
in activities in its existing, specialized domains
(Christensen, 2006). By activating the integration
and use of best practices within the firm, knowl-
edge sharing accentuates its self-reinforcing cycle
of competence. As a result, the firm develops
increasingly efficient processes and routines that
sustain its current focus but become inertia in
exploring potential opportunities in other domains
(Tripsas and Gavetti, 2000). To overcome such
organizational inertia, firms must actively learn
from external market players. Market knowledge
acquisition provides access to diverse knowledge
domains, such as from competitors or suppliers,
distinct modes of reasoning, and varied problem-
solving approaches (Ahuja and Lampert, 2001).
Exposure to these different approaches pushes the
firm to take a renewed look at cause-and-effect
understanding, question existing cognitive struc-
tures, and uncover current competence deficiencies
(Subramaniam and Youndt, 2005). As a result,
firms can update and renew their organizational
processes and routines to implement ideas from
emerging technological and market domains. Thus,
Hypothesis 2: A firm with a deep knowledge base
benefits more from market knowledge acquisi-
tion than from knowledge sharing for fostering
its radical innovations.
STUDY 1
Sample and data collection
We randomly selected a sample of 500 high tech-
nology companies located in the Yangtze River
Delta in China from a list provided by a market-
ing research company. The Yangtze River Delta,
which contains the Shanghai, Jiangsu, and Zhe-
jiang provinces, is the most developed area in
China and contributed 21.4 percent of the coun-
try’s gross domestic product in 2009. Many multi-
national corporations, such as Microsoft, Intel, GE,
Copyright  2012 John Wiley & Sons, Ltd.
Research Notes and Commentaries 1093
and Dow, have set up research and development
(R&D) centers in this region (Einhorn, 2006). The
output of the high technology sector in this area
represents 34.2 percent of the national total. We
selected Chinese managers (local or Chinese over-
seas returnees) as key informants, because foreign
firms rely on these managers for business opera-
tions in China. Our field interviews also reveal that
they are highly familiar with their firms’ knowl-
edge use and product innovation.
We prepared the questionnaire in English, then
had two independent translators translate the instru-
ment into Chinese, following a back-translation
process. To ensure content and face validity, we
conducted five in-depth interviews with senior
marketing managers who had at least three years’
business experience in high technology sectors.
In accordance with their responses, we revised
a few questionnaire items to enhance clarity. We
then conducted a pretest with 20 senior managers.
Based on their feedback, we finalized the instru-
ment. The final survey was conducted in Chinese
(i.e., Mandarin).
For the final survey, we selected two key infor-
mants in each firm: one senior manager (e.g., chief
executive officer, vice president, general manager)
and one middle manager (marketing, sales, R&D
department manager). We administered the ques-
tionnaires onsite. Trained interviewers scheduled
appointments with the two key informants, pre-
sented the questionnaires to them separately, and
then collected the questionnaires after their com-
pletion. We also asked the interviewers to collect
business cards from the interviewed managers to
ensure the interviews were performed and to facil-
itate future contacts. This procedure is critical in
emerging economies to ensure valid, high quality
data (Zhang and Li, 2010; Zhou and Wu, 2010).
The final sample consists of 177 firms (354
informants) from various high technology indus-
tries (information technology 31.6%; electronic
23.7%, mechanical and electric equipment 20.9%;
new pharmaceuticals and bioengineering 12.4%;
semiconductor design 11.3%), for an effective
response rate of 35.4 percent. Of the participating
firms, 31.6 percent are international joint ventures
(IJVs), 32.8 percent are wholly owned foreign
enterprises (WOFs), and 35.6 percent are domestic
companies.1 The comparison of participating and
1
The high proportion of IJVs and WOFs reflects the competi-
tion status of high technology industries in China, which has
Strat. Mgmt. J., 33: 1090–1102 (2012)
DOI: 10.1002/smj
1094 K.Z. Zhou and C. B. Li
nonparticipating firms indicates no significant dif-
ferences in terms of firm age, number of employ-
ees, or sales, which suggests no notable response
bias.
To minimize potential common method bias,
we obtained information from different sources
in each firm. The senior managers answered sur-
vey questions about the characteristics of existing
knowledge (i.e., knowledge depth and breadth).
Middle managers provided information at the oper-
ational level, such as market knowledge acquisi-
tion, knowledge sharing, and radical innovation.2
