- Email: [email protected]
Strategic resources in action: a case study of the Dynal biotech joint venture
Scand. J. Mgmt. 15 (1999) 249}267
Strategic resources in action: a case study of the Dynal biotech joint venture Knut Haanvs Norwegian School of Management BI, Department of Strategy, P.O. Box 580, Elias Smiths vei 15, 1301 Sandvika, Norway Received 1 February 1997; accepted 1 April 1998
Abstract This paper analyzes a case study of Dynal, a fast growing biotech joint venture. The aim of the inquiry was to look at how resources were turned into value creation, and hence, to identify strategic resources. Three questions are addressed, linked to (1) how resources evolved, (2) the identi"cation of strategic resources, and (3) the main activities in Dynal's value creation. The "ndings suggest that it may be fruitful to link the resource-based perspectives in strategic management and network theory. It is found that relationships and external resources were critical in the evolution of Dynal. 1999 Elsevier Science Ltd. All rights reserved.
1. Introduction Competitive strategy is the search for superior performance, and the academic "eld of strategic management is concerned with creating frameworks for improving the strategy process. Whereas the dominant focus of strategic management until the late 1980s was on determining environmental conditions that favor high performance (e.g. Porter, 1980), it has since gradually shifted to incorporate an analysis of "rm-speci"c competitive advantage. The resource-based view is arguably the most in#uential perspective that directly addresses how "rm performance di!ers. This view is an economics-based approach, viewing strategy as both constrained by and dependent upon the "rm's resource pro"le (Barney, 1986, 1991; Collis, 1991; Dierickx and Cool, 1989; Itami, 1987; Rumelt, 1984; Penrose, 1959; Wernerfelt, 1984). In the resourcebased view resources are the unit of analysis, as it assumes resource heterogeneity and that resources can be imperfectly mobile. The underlying approach of the resourcebased view is (1) to see the "rm as a bundle of tangible and intangible resources (and This view of resources is in con#ict with Porter's (1980) view, which implicitly assumes that the "rm can access resources (with relative facility) once it has identi"ed a competitive market position. 0956-5221/99 $ - see front matter 1999 Elsevier Science Ltd. All rights reserved. PII: S 09 5 6-5 2 21 ( 9 8) 0 0 02 5 - 6
250
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
hence to expect "rms to be heterogeneous), and (2) to see some of these resources as costly to copy and trade. In the resource-based view di!erences in resource endowments are causally related to di!erences in product or service attributes, and also, to di!erences in "rm performance; better resources are assumed to lead to better performance. Moreover, although competition is seen as having the e!ect of cancelling-out the "rm's competitive advantages through replication, innovation or substitution, sustained competitive advantage is seen as achievable because all resources are not easily transferred, copied or substituted (Barney, 1991). Although this perspective today has a broad impact, some problems have not yet been fully resolved. These problems include (1) the di$culties of de"ning and studying resources empirically, (2) the nature of di!erent types of resources, and (3) how di!erent types of resources are actually turned into value-creation. This paper attempts to look into these issues. It reports on a study of the evolution (over ten years) of a Norwegian biotechnology company, Dynal, and represents an inquiry into the value creation process with resources. Following Penrose (1959, 1960), this study looks at the "rm's activities, as opposed to the resources per se. This follows suggestions made by several authors (e.g. Porter, 1991, 1996; Stabell and Fjeldstad, 1998) to study value creation activities in order to determine what are a given "rm's resources. By looking directly at how activities unfolded over time, some of the main limitations of the resource-based view, namely that resources are di$cult to de"ne ex-ante and therefore that studies of resources are potentially &&tautological'' (Porter, 1991; Conner, 1991), are addressed.
2. The research process The research questions addressed in this paper deal with how resources are used in value-creation. An analysis of the growth of the Dynal biotech venture was undertaken with attention to what characterized the evolution of resources. More speci"cally, the questions sought answered were as follows: E Which were the main activities in Dynal's value creation? E Which were the strategic resources of Dynal? E How did resources evolve? An exploratory qualitative method was considered most appropriate, due to (1) the nature of the questions, (2) the need for longitudinal data, and (3) the lack of prior studies focusing on the resource-and-activity interrelationships. It was important to get close to the data in order to describe and thus better understand complex relationships, as well as to study a process that evolved over time. A grounded theory approach (Glaser and Strauss, 1967) was used in collecting and analyzing the data. Multiple data collection methods included interviews on multiple levels, reviews of company documents and "eld observations. Another rich source of information was the sum of informal interactions with informants. Data were collected from March 1994 to November 1996, with the dual aim of understanding Dynal's historical evolution and of tracing the on-going progress (Burgelman, 1983).
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
251
More than 25 semi-structured interviews were conducted with all the top managers of the company, several representatives of the owner companies, as well as with researchers and former managers of the joint venture. Respondents were asked questions related to three main issues: (1) the initial resources; (2) the nature and emergence of new activities, and (3) the outcome of the value-creating activities. Interview data was supplemented whenever possible through the use of internal "rm records. Data from prior research on the biotech industry, government statistics, "nancial reports, market research data and other sources helped build a view of the historical evolution. In order to validate the data collected, a description of the evolutionary process of Dynal (Haanes and Lorange, 1995) was analyzed with several of the interviewees. The accuracy of this account was later discussed in several teaching settings with representatives of the top management team of the company present. Prior to the data collection it was necessary to de"ne resources in a way that could be used in an empirical investigation. The term resource is derived from Latin; resurgere, which means &&to rise'' and implies an aid or expedient for reaching an end. The Merriam-=ebster Collegiate Dictionary (1995) de"nes a resource as &&a source of supply or support: an available means''; &&a natural source of wealth or expertise''; and as &&a source of information or expertise.'' In short, a resource implies a potential means to achieve an end, i.e., something that can be used to create value. This is consistent with the usage common in the resource-based view, which has generally subscribed to rather broad de"nitions of resources (Wernerfelt, 1984; Barney, 1991). The development of the "ndings was done through an iterative process of ongoing comparison between the existing data and emerging constructs (Eisenhardt, 1989). Initially, emphasis was on making rough frameworks that would guide later interviews and facilitate a clearer focus in asking questions. As an intermediary step, the emerging data was related to the received literature pertaining to "rm resources and the focus of the questions and the framework was sharpened. Finally, a more systematic comparison was made between the data and the emerging "ndings, and the concepts developed were discussed with several respondents. Dynal was chosen as a case mainly for three reasons. First, the company had experienced fast growth, which was assumed to accentuate the learning potential. Second, the choice of a biotech company seemed appropriate due to the rapid expansion and knowledge-intensity of the industry (Gibson, 1993). Third, one would assume that a fast growing, small company would need to be creative in the use of limited resources. As seen by Stevenson and Gumpert: As necessity is proverbially the mother of invention, people who start businesses often make imaginative use of limited resources. (Stevenson and Gumpert, 1985, p. 88). Furthermore, the fact that Dynal was a rather small company made it easier to identify and describe the activities taking place.
252
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
3. The evolution of Dynal Dynal is a Norwegian biotechnology joint venture established in 1986. It is equally owned by two international industrial companies based in Norway: Dyno Industrier and Apothekernes Laboratorium (AL). Unusual for a biotech "rm, Dynal had been pro"table from three years after start-up, with revenues of NOK 130 million ($ 20 million) in 1995. During that period earnings increased at an annual rate of about 35 percent. The background of Dynal was that the initiator of the joint venture, Dyno, a company involved in chemicals, plastics and explosives, in 1979 obtained the commercialization rights for a patent for producing perfectly spherical miniature particles of identical form and size. Previously, this process had only been achieved under weightless conditions by NASA scientists. The particles (registered under the name Dynabeads) were seen to have important applications in biotechnology and medicine, especially in the separation of living cells, bacteria, viruses and their components from blood and blood tissue. After some initial hesitation, Dyno in 1985 identi"ed AL as their partner for commercializing the magnetic particles. AL, a pharmaceuticals company, was already operating in continental Europe, North America and the Asia-Paci"c region. AL had started building up competences in two new areas in the early 1980s: molecular biology and immunology, both "elds relevant for the later utilizations of the particles. AL had also established a laboratory at the Cancer Hospital in Oslo. The assessment made upon start-up of Dynal was that the joint venture should draw on the respective strengths of the two owners: Dyno as the industrial producer of the particles and AL with the experience in pharmaceuticals. In addition, both companies had an international heritage and an extensive network abroad. The owners saw business opportunities in cellular separation, but it was rather unclear which market segments to pursue, and how. The "rst step taken was recruiting managers to the joint venture. Initially, three Norwegian managers were hired: The CEO (Carl Christian Gilhuus-Moe) had early in his career worked in research and had later been director of the diagnostics division of Nycomed. The two vice presidents, John Afseth and "yvind Fylling Jensen, both came from university research positions, respectively in dentistry and veterinary medicine. Neither of the two latter had much business experience, but all three had a scienti"c network and were used to dealing with applied research. Within a few years Dynal had entered the three main medical market segments; research, diagnostics and therapeutics. In order to identify the strategic resources of Dynal, the main activities in these segments are brie#y discussed below. AL changed name to ALPHARMA in 1996, but the formal owner of Dynal was still AL-Industrier, a part of the ALPHARMA group. Dynal reported a negative "nancial result for 1995 for the "rst time since 1989. This was, however, according to budgets and linked to de"ned one-time investments. Dyno had prior to the magnetic technology had a patent on a non-magnetic particle. The marketing rights of this technology had, after Dyno tried commercialization alone, been handed over to the Swedish pharmaceutical company Pharmacia.
