Exploration and exploitation alliances in biotechnology: a system of new product development

TLDR

The study links the exploration–exploitation learning framework to a biotech venture’s strategic alliances, arguing that the causal relationship between alliance type and new product development depends on the alliance type. The authors propose a product‑development path where exploration alliances generate products in development, which then lead to exploitation alliances that bring products to market, and they test this model with 325 biotech firms and 2,565 alliances, noting that firm size negatively moderates the path. Results confirm the hypothesized product‑development system and the negative moderating effect of firm size, showing that larger firms tend to abandon the path and instead pursue vertical integration to discover, develop, and commercialize projects. © 2004 John Wiley & Sons, Ltd.

Abstract

Abstract We link the exploration–exploitation framework of organizational learning to a technology venture's strategic alliances and argue that the causal relationship between the venture's alliances and its new product development depends on the type of the alliance. In particular, we propose a product development path beginning with exploration alliances predicting products in development, which in turn predict exploitation alliances, and that concludes with exploitation alliances leading to products on the market. Moreover, we argue that this integrated product development path is moderated negatively by firm size. As a technology venture grows, it tends to withdraw from this product development path to discover, develop, and commercialize promising projects through vertical integration. We test our model on a sample of 325 biotechnology firms that entered 2565 alliances over a 25‐year period. We find broad support for the hypothesized product development system and the moderating effect of firm size. Copyright © 2004 John Wiley & Sons, Ltd.