Process management and technological innovation: a longitudinal study of the photography and paint industries

Administrative Science Quarterly,  Dec, 2002  by Mary J. Benner,  Michael Tushman

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At the other extreme, we constructed a similar measure of exploitation as the number of patents with 100 percent of their citations to familiar patents, that is, patents cited by the firm in an earlier innovation effort and/or self-citations. Similarly, our second exploitation measure, the 80 percent category, consists of the count of patents in each firm-year with at least 80 percent of their citations to existing firm knowledge, as measured by familiar patents. We developed similar measures at the 40 percent, 60 percent, 90 percent, and 100 percent level. These measures allowed us to construct a picture of the extent to which a firm's patenting efforts each year are more or less anchored in prior knowledge from previous innovation efforts. Further, it allowed us to examine how a firm's intensity of exploitation and exploration changed as process management activities were undertaken in the organization.

Our measures further improve on prior research by focusing not only on self-citations as measures of exploitation but also on repeat citations by a firm. Prior empirical work has been based largely on measures of self-citations, that is, whether a firm cites its own previous patents. Our measures provide better insight into the extent to which a firm's innovation builds upon or exploits familiar knowledge it has used in prior patenting efforts and does not restrict the definition of knowledge to the relatively rare cases in which a firm's patents have achieved the level of importance necessary for subsequent self-citation.

To link the patent measure to the time when innovation activity was undertaken in a firm, we recorded patents by their filing dates, rather than approval dates, as there may be arbitrarily long lags between filing and approval dates for patents (Ahuja, 2000). In addition, we used a one-year lead on the measures of exploitation and exploration to allow for some time between the process management activities and the innovation associated with the patent application, which also helps alleviate concerns about reverse causality.

Independent Variable

ISO 9000 certifications. We constructed our independent variable, the extent of process management activities, from third-party data on ISO 9000 quality program certifications for firms in the photography and paint industries. We were able to obtain data by business unit, as each certification includes a 4-digit Standard Industrial Classification code designation. For photography, we selected ISO 9000 certifications for the business units in our sample if they were in SIC code 3861, representing photography and imaging equipment and supplies. In some cases, the 4-digit SIC code was represented as 3800 or was missing. In these cases, we relied on the textual description in the certification's scope section and tried to include certifications that mentioned photography or imaging. For the paint industry, we selected ISO 9000 certifications for business units in our sample if they were in SIC code 2851. Often, however, only SIC code 2800 was listed, or the SIC code designation was missing. We again crosschecked the text describing the scope of the ISO 9000 certification for mentions of paint or coatings. We constructed measures of the extent of process management activities undertaken within a business unit as the cumulative count of certifications for a business unit by year. The number of ISO 9000 certifications for 1996 would thus be the sum of the certifications through 1995, plus the new certifications for 1996. Reflecting industry differences, firms in the paint industry were much more likely to adopt process management and had several times more ISO 9000 certifications than firms in the photography industry.