Not Your Stepping Stone: Collaboration and the Dynamics of Industry Evolution in Biotechnology
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DISCUSSION AND IMPLICATIONSWe find consistent and clear evidence for three trends. One, as BFs grow in size, they increase the number of alliances they engage in, deepen existing ones, and diversify their alliances into new business functions. Two, as BFs age, they become involved with a more heterogeneous set of partners. We have referred to these developments as increases in the depth, scope, and reach of their collaborative portfolio. Three, as firms encounter some degree of success, they reinvest and engage, on average, in two more R&D collaborations. In short, we see a strong pattern in which “successful” BFs are pursuing multiple collaborations with a more diverse group of partners.2 In our view, there are clear gains from this strategy as well as obvious difficulties associated with it. But in a fast-moving field there are also possible costs to not forging ahead and expanding the network portfolio. We discuss each of these consequences in turn. The advantages of a heterogeneous group of contacts is well established in both social theory and network analysis. A strong tradition of theory and research, running from Simmel (1954) to Merton (1957) to Granovetter (1973) to Burt (1992), makes abundantly clear that there are informational, status, and resource advantages to having a broad and diverse social circle. In the area of commercializing scientific advances, we note additional gains from network diversity. One, heterogeneity in the portfolio of partners allows BFs to learn from a wider stock of knowledge.3 Organizations with broader network range are exposed to more experiences, different competencies, and added opportunities for discussion and debate. Such a setting creates an environment in which “creative abrasion,” the synthesis that is developed from multiple points of view, is more likely to occur. In this view, “innovation occurs at the boundaries between mind sets, not within the provincial territory of one knowledge and skill base” (Leonard-Barton, 1995:62). By having access to a more diverse set of activities, experiences, and collaborators, BFs are broadening the resource and knowledge base that they draw on. By developing more multiplex ties with individual partners, either through pursuing multiple collaborations or expanding an existing R&D partnership into clinical development or manufacturing, BFs are increasing the points of contact between the two organizations. When relationships are deepened, greater commitment and more thorough knowledge sharing should follow. Organizations with both multiple and/or multifaceted ties to others are likely to have developed better protocols for the exchange of information and the resolution of disputes (Powell, 1998). We also find that BFs are pursuing new types of collaborations. If a firm did not have an R&D or a marketing (or any other business function) collaboration, as it got older it was very likely to add one. Moreover, if a firm had an R&D tie to a university, as it aged it was likely to add an R&D alliance with a government lab, a pharmaceutical company, or a research institute. The general approach appears to be one of filling out the portfolio of collaborations. In the rapidly developing field of the life sciences, the value of a BF is its scientific expertise and technological leadership in a specific disease category. Maintaining that expertise enables the BF to be an attractive partner. Linking with diverse participants for different activities permits a company to leverage its skills across a range of relationships with parties that have few interdependencies among themselves, but are connected through the biotech firm. Such a strategy has obvious payoffs for a small science-based firm. If successfully pursued, the small firm contributes to the agendas of a diverse set of organizations without rendering itself redundant by allowing too much of its knowledge to migrate to others. By interacting with diverse participants, the small firm plays an orchestrator role rather than a specialist or dependent one. Diversity thus allows little encroachment on the small firm’s scientific competence. Yet this is not a situation of a third party broker playing off others to maximize its own gain. The process of drug development is lengthy, costly, and protracted. The orchestrator role requires building across relationships for the advantage of all the participants. The better the transfer of knowledge and skills among the participants, and the better connected that partners are to others, the richer the flow of information to all involved. Rather than exploiting one’s position through leverage, participants in these learning races must find a way to improve both their and their parties’ capabilities. Seen in this light, two further findings fit the general pattern. Among the relatively small set of firms with positive earnings, there was a strong tendency to reinvest in R&D. Successful firms added, on average, two more R&D collaborations, a strong sign that maintaining scientific leadership is critical for maintaining one’s position in the industry. We also observed in the descriptive statistics that BFs were actively linked to a great variety of different types of organizations – commercial, governmental, nonprofit, domestic and foreign. We suspect, but cannot demonstrate at this point, that these heterogeneous links represent alliance webs in different research and therapeutic areas. Put differently, competition in this field is not firm vs. firm or one firm’s network portfolio vs. another’s, but multilateral competition of different partners and different alliances on divergent projects. A collaborator on a cancer drug may well be a competitor in Alzheimer’s research. But such complex webs of multiple relationships present organizational challenges and tax the ability of an organization to sustain numerous external ties.4 Most organizations have ample trouble managing their internal operations, these diverse linkages post additional problems of control and coordination (see Gomes-Casseres, 1996: 157-166 and Doz and Hamel, 1998: 195-220). Maintaining productive linkages with multiple parties is difficult, learning how to learn across relationships is even more so. Add to these operational challenges the strategic challenge of simultaneously learning from a partner while protecting core skills and knowledge base and the task is daunting. There is inherent tension in this new form of interorganizational collaboration. An organization has a set of skills that makes it attractive to others and provides it with bargaining power. To be a valuable partner, it must share some of those skills and the knowledge or resources it acquires to create something it cannot create on its own. But it has to protect itself from letting its skills leak into the public domain, from learning less rapidly than its partners, and from being only a provider of a resource that others exploit to greater use. Given these challenges, heterogeneity is one solution. By having diverse collaborators, each participant provides a resource that the other party values and cannot readily find through alternative means. Finally, we should consider that in fields where knowledge is developing rapidly and the sources of scientific expertise are broadly distributed, there is a