Failed technologies and investment under uncertainty
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This study examines how investments in failed technologies during periods of technological uncertainty impact future research and development. The researcher hypothesizes that firms backing the losing technology will exhibit slower knowledge growth in the winning technology compared to firms initially supporting the winner. However, complementary assets can moderate this effect. The hypotheses are tested using patent data from the flat panel display industry. The findings indicate that prior failures can constrain future knowledge generation abilities unless the failure is small or the firm has relevant complementary assets. Future research should further explore how long failure impacts last and how firms can overcome setbacks.
Failed technologies and investment under uncertainty
- 1. Date Student(s) Name FALLING FLAT Failed Technologies and Investment under Uncertainty
- 2. 2 Who are the researchers? This research is supported by the Mack Center for Technological Innovation. A condensed version appears in the Academy of Management Best Paper Proceedings, 2007. Research is done by J. P. Eggers. He is an assistant professor of management and organization at New York University’s Stern School of Business. His research focuses on decision making under uncertainty, especially the uncertainty resulting from technological dynamics or from the decision to enter an unknown market space. He received his doctorate in strategy from the Wharton School at the University of Pennsylvania. Overview of the Article
- 3. Overview of the Article 3 What is the subject? The subject is FAILED TECHNOLOGY AND INVESTMENT UNDER UNCERTAINTY, This study theorizes about the behavioral and knowledge creation implications of betting on the losing technology in a competing technology situation and focuses on three main outcomes. First, in a situation with competing technological options, firms that invest initially in the losing technology will be less successful subsequently in building new knowledge in the winning technology because their experience with failure will lead them to update their expectations of the industry and choose to pursue less risky alternatives. Second, two classic risk-reducing strategies—investing in both technologies or entering after uncertainty is resolved—will not be completely effective. Firms investing in both technologies are likely to suffer the incentive and coordination-driven innovation penalties of generalists, while late entrants will suffer learning disadvantages. Third, the possession of key and relevant complementary assets—upstream and downstream—will positively moderate the observed inertial effect on firms that backed the failed technology and generalists that backed both technologies, as these complementary assets will increase incentives to adapt to the winning technology. Specific Terminology: Technological change, Decision making under uncertainty, learning from failure, resource partitioning, complementary assets, Robustness Checks.
- 4. 4 What problem is the researcher trying to solve? This article examines how a corporation's investments in failed technology and innovations during a period of technological uncertainty impacts future research and development management within that particular market. The article also addresses how investment decisions impact long- term, especially regarding product performance. An overview of the theoretical development of the author's argument is presented. The results indicate that the pursuit of a failed technology restricts a corporation's ability to develop future opportunities, but decisions on failed technology does not necessarily slow a firm from maintaining market positioning. Overview of the Article
- 5. Research Question and Hypothesis 5 What is the research question? This paper investigates the complexities of pursuing first-mover advantages under conditions of technological uncertainty. It does so by evaluating the relationships between investments in a failed technology and the decisions to exit and to pursue future opportunities in the same market, and the product-level consequences of these decisions. What is the hypothesis? Hypothesis 1 (H1): Early entrants who enter supporting the losing technology will exhibit slower subsequent knowledge growth in the winning technology than firms supporting the winning technology initially. Hypothesis 2 (H2): Should the losing technology reemerge subsequently, early entrants initially supporting that technology will be less likely to reinvest than firms initially supporting the winning technology. Hypothesis 3 (H3): Possession of relevant complementary assets will positively moderate the dampening effect on knowledge growth of having invested primarily in the losing technology. Hypothesis 4 (H4): Early entrants who enter supporting both the winning and losing technologies will exhibit slower subsequent knowledge growth in the winning technology than firms supporting the winning technology initially. Hypothesis 5 (H5): Possession of relevant complementary assets will positively moderate the dampening effect on knowledge growth of having invested in both the losing and winning technologies. Hypothesis 6 (H6): Late entrants who enter after uncertainty has been resolved will exhibit slower subsequent knowledge growth in the winning technology than firms supporting the winning technology initially.
- 6. 6 How was the research conducted? The empirical tests of these hypotheses are set in the global flat panel display Industry. The researcher relied primarily on patent data drawn from the Derwent Innovations Index, covering every flat panel display patent granted between 1964 and 2003 and every firm listed on those patents (more than 6,000 firms and 500,000 patents). For H1 and H3–H6, the dependent variable is new knowledge created in the winning technology, which proxied with the annual count of LCD patents the firm applied for and later received (LCD patents).5 To test hypothesis 2 (about abandoning the failed technology as it is refocused on a specific niche), I used a dummy noting whether the firm had any plasma patents in the given year (from 1989 to 2003, during plasma’s renaissance), as more than 88 percent of firms had no plasma patents in this period. The main independent variables were based on the timing of the firm’s first flat panel display patent and the composition of its patenting choices in the five years after entry. The first controls are stocks of the firm’s LCD and plasma display patents after its first five years in the industry (LCD patent stock and Plasma patent stock). By including a stock of the dependent variable (LCD patents), the models actually predict the differences in the growth rate of that stock for firms making different initial technological choices, irrespective of the size of that stock in any given year. Research Method
- 7. 7 Findings from the articles: Prior work on learning from failure has shown that attempts to learn from failure do not produce far-reaching changes in behavior but, instead, have more localized effects. The failure would have to be of a size that is both large enough and not too large. On one hand, research on learning from failure has shown significantly greater potential to learn from smaller failures than from larger ones. Large failures would be more likely to result in organizational failure or comprehensive turnover in management, both of which would limit any sort of observable response. Failures that are too small would not have enough visibility in the organization to cause senior managers to change decision-making behavior. The organizational response might differ based on the perceived cause of failure. Future research opportunities: A failed technological investment may have no implications for future efforts to enter a new geographic market, but it might have an effect on future knowledge generation efforts even in different industries. The effect of prior experiences will decay over time. The effect of a prior failure will depend on the exact future responsibilities and autonomy of the person responsible for making the initial failed investment. Future research would need to ascertain the validity and the exact nature of the limiting factors, and how firms that fall flat in betting on the losing technology can dust themselves off and move forward. Research Findings
- 8. 8 How does the product, service, or practice impact the future of IT? In this respect, technological choices are the seeds of organizational path dependence and represent an imprinting process with long-term implications. A firm that bet on the winning technology initially would be fine. But a firm’s future knowledge-generating ability in the winning technology may be constrained by initially betting on the losing technology. This study fills this gap with a different approach from most research on technology evolution, integrating feedback-based learning theories to offer a perspective of the imprinting effect of an initial investment choice on subsequent knowledge accumulation in the emerging dominant technology. The core idea is that the failure of a speculative investment will lead to an updating of expectations that manifests as inertia and retreat. What resources or process will be impacted by this book/research? All technological firms and industries and their products and services can be impacted by the research. They can get an idea about how should they face the failures and invest in the future to create more beneficial technological products. Research Questions