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
253
3.1. The research segment Due to the contacts established in the scienti"c community prior to Dynal's establishment, it was natural for the new management to pursue these leads and build on the international reputation obtained by the particle innovator, professor John Ugelstad. Gradually, a market was created by selling the particles for research applications. This was, however, not an easy segment. First, the volumes were small and the individual speci"cations high for each customer. Second, many researchers were used to getting the particles almost for free (by the initial researchers developing the particles) and reacted negatively when Dynal raised prices ten-fold. Also, the product loyalty was low, i.e. users were ready to switch if a better alternative emerged. One important utilization in the research segment was DNA sequencing and preparations. Here, a strategic alliance was entered into with the North American company Applied Biosystems (later taken over by Perkin}Elmer) in 1991. The initial contact was established through a research collaboration Dynal had with a leading research group in Sweden led by professor Mathias UhleH n (one of few non-U.S. members of the prestigious Human Genome [HUGO] research project). The strategic alliance with Applied Biosystems resulted in several new products for DNA analysis. The research market proved interesting to Dynal in three ways. First, in the early years &&research sales'' generated a relatively large part of the (still small) turnover. Second, it enhanced the reputation of the company through opinion leaders in hospitals and research institutions. Research using the particles as a tool gained a considerable momentum in the late 1980s. By 1996 over 2000 academic articles cited the Dynabeads as a main reference. This interest came to represent a major marketing opportunity for Dynal also vis-a` -vis pharmaceutical companies (for instance, both Applied Biosystems and Baxter Healthcare became aware of, and interested in, Dynal through research). Third, the contact with researchers again generated new applications for the particle technology. For instance, further research within molecular biology was initiated with the Royal Institute of Technology in Stockholm. 3.2. The diagnostics segment The diagnostics segment is generally more commercially interesting than the research segment. The reason for this is that the volumes are higher and the customers need to build long-term relationships. On the other hand, there is more intense competition. Dynal immediately after start-up in 1986 started working on diagnostic applications in connection to organ transplants. This was done in cooperation with the National and Cancer Hospitals in Oslo. A team of scientists and surgeons discovered that the Dynabeads could be used for pre-testing whether organs would be accepted by the receiver before they were transplanted. The main advantages linked to the Dynabeads technology were (1) the time saved, and (2) the increased accuracy
This is done by drawing blood and isolating blood cells from the receiver, and matching them with tissue from the donor.
254
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
compared to conventional methods. For example, cell separation with the Dynal HLA technology took about 20 min, while conventional methods required around 3 h. This process opened an international market within diagnostics. During the "rst years Dynal had a virtual monopoly with the technology, but alternatives were introduced in 1992. Later, Dynal developed a new technology (the so-called &&SSP'') in cooperation with a research team at Karolinska Hospital in Stockholm. A large market for the particles was also found in immunoassay, the routine analysis of substances such as hormones and tumour markers. Here, Dynal managed to establish itself as a supplier to large actors, such as Boehringer Mannheim, Roche Diagnostics and Mitsui Pharmaceuticals. These contracts were seen to be important for Dynal's reputation as well as "nancially. In the words of the executive vice president, "yvind Fylling Jensen: &&Being a supplier to the large companies can be used strategically. And next time the present customers look for diagnostic products, they are familiar with Dynal's competence.'' 3.3. The therapeutics segment The therapeutics market is exponentially more demanding than both the research and the diagnostics market. The cost of the whole registration process * from concept to actually selling a new clinical drug * has been reported to average $ 275 million (Kirk, 1994). The therapeutics market has a very high failure rate * less than one of 5000 initial components eventually becomes a product. Moreover, competition is "erce, consisting primarily of large multinational companies. The sales network and distribution must therefore be much broader in this segment than in either research or diagnostics. To address the challenges associated with therapy (and Dynal's lacking experience in this area), Dynal entered into a strategic alliance with Baxter Healthcare in 1988. Baxter Healthcare, one of the largest suppliers to the hospital sector in North America, had been impressed by the research momentum surrounding the company as well as its basic technology. In a newspaper interview in connection to the initial announcement, the president of Dynal, Mr. Gilhuus-Moe, argued that the alliance would open up for high future earnings: &&This is a typical &win}win' alliance. Our partner is much larger than us, but they had a speci"c need that we cover well.'' This cooperative venture primarily focused on two therapeutic areas: First, Dynal became a supplier of a product Baxter had developed for the production of stem cells; and second, the two companies established a European research project for clinical studies on NHL, a blood cancer. All Dynabeads products sold by Baxter were to use the Dynal trademark. In an interview in 1990, Mr. Gilhuus-Moe said that: &&The agreement opens for trust and respect where it counts the most. Being chosen by Baxter as an alliance partner improved our image as a quality company.'' Getting the alliance o! the ground was, however, to take much more time than initially envisioned. Several unexpected problems emerged. First, the managers who had negotiated the agreement on behalf of Baxter were given new jobs, and new management without the same interest in the particles took over. Second, it became clear that Baxter was developing a particle which had strong similarities to the
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
255
Dynabeads (they later gave up, "nding it too complicated). Third, the communication between the companies became more di$cult as Baxter's related activities were moved from Europe to California. These issues in#uenced the cooperative behavior. In spite of the fact that negotiations started in 1988, the "nal agreement was not signed until 1991, and the real research initiatives did not gain momentum before 1993. Although Dynal saw a connection between research, diagnostics and therapeutics, the clients and collaborative partners turned out to have divergent requirements. The volumes and uses were very di!erent, posing several challenges on the Dynal organization: (1) logistical challenges in production and processing; (2) "nancial challenges in investing in three segments simultaneously, and; (3) managerial issues of two main types. First, following-up and understanding di!erent lines of business, and second, keeping track of relationships in a company that had become very international despite its limited size. These factors a!ected the direction and speed of Dynal's growth. 3.4. The growth of Dynal From start-up, Dynal experienced rapid growth in turnover, products and number of employees. By early 1996, the company had 130 employees, a number that had grown steadily: 25 in 1989, 46 in 1990, 62 in 1991, 79 in 1992 and 118 in 1993. Also, revenues had grown, at an annual rate of about 35% over the previous "ve years. R&D represented roughly 25% of the turnover in the period. By 1996, a total of 98.6% of sales were outside the home market. However, the growth was not well focused. Opportunities were seen in many areas, and Dynal initiated search activities and experiments widely in the early stages. On a general level the evolution of Dynal could be described along the three axes as seen in Fig. 1; developing new services, new markets and new products. Dynal's international expansion was rapid. The U.S. subsidiary was established within one year, the U.K. subsidiary the following year and the one in Japan in 1989. By 1996 Dynal also had subsidiaries in France, Germany and Australia, in addition to having distributors in 18 other markets. The emphasis on international ventures was acknowledged by Dynal's chairman, Ragnar Halvorsen: &&Gilhuus-Moe [the CEO] has not been afraid of going abroad. The same is true for Sissener [the vice chairman]. Dynal has really been a happy marriage of Dyno's particles and AL's antibodies. We both had international experience. It has been a meeting of minds.'' Also, the company entered into several strategic alliances with multinational pharmaceutical companies. The rationale behind these cooperative ventures was, according to the vice president of sales in the early years, John Afseth, that: &&We considered ourselves as microscopic, so we really had no choice. We had to enter into joint ventures and to cooperate.'' The Table 1 shows the di!erent commercial cooperative ventures entered into formally and the commitment and nature of each collaboration. Contractor and Lorange (1988) have argued that strategic alliances can be de"ned in terms of the interdependence between the cooperating "rms. A strategic alliance, as depicted in Table 1, implies a cooperative venture where there is a high degree of interdependence and mutual commitment, whereas a supply venture generally implies a lower commitment, e.g. in terms of joint research and development.
256
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
Fig. 1. Three dimensions of Dynal's expansion. Source: Gilhuus-Moe and Haanvs (1996).