To ensure the informants were appropriate and reli-
able, we assessed their knowledge about the survey
questions and their experience with the firm and
industry. The means for the senior and middle
managers’ knowledge levels were 6.20 and 5.88,
respectively (1 = ‘little knowledge,’ 7 = ‘great
deal of knowledge’), highly comparable to pre-
vious studies (e.g., De Luca and Atuahene-Gima,
2007; Moorman and Miner, 1997).
Measures
We develop our measure of knowledge breadth on
the basis of Bierly and Chakrabarti (1996) and
Moorman and Miner (1997); it assesses diversi-
fication in a firm’s knowledge of customer port-
folios, market segments, and technological back-
ground (see Appendix A). Following Moorman
and Miner (1997) and Prabhu et al. (2005), we
develop a measure of knowledge depth that indi-
cates the thoroughness of a firm’s knowledge and
technical expertise within its specialized fields.
The measure of knowledge sharing is adapted from
Schulz (2001) and captures the extent of knowl-
edge flow among individuals, decision makers, and
become a red hot battlefield for international companies. For
example, in information technology and electronics industries in
Shanghai, IJVs and WOFs take up 55.4 percent of the number of
enterprises and 92.3 percent of industrial output in 2008 (Shang-
hai Industrial Development Report, 2009). In the semiconductor
industry, foreign investment accounts for over 80 percent of total
investment. And among the top 20 semiconductor packaging
and testing companies in China, 13 are WOFs, five are IJVs,
and only two are domestic firms (China Electronic Components
Association, 2010).
2
We used Harman’s one-factor test to check for the presence
of common method bias (Podsakoff and Organ, 1986). We sub-
jected all measurement items to a factor analysis; the solution
accounts for 66.21 percent of the total variance, and the first fac-
tor accounts for 23.3 percent. Because no single factor accounts
for a majority of the variance, common method bias is unlikely
to be a major concern.
Copyright  2012 John Wiley & Sons, Ltd.
units within the firm. Market knowledge acqui-
sition is measured by three items adapted from
Tsang (2002); it captures the amount and extent
of knowledge the firm has acquired from external
parties, such as customers, competitors, and sup-
pliers. We adapt a measure of radical innovation
from Atuahene-Gima (2005), Chandy and Tellis
(1998), and Zhou et al. (2005), which reflects the
degree of technological advances and performance
revenue involved in radical innovation.3
Control variables: At the firm level, we con-
trol for size, ownership, and prior performance. We
measure firm size as the logarithm of the number of
employees. Two dummy variables (IJV and WOF)
indicate ownership, with domestic firms as a base-
line. Market share in the previous year indicates
firm performance. We also control for environ-
mental variables: competitive intensity, technolog-
ical turbulence, and market growth (Zhou et al.,
2005). Because the sample consists of companies
in five industries, we code four industry dummy
variables, with information technology as the base-
line. Finally, we use middle manager tenure (‘years
working in the company’) to control for potential
respondent effects.
Construct validity: We test the construct validity
using confirmatory factor analysis (see Appendix
A). All items load significantly on their expected
constructs (p < 0.01). The fit indexes show that
the overall model provides satisfactory fit to the
data. Furthermore, the composite reliability of all
constructs exceeds the 0.70 benchmark, and all
average variances extracted (AVE) are greater than
0.50. These measures demonstrate adequate con-
vergent validity and reliability (Fornell and Lar-
cker, 1981). To assess discriminant validity, we
run a series of chi-square difference tests for all
constructs in pairs to determine whether the uncon-
strained model is significantly better than the con-
strained model. All the chi-square differences are
3
To validate the perceptual measure of radical innovation, we
collected additional data by using the same measure through tele-
phone interviews, and obtained 56 responses from 28 firms (two
middle managers from each). The Spearman-Brown test of inter-
class correlation shows that the interrater reliability between the
two managers is 0.79 for radical innovation, well above the 0.60
benchmark. This finding exhibits satisfactory consistency and
supports our key informant approach. In addition, we asked the
middle managers to indicate ‘the number of radical innovations
introduced by your firm in the last three years,’ and obtained
42 responses. We conducted a correlation analysis between this
objective item and the perceptual measure. The result shows
strong consistency (r = 0.63, p < 0.001), which further validates
our subjective measure of radical innovation.
Strat. Mgmt. J., 33: 1090–1102 (2012)
DOI: 10.1002/smj

