How science matters: Absorptive capacity, organizational forms and performance in high technology firms

Absorptive capacity has frequently been used in management research to represent a firm's ability to build, recognize and deploy knowledge to improve technological capability. Transaction Cost Economics (TCE) is incorporated to further explain when and how firms seek internal, acquisition, or cooperative strategies to improve their knowledge base. Applying these two theoretical positions in the context of scientific underpinnings, it is proposed that firms with a strong basic science foundation (biology, chemistry, et. al.) seek to advance their scientific knowledge in addition to developing and selling innovative products. Firms with a strong applied science foundation (engineering, computer science) are more strongly focused on the development of innovative products. Hypotheses related to building knowledge stores, organizational structure, new product introductions (NPI) and financial outcomes were tested using data from firms in the pharmaceutical and computer hardware industries.;Firms in the pharmaceutical industry range from those is engaging in research which improves understanding of the underlying science(s) to those firms seeking only to produce generic or over-the-counter (OTC) medications and therefore was ideal for testing differences in scientific foundation. Results indicate basic science pharmaceutical firms expend more effort on research and development (R&D) and are more likely to build knowledge stores from internal sources. Applied science pharmaceutical firms spent less (relatively) on R&D and were more likely to gain knowledge via acquisition and cooperative arrangements. Firms with an applied science foundation had greater numbers of new product introductions (NPIs) suggesting that a solutions-based approach had greater value in terms of innovative output Results from the computer hardware industry were less conclusive due to the more highly applied nature of all firms.