Table 1 Cooperative ventures entered into by Dynal Year
Cooperative partner
Cooperation
Nature of cooperative venture
1989
Strategic alliance
1992
Baxter Healthcare's Immunotherapy Group Applied Biosystems Division (ABD) of Perkin-Elmer Mitsui Pharmaceuticals
1993
Roche Diagnostics
Supply venture
1993/94
Boehringer Mannheim
Supply venture
1994
Roche Molecular
Strategic alliance
Joint R&D and marketing with aim of developing cancer treatment. Joint development of automated solutions for gene analyses in molecular biology. Industrial sales in the area of immunoassay. Joint development and Industrial sales. Industrial sales in the area of immunoassay. Industrial sales and development related to gene testing and PCR technology.
1991
Strategic alliance
Supply venture
Dynal early on entered into two ambitious strategic alliances (with Baxter and Applied Biosystems) with the aim of being an equal partner to larger pharmaceutical companies in product development. Due to the appreciation of the commitment required in such alliances, Dynal entered into subsequent cooperative ventures more as a supplier. This was also due to the fact that these ventures were in more established areas (in terms of both competitors and the dominant technology) and that the managerial attention and research e!ort required in the two early strategic alliances limited the further number of high commitment alliances.
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
257
Once Dynal had established the "rst relationships, it proved easier to get yet others. This was partly the result of (1) Dynal's increasing experience in managing cooperative ventures, and (2) its demonstrated results and references. The two early strategic alliances provided Dynal with complementary resources, such as a broader market network, experience with regulatory bodies (e.g. the FDA in the U.S.), new competences and "nancial resources. Over time, the e!ort also made Dynal part of a larger network, where third parties such as "nancial institutions, the partners' networks, and other divisions of partner companies became valuable.
4. Description of 5ndings 4.1. The main activities in Dynal+s value creation Which types of activities characterized the evolution of Dynal in the period from 1986 to 1996? Dynal, in the early years, created its own small niche around the particle technology. By commercializing the particles as a new tool for researchers working with immunology, the established separation techniques became obsolete. But over time the competitive setting changed so that Dynal went from having a monopoly in its initial niches to being faced with more intense competition. While competitors continuously lowered prices and expanded the usage of miniature particles, Dynal pushed innovation within the initial niche and expanded into new areas, such as food testing and therapy. Dynal's early value-creation was related to mobilizing a particular buyer group, namely researchers. The initial focus was clearly to innovate in cooperation with external researchers in order to identify and commercialize new market opportunities in biological separation. The particle technology was at this stage both valuable and unique, and due to the patents it was well protected from imitation. Moreover, as the market was not yet developed, the company faced no direct competition and weak substitutes. During the "rst years of existence, Dynal created its own segment within the broader area of tissue typing. Dynal's initial sources of di!erentiation were continuous innovations (through creative research) and a high perceived value of the product in terms of quality. Due to small scale and large investments in research and development, Dynal could not obtain cost leadership, and new entrants generally had lower delivered cost. As explained by the executive vice president, "yvind Fylling Jensen: Other companies copy our ideas regarding sizes, applications, abilities and types of cells. It is cheap for them to copy the business idea, so we need to be up-front technologically. As Dynal increasingly met competition in the initial markets, it adapted by searching for (and "nding) new opportunities with its resources. Consequently, as growth in the research market was limited, Dynal gradually expanded in several new directions searching to explore new and larger markets with its technological
258
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
competences related to the particle technology. This implied (1) a diversi"cation in terms of new products, (2) an extensions of the particle technology, and (3) the entry into new geographical regions. Over time the technological challenges became increasingly linked to identifying complementary products, such as instruments, and the geographical challenges linked to "nding advanced competences and potential markets. Through its history Dynal constantly created new market opportunities. First, in terms of technology, later in terms of client-related services. The company was highly entrepreneurial, focusing on creativity and innovative activities. In fact, due to increasing competition, Dynal was forced to stay ahead of competitors in order to justify a higher price. The way Dynal stayed ahead was to be the "rst to introduce new applications and to provide high quality products. This was done mainly through research in close cooperation with scienti"c institutions. Over time there was a subtle shift in emphasis from upstream collaborations in research and product development to more downstream activities such as marketing and sales. There was also a trend towards formalized collaborations, in particular through the formation of strategic alliances and supply ventures. In terms of Dynal's evolution, one may identify several critical factors, namely (1) the importance of Dynal's competences in attracting relationships (both formal and informal); (2) the increased interest surrounding Dynal, whereby the company became a &&magnet'' for its network (initially mainly for external researchers, later also for pharmaceutical companies); and (3) the pro-active development and use of external resources. These observations are expanded in Table 2, which shows how Dynal pro-actively used external relationships to complement its own resources in pursuing objectives. One main reason for Dynal's pro-active attitude vis-a` -vis its external relations was the constant need to develop new markets. In 1986 there had been no business and Dynal had to create it. One may say that a critical activity in the whole period studied was to see opportunities and to use these to access new resources both internally and externally. This required both technological and commercial competences. In the areas where Dynal established successful strategic alliances they had extensive product related competence in-house. In the areas where they did not have competences in-house (e.g. in microbiology related to food-testing) the outcome was generally less positive. The company generally created value by creating a segment (e.g. the HLA analysis) and then moving on to develop new areas as more e$cient competitors emerged. In short, Dynal was e+ective, continuously innovating and creating new solutions, but not equally e.cient. Competitors were better at delivering large volumes at lower prices. 4.2. The strategic resources of Dynal Over time Dynal seemed to &&move beyond'' the core resources of the owners. That is, the joint venture established competences that less and less portrayed the initial contribution of the owners. The process of establishing new activities seemed to be linked to the emerging relations to clients and alliance partners. These relations led to
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
259
Table 2 The role of external relationships in Dynal's evolution Start up point
Main objective
Required resources
Activities to access external resources
1986
To establish biomagnetic cell separation as a research tool. To pursue international niches in tissue typing (HLA).
Reputation, "nancial reseources, knowledge about basic technology. Financial resources, international network, know-how in particle technology. Market network, capital, know-how of approval processes. Know-how about automated systems, instrumentation, distribution and new technology (PCR) Capital, market network and automated systems. Integration of internal competences and market orientation.
Participation in conferences, publication in research journals, establishment of informal cooperations. Used owner's internal organization and reputation to recruit and their international networks to draw on other researchers. Attracted, established and managed a strategic alliance with Baxter Supply agreements with Mitsui, Boehringer and strategic alliance with ABD. Technology venture with Roche in PCR
1987
1988
1989
To pursue therapeutic applications related to blood cancer. To enter molecular biology
1992
To pursue microbiology
1993
To improve sales to industrial partners (OEM sales).
Attempted to establish cooperative agreements with food companies. Strengthened existing relationships and internal structure.
