Leveraging the Value of Proprietary Technologies

This research examines the relationship between technology portfolios and the rate of alliance formation in new, technology-based firms. It uses a knowledge-based perspective to build an argument that new firms can enhance their capacity for forming alliances by building portfolios of technologies and increasing the communicability of their value through patents. We find support for this position in our examination of patent and alliance activities in 67 new firms from the computer and telecommunications industries. These findings provide insights about the relationship between a firm's efforts to build a portfolio of technology resources, the value of which can be understood by potential partners, and its pursuit of development activities extending beyond the boundaries of the internal organization. Firms operating in highly uncertain and rapidly changing environments need to maintain technological expertise, particularly where competitiveness is dependent on product innovation (Penrose 1959; Clark 1987; Itami 1987; Nelson 1991). However, as technologies become increasingly multidisciplinary (Forrest 1990) and subject to rapid obsolescence (Shan 1990; Oster 1994), it becomes more and more difficult for a single firm to maintain the breadth of resources needed to repeatedly introduce technology-based innovations (Kline and Rosenberg 1986; Teece 1988a; Forrest 1990; Chan and Heide 1993). Small firms are often additionally constrained by a lack of financial and organizational resources (Eisenhardt and Schoonhoven 1990; Chan and Heide 1993; Meyer and Lopez 1994; Lerner 1997). Faced with these constraints, a firm may be forced to narrow its focus on a limited number of businesses in order to maintain continuous investment in underlying technologies. But this can place bounds on innovation efforts and restrict the firm from experimenting beyond its areas of specialty (Penrose 1959). In technology-based industries, firms are paying greater attention to the use of external sources of technology (Grindley and Teece 1997; Jaffe, Fogarty, and Banks 1998). Jarillo (1989), in fact, sees the ability to exploit external resources as the mark of entrepreneurial, high-growth management. Using data on 1,902 public firms listed in the Compustat database, Jarillo found that the fastest-growing public companies use external resources more than their competitors. He adds that firms pursuing strategies centered on the pursuit of opportunities will grow faster than firms seeking to maximize the yield of existing resources. Establishing alliance relationships is an effective way for a firm to access technologies externally Alliances can be generally described as arrangements by which firms combine resources to accomplish particular tasks (Oster 1994). These arrangements can take the form of licensing, joint ventures, agreements, and collaborations (Forrest 1990; McGee, Dowling, and Megginson 1995). The research discussed here focuses on technology-related alliances, which involve joint innovative efforts (Hagedoorn and Schakenraad 1994; Robertson and Gatignon 1998). We define alliances as those involving the development of technologies or products or the licensing of another firm's technologies. We examine the relationship between technology portfolios and the rate of alliance formation in new, technology-based firms, using a knowledge-based perspective to guide our empirical analysis. This perspective is grounded in resource-based theory; it views proprietary knowledge as a fundamental source of advantage for a firm (Grant 1996a; Mueller 1996; Conner and Prahalad 1996). The role of the firm, from a knowledge-based perspective, is to seek advantage by integrating and using the knowledge residing in individual organization members (Kogut and Zander 1992; Grant 1996a, 1996b). We extend this role to include external sources of knowledge, making the assumption that a firm can increase its effectiveness by accessing a foundation of knowledge that is broader or more diverse than the knowledge residing within the organization. …