Inter-Firm Innovation under Uncertainty: Empirical Evidence for Strategic Knowledge-Partitioning

This paper describes how firms’ propensity to carry out component (or architectural) innovation is influenced by the degree of task uncertainty during inter-firm product development. Using successfully applied patents in automobile emission control technologies from 1970 to 1998; this research shows that assemblers’ and suppliers’ propensity to expand their knowledge base in component and architectural knowledge increased under higher task uncertainty respectively. This finding provides large scale empirical justification for theoretical claim that firms’ should know more than what they make (Brusoni, Prencipe et al, 2001) and an overlap in knowledge domain exists between an assembler and a supplier for projects involving new technologies (Takeishi 2002). Importantly, this study also shows how architectural innovation prevails in the early phase of technological changes, while component innovation dominates the later stages. Furthermore, unlike what could be anticipated, total assemblers’ effort to build up inhouse component innovation increases continuously over time, suggesting that product life cycle effects may dominate over that of task uncertainties. This paper strongly suggests that effective knowledge management for both architectural and component knowledge is a key factor influencing firms’ competitiveness in the inter-firm product developments.