innovation, product development and commercialization. This was acknowledged by John Afseth, one of Dynal's initial managers: &&We were really very fortunate because we could start cooperating with researchers on the cellular separation applications for the future. In this way we evolved with our customers.'' In this process, Dynal institutionalized its own behavior through both deliberately planned and emergent activities, such as through knowledge- and organizational culture building. Over time one type of competence that became critical for Dynal was the ability to initiate and manage activities outside of the "rm boundaries. This competence helped establish research and development projects, joint sales initiatives, and other knowledge developments with both other companies and research institutions. As a consequence of the gradual integration of the network, where Dynal could use partners for multiple projects and where these again cooperated with each other, the learning from the network came to represent a crucial resource. The strategic resources as of 1996, thus, seemed to be (1) the relationships with strategic partners and research institutions, and (2) the competences that made it interesting for them to work with Dynal. With many of the partners Dynal built operational routines and a dyadic loyalty. In fact, many of the most important activities initiated by Dynal were realized through partners, e.g. the development of technologies for tissue typing and the isolation of stemcells in bone marrow. In a similar way the commercialization of the particles was also a collective e!ort by
260
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
Table 3 The main competences and relationships developed by Dynal from 1986 to 1995 Competences
Relationships
Research and product design. Commercialize core technology. Manage risks on unproved solutions. Learn from cooperative partners. Drop existing concepts and pursue new ones. Scan environment and see opportunities. Protect &&black box'' (e.g. continuous innovation, patents, licensing contracts). Partners in commercialization and technological innovation. High quality reputation in market Reputation for working with research-intensive "rms. High technology reputation in research community. Established network of strategic alliances with &&dyadic'' loyalty. International network of local distributors
Dynal and its various partners. Table 3 illustrates the main competences and relationships developed by Dynal. The competences of Dynal throughout the period studied were geared more towards supporting innovation than e$ciency. The competences that supported innovation included (1) the ability to manage innovation, (2) the ability to motivate people, (3) the ability to manage risks on unproved solutions, and (4) the openness to learn from relationships. One may say that Dynal over the period studied had the ability to see opportunities and to use those to access resources externally. This required both technical and commercial competences internally. However, Dynal was rather less apt at exploiting these technologies over time. That would have required competences related to costs management, logistics, time, etc., and in distributing the products widely. Consequently, Dynal kept innovating and creating new markets continuously, instead of trying to compete as markets matured (in terms of standard products and price). Also, the relationships of Dynal were most appropriate for innovation. These relationships included their links to &&idea-rich'' surroundings, such as research institutions and advanced pharmaceutical companies. These allowed the "rm to pick up new ideas, to think in new ways, and to put an intense research commitment behind new technological innovations. For instance, Dynal's technologies for tissue typing and the isolation of stemcells were largely conceptualized in collaboration with external partners. The commercialization of Dynal's products was a collective e!ort by Dynal and its various partners. Commercially, the value of the partners was seen to be mainly two-fold. First, the partners gave Dynal access to resources that they did not have themselves (for instance Baxter's knowledge about the FDA procedures), and second, they represented very demanding clients, requiring that Dynal improve continuously. The network allowed Dynal to stay innovative and to continuously experiment to develop new ideas, but the set of relationships might not have been equally appropriate if Dynal had shifted focus in order to exploit existing markets by focusing on cost
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
261
and volumes. It may, moreover, be argued that the networks permitted Dynal to establish a clear complementarity in the division of activities with its close network. This again permitted Dynal to build a more focused way of operating, which allowed the "rm to prioritize its established competences. By developing a system of coordinated actions, routines, procedures, etc., Dynal created a more coherent way of working internally. 4.3. The evolution of resources Whereas the main resource at start-up (and the reason for establishing the joint venture) had been the patented technology, other resources over time became more critical. Throughout Dynal's evolution an identity emerged. As members of the Dynal organization created their own set of routines, the joint venture gradually decreased its dependency on the owners. Dynal gradually developed its own way of operating, manifest in the emergence of symbolic acts, unwritten rules and stories. Thus, the development of the joint venture could be regarded as an ongoing process of gaining autonomy from the two owner companies. Over time Dynal developed a commonly accepted history of its own and Dynal increasingly developed its own objectives. The owners over time mattered less and less in terms of the day-to-day operations of Dynal. As seen by the chairman, Mr. Ragnar Halvorsen: &&They work in areas where we have little knowledge. We accept the judgement of Dynal's management.'' The ability to initiate activities outside the "rm boundaries was built through research and development projects, joint sales initiatives, and other knowledge developments with companies and research institutions. As a consequence of the gradual integration of the network, where Dynal could use partners for multiple projects and where these again cooperated with each other, the learning from the network came to represent a crucial competence. In sum, the resources not only became more intangible over time, they also became more integrated and bundled. By 1996 one could not understand Dynal's sources of superior value-creation simply by identifying speci"c resources. Rather, one needed to point to the processual factors, such as the integration of services, the mix of products and competences and the "rm's reputation.
5. Linking the 5ndings to existing literature The "ndings from the study of Dynal's evolution suggest that it may be fruitful to link the resource-based perspectives in strategic management to network theory. Various contributions to network theory may provide further insights into understanding the interrelated growth of Dynal and its collaborating "rms. In general, network theory postulates that one given "rm's resources, both tangible and intangible, are in#uenced * potentially both positively and negatively * by its market relations. Johanson and Mattsson (1987) described networks as a complex array of relationships that could be used to de"ne industrial markets. Firms were seen to invest in their relationships through interactions in order to obtain competitive advantages.
262
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
In line with this, Jarillo (1988) de"ned strategic networks as networks consisting of special relationships with characteristics of &&hierarchies'', such as relatively unstructured tasks, a long-term perspective and relatively unspeci"ed contracts. Thus, the build-up of such networks require high investments and incur a certain resource speci"city. Studying the pharmaceutical and biotech industries, several authors have noted that a high occurrence of network relationships (both to public and private science and commercial organizations) is correlated with high research productivity (Koenig, 1983; Henderson and Cockburn, 1994). Moreover, Roberts and Hauptman (1986) found that "rms that maintained richer contacts outside the "rm developed technically more advanced products. Similarly, a study by Kreiner and Schultz (1993) on "rms in the biotech industry describes how an informal, liberal sharing of information across organizational boundaries actually represented a rich source of innovation. Closely connected to this, Gambarella (1992) found that "rms with superior in-house research programs were better positioned to exploit public science * an ability that was closely connected to research productivity. Henderson and Cockburn (1994) document that the most successful "rms maintained a rich #ow of information across the "rm boundaries and di!erent areas within the "rm. This view has later been supported by Powell, Koput and Smith-Doerr (1996), who concluded a study of learning in biotechnology "rms by the following: Rather than using external relations as a temporary mechanism to compensate for capabilities the "rm has not yet mastered, "rms use collaborations to expand all their competencies. (Powell et al., 1996: 143) Some of Dynal's most important sources of value-creation were external (e.g. reputation and relationships) and these had to be addressed through di!erent mechanisms than ownership. This "nding seems to be closely related to the notion of external resources in connection to networks (Jarillo, 1989). The external resources mobilized by Dynal were not available to all companies in the network, but rather speci"c to Dynal due to its relationships and competences. External resources can be de"ned as those resources not already controlled by the "rm, which are mobilized in formal or informal ways. In the Dynal case the external resources included the early use of "nancial, physical and other organizational resources from the owners. But, more importantly, it also included the mobilization of (1) external researchers with technological competences (especially in the early stages), and (2) commercial partners for obtaining various resources (e.g. market network, regulatory know-how, capital and access to technology). Jarillo (1989) also found the use of external resources to be closely connected to fast growth, a "nding which is supported by this study of Dynal. The nature of the external resources was initially related to the informal relations of the people in and around Dynal. These became a source of innovation and led to the
Similar "ndings have also been reported from other industries, such as computer software (Stinchcombe and Heimer, 1988).
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
263
discovery of new opportunities. Hence, Dynal obtained network advantages from its informal cooperative structure. However, over time the external resources became more formalized and were more a source of commercialization than technical innovation. Some events illustrate the importance of external resources in the resource mobilization process in Dynal from 1986 to 1996. E The development of HLA tissue typing technology was done by researchers at the National Hospital and the initial commercialization was largely facilitated by their use of their network to spread the use of the particles. E The contact with Applied Biosystems was a result of collaboration with a research group in Sweden. E Dynal could start seeking FDA approval because it had a partner with the required experience and the "nancial resources. Dynal's process of building up a network was one of mutual, but often divergent, value-creation, and it seemed to be mutually reinforcing. A similar observation was made by Kreiner and Schultz: Collaboration breeds collaboration, and the collaborative relations expand in multiple directions, adding new participants and new contents to the proceedings. (Kreiner and Schultz, 1993, p. 194) The process observed in the Dynal case was similar in terms of network development. The competences of Dynal's management (and the researchers contributing to Dynal from the National Hospital and the Cancer Hospital) made Dynal an interesting partner for pharmaceutical companies and research groups. Moreover, Dynal in this process became a center of attention in the form of resources and opportunities, which is similar to what Kreiner and Schultz (1993) call a &¢er of gravity''. A similar process is described in another study of biotech collaborations by Bower: The focal "rm and others continually change the context through their interactions...which acknowledges the cumulative processes of technical and organizational learning within the group of interacting organizations. (Bower, 1993, p. 368) One may argue that Dynal's evolution really was a co-evolution with some strategic partners. The concept of co-evolution has generally been used to explain how technology and institutions go hand in hand (Nelson, 1991, 1995; Levinthal and Myatt, 1994). However, in this case we can also use the concept to describe how the network became a source of "rm-speci"c advantage for Dynal. Generally, a positive network in#uence took place in at least two ways. First, Dynal's competences enabled it to collaborate with competent "rms, which in-turn expand its initial competences (Cohen and Levinthal, 1990). For instance, having leading edge customers and Cohen and Levinthal (1990) explain how prior related knowledge furthers the ability to recognize and use the value of new information. They label this &&absorptive capacity''.
264
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
partners may expose the "rm to technological advances, or simply push its performance (Has kanson, 1987; Von Hippel, 1988). Second, the build up of complementary resources made Dynal perform more e$ciently in collaboration with another "rm. One example of this was seen in how the customers testing and later deploying the particles increased their quality requirements, which again forced Dynal to improve quality. The network clearly constituted a critical resource for Dynal, representing both an important source of innovation and a vehicle for commercialization. But the competences of Dynal * allowing them to identify partners and to mobilize these * were necessary for the network to create value. These internal competences were attracted by several characteristics of the Dynal work environment, such as (1) the drive for results, (2) the prestige of working in ''the&& biotech company in Norway, and (3) the professional challenges o!ered. In addressing the issue of how individual resources were mobilized, the importance of people should clearly not be underestimated. The Dynal evolution was one where professional curiosity and scienti"c enthusiasm (both internally and externally) built a company. The resource mobilization was related to the ambitious objectives and the vision * or &&dream'' * behind the particle development.
