The boundaries of activity and the boundaries of search: An empirical study of knowledge scope and knowledge building in the United States automotive airbag industry

With the recent emphasis on the knowledge economy, activities of research and development (R&D) are attracting particular interest from scholars and managers. Among many remaining questions, the one pertaining the R&D boundaries of the firm is particularly important. Boundaries of the firm are associated with two interrelated questions about the firm: (1) which technological fields does the firm include in its boundaries (the boundaries of activity)? and (2) should the firm build new knowledge within its cognitive boundaries or strive beyond them (the boundaries of search)? Previous scholars, applying different perspectives, have suggested conflicting conceptualizations of the boundaries of the firm. Moreover, dynamic aspects of boundary decisions have not been fully investigated.;To address this gap, this study considers both the efficiency-based view (e.g., transactional cost economies) and the effectiveness-based view (e.g., knowledge based view) on the R&D scope of the firm and the different dimensions of the firm boundary. In addition, the theory of industry life cycle is included to consider the dynamic aspect of the R&D boundaries of the firm.;In the first essay, I examine how firms set their boundaries of R&D activity facing different levels of technological uncertainty under different levels of interdependence of components. In the second essay, building on a two-dimensional framework of search boundary (organizational and product boundary), I examine how the influence of search boundaries on their R&D performance changes across two separate industry life cycle stages. Investigating these questions in the automotive airbag industry, I find that the moderating effect of interdependence is significant. Even though R&D scope has a negative relationship with technological uncertainty in both high and low interdependence, the strength of relationship is significantly weaker in low interdependence than that in high interdependence. In addition, I find that in the industry pre-takeoff stage exploitation within the firm boundaries but exploration across the product boundaries has the largest impact on innovation performance, while in the post-takeoff stage exploration across both organizational boundaries and product boundaries has the largest impact.;The results of this study lead to two major findings. First, the results indicate that interdependence of components has a significant influence on firms' decision about R&D boundaries. Moreover, the perspective from the production world (the majority of TCE-related work takes this perspective) needs modification when it is extended to the R&D world because R&D is by its very nature more interdependent with the development of other components and the benefit of co-specialization tends to be relatively higher.;Second, and this is similar to the production world, decisions about the R&D boundaries should change as environments change over time. Around the time of an industry's birth, firms can effectively build required knowledge by narrowing the boundaries of activity and by searching for new solutions from their own knowledge, not yet tried in the industry. In contrast, when the industry becomes mature, firms need to expand their boundaries of activity and need to search for solutions beyond their boundaries.