highly significant, indicating discriminant valid-
ity (e.g., knowledge breadth versus knowledge
depth:
χ 2 (1) = 169.31, p = 0.000). Moreover,
the AVE of each construct is much higher than
its highest shared variance with other constructs,
which again supports discriminant validity. In
Table 1, we report the descriptive statistics and
correlations among the variables.
Analysis and results
A moderated regression analysis is appropriate for
testing the interaction effects (Aiken and West,
1991). Following Hamilton and Nickerson (2003),
we employ a two-stage regression model, which
can correct for potential endogeneity. In stage
one, we regress knowledge breadth and depth
against market knowledge acquisition and knowl-
edge sharing, respectively, to obtain residuals free
of the influence of these variables. We then use
the residuals as indicators of knowledge breath
and depth. In stage two, we first regress radi-
cal innovation against the control variables, mar-
ket knowledge acquisition, and knowledge sharing
in Model 1, Table 2. Then we add the residu-
als of knowledge breadth and knowledge depth
(see Model 2), the interaction between the resid-
uals of breadth and market knowledge acquisi-
tion (Model 3), the interaction between the resid-
ual of breadth and knowledge sharing (Model
4), the interaction between the residual of depth
and marketing knowledge acquisition (Model 5),
and the interaction between the residual of depth
and knowledge sharing (Model 6), sequentially.
Finally, we include all variables and interaction
terms in Model 7 (Table 2). To minimize possi-
ble colinearity between the main and interaction
effects, we mean-center all pertinent independent
variables and create the interaction terms by mul-
tiplying them (Aiken and West, 1991). The largest
variance inflation factor is 1.82, well below the
10.0 benchmark, which indicates multicolinearity
is not an issue in our analysis.
The results of the stage one estimation show
that knowledge breadth is positively associated
with market knowledge acquisition (b = 0.31, p <
0.01) but negatively related to knowledge sharing
(b = −0.14, p < 0.10). Knowledge depth relates
positively to both market knowledge acquisition
(b = 0.38, p < 0.01) and knowledge sharing (b =
0.27, p < 0.01). These results confirm that it is
Copyright  2012 John Wiley & Sons, Ltd.
Research Notes and Commentaries 1095
suitable to use the two-stage model to correct for
the potential endogeneity problem.
With Hypothesis 1, we consider whether a firm
with knowledge breath benefits more from knowl-
edge sharing than from market knowledge acqui-
sition. The results indicate that the interaction
between knowledge breadth and knowledge shar-
ing relates positively to radical innovation (M4:
b = 0.12, p < 0.10; M7: b = 0.19, p < 0.01).
In contrast, the interaction between knowledge
breadth and market knowledge acquisition is neg-
atively associated with radical innovation (M3:
b = −0.16, p < 0.05; M7: b = −0.20, p < 0.01).
These findings lend support to Hypothesis 1.
For Hypothesis 2, we find that the interaction of
knowledge depth and market knowledge acquisi-
tion is positively associated with radical innovation
(M5: b = 0.15, p < 0.05; M7: b = 0.17, p <
0.05). In contrast, the interaction of knowledge
depth and knowledge sharing is negatively related
to radical innovation (M6: b = −0.11, p < 0.10;
M7: b = −0.19, p < 0.01). That is, a firm with
knowledge depth gains more from the presence of
market knowledge acquisition than from knowl-
edge sharing, in support of Hypothesis 2.
STUDY 2
One of the major limitations of Study 1 is its
cross-sectional design, which restricts our ability
to assess causal relationships. The measures of rad-
ical innovation and knowledge breadth/depth also
need refinement. The sample is also limited to the
Yangtze River Delta. To address these limitations,
we conducted Study 2 with a longitudinal design
and updated measures in the three most developed
areas in China, namely, the Yangtze River Delta,
Beijing district, and Guangdong-based Pearl River
Delta.
Using a similar approach, we conducted onsite
interviews with managers of high technology com-
panies. We first collected information of knowl-
edge breadth/depth, knowledge sharing, and mar-
ket knowledge acquisition. Six months later, we
contacted the same managers by telephone and
collected information of radical innovation. We
successfully obtained complete responses from
68 firms. Further analysis shows that the infor-
mants exhibit sufficient knowledge about the sur-
vey questions and industry practice (knowledge
level mean = 6.19).
Strat. Mgmt. J., 33: 1090–1102 (2012)
DOI: 10.1002/smj
 1096