6. Conclusions and implications This study has given us new insight about strategic resources, and thereby demonstrated that studying "rm activities may represent an appropriate way to learn more about resources. Nevertheless, the "ndings are based on only one case, and further studies are needed in order to make generalizations and infer these to other companies and contexts. However, by inquiring into the evolution of one "rm a deeper understanding of this has allowed for insights that would be di$cult to obtain from surveys or broader studies of a comparative nature. The Dynal study has in particular brought up two issues that could not be predicted directly from the received theory. First, it was clear by looking at Dynal's evolution many of the resources that turned out to be critical, such as the ability to cooperate both with scientists and business "rms, were not initially recognized explicitly as resources and hence not mobilized. Many of the resources that became critical were recognized and understood through a collective process with formal and informal partners. This seems to indicate that perceiving or otherwise identifying new resources should be understood as a social process, and the idea that resources have the same value to all "rms should not be taken for granted. Identifying resources may be seen as a creative process. Rather, for Dynal the value created with a speci"c resource generally depended upon two factors; (1) the opportunities seen, and (2) the ability to actually mobilize the needed complementary resources. Hence, the case demonstrated how identifying new opportunities represented a &&meta'' resource, because it again facilitated the perception of new resources and the access to both internal and external resources. Moreover, the case showed how resources needed neither to be controlled nor owned by Dynal to
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
265
represent a potential for value-creation. Rather, they could be owned or controlled by other organizations. If Dynal saw opportunities, external resources could often be mobilized. This extends our understanding of resources, which in the resource-based literature often regards resources as equal for all companies (e.g. Barney, 1991; Peteraf, 1993). Furthermore, the "ndings support the literature that shows resources as path dependent and di$cult to change rapidly (Dierickx and Cool, 1989). The case supports Penrose (1959) by showing how expansion was driven by existing resources. It has been argued in connection to the resource-based view that excess resources with multiple uses represent the basis for the diversi"cation of the "rm (Peteraf, 1993). The perspective, however, has not yet directly addressed the fact that the resources of the "rm may attract external resources, which allows for more #exibility. Dynal's evolution was greatly built on the "rm's ability to mobilize external resources, e.g. in research institutions and large pharmaceutical companies. Dynal neither owned nor controlled resources that constituted a large part of the total value-creation. This seems to support the claim that there is a need to merge resource-based and network perspectives on strategy and value creation. It seems that an understanding of how resources emerge and are used to create value should be seen as contextual and this fact will often not be well understood if the "rm is viewed as a closed entity. It was, for instance, clear that Dynal became a &&magnet'' for external resources. Scientists and companies came to Dynal because they saw potential for value-creation (of di!erent kinds) in the company's activities. What represents a resource for one "rm may not be a resource for any other "rm, if the focal "rm is the only one which sees a potential for value-creation. Mobilization involves complementary resources, and the value of a resource is thus dependent upon whether the "rm is able to bundle and connect it with other resources. Finally, an implication of this study is that theorizing about value-creation is possible, and that the empirical insights that follow from an explicit focus on activities may be of interest. By looking speci"cally at activities the case shows that the "rm boundaries are very unclear. Moreover, it shows that value-creation can be understood as a process of recognizing new opportunities and new resource combinations, and of accessing and putting into action the resources needed to seize these opportunities. A related implication is that is may be fruitful to bridge the resource-based and network approaches to strategy through studying activities and "rm value-creation. It is, however, clear that more work needs to be done in order to develop an appropriate balance in focus between these two aspects of strategy.
Acknowledgements This paper is a revised and extented version of a paper with the same title presented at the FIBE Conference at the Norwegian School of Economics and Business Administration, 1997. It has bene"tted from the insightful comments and suggestions by Peter Lorange and Bente Lowendahl, as well as two anonymous reviewers.
266
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
References Amit, R., & Schoemaker, P. J. H. (1993). Strategic assets and organizational rent. Strategic Management Journal, 14, 33}46. Barney, J. (1986). Types of competition and the theory of strategy. Academy of Management Review, 11, 123}141. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99}120. Bower, D. J. (1993). New product development in the pharmaceutical industry: pooling network resources. Journal of Product Innovation Management, 10, 367}375. Burgelman, R. A. (1983). A process model of internal corporate venturing. Administrative Science Quarterly, 28, 223}244. Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128}152. Collis, D. J. (1991). A resource-based analysis of global competition: the case of the bearings industry. Strategic Management Journal, 12, 49}68. Conner, K. (1991). An historical comparison of resource-based theory and "ve schools of thought within industrial organization economics: do we have a new theory of the "rm? Journal of Management, 17, 121}154. Contractor, F., & Lorange, P. (1998). Why should "rms cooperate? The strategy and economic basis for cooperative ventures, In: F. Contractor, & P. Lorange (Eds.), Cooperative strategies in international business (pp. 3}30). Lexington, MA: Lexington Books. Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35, 1504}11. Eisenhardt, K. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532}550. Gambarella, A. (1992). Competitive advantage from in-house scienti"c research: the U.S. pharmaceutical industry in the 1980s. Research Policy, 1}17. Gibson, W. D. (1993). Buddy systems: partnerships between biotech "rms and drug makers are increasingly becoming a necessity. Chemical Marketing Reporter, 8 March. Gilhuus-Moe, C. C., & Haanvs, K. (1996). Dynal som eksempel pas mobilisering av materielle og immaterielle ressurser. Praktisk }konomi og ¸edelse, 4, 121}129. Glaser, B. G., & Strauss, A. L. (1967). ¹he discovery of grounded theory. Chicago, IL: Aldine. Haanes, K., & Lorange, P. (1987). ¹he Dynal Biotech joint venture, IMD case study, GM 593. Has kanson, H. (1987). Industrial technological development. A network approach. London: Croom Helm. Henderson, R., & Cockburn, I. (1994). Measuring competence? Exploring "rm e!ects in pharmaceutical research. Strategic Management Journal, 15, 63}84. Itami, H. (with T. Roehl) (1987). Mobilizing invisible assets. Cambridge, MA: Harvard University Press. Jarillo, J. C. (1988). On strategic networks. Strategic Management Journal, 9(1), 31}41. Jarillo, J. C. (1989). Entrepreneurship and growth: the strategic use of external resources. Journal of Business
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
267
Nelson, R. R. (1995). Co-evolution of industry structure, technology and supporting institutions, and the making of comparative advantage. International Journal of the Economics of Business, 2(2), 171}184. Penrose, E. (1959). ¹he theory of the growth of the ,rm. London: Basil Blackwell. Penrose, E. (1960). The growth of the "rm * a csse study: the Hercules Powder Company. Business History Review, 34(1), 1}23. Peteraf, M. (1993). The cornerstone of competitive advantage: a resource-based view. Strategic Management Journal, 14(3), 179}192. Porter, M. E. (1980). Competitive strategy. New York: Free Press. Porter, M. E. (1991). Toward a dynamic theory of strategy. Strategic Management Journal, 12, 95}117. Porter, M. E. (1996). What is strategy? Harvard Business Review, November}December, 61}78. Powell, W. W., Koput, K., & Smith-Doerr, L. (1996). Interorganizational collaboration and the locus of innovation: networks of learning in biotechnology. Administrative Science Quarterly, 41, 116}145. Roberts, E., & Hauptman, O. (1986). The process of technology transfer to the new biomedical and pharmaceutical "rm. Research Policy, 15, 107}119. Rumelt, R. (1984). Towards a strategic theory of the "rm, In: Lamb, R. B. (Ed), Competitive strategic management (pp. 556}570). Englewood Cli!s, NJ: Prentice-Hall. Stabell, C. B., & Fjeldstad, ".D. (1998). Con"guring value for competitive advantage: On chains, shops and networks. Strategic Management Journal, 19(5), 413}437. Stevenson, H. H., & Gumpert, D. E. (1985). The heart of entrepreneurship. Harvard Business Review, March}April, 85}94. Stinchcombe, A. L., & Heimer, C. A. (1988). Interorganizational relations and careers in computer software "rms, In: Simson, I. H. and Simpson, R. L. (Eds). Research in sociology of work, high tech work (Vol. 4, pp. 179}204) Greenwich, Conn.: JAI Press. Von Hippel, E. (1988). ¹he sources of innovation. New York: Oxford University Press. Wernerfelt, B. (1984). A resource-based view of the "rm. Strategic Management Journal, 5, 171}180.
Strategic resources in action: a case study of the Dynal biotech joint venture Knut Haanvs Norwegian School of Management BI, Department of Strategy, P.O. Box 580, Elias Smiths vei 15, 1301 Sandvika, Norway Received 1 February 1997; accepted 1 April 1998
Abstract This paper analyzes a case study of Dynal, a fast growing biotech joint venture. The aim of the inquiry was to look at how resources were turned into value creation, and hence, to identify strategic resources. Three questions are addressed, linked to (1) how resources evolved, (2) the identi"cation of strategic resources, and (3) the main activities in Dynal's value creation. The "ndings suggest that it may be fruitful to link the resource-based perspectives in strategic management and network theory. It is found that relationships and external resources were critical in the evolution of Dynal. 1999 Elsevier Science Ltd. All rights reserved.
