Costly Information in Firm Transformation, Exit, or Persistent Failure

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Firms invest differentially in the intellectual human capital required to recognize, evaluate, and utilize technological breakthroughs occurring outside the firm. Such differential investment has been crucial in explaining which incumbent pharmaceutical firms have successfully transformed their technological identities in response to the biotechnological revolution and which are threatened by persistent low performance. While all incumbent firms lagged the dedicated new biotechnology firms in adopting the new drug-discovery technology, firms with higher R&D expenditures before the biotech revolution were more likely to successfully adopt the new techniques and likely to do so earlier. Failure to adopt the new techniques was associated with lower performance compared to firms adopting more fully and faster.

Published: American Behavioral Scientist, vol. 39, no. 8, August 1996.

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