BY AMY MULLER AND LIISA VALIKANGAS

Extended Innovation in Emerging Spaces[2]

pportunities in emerging spaces typically lie beyond both a company's existing markets and its existing competencies. In spite of these apparent deficiencies, a company may still choose to pursue opportunities in emerging spaces if they seem to be especially significant or attractive. In those circumstances, the company's approach might be a series of partnerships through which it can access the required competencies while learning about the potential of the opportunity.

This extended innovation provides a means to explore the potential of an uncertain and unstructured space. The cost for a single company to explore this space by itself can be prohibitively high. Indeed, companies need to keep learning ahead of investment to avoid heavy losses from unproven ventures such as the satellite networks (Motorola's Iridium venture) or third-generation wireless (the purchase of European operating licenses by telecommunications companies). Large investments by single companies rarely translate into useful learning about emerging opportunities—more often, the only lesson is about failure and the loss of shareholder capital.

Among the many emerging spaces that merit extended innovation are biotechnology, home networking, e-business, wireless Internet, and wellness. For brevity, we illustrate extended innovation in the case of biotechnology only.

The disparate competencies of biotechnology firms (applied research devoted to the exploitation of specific scientific discoveries), pharmaceutical companies (large-scale production, marketing, and distribution capabilities), and university and government laboratories (basic research) has led to a division of labor between these types of organization (Amburgey, 2001). However, strategic alliances have been able to successfully consolidate the complementary assets of each (Gambardella, 1995).

These strategic alliances take a number of different forms including innovation-oriented collaborative R&D agreements—an example of extended innovation—and operations-oriented marketing and distribution agreements. Studies reveal major differences between these types of alliance. For instance, one study (Amburgey, 2001) shows that alliances for extended innovation involve more intense interaction than operations-oriented alliances. In another study (Liebeskind, 1996), researchers examined how two highly successful new biotechnology firms acquired scientific knowledge. The study found that the scientists in these two firms engaged in a large number of collaborative research efforts, mostly with universities but also with scientists from other companies. These collaborations extended the scope of organizational learning and facilitated the integration of expert knowledge from outside.

An important question arises: Can biotechnology firms circumvent the need to participate in collaborative research alliances by acquiring intellectual property instead-for example, by licensing patents? Problems with the approach include the following:

• The firm may gain access to knowledge that is not linked to its current knowledge base and is therefore not useful.
• Utilization of the acquired knowledge by the acquiring firm sometimes requires the transfer of routines as well as codified knowledge.
• According to the theory that any asset (including knowledge) that is purchasable in a market cannot provide a sustainable competitive advantage, only collaboration in the research process could provide access to the kind of knowledge that can confer a sustainable competitive advantage.

Table 1:
Partnerships between Biotech and Pharmaceutical Companies

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