Table 1. Basic descriptive statistics (Studies 1 and 2)

Construct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Copyright  2012 John Wiley & Sons, Ltd.

1. Knowledge breadth 0.37∗∗ 0.28∗ −0.27∗ 0.48∗∗ 0.29∗ 0.03 0.02 −0.09 −0.07 0.06 −0.05 0.14 0.17 −0.20 0.17 −0.17
2. Knowledge depth a 0.23∗∗ 0.18 0.18 0.53∗∗ 0.45∗∗ 0.37∗∗ 0.25∗ −0.01 −0.17 0.25∗ −0.12 0.05 0.26∗ −0.23∗ 0.13 −0.07
∗
3. Market knowledge acquisition 0.29∗∗ 0.42∗∗ −0.08 0.29∗∗ 0.23 0.29∗ 0.06 −0.18 −0.14 0.17 −0.16 0.05 0.06 −0.25 0.11 −0.03
K.Z. Zhou and C. B. Li

4. Knowledge sharing −0.10 0.33∗∗ 0.14 0.03 0.01 0.39∗∗ 0.31∗∗ 0.28∗ −0.08 −0.06 0.20 0.19 −0.06 −0.15 0.08 0.09
5. Radical innovation a 0.46∗∗ 0.38∗∗ 0.34∗∗ 0.12 0.36∗∗ 0.42∗∗ 0.01 −0.34∗∗ −0.14 0.20 0.06 −0.24∗ 0.11 −0.12 0.18 −0.14
6. Competitive intensity 0.43∗∗ 0.37∗∗ 0.30∗∗ 0.10 0.39∗∗ 0.30∗ 0.16 −0.26∗ 0.05 0.12 −0.16 0.14 0.11 0.04 0.16 −0.06
∗∗
7. Technological turbulence 0.01 0.37∗∗ 0.29 0.43∗∗ 0.32∗∗ 0.19∗ 0.39∗∗ −0.24 −0.01 0.14 −0.05 0.01 −0.02 −0.09 0.23 −0.16
8. Market growth 0.12 0.19∗ 0.06 0.29∗∗ 0.15∗ −0.03 0.39∗∗ 0.36∗∗ −0.14 0.20 −0.15 0.31∗∗ 0.08 −0.10 0.14 −0.01
9. Firm size 0.02 0.10 −0.01 0.21∗ −0.08 −0.09 0.01 0.20∗ −0.12 −0.22 0.03 0.26∗ 0.10 −0.12 −0.14 0.12
10. IJV −0.03 −0.07 −0.17∗ −0.03 −0.01 −0.06 −0.06 −0.06 −0.03 −0.42∗∗ −0.01 −0.04 −0.16 0.35∗ 0.05 0.02
11. WOF −0.06 0.18∗ 0.17∗ 0.15∗ 0.03 0.08 0.12 0.07 −0.14 −0.37∗∗ −0.20 0.09 0.22 −0.10 0.11 −0.13
12. Manager tenure 0.05 0.07 0.01 0.12 0.07 −0.05 0.02 0.05 0.02 −0.03 −0.03 0.07 0.26∗ −0.14 0.02 −0.09
13. Market share 0.05 0.26∗∗ 0.23∗ 0.36∗∗ −0.12 0.17∗ 0.14 0.29∗∗ 0.18∗ −0.13 0.18∗ 0.09 0.11 −0.20 0.02 −0.04
14. Electronic 0.05 0.05 0.02 0.01 0.01 0.10 −0.06 0.04 −0.01 −0.04 0.12 0.16∗ 0.10 −0.25∗∗ −0.20 −0.33∗∗
15. Semiconductor design −0.13 −0.23∗∗ −0.11 −0.09 −0.04 −0.05 −0.02 −0.13 −0.10 0.06 0.02 −0.20∗∗ −0.10 −0.20∗∗ −0.12 −0.20
16. Pharmaceutical and bioengineering 0.03 0.11 0.03 0.01 0.06 0.03 −0.06 −0.07 −0.11 0.11 −0.01 −0.09 −0.01 −0.21∗∗ −0.13 −0.16
17. Mechanical and electric equipment −0.05 −0.03 −0.06 0.03 0.04 0.03 −0.01 0.01 0.20∗∗ −0.02 −0.15∗ −0.01 −0.12 −0.27∗∗ −0.18∗ −0.19∗
Mean–Study 1 4.01 4.30 4.21 5.02 4.35 4.60 5.28 5.01 5.61 0.32 0.33 4.31 13.75 0.24 0.11 0.12 0.21
s.d.–Study 1 1.04 1.01 1.29 1.03 1.06 0.96 1.23 0.98 1.26 0.46 0.48 2.06 12.51 0.43 0.32 0.33 0.41
Mean–Study 2 3.88 4.07 4.15 4.99 4.16 4.52 5.12 4.88 5.64 0.26 0.34 3.38 14.37 0.29 0.13 0.08 0.20
s.d.–Study 2 1.13 0.96 1.34 1.15 1.17 0.80 1.30 1.02 1.18 0.44 0.47 2.04 13.87 0.46 0.34 0.29 0.40

Notes:
a
Variables ‘knowledge depth’ and ‘radical innovation’ are measured differently in Studies 1 and 2. Please see Appendices A and B for details.
Correlations below diagonal are for Study 1; those above diagonal are for Study 2.
∗∗
p < 0.01. ∗ p < 0.05 (n = 177 in Study 1; n = 68 in Study 2).