1. Introduction Competitive strategy is the search for superior performance, and the academic "eld of strategic management is concerned with creating frameworks for improving the strategy process. Whereas the dominant focus of strategic management until the late 1980s was on determining environmental conditions that favor high performance (e.g. Porter, 1980), it has since gradually shifted to incorporate an analysis of "rm-speci"c competitive advantage. The resource-based view is arguably the most in#uential perspective that directly addresses how "rm performance di!ers. This view is an economics-based approach, viewing strategy as both constrained by and dependent upon the "rm's resource pro"le (Barney, 1986, 1991; Collis, 1991; Dierickx and Cool, 1989; Itami, 1987; Rumelt, 1984; Penrose, 1959; Wernerfelt, 1984). In the resourcebased view resources are the unit of analysis, as it assumes resource heterogeneity and that resources can be imperfectly mobile. The underlying approach of the resourcebased view is (1) to see the "rm as a bundle of tangible and intangible resources (and This view of resources is in con#ict with Porter's (1980) view, which implicitly assumes that the "rm can access resources (with relative facility) once it has identi"ed a competitive market position. 0956-5221/99 $ - see front matter 1999 Elsevier Science Ltd. All rights reserved. PII: S 09 5 6-5 2 21 ( 9 8) 0 0 02 5 - 6
250
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
hence to expect "rms to be heterogeneous), and (2) to see some of these resources as costly to copy and trade. In the resource-based view di!erences in resource endowments are causally related to di!erences in product or service attributes, and also, to di!erences in "rm performance; better resources are assumed to lead to better performance. Moreover, although competition is seen as having the e!ect of cancelling-out the "rm's competitive advantages through replication, innovation or substitution, sustained competitive advantage is seen as achievable because all resources are not easily transferred, copied or substituted (Barney, 1991). Although this perspective today has a broad impact, some problems have not yet been fully resolved. These problems include (1) the di$culties of de"ning and studying resources empirically, (2) the nature of di!erent types of resources, and (3) how di!erent types of resources are actually turned into value-creation. This paper attempts to look into these issues. It reports on a study of the evolution (over ten years) of a Norwegian biotechnology company, Dynal, and represents an inquiry into the value creation process with resources. Following Penrose (1959, 1960), this study looks at the "rm's activities, as opposed to the resources per se. This follows suggestions made by several authors (e.g. Porter, 1991, 1996; Stabell and Fjeldstad, 1998) to study value creation activities in order to determine what are a given "rm's resources. By looking directly at how activities unfolded over time, some of the main limitations of the resource-based view, namely that resources are di$cult to de"ne ex-ante and therefore that studies of resources are potentially &&tautological'' (Porter, 1991; Conner, 1991), are addressed.
2. The research process The research questions addressed in this paper deal with how resources are used in value-creation. An analysis of the growth of the Dynal biotech venture was undertaken with attention to what characterized the evolution of resources. More speci"cally, the questions sought answered were as follows: E Which were the main activities in Dynal's value creation? E Which were the strategic resources of Dynal? E How did resources evolve? An exploratory qualitative method was considered most appropriate, due to (1) the nature of the questions, (2) the need for longitudinal data, and (3) the lack of prior studies focusing on the resource-and-activity interrelationships. It was important to get close to the data in order to describe and thus better understand complex relationships, as well as to study a process that evolved over time. A grounded theory approach (Glaser and Strauss, 1967) was used in collecting and analyzing the data. Multiple data collection methods included interviews on multiple levels, reviews of company documents and "eld observations. Another rich source of information was the sum of informal interactions with informants. Data were collected from March 1994 to November 1996, with the dual aim of understanding Dynal's historical evolution and of tracing the on-going progress (Burgelman, 1983).
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
251
More than 25 semi-structured interviews were conducted with all the top managers of the company, several representatives of the owner companies, as well as with researchers and former managers of the joint venture. Respondents were asked questions related to three main issues: (1) the initial resources; (2) the nature and emergence of new activities, and (3) the outcome of the value-creating activities. Interview data was supplemented whenever possible through the use of internal "rm records. Data from prior research on the biotech industry, government statistics, "nancial reports, market research data and other sources helped build a view of the historical evolution. In order to validate the data collected, a description of the evolutionary process of Dynal (Haanes and Lorange, 1995) was analyzed with several of the interviewees. The accuracy of this account was later discussed in several teaching settings with representatives of the top management team of the company present. Prior to the data collection it was necessary to de"ne resources in a way that could be used in an empirical investigation. The term resource is derived from Latin; resurgere, which means &&to rise'' and implies an aid or expedient for reaching an end. The Merriam-=ebster Collegiate Dictionary (1995) de"nes a resource as &&a source of supply or support: an available means''; &&a natural source of wealth or expertise''; and as &&a source of information or expertise.'' In short, a resource implies a potential means to achieve an end, i.e., something that can be used to create value. This is consistent with the usage common in the resource-based view, which has generally subscribed to rather broad de"nitions of resources (Wernerfelt, 1984; Barney, 1991). The development of the "ndings was done through an iterative process of ongoing comparison between the existing data and emerging constructs (Eisenhardt, 1989). Initially, emphasis was on making rough frameworks that would guide later interviews and facilitate a clearer focus in asking questions. As an intermediary step, the emerging data was related to the received literature pertaining to "rm resources and the focus of the questions and the framework was sharpened. Finally, a more systematic comparison was made between the data and the emerging "ndings, and the concepts developed were discussed with several respondents. Dynal was chosen as a case mainly for three reasons. First, the company had experienced fast growth, which was assumed to accentuate the learning potential. Second, the choice of a biotech company seemed appropriate due to the rapid expansion and knowledge-intensity of the industry (Gibson, 1993). Third, one would assume that a fast growing, small company would need to be creative in the use of limited resources. As seen by Stevenson and Gumpert: As necessity is proverbially the mother of invention, people who start businesses often make imaginative use of limited resources. (Stevenson and Gumpert, 1985, p. 88). Furthermore, the fact that Dynal was a rather small company made it easier to identify and describe the activities taking place.
252
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
3. The evolution of Dynal Dynal is a Norwegian biotechnology joint venture established in 1986. It is equally owned by two international industrial companies based in Norway: Dyno Industrier and Apothekernes Laboratorium (AL). Unusual for a biotech "rm, Dynal had been pro"table from three years after start-up, with revenues of NOK 130 million ($ 20 million) in 1995. During that period earnings increased at an annual rate of about 35 percent. The background of Dynal was that the initiator of the joint venture, Dyno, a company involved in chemicals, plastics and explosives, in 1979 obtained the commercialization rights for a patent for producing perfectly spherical miniature particles of identical form and size. Previously, this process had only been achieved under weightless conditions by NASA scientists. The particles (registered under the name Dynabeads) were seen to have important applications in biotechnology and medicine, especially in the separation of living cells, bacteria, viruses and their components from blood and blood tissue. After some initial hesitation, Dyno in 1985 identi"ed AL as their partner for commercializing the magnetic particles. AL, a pharmaceuticals company, was already operating in continental Europe, North America and the Asia-Paci"c region. AL had started building up competences in two new areas in the early 1980s: molecular biology and immunology, both "elds relevant for the later utilizations of the particles. AL had also established a laboratory at the Cancer Hospital in Oslo. The assessment made upon start-up of Dynal was that the joint venture should draw on the respective strengths of the two owners: Dyno as the industrial producer of the particles and AL with the experience in pharmaceuticals. In addition, both companies had an international heritage and an extensive network abroad. The owners saw business opportunities in cellular separation, but it was rather unclear which market segments to pursue, and how. The "rst step taken was recruiting managers to the joint venture. Initially, three Norwegian managers were hired: The CEO (Carl Christian Gilhuus-Moe) had early in his career worked in research and had later been director of the diagnostics division of Nycomed. The two vice presidents, John Afseth and "yvind Fylling Jensen, both came from university research positions, respectively in dentistry and veterinary medicine. Neither of the two latter had much business experience, but all three had a scienti"c network and were used to dealing with applied research. Within a few years Dynal had entered the three main medical market segments; research, diagnostics and therapeutics. In order to identify the strategic resources of Dynal, the main activities in these segments are brie#y discussed below. AL changed name to ALPHARMA in 1996, but the formal owner of Dynal was still AL-Industrier, a part of the ALPHARMA group. Dynal reported a negative "nancial result for 1995 for the "rst time since 1989. This was, however, according to budgets and linked to de"ned one-time investments. Dyno had prior to the magnetic technology had a patent on a non-magnetic particle. The marketing rights of this technology had, after Dyno tried commercialization alone, been handed over to the Swedish pharmaceutical company Pharmacia.
