1. Know-how and asset complementarity and dynamic capability accumulation: The case of R&D
Author: Constance E. Helfat
Strategic Management Journal Vol. 18(No. 5) 1997 pg
Now professor in technology and strategy at Dartmouth

2. Research Question
“When firms seek to alter their stock of knowledge in response to change in the external environment [dynamic capability], do such efforts depend on the firms’ existing stocks of complementary know-how and other assets, and if so how?” (pg. 339)
Complementary = serving to fill out or complete
Want to investigate the role of complementary technological knowledge and physical assets in dynamic capability accumulation

3. Theoretical Development
Dynamic capabilities: “the subset of the competences/capabilities which allow the firm to create new products and processes and respond to changing market circumstances” (Teece & Pisano, 1994: 541)
Firms need to accumulate some assets over time (e.g., technological expertise through R&D), and increments to asset stocks may depend on level of complementary asset stocks within the firm (Dierickx & Cool, 1989)
Preexisting know-how within the firm is a potentially useful resource for knowledge accumulation via R&D
From technologically related R&D and operations
Complementary knowledge can produce economies of scope  reduction in unit costs of production
Economies of scope = arises from inputs that are shared or utilized jointly to make more than one product

4. Overview of Study
Empirical investigation of R&D activity in U.S. petroleum industry ( )
Suggests accumulation of new coal gasification/liquefaction (coal conversion) knowledge in response to changing environmental conditions via R&D depended on preexisting know-how and physical assets
Focuses on R&D inputs (expenditures)
Includes variables representing several types of knowledge capital within the firm
Include different variables to determine which types of complementary knowledge had the greatest correlation with coal conversion R&D spending

5. Historical Context Oil crisis (1976-1981)
2 major oil price increases + OPEC’s increase in power  forecast of increasing energy prices
Major U.S. energy companies increased (R&D) expenditures on alternative fuels technologies
Synthetic fuels use technologies similar to those used in the companies’ main oil businesses (e.g., refining)
Companies could draw on their oil related knowledge in developing synthetic fuels
Firms looked at coal, oil, shale, and tar sands, but heaviest focus was on coal
Gasification and liquefaction technologies had been around for a long time
Some companies steadily conducted research on alternative energy technologies  provided an advantage during the oil crisis since organizational and technological knowledge acquisition is cumulative and they had far less to go in commercializing the technologies since many of the technologies were proprietary
Large amts of R&D expenditures on coal gasification allows author to examine influences on dynamic capability accumulation in detail

6. Dynamic Capability Accumulation via Coal Conversion R&D
2 types of complementary assets that may have affected the extent to which firms undertook coal conversion R&D in response to oil crisis
Refining-based technological knowledge (know-how)
Physical assets

7. Economies of Scope and Know-how Complementarities in R&D
Achieve greater economies of scope when speculative technologies draw on knowledge related to established technologies
H1a: Firms that had larger stocks of knowledge from past refining R&D were likely to have undertaken larger amounts of coal gasification/liquefaction R&D
A firm’s accumulated refinery assets may indicate the extent of a firm’s experience in utilizing established refinery technologies
H1b: Firms that had larger accumulated refinery assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D
Knowledge acquired via prior R&D in technologically related but more speculative technologies
H1c: Firms that had larger stocks of knowledge from past R&D on other synthetic fuels were likely to have undertaken larger amounts of coal gasification/liquefaction

8. Physical Assets for Coal Conversion Commercialization
Coal is the key asset needed for commercialization of the technology
Difficult to access on spot markets in the U.S.
Firms with larger coal-related assets might have undertaken larger amounts of coal conversion R&D in search of uses for their coal
H2: Firms that had larger accumulated coal assets were likely to have undertaken larger amounts of coal gasification/liquefaction R&D

9. Preliminary Evidence Many firms increased interest in coal conversion
Available annual report information is consistent with a role for know-how complementarities (e.g., Exxon)
Most of the companies that performed coal conversion R&D also performed other synthetic fuels R&D
Companies performing coal conversion R&D had guaranteed access to coal
Major oil companies greatly increased spending on synthetic fuels R&D with disproportionate share on coal conversion R&D
Before conduction statistical tests

10. Empirical Methodology and Variables
Tobit regression
Right-hand side variables have 1-year lag (except dummies and constant)
Assumption that primary budgetary allocations occur at start of the year
Lagged DV is never included with firm dummy variables
Tobit used b/c 66 out of 156 coal gasification/liquefaction observations are zero (censored)
OLS would have produced biased and inconsistent coefficient estimates

11. DV IVs Complementary know-how Complementary physical assets
Other knowledge & resources
Firm dummies are not listed in the
Control

12. Empirical Results Support for H1a No support for H1b & H1c
In regression 4, other synfuels is significant (p-value < 0.10)
This is mainly b/c refining R&D capital stock is not included in this regression
Coal asset is significant only in regressions where lagged coal R&D is not included (regressions 3,4,6)
No support for interaction term

13. Discussion
Firms may have sought to benefit from complementary knowledge accumulated from past refining R&D, while increasing coal conversion R&D in response to environmental change
Know-how complementarity between more established areas of R&D (e.g., refining) and more speculative R&D (e.g., coal conversion) exceed the complementarity between 2 sorts of speculative R&D
Significance of the refinery R&D variable reflects complementary know-how
Fixed-effects regressions show larger coal conversion R&D spending had a positive association with a larger preexisting stock of coal assets
Separate rather than joint relationship of refining R&D capital stock and coal assets to coal conversion R&D

14. Thank You!