DOI: 10.1002/smj
Strat. Mgmt. J., 33: 1090–1102 (2012)
 Research Notes and Commentaries 1097

Table 2. Standardized regression estimates (Study 1)

Radical innovation
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

Predictors
Knowledge breadth (breadth) 0.34∗∗ 0.35∗∗ 0.30∗∗ 0.32∗∗ 0.32∗∗ 0.24∗∗
Knowledge depth (depth) 0.17∗∗ 0.18∗∗ 0.18∗∗ 0.16∗ 0.18∗∗ 0.20∗∗
Market knowledge acquisition (MKA) 0.27∗∗ 0.33∗∗ 0.33∗∗ 0.30∗∗ 0.31∗∗ 0.31∗∗ 0.30∗∗
Knowledge sharing (KS) 0.08 0.10 0.12 0.10 0.10 0.11 0.13†
Interactions
Breadth × MKA −0.16∗ −0.20∗∗
Breadth × KS 0.12† 0.19∗∗
Depth × MKA 0.15∗ 0.17∗
Depth × KS −0.11† −0.19∗∗
Control variables
Technology turbulence 0.11 0.14† 0.15∗ 0.16∗ 0.14† 0.14† 0.13†
Competitive intensity 0.31∗∗ 0.11 0.16∗ 0.10 0.10 0.11 0.17∗
Market growth 0.10 0.07 0.04 0.08 0.09 0.07 0.10
Firm size −0.04 −0.08 −0.10 −0.08 −0.08 −0.09 −0.11†
International joint venture −0.02 −0.02 0.01 −0.03 −0.03 −0.02 −0.01
Wholly owned foreign firm −0.06 −0.05 −0.03 −0.05 −0.07 −0.04 −0.03
Market share −0.30∗∗ −0.28∗∗ −0.26∗∗ −0.28∗∗ −0.30∗∗ −0.27∗∗ −0.28∗∗
Manager tenure 0.10 0.07 0.10 0.08 0.06 0.06 0.09
Electronic 0.04 0.07 0.08 0.07 0.06 0.06 0.06
Semiconductor design 0.04 0.11 0.14∗ 0.10 0.10 0.12† 0.14∗
Pharmaceutical and bioengineering 0.08 0.08 0.07 0.07 0.06 0.08 0.05
Mechanical and electric equipment 0.04 0.10 0.10 0.09 0.09 0.10 0.10
F 5.57∗∗ 8.03∗∗ 8.02∗∗ 7.79∗∗ 7.84∗∗ 7.80∗∗ 8.31∗∗
Adjusted R2 0.27 0.39 0.41 0.40 0.40 0.40 0.46

Notes: The variance inflation factors range from 1.10 to 1.82. Values of knowledge breadth and depth are residuals (Y-Ypredicted ) from
the Stage 1 estimation.
∗∗
p < 0.01. ∗ p < 0.05. †p < 0.10 (two-tailed, sample size = 177)

The new scale of radical innovation is developed
based on Gatignon et al. (2002) and Smith and
Tushman (2005), and the new measure of knowl-
edge breadth/depth is adapted from De Luca and
Athuaene-Gima (2007). As the Appendix shows,
the measures in Study 2 possess satisfactory con-
vergent and discriminant validity. We report the
descriptive statistics of the variables and their cor-
relations in Table 1.
Overall, the results of Study 2 are highly consis-
tent with the findings from Study 1, despite the fact
that some effects become marginally significant
due to the small sample size (see Table 3). Con-
sistent with Hypothesis 1, the interaction between
knowledge breadth and knowledge sharing is posi-
tively associated with radical innovation (b = 0.26,
p < 0.05), whereas the interaction effect between
breadth and market knowledge acquisition is nega-
tive (b = −0.32, p < 0.01). In line with Hypothe-
sis 2, the interaction of knowledge depth with mar-
ket knowledge acquisition is positively associated
Copyright  2012 John Wiley & Sons, Ltd.
with radical innovation (b = 0.19, p < 0.10), but
its interaction with knowledge sharing is nega-
tively, though not significantly, related to radical
innovation (b = −0.13, p < 0.10).
DISCUSSION
This paper contributes to research on knowledge
management and radical innovation in several
ways. First, whereas previous research highlights
the important role of knowledge in product innova-
tion (e.g., Miller et al., 2007; Prabhu et al., 2005),
conflicting views exist about whether knowledge
breadth and depth actually benefit radical innova-
tions (e.g., Tripsas and Gavetti, 2000; Zahra and
George 2002). Our paper advances this line of
inquiry by proposing that the roles of knowledge
breadth and depth critically depend on external and
internal knowledge integration mechanisms. Our
Strat. Mgmt. J., 33: 1090–1102 (2012)
DOI: 10.1002/smj
1098 K.Z. Zhou and C. B. Li

