Managing portfolio risk in strategic technology management: evidence from a panel data-set of the world's largest R&D performers

Abstract

In this article we analyze the impact of firms' technology bases on their financial performance. By taking a strategic perspective of technology, we argue that it is not sufficient to analyze only the size or novelty/quality of the technology base as technology bases can best be understood as portfolios of individual technologies. In such a framework, risk consideration should be taken into account. More specifically, we argue that increasing technological breadth can serve as a hedge against the inherent uncertainties of developing and commercializing technology, in particular when the technology base is very large or novel.We also propose that technology has higher impacts on financial performance for firms with broader technology portfolios. A similar argument proposes that technological breadth can offset the increased risks of addressing foreign markets. We test our hypotheses using an international panel dataset of large R&D-performing firms. Our results suggest that broad technology portfolios can indeed serve as a hedge against technological and commercialization risks. JEL codes: O32, O34Abstract: In this article we analyze the impact of firms' technology bases on their financial performance. By taking a strategic perspective of technology, we argue that it is not sufficient to analyze only the size or novelty/quality of the technology base as technology bases can best be understood as portfolios of individual technologies. In such a framework, risk consideration should be taken into account. More specifically, we argue that increasing technological breadth can serve as a hedge against the inherent uncertainties of developing and commercializing technology, in particular when the technology base is very large or novel. We also propose that technology has higher impacts on financial performance for firms with broader technology portfolios. A similar argument proposes that technological breadth can offset the increased risks of addressing foreign markets. We test our hypotheses using an international panel dataset of large R&D-performing firms. Our results suggest that broad technology portfolios can indeed serve as a hedge against technological and commercialization risks.

The implications of efficiency differences in sustainable development: An empirical study in the consumer product industry

“…Suggesting that a broader range of R&D projects expands the knowledge base of a firm and improves the likelihood of success in new product introduction, Klingebiel and Rammer (2014) empirically show that the number of new product development projects is positively associated with the revenue generated from new products. Also, Neuhäusler et al (2016) use patent data with panel data analysis to show that broadening an investment portfolio increases the hedge against uncertainties, resulting in better financial performance. Furthermore, we suggest that managing various environmental concerns is similar to maintaining an investment portfolio.…”

“…With a limited understanding of managing multiple environmental concerns simultaneously in the literature, we leverage the similarities between environmental expenditures and R&D investment and refer to the portfolio management argument. A literature stream has examined portfolio management in product development and empirically shown that a broader portfolio expands firms' knowledge base and helps them hedge risks (Klingebiel & Rammer, 2014; Neuhäusler, Schubert, Frietsch, & Blind, 2016). Focusing on the difference between a firm's resource‐related environmental efficiency and its climate‐related environmental efficiency, we suggest that a firm with less difference reflects its managers' broader and balanced interests in addressing environmental concerns.…”

The Interplay between Product Innovation, Publishing, Patenting and Developing Standards

“…Following these analyses, numerous studies have examined the impact of patent portfolios and their quality on firm value (e.g. after the seminal contribution by Griliches, 1981;Hall et al, 2005;Patacconi., 2013, andNeuhäusler et al, 2016). The majority of these studies have revealed a positive effect.…”

“…A long tradition of studies considers the impact of patenting on innovations and commercial success. Seminal contributions by Griliches (1981); Mansfield (1986), and Cohen et al (2000) focused on firms' involvement in patenting and studies about the influence of patent portfolios on firm market valuation, such as Belenzon and Patacconi (2013); Hall et al (2005), and Neuhäusler et al (2016), followed them.…”

Technological Capabilities, Technological Dynamism and Innovation Offshoring

“…High speed of technological change increases the importance of both asset augmentation and exploitation. Firms in fast changing, though not necessarily uncertain, technological environments have to be prepared for change and have to proactively adjust and develop their technology portfolio (Neuhäusler et al 2015). Augmenting their knowledge assets through internationalization is therefore critical, since rapid product cycles imply short periods for realizing returns from innovation (Klepper 1996).…”