huge cost to inaction or inertia. In previous research, we have seen that repeat trading with similar partners lead to restricted access and cognitive lock-in. Powell (1985: 202-7) found that repeated exchange among a small circle of book editors and authors lead to parochialism and ossification. Glassmeier (1991) attributes the failure of Swiss watchmakers to adapt to digital technology to the restricted nature of their contacts. Similarly, Grabher (1993) suggests overembeddedness led to organizational inbreeding in the Ruhr steelmaking district, leading to the decline of the German steel industry. Thus, even though the challenges of coordinating heterogeneous networks may be considerable, the alternative of parochialism is not viable. ConclusionWe find strong confirmation for the argument that commercial organizations in the life sciences are actively expanding their range of collaborations, and diversifying the array of business functions they collaborate on, as they grow larger, older, and become successful. We attribute these results to a general process of organizational learning in which firms linked to others with more diverse ties are exposed to a broader stock of knowledge. We draw from these results the conclusion that interfirm collaboration is not a transitional stage, or stepping stone, to success or maturity, but a significant organizational practice in this technologically advanced field. Extending this argument, we suggest this strategy of interfirm collaboration represents neither dependency nor specialization but an alternative way of accessing knowledge and resources. Our claim is that this form of organizing is viable needs to be tempered in three ways. First, we have consistently linked these biotech firms to the adjectives emerging or small. Some of them, however, are not so small; the largest has 7500 employees and a number have sales in excess of one billion dollars. These are hardly weak or tiny firms. But all of them are relatively young, and even the largest biotechs pale in size compared to the large pharmaceutical corporations, all with employee counts numbering in the tens of thousands, or government research institutes, or elite research universities with whom they collaborate. To be sure, small is used as a relative term throughout, but the BFs are typically the smaller and younger party in the exchange relation. Second, we argue that the BFs are not specialists because they are diversifying their activities, both internally and externally, to all stages in the production process. Thus, they are not focused on only one stage of production. But resource-partitioning arguments have primarily, though not exclusively, focused on product-market segmentation. Were we to analyze our companies in terms of the disease categories they concentrate on, we suspect we would find a persistent relationship: the smaller the company the more focused they are on a single medicine or disease; as they grow they branch into related therapeutic areas. But with success and reinvestment in R&D, the BFs branch into new therapeutic areas. This observation, however, represents conjecture at this stage in our research and awaits empirical testing. Finally, these findings need to be considered in the context of the life sciences field, which has some idiosyncratic features and other characteristics shared with a number of high technology industries. Advances in basic science have continued to play a critical role in this field, and universities have a key hand in this process (Zucker et al, 1994; Liebeskind et al, 1996; Powell and Owen-Smith, 1998). In few other high tech industries have universities continued to exert such considerable influence for such a sustained period of time. Consequently, the industrial structure has evolved, in part, out of the invisible college structure of the academy. Moreover, scientific leadership is divided rather than concentrated, with diverse sources of expertise located in many advanced industrial nations. Again, the fact that scientific excellence is broadly distributed promotes interorganizational collaboration. Finally, interorganizational relations are largely focused on mutual learning, that is, developing new medicines or treatment regimes, and creating new medical markets. Few alliances are driven by cost cutting considerations, or outsourcing to replace existing internal functions. This orientation toward mutual gain extends the shadow of the future and lends itself to the expectation of future interaction. Effective sharing of knowledge is enhanced by awareness of a shared destiny. This open-ended time frame and focus on joint learning is not unique to the life sciences, however. Many new technologies, much more nascent than biotech, involve the delivery of new products or services and/or tap markets that did not previously exist. And fields such as e-commerce or wireless communications do not face the long arduous period of new product development, which presents many occasions for disappointment and defection, that characterizes biotech. The life sciences have also benefited from a decade of increases in research funding, both in the public sector at the National Institutes of Health and in the private sector, where increases in research spending have even outpaced government spending. But, again, a wide range of new research fields have benefited from this decade-long economic expansion. Indeed, the availability of venture capital funding has spurred the growth of a number of new industries. The coincidence of industry growth and a favorable economic environment raise the question as to whether these organizational arrangements are the product of a munificent environment. Many commentators have suggested that an eventual shakeout, or consolidation, will occur in these new fields. Others have contended that biotech and other new industries will eventually be absorbed by more mature, established firms. Still other pundits anticipate that with maturity will come a reversion to more traditional organizational arrangements. Obviously, access to capital in research-intensive fields is critical and the terms of contractual agreements vary with respect to the availability of capital (Lerner and Merges, 1998). But despite stiff competition for financing from other emergent industries, and the opening and closing of windows of opportunity for going public, the strategy of accessing external sources of expertise and support has not only continued, it has been deepened and refined. In sum, a single case over a little more than a decade does not provide a definitive answer as to whether small science-based firms and collaborative practices are supplanting more traditional organizational arrangements based on hierarchy and economies of scale. Nevertheless, we follow March (1991) in arguing that all organizations face the challenge of balancing the demands of exploration, or experimentation with novel alternatives, and exploitation, the refinement and extension of existing competencies and technologies. We are persuaded that a good deal more attention needs to be paid to the processes of exploration and to those industries in which success is based on winning learning races. In such fields, more horizontally-based interorganizational collaborations appear to be a cornerstone of organizational practice, and these new routines are being actively developed. 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