Table 3. Standardized regression estimates (Study 2)

Radical innovation
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

Predictors
Knowledge breadth (breadth) 0.38∗∗ 0.38∗∗ 0.34∗∗ 0.38∗∗ 0.39∗∗ 0.33∗∗
Knowledge depth (depth) 0.26∗ 0.26∗ 0.32∗∗ 0.27∗ 0.27∗ 0.28∗∗
Market knowledge acquisition (MKA) 0.12 0.31∗ 0.21∗ 0.31∗∗ 0.37∗∗ 0.32∗∗ 0.28∗
Knowledge sharing (KS) 0.09 0.14 0.17 0.13 0.18 0.16 0.20†
Interactions
Breadth × MKA −0.28∗ −0.32∗∗
Breadth × KS 0.17† 0.26∗
Depth × MKA 0.13† 0.19†
Depth × KS −0.09 −0.13
Control variables
Technology turbulence 0.23 0.19 0.17 0.20 0.16 0.20 0.12
Competitive intensity 0.32∗∗ 0.11 0.21∗ 0.12 0.10 0.09 0.25∗
Market growth −0.07 −0.04 −0.08 −0.02 −0.02 −0.04 −0.01
Firm size −0.08 −0.15 −0.20† −0.15 −0.16 −0.17 −0.18
International joint venture −0.12 −0.11 −0.08 −0.12 −0.14 −0.13 −0.09
Wholly owned foreign firm 0.06 0.05 0.10 0.04 0.02 0.03 0.07
Market share −0.31∗ −0.32∗∗ −0.28∗∗ −0.33∗∗ −0.36∗∗ −0.32∗∗ −0.36∗∗
Manager tenure 0.12 0.16 0.21∗ 0.22∗ 0.12 0.19† 0.21∗
Electronic 0.04 −0.03 0.01 −0.05 −0.04 −0.02 −0.03
Semiconductor design −0.09 0.04 0.09 0.03 0.03 0.03 0.09
Pharmaceutical and bioengineering 0.04 −0.03 −0.01 −0.04 −0.03 −0.03 −0.01
Mechanical and electric equipment −0.07 −0.02 −0.04 −0.02 −0.02 −0.02 −0.07
F 2.84∗∗ 5.76∗∗ 6.21∗∗ 5.89∗∗ 5.46∗∗ 5.45∗∗ 6.08∗∗
Adjusted R2 0.28 0.54 0.58 0.56 0.54 0.54 0.61

Notes: The variance inflation factors range from 1.33 to 2.63. Values of knowledge breadth and depth are residuals (Y-Ypredicted ) from
the Stage 1 estimation.
∗∗
p < 0.01. ∗ p < 0.05. †p < 0.10 (two-tailed, sample size = 68)

