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Paradigm-Changing vs. Paradigm-Deepening Innovation: How Firm Scope Influences Firm Technological Response to Shocks

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  • Gautam Ahuja

    (Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

  • Curba Morris Lampert

    (College of Business, Florida International University, Miami, Florida 33199)

  • Vivek Tandon

    (NUS Business School, National University of Singapore, Singapore 119245)

Abstract

We examine the direction of firms’ research efforts as they respond to the shock of a sharp increase in the price of a key input. In terms of direction, firms can respond to this shock with paradigm-changing investments that develop technologies to use substitute inputs or with paradigm-deepening investments that develop technologies to improve the utilization efficiency of the existing input. We develop a framework that suggests that firms’ emphasis on paradigm-changing versus paradigm-deepening investments depends on the degree of input-relatedness across their businesses. We test our hypotheses by examining the responses of large manufacturing firms in the United States to the oil shock of the early 1980s. Our framework predicts and our results show that the more related a firm’s businesses are, the larger its investments into paradigm-changing technologies are and the smaller its investments into paradigm-deepening technologies in response to the oil shock are. We identify the implications of these findings for technological evolution and diversification literatures.

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  • Gautam Ahuja & Curba Morris Lampert & Vivek Tandon, 2014. "Paradigm-Changing vs. Paradigm-Deepening Innovation: How Firm Scope Influences Firm Technological Response to Shocks," Organization Science, INFORMS, vol. 25(3), pages 653-669, June.
  • Handle: RePEc:inm:ororsc:v:25:y:2014:i:3:p:653-669
    DOI: 10.1287/orsc.2013.0867
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