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
253
3.1. The research segment Due to the contacts established in the scienti"c community prior to Dynal's establishment, it was natural for the new management to pursue these leads and build on the international reputation obtained by the particle innovator, professor John Ugelstad. Gradually, a market was created by selling the particles for research applications. This was, however, not an easy segment. First, the volumes were small and the individual speci"cations high for each customer. Second, many researchers were used to getting the particles almost for free (by the initial researchers developing the particles) and reacted negatively when Dynal raised prices ten-fold. Also, the product loyalty was low, i.e. users were ready to switch if a better alternative emerged. One important utilization in the research segment was DNA sequencing and preparations. Here, a strategic alliance was entered into with the North American company Applied Biosystems (later taken over by Perkin}Elmer) in 1991. The initial contact was established through a research collaboration Dynal had with a leading research group in Sweden led by professor Mathias UhleH n (one of few non-U.S. members of the prestigious Human Genome [HUGO] research project). The strategic alliance with Applied Biosystems resulted in several new products for DNA analysis. The research market proved interesting to Dynal in three ways. First, in the early years &&research sales'' generated a relatively large part of the (still small) turnover. Second, it enhanced the reputation of the company through opinion leaders in hospitals and research institutions. Research using the particles as a tool gained a considerable momentum in the late 1980s. By 1996 over 2000 academic articles cited the Dynabeads as a main reference. This interest came to represent a major marketing opportunity for Dynal also vis-a` -vis pharmaceutical companies (for instance, both Applied Biosystems and Baxter Healthcare became aware of, and interested in, Dynal through research). Third, the contact with researchers again generated new applications for the particle technology. For instance, further research within molecular biology was initiated with the Royal Institute of Technology in Stockholm. 3.2. The diagnostics segment The diagnostics segment is generally more commercially interesting than the research segment. The reason for this is that the volumes are higher and the customers need to build long-term relationships. On the other hand, there is more intense competition. Dynal immediately after start-up in 1986 started working on diagnostic applications in connection to organ transplants. This was done in cooperation with the National and Cancer Hospitals in Oslo. A team of scientists and surgeons discovered that the Dynabeads could be used for pre-testing whether organs would be accepted by the receiver before they were transplanted. The main advantages linked to the Dynabeads technology were (1) the time saved, and (2) the increased accuracy
This is done by drawing blood and isolating blood cells from the receiver, and matching them with tissue from the donor.
254
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
compared to conventional methods. For example, cell separation with the Dynal HLA technology took about 20 min, while conventional methods required around 3 h. This process opened an international market within diagnostics. During the "rst years Dynal had a virtual monopoly with the technology, but alternatives were introduced in 1992. Later, Dynal developed a new technology (the so-called &&SSP'') in cooperation with a research team at Karolinska Hospital in Stockholm. A large market for the particles was also found in immunoassay, the routine analysis of substances such as hormones and tumour markers. Here, Dynal managed to establish itself as a supplier to large actors, such as Boehringer Mannheim, Roche Diagnostics and Mitsui Pharmaceuticals. These contracts were seen to be important for Dynal's reputation as well as "nancially. In the words of the executive vice president, "yvind Fylling Jensen: &&Being a supplier to the large companies can be used strategically. And next time the present customers look for diagnostic products, they are familiar with Dynal's competence.'' 3.3. The therapeutics segment The therapeutics market is exponentially more demanding than both the research and the diagnostics market. The cost of the whole registration process * from concept to actually selling a new clinical drug * has been reported to average $ 275 million (Kirk, 1994). The therapeutics market has a very high failure rate * less than one of 5000 initial components eventually becomes a product. Moreover, competition is "erce, consisting primarily of large multinational companies. The sales network and distribution must therefore be much broader in this segment than in either research or diagnostics. To address the challenges associated with therapy (and Dynal's lacking experience in this area), Dynal entered into a strategic alliance with Baxter Healthcare in 1988. Baxter Healthcare, one of the largest suppliers to the hospital sector in North America, had been impressed by the research momentum surrounding the company as well as its basic technology. In a newspaper interview in connection to the initial announcement, the president of Dynal, Mr. Gilhuus-Moe, argued that the alliance would open up for high future earnings: &&This is a typical &win}win' alliance. Our partner is much larger than us, but they had a speci"c need that we cover well.'' This cooperative venture primarily focused on two therapeutic areas: First, Dynal became a supplier of a product Baxter had developed for the production of stem cells; and second, the two companies established a European research project for clinical studies on NHL, a blood cancer. All Dynabeads products sold by Baxter were to use the Dynal trademark. In an interview in 1990, Mr. Gilhuus-Moe said that: &&The agreement opens for trust and respect where it counts the most. Being chosen by Baxter as an alliance partner improved our image as a quality company.'' Getting the alliance o! the ground was, however, to take much more time than initially envisioned. Several unexpected problems emerged. First, the managers who had negotiated the agreement on behalf of Baxter were given new jobs, and new management without the same interest in the particles took over. Second, it became clear that Baxter was developing a particle which had strong similarities to the
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
255
Dynabeads (they later gave up, "nding it too complicated). Third, the communication between the companies became more di$cult as Baxter's related activities were moved from Europe to California. These issues in#uenced the cooperative behavior. In spite of the fact that negotiations started in 1988, the "nal agreement was not signed until 1991, and the real research initiatives did not gain momentum before 1993. Although Dynal saw a connection between research, diagnostics and therapeutics, the clients and collaborative partners turned out to have divergent requirements. The volumes and uses were very di!erent, posing several challenges on the Dynal organization: (1) logistical challenges in production and processing; (2) "nancial challenges in investing in three segments simultaneously, and; (3) managerial issues of two main types. First, following-up and understanding di!erent lines of business, and second, keeping track of relationships in a company that had become very international despite its limited size. These factors a!ected the direction and speed of Dynal's growth. 3.4. The growth of Dynal From start-up, Dynal experienced rapid growth in turnover, products and number of employees. By early 1996, the company had 130 employees, a number that had grown steadily: 25 in 1989, 46 in 1990, 62 in 1991, 79 in 1992 and 118 in 1993. Also, revenues had grown, at an annual rate of about 35% over the previous "ve years. R&D represented roughly 25% of the turnover in the period. By 1996, a total of 98.6% of sales were outside the home market. However, the growth was not well focused. Opportunities were seen in many areas, and Dynal initiated search activities and experiments widely in the early stages. On a general level the evolution of Dynal could be described along the three axes as seen in Fig. 1; developing new services, new markets and new products. Dynal's international expansion was rapid. The U.S. subsidiary was established within one year, the U.K. subsidiary the following year and the one in Japan in 1989. By 1996 Dynal also had subsidiaries in France, Germany and Australia, in addition to having distributors in 18 other markets. The emphasis on international ventures was acknowledged by Dynal's chairman, Ragnar Halvorsen: &&Gilhuus-Moe [the CEO] has not been afraid of going abroad. The same is true for Sissener [the vice chairman]. Dynal has really been a happy marriage of Dyno's particles and AL's antibodies. We both had international experience. It has been a meeting of minds.'' Also, the company entered into several strategic alliances with multinational pharmaceutical companies. The rationale behind these cooperative ventures was, according to the vice president of sales in the early years, John Afseth, that: &&We considered ourselves as microscopic, so we really had no choice. We had to enter into joint ventures and to cooperate.'' The Table 1 shows the di!erent commercial cooperative ventures entered into formally and the commitment and nature of each collaboration. Contractor and Lorange (1988) have argued that strategic alliances can be de"ned in terms of the interdependence between the cooperating "rms. A strategic alliance, as depicted in Table 1, implies a cooperative venture where there is a high degree of interdependence and mutual commitment, whereas a supply venture generally implies a lower commitment, e.g. in terms of joint research and development.
256
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
Fig. 1. Three dimensions of Dynal's expansion. Source: Gilhuus-Moe and Haanvs (1996).
Table 1 Cooperative ventures entered into by Dynal Year
Cooperative partner
Cooperation
Nature of cooperative venture
1989
Strategic alliance
1992
Baxter Healthcare's Immunotherapy Group Applied Biosystems Division (ABD) of Perkin-Elmer Mitsui Pharmaceuticals
1993
Roche Diagnostics
Supply venture
1993/94
Boehringer Mannheim
Supply venture
1994
Roche Molecular
Strategic alliance
Joint R&D and marketing with aim of developing cancer treatment. Joint development of automated solutions for gene analyses in molecular biology. Industrial sales in the area of immunoassay. Joint development and Industrial sales. Industrial sales in the area of immunoassay. Industrial sales and development related to gene testing and PCR technology.
1991
Strategic alliance
Supply venture
Dynal early on entered into two ambitious strategic alliances (with Baxter and Applied Biosystems) with the aim of being an equal partner to larger pharmaceutical companies in product development. Due to the appreciation of the commitment required in such alliances, Dynal entered into subsequent cooperative ventures more as a supplier. This was also due to the fact that these ventures were in more established areas (in terms of both competitors and the dominant technology) and that the managerial attention and research e!ort required in the two early strategic alliances limited the further number of high commitment alliances.
