Knowledge stock, search competence, and innovation performance in the United States electrical medical device industry

Innovative competence has been argued to be a critical source of sustainable competitive advantage (Roberts, 1999; Geroski et al., 1993). By continuously introducing new products, firms can create new markets, overcome market barriers, and outperform their rivals (Schumpeter, 1934). Despite the common understanding that innovative competence plays a key role in creating and sustaining superior performance, relatively little large-scale research has been conducted on how such competence is developed, managed, and deployed (Montealegre, 2002). This study examines the formation of innovative competence, based upon the insights from the knowledge based view of the firm (Grant, 1996), the dynamic resource based view (RBV) (Helfat and Peteraf, 2003), and organizational learning literature. It adopts the insights from Grant (1996) and Collis (1994) that a firm is a hierarchy of organizational capabilities and explores the interaction between these capabilities in a critical strategic activity: new product innovation. This paper identifies three types of competences that are related to product innovation: component competence, search competence, and integrative competence. Component competence reflects a firm\u27s accumulation of knowledge stock; search competence indicates a firm\u27s expertise of learning and creating new knowledge; and integrative competence shows a firm\u27s ability in matching existing knowledge base with search behavior. The basic argument is as follows: innovative capabilities are developed through accumulating both component competence and search competence. We expect that these two competences will directly affect innovative competence. In addition, their effects are mutually dependent. A strategic fit between component competence and search competence will significantly affect the outcome of innovation. Over-exploitation and over-exploration will both negatively influence innovation performance. In other words, the extent to which a firm should conduct deep search or wide search is influenced by the characteristics of its knowledge base. In general empirical findings from the U.S. electrical medical device industry support our expectations