Dependency between learning and profitability in different industry conditions: a system dynamic simulation

Technological change and especially radical changes are a major source of uncertainty for strategic management of technology. We look at this situation through the lens of the resource-based view of the firm (RBV). RBV proposes that the competitiveness of industrial companies depends on their ability to manage portfolios of rare and valuable resources. Learning is an important mechanism in resource development and management. We have developed a system dynamic model to understand the linkage between learning and profitability under different conditions set by the appropriability and transferability of resources. The research problem is to examine how profitable the innovator and imitator are in different industry conditions after a radical innovation has been launched to the market. The setting informs the industrial manager whether it is economically feasible to open up the R&D to external influences in a situation of discontinuous change, given the industry parameters. The results show that the expected profit varies strongly, depending on ability to learn from different sources. A strategy based on external learning performs better in the open and less protected market environment, and internal learning becomes more interesting when the resources can be efficiently protected.