How Much Does Design Internalization Matter in the Face of Technological Change?

Abstract

Given that much of the technology management literature espouses that selection of a make strategy provides greater performance advantages than selection of a buy strategy in the face of an architectural innovation, recent studies have investigated moderating factors improving the performance of a buy strategy. Some scholars suggest the acquisition of knowledge regarding outsourced components as a moderating factor. One stream in the technology management literature suggests that new component-specific knowledge can be generated from patent-generating R&D activities regarding outsourced components. Another stream emphasizes that designing outsourced components in-house can enable firms to generate new component-specific knowledge. Both streams emphasize the positive impacts of these two types of activities on performance. Our study juxtaposes these two activities, patent-generating R&D and in-house design, into a worthwhile investigation. By studying a significant architectural innovation in the U.S. bicycle component market, we find that in-house design proves more critical for performance than patent-generating R&D. Given that in-house design is critical for performance, we address why firms display heterogeneous decisions regarding in-house design. We also find that prior architectural innovation experience and exploratory product lines are important antecedents that influence firms into making heterogeneous decisions regarding whether to design outsourced components in-house.