findings indicate that a firm with a broad knowl-
edge base is more capable of developing radical
innovations in the presence of internal knowl-
edge sharing rather than external-focused mar-
ket knowledge acquisition; a firm with a deep
knowledge base is better able to achieve radical
innovation through enhanced market knowledge
acquisition rather than internal knowledge sharing.
These results suggest the importance of fit between
the existing knowledge base and the way a firm
integrates its knowledge. Extending previous con-
ceptual works (Verona, 1999; Zahra and George,
2002), our findings provide a more nuanced under-
standing of how knowledge base and knowledge
integration mechanisms jointly affect radical inno-
vation.
Second, a large body of innovation literature
emphasizes that the creation of radical innova-
tion always favors externally oriented explorers
who actively acquire information from outside
(e.g., Afuah 1998; Laursen and Salter, 2006).
Our findings warn that this premise is only par-
tially correct, because acquired market knowledge
complements deep knowledge but substitutes for
broad knowledge in radical innovation develop-
ment.4 That is, for a firm with diverse knowl-
edge, additional market knowledge acquisition is
4
To reveal more insights, we considered boundary conditions
of such effects by comparing large versus small and established
versus new companies in Study 1. The results of these subgroup
analyses show that the negative interaction between knowledge
breadth and market knowledge acquisition is stronger for small
firms than large firms (t = −3.39, p < 0.01) and for new ven-
tures than established firms (t = −2.81, p < 0.01). That is, small
or new ventures with diverse knowledge are less likely than
large or established firms to develop radical innovations if they
focus too much on market knowledge acquisition. Because small
or new ventures have relatively limited resources, experiment-
ing with too many ideas is counterproductive. In contrast, the
strength of the positive interaction between knowledge depth and
market knowledge acquisition does not differ significantly across
small and large firms (t = 1.01, p > 0.10), but it is greater for
new than for established ventures (t = 3.17, p < 0.01). There-
fore, new ventures with deep knowledge in specific fields benefit
more if they can externally integrate and rejuvenate knowledge
flows from the marketplace.

Copyright  2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 1090–1102 (2012)
DOI: 10.1002/smj

counterproductive. This insight is also consistent
with Miller et al.’s (2007) argument that the use
of interdivisional knowledge has a stronger effect
on an invention’s impact than does the use of
knowledge outside of the firm. Related, previ-
ous literature highlights knowledge sharing as an
important means for facilitating product innova-
tion (e.g., Grant, 1996; Kale and Singh, 2007).
Our findings suggest that this proposition works
for firms with diverse knowledge, such that knowl-
edge sharing bridges functional units within the
organization and fosters new ways to combine
and use disparate knowledge to achieve unique
product advances. However, for firms with deep
knowledge in specific fields, knowledge sharing
reinforces existing expertise and operational rou-
tines, which may lead to inertia and prevent radical
innovation.
Attracted by China’s huge market size and low
cost knowledge workers, foreign high technology
companies have been rushing into China and now
take up a large portion of market, which intensifies
the competition and pushes local players to pursue
radical innovations proactively. Our findings pro-
vide managers with direct implications about how
to manage knowledge resources for radical innova-
tion. First, managers must examine the knowledge
base they already have and identify whether its
nature, content, and embedded advantages reflect
depth or breadth. Then, managers should adjust
their knowledge integration mechanisms to fit with
their firms’ existing knowledge base. To maxi-
mize the benefits from accumulated knowledge
resources and enhance radical innovations, we sug-
gest that a firm with a broad knowledge base
strengthen its knowledge sharing processes and
routines; a firm with a deep knowledge base should
take concerted efforts to build and refine the pro-
cesses associated with acquiring and integrating
external market intelligence.
This paper also has some limitations that future
work can address. First, though we employ two
studies to corroborate our findings and adopt a
lagged measure of radical innovation in Study 2,
the cross-sectional nature of Study 1 and the small
sample size of Study 2 limit our ability to fully test
causality. Additional research should adopt a lon-
gitudinal approach and a large sample to examine
these causal relationships. Second, our measure of
radical innovation is based on managers’ percep-
tions. Whereas the measure has been used in prior
studies (e.g., Atuahene-Gima, 2005; Chandy and
Copyright  2012 John Wiley & Sons, Ltd.
Research Notes and Commentaries 1099
Tellis, 1998; Gatignon et al., 2002), it may involve
a psychological bias, such that managers tend to
overestimate their abilities. Given that our interac-
tion hypotheses are well supported, it is unlikely
that respondents have an ‘interaction-based the-
ory’ in their minds that enable systematical bias in
their response to get these results (Aiken and West,
1991; see also Zhang and Li, 2010), which reduces
this concern. Nevertheless, further research should
obtain objective measures, such as patents, to cor-
roborate our findings. Third, radical innovation
could be either competence enhancing or compe-
tence destroying (Gatignon et al., 2002). It would
be interesting to examine the effect of knowledge
on competence-anchored characteristics of prod-
uct innovation. Fourth, our paper focuses on the
feature of knowledge base and finds that a firm
with a deep knowledge base benefits from mar-
ket knowledge acquisition. Given that some firms
are better at acquiring external knowledge than
others, what capabilities would enable firms to
benefit more from external knowledge acquisition?
Is it alliance capability (Kale, Dyer, and Singh,
2002), governance capability (Mayer and Salomon,
2006), or relational capability (Li, Poppo, and
Zhou, 2010)? As knowledge acquisition activities
increasingly take place through alliances and out-
sourcing, understanding how and why some firms
can better utilize their acquired knowledge from
their partners represents an intriguing avenue for
further research.
ACKNOWLEDGEMENTS
The authors thank the two anonymous reviewers
and Associate Editor Professor Jiatao Li for their
insightful and constructive comments on earlier
versions. This study was supported by the General
Research Fund from the Research Grants Council,
Hong Kong SAR Government (Project no. HKU
759011B).
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1102 K.Z. Zhou and C. B. Li

