The New Division of Labor among Organizational Forms through a Wave of Creative Destruction: Evidence from Gene Therapy Research

Time, Date, Venue

10 February 2011, Thursday 12.00-13.30

University College London

1st floor Exec-ed room, Engineering Front Building
("Malet place" in Google maps)

Abstract

Even under conditions of equal incentives to invest, current theory in the creative destruction literature predicts a form of division of labor between incumbent and entrant firms: entrants will introduce to the market innovations that are competence destroying (make use of R&D capabilities different from those of standing incumbents); whereas incumbents will introduce innovations that build on their current competences.  In this paper, based on data on the transition of the anti-cancer drug market from cytotoxic drug discovery into biotechnology, I show that the abovementioned division of labor does not occur.  Incumbents invest in biotechnology as much as entrants since the start of the discontinuity.  In fact, in the years when the market experiences a “bubble” (an increase in investment in biotechnology), incumbent firms are more responsive to it than entrants.  With this irregularity in mind, I construct a theory-building study in the format that organizational sociologists have termed a “quantitative ethnography.”  Based on recent research on competence destroying discontinuities, I identify in the data the different technological variants within biotechnology (small-molecule, large-molecule, and gene therapy drugs), and different sub-populations among entrants (diversifying and de novo firms).  In preliminary analyses I find a new division of labor across organizational populations.  Incumbents and entrants do not sort themselves into cytotoxic and biotechnology drug discovery as prior theory would predict.  The actual division of labor takes place between firms with pre-history (incumbent and diversifying firms) and de novo firms, and it takes place around gene therapy drug discovery.  I continue the inductive exercise to look for the mechanisms behind this new division of labor.  I find that gene therapy is the variant that, beyond competence destruction, also represents the highest technological risk (highest variance in outcomes), and that some aspects of its discovery are better executed in certain organizational designs.  I discuss implications for the creative destruction literature and its connection to the literature on entrepreneurship.  I also discuss how ultimately, the identification of the specific sources of competitive advantage from each organizational form can inform the larger debate on strategy (re-usable capabilities) vs. structure (organizational design).