Rebecca Henderson Iain Cockburn MEASURING COMPETENCE? EXPLORING FIRM EFFECTS IN PHARMACEUTICAL RESEARCH Rebecca Henderson Iain Cockburn

Research Question How can heterogeneous organizational “competence” be a source of sustained competitive advantage of firms? Specifically, the effects of “component” and “architecture” competence. Pharmaceutical research

Organizational Competence Three conditions: heterogeneously, non-tradable, and not replicable. Component Competence: local abilities and knowledge that are fundamental to day-to-day problem-solving; Architectural Competence: ability to use these component competencies-to integrate them effectively and to develop fresh component competencies as they are required. (Henderson & Clark, 1990)

Component Competence Hypothesis 1: Drug discovery productivity is an increasing function of firm- specific expertise in particular disciplinary areas. Unique disciplinary expertise, tacit knowledge, social complex Hypothesis 2: Drug discovery productivity is an increasing function of component competence in particular disease areas. Human physiology, more demand side

Architectural Competence Henderson and Clark (1990) and culture, value, control system etc.. Two critical abilities: assess the knowledge outside the boundaries; and integrate knowledge flexibly across disciplinary Trends of drug discovery (from “random” to “rational”; rely on public knowledge. Hypothesis 3: Firms with the ability to encourage and maintain an extensive flow of information across the boundaries of the firm will have significantly more productive drug discovery efforts, all other things equal.

Architectural Competence Hypothesis 4: Firms that encourage and maintain an extensive flow of information across the boundaries between scientific disciplines and therapeutic classes within the firm will have significantly more productive drug discovery efforts, all other things equal. Integrate knowledge within the firm; information exchange across “component” boundaries within the firm Turbulent environments; rapidly changing environment

Methodology Qualitative and quantitative 10 major pharmaceutical firms (28% of U.S. R&D and sales) 3,210 observations; 1975-1988 Heavily interview 5 firms; 3-4 senior scientists for each of the remaining 5; 110 individuals in total Cardiovascular research Patents

Results and Discussion All supported but first one (cannot be tested in this dataset) Very detailed empirical report: different measurement; different model Hypothesis that cannot be tested with dataset Turbulent environment is a necessary condition? Potentially related to ecosystem literature