APPENDIX: MEASUREMENT ITEMS AND VALIDITY ASSESSMENTa

A. Study 1 Model fit: RMSEA = 0.066, CFI = 0.95, IFI = 0.95, NNFI = 0.93. SFL

Knowledge breadth CR = 0.80, AVE = 0.57, HSV = 0.38

1. We possess market information from a diversified customer portfolio. 0.91
2. We have accumulated knowledge of multiple market segments. 0.76
3. Our R&D expertise consists of knowledge from a variety of background. 0.56
Knowledge depth CR = 0.84, AVE = 0.57, HSV = 0.25
1. We are highly familiar with this industry. 0.87
2. We have acquired a great deal of experience about this industry. 0.76
3. The knowledge of our firm in this industry is thorough. 0.72
4. We have in-depth knowledge about the technology in this industry. 0.66
Market knowledge acquisition CR = 0.84, AVE = 0.64, HSV = 0.25
Our company has processes
1. for continuously collecting information from customers. 0.85
2. for continuously collecting information about competitor activities. 0.89
3. for continuously collecting information from our suppliers. 0.63
Knowledge sharing CR = 0.85, AVE = 0.65, HSV = 0.10
Our company has processes
1. for sharing information effectively throughout the organization. 0.81
2. for sharing information between all parties involved in the decisions. 0.87
3. for transferring organizational knowledge to individuals (such as employee training programs). 0.74
Radical innovation CR = 0.79, AVE = 0.56, HSV = 0.38
1. Our company frequently introduces products that are radically different from existing products. 0.84
2. Compared to your major competitor, our company introduced more radical product innovations in the last 0.69
three years.
3. Percent of total sales from radical innovations introduced in the last three years. (Less than 1%, 1–5%, 0.70
6%−10%, 11%−15%, 16%−20%, 21%−25%, over 25%)
B. Study 2 Model fit: RMSEA = 0.091, CFI = 0.91, IFI = 0.92, NNFI = 0.90
Knowledge breadth CR = 0.84, AVE = 0.65, HSV = 0.27
1. We possess market information from a diversified and wide-ranging customer portfolio. 0.83
2. We have accumulated knowledge of multiple market segments. 0.92
3. Our R&D expertise consists of technical knowledge from a variety of background. 0.64
Knowledge depth CR = 0.78, AVE = 0.55, HSV = 0.42
1. We have thorough understanding and experience of current customers. 0.93
2. We have accumulated in-depth knowledge of the key market segment that we focus on. 0.66
3. Our R&D experts have thorough technical knowledge and skills within our specialized domain. 0.60
Market knowledge acquisition CR = 0.81, AVE = 0.60, HSV = 0.12
Our company has processes
1. for continuously collecting information from customers. 0.76
2. for continuously collecting information about competitor activities. 0.93
3. for continuously collecting information from our suppliers. 0.60
Knowledge sharing CR = 0.88, AVE = 0.72, HSV = 0.06
Our company has processes
1. for sharing information effectively throughout the organization. 0.79
2. for sharing information between all parties involved in the decisions. 0.94
3. for transferring organizational knowledge to individuals (such as employee training programs). 0.80
Radical innovation CR = 0.78, AVE = 0.54, HSV = 0.42
We introduced innovation that
1. involves a fundamentally major improvement over the previous technology. 0.75
2. leads to products that are difficult to replace with substitute using older technology. 0.66
3. brings in substantial transformation in consumption patterns in the market. 0.79

Notes: SFL = standardized factor loading; CR = composite reliability; AVE = average variance extracted, and HSV = highest
shared variance with other constructs. RMSEA = root mean squared error of approximation, IFI = incremental fit index, CFI =
comparative fit index, and NNFI = nonnormed fit index.
a
Items are measured with seven-point Likert scales (1 = ‘strongly disagree,’ 7 = ‘strongly agree’).

Copyright  2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 1090–1102 (2012)
DOI: 10.1002/smj