News out of the old: the evolving technological incoherence of the world's largest companies

Abstract

Large established companies from a variety of industrial sectors typically show a highly diversified knowledge base. A number of authors have found that this phenomenon can be measured using several technological indicators such as educational data on engineering backgrounds and patent applications (Granstrand and Sjölander, 1990; Patel and Pavitt 1994). The interesting feature of this trend is that companies invest to acquire competence in areas that are unrelated to their production specialisation in the market. However, this paradoxical empirical pattern is more easily observed than explained. Recently, some explanations have been put forward, one of which is that large innovative firms need to internalise many different branches of engineering knowledge in order to cope with uneven rates of development in the components they rely on (Brusoni et al. 2001). This work draws on the insights of the multi-technology corporation literature (e.g. Granstrand et al. 1997) and attempts to complement previous findings with a focus on the dynamic features of technological diversification. The chapter has two main goals: to draw a map of the rate and direction of technological diversification and, on this basis, to nourish a tentative discussion of the forces behind the evolving profile of multi-technology firms. In order to do this we use patent counts and classifications based on the SPRU database for nearly 500 of the world’s largest innovating companies from 1980 to 1996, as ranked by sales revenues. Large companies exhibit significant command of technologies unrelated to the actual making of their principal product lines, i.e., they reveal a degree of technological diversity or ‘incoherence’ as it is labelled throughout this chapter. Having underlined this contemporary stylised fact, we shall be concerned with the existence of broad changes in the rate and direction of technological diversification across and within industries. We find evidence of an emergent reorganization in corporate technological portfolios. Although the extent to which companies patent outside their core technical fields has remained stable, or even decreased slightly, the composition of the in-house technological mix appears to have changed considerably over a period of less than two decades. The technologies attracting the diversification movement in corporate capabilities, as revealed by patents, have increasingly become information & communication technologies (ICT), new materials and drugs & bioengineering. This is not entirely surprising since these technologies are commonly regarded as ‘generic technologies’ or ‘general purpose-technologies’. However, this tendency coincides with a remarkable regularity: for these three technology groups, the growth in patents was consistently higher for non-specialist sectors than for specialist sectors. Taken together, these findings can be interpreted as evidence that ‘new economy’ technology fields have gained weight against ‘older’ technologies, like the chemicals and mechanical fields, within the large established companies of the ‘old economy’. The observed patent regularities raise other issues. In particular, they could provide a useful perspective to an ongoing debate on whether the rise of new technologies has been associated with the substitution of or, on the contrary, complementarity with, older technologies. While there is considerable inter-industry diversity, the pattern of growth in ICT, materials and drugs & bioengineering patent groups seems to suggest that there is room for both stories. What is the meaning of this set of changes? On a macroscopic perspective we suggest these developments can be understood as an expression of an ongoing technological revolution in the neo- Schumpeterian sense of Freeman and Louçã (2001). As this paper has a more detailed perspective, we concentrate on the discussion of the strategic rationale behind the dynamics of diversification in the corporate knowledge base. At this stage we offer two intertwined hypotheses that fit with the observations. The chapter begins by addressing the empirical and conceptual contributions of the literature on technological diversification. Section 3 describes the data set and considers the methodological conditions necessary for a prudent use of patents as indicators of technological capabilities. Section 4 then reports on the analysis of our sample, which constitutes the core of the chapter. Section 5 critically assesses the empirical results, discusses implications for technology management and suggests some unsettled questions for innovation studies. The last section, Section 6, forms the conclusion.