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
257
Once Dynal had established the "rst relationships, it proved easier to get yet others. This was partly the result of (1) Dynal's increasing experience in managing cooperative ventures, and (2) its demonstrated results and references. The two early strategic alliances provided Dynal with complementary resources, such as a broader market network, experience with regulatory bodies (e.g. the FDA in the U.S.), new competences and "nancial resources. Over time, the e!ort also made Dynal part of a larger network, where third parties such as "nancial institutions, the partners' networks, and other divisions of partner companies became valuable.
4. Description of 5ndings 4.1. The main activities in Dynal+s value creation Which types of activities characterized the evolution of Dynal in the period from 1986 to 1996? Dynal, in the early years, created its own small niche around the particle technology. By commercializing the particles as a new tool for researchers working with immunology, the established separation techniques became obsolete. But over time the competitive setting changed so that Dynal went from having a monopoly in its initial niches to being faced with more intense competition. While competitors continuously lowered prices and expanded the usage of miniature particles, Dynal pushed innovation within the initial niche and expanded into new areas, such as food testing and therapy. Dynal's early value-creation was related to mobilizing a particular buyer group, namely researchers. The initial focus was clearly to innovate in cooperation with external researchers in order to identify and commercialize new market opportunities in biological separation. The particle technology was at this stage both valuable and unique, and due to the patents it was well protected from imitation. Moreover, as the market was not yet developed, the company faced no direct competition and weak substitutes. During the "rst years of existence, Dynal created its own segment within the broader area of tissue typing. Dynal's initial sources of di!erentiation were continuous innovations (through creative research) and a high perceived value of the product in terms of quality. Due to small scale and large investments in research and development, Dynal could not obtain cost leadership, and new entrants generally had lower delivered cost. As explained by the executive vice president, "yvind Fylling Jensen: Other companies copy our ideas regarding sizes, applications, abilities and types of cells. It is cheap for them to copy the business idea, so we need to be up-front technologically. As Dynal increasingly met competition in the initial markets, it adapted by searching for (and "nding) new opportunities with its resources. Consequently, as growth in the research market was limited, Dynal gradually expanded in several new directions searching to explore new and larger markets with its technological
258
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
competences related to the particle technology. This implied (1) a diversi"cation in terms of new products, (2) an extensions of the particle technology, and (3) the entry into new geographical regions. Over time the technological challenges became increasingly linked to identifying complementary products, such as instruments, and the geographical challenges linked to "nding advanced competences and potential markets. Through its history Dynal constantly created new market opportunities. First, in terms of technology, later in terms of client-related services. The company was highly entrepreneurial, focusing on creativity and innovative activities. In fact, due to increasing competition, Dynal was forced to stay ahead of competitors in order to justify a higher price. The way Dynal stayed ahead was to be the "rst to introduce new applications and to provide high quality products. This was done mainly through research in close cooperation with scienti"c institutions. Over time there was a subtle shift in emphasis from upstream collaborations in research and product development to more downstream activities such as marketing and sales. There was also a trend towards formalized collaborations, in particular through the formation of strategic alliances and supply ventures. In terms of Dynal's evolution, one may identify several critical factors, namely (1) the importance of Dynal's competences in attracting relationships (both formal and informal); (2) the increased interest surrounding Dynal, whereby the company became a &&magnet'' for its network (initially mainly for external researchers, later also for pharmaceutical companies); and (3) the pro-active development and use of external resources. These observations are expanded in Table 2, which shows how Dynal pro-actively used external relationships to complement its own resources in pursuing objectives. One main reason for Dynal's pro-active attitude vis-a` -vis its external relations was the constant need to develop new markets. In 1986 there had been no business and Dynal had to create it. One may say that a critical activity in the whole period studied was to see opportunities and to use these to access new resources both internally and externally. This required both technological and commercial competences. In the areas where Dynal established successful strategic alliances they had extensive product related competence in-house. In the areas where they did not have competences in-house (e.g. in microbiology related to food-testing) the outcome was generally less positive. The company generally created value by creating a segment (e.g. the HLA analysis) and then moving on to develop new areas as more e$cient competitors emerged. In short, Dynal was e+ective, continuously innovating and creating new solutions, but not equally e.cient. Competitors were better at delivering large volumes at lower prices. 4.2. The strategic resources of Dynal Over time Dynal seemed to &&move beyond'' the core resources of the owners. That is, the joint venture established competences that less and less portrayed the initial contribution of the owners. The process of establishing new activities seemed to be linked to the emerging relations to clients and alliance partners. These relations led to
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
259
Table 2 The role of external relationships in Dynal's evolution Start up point
Main objective
Required resources
Activities to access external resources
1986
To establish biomagnetic cell separation as a research tool. To pursue international niches in tissue typing (HLA).
Reputation, "nancial reseources, knowledge about basic technology. Financial resources, international network, know-how in particle technology. Market network, capital, know-how of approval processes. Know-how about automated systems, instrumentation, distribution and new technology (PCR) Capital, market network and automated systems. Integration of internal competences and market orientation.
Participation in conferences, publication in research journals, establishment of informal cooperations. Used owner's internal organization and reputation to recruit and their international networks to draw on other researchers. Attracted, established and managed a strategic alliance with Baxter Supply agreements with Mitsui, Boehringer and strategic alliance with ABD. Technology venture with Roche in PCR
1987
1988
1989
To pursue therapeutic applications related to blood cancer. To enter molecular biology
1992
To pursue microbiology
1993
To improve sales to industrial partners (OEM sales).
Attempted to establish cooperative agreements with food companies. Strengthened existing relationships and internal structure.
innovation, product development and commercialization. This was acknowledged by John Afseth, one of Dynal's initial managers: &&We were really very fortunate because we could start cooperating with researchers on the cellular separation applications for the future. In this way we evolved with our customers.'' In this process, Dynal institutionalized its own behavior through both deliberately planned and emergent activities, such as through knowledge- and organizational culture building. Over time one type of competence that became critical for Dynal was the ability to initiate and manage activities outside of the "rm boundaries. This competence helped establish research and development projects, joint sales initiatives, and other knowledge developments with both other companies and research institutions. As a consequence of the gradual integration of the network, where Dynal could use partners for multiple projects and where these again cooperated with each other, the learning from the network came to represent a crucial resource. The strategic resources as of 1996, thus, seemed to be (1) the relationships with strategic partners and research institutions, and (2) the competences that made it interesting for them to work with Dynal. With many of the partners Dynal built operational routines and a dyadic loyalty. In fact, many of the most important activities initiated by Dynal were realized through partners, e.g. the development of technologies for tissue typing and the isolation of stemcells in bone marrow. In a similar way the commercialization of the particles was also a collective e!ort by
260
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
Table 3 The main competences and relationships developed by Dynal from 1986 to 1995 Competences
Relationships
Research and product design. Commercialize core technology. Manage risks on unproved solutions. Learn from cooperative partners. Drop existing concepts and pursue new ones. Scan environment and see opportunities. Protect &&black box'' (e.g. continuous innovation, patents, licensing contracts). Partners in commercialization and technological innovation. High quality reputation in market Reputation for working with research-intensive "rms. High technology reputation in research community. Established network of strategic alliances with &&dyadic'' loyalty. International network of local distributors
Dynal and its various partners. Table 3 illustrates the main competences and relationships developed by Dynal. The competences of Dynal throughout the period studied were geared more towards supporting innovation than e$ciency. The competences that supported innovation included (1) the ability to manage innovation, (2) the ability to motivate people, (3) the ability to manage risks on unproved solutions, and (4) the openness to learn from relationships. One may say that Dynal over the period studied had the ability to see opportunities and to use those to access resources externally. This required both technical and commercial competences internally. However, Dynal was rather less apt at exploiting these technologies over time. That would have required competences related to costs management, logistics, time, etc., and in distributing the products widely. Consequently, Dynal kept innovating and creating new markets continuously, instead of trying to compete as markets matured (in terms of standard products and price). Also, the relationships of Dynal were most appropriate for innovation. These relationships included their links to &&idea-rich'' surroundings, such as research institutions and advanced pharmaceutical companies. These allowed the "rm to pick up new ideas, to think in new ways, and to put an intense research commitment behind new technological innovations. For instance, Dynal's technologies for tissue typing and the isolation of stemcells were largely conceptualized in collaboration with external partners. The commercialization of Dynal's products was a collective e!ort by Dynal and its various partners. Commercially, the value of the partners was seen to be mainly two-fold. First, the partners gave Dynal access to resources that they did not have themselves (for instance Baxter's knowledge about the FDA procedures), and second, they represented very demanding clients, requiring that Dynal improve continuously. The network allowed Dynal to stay innovative and to continuously experiment to develop new ideas, but the set of relationships might not have been equally appropriate if Dynal had shifted focus in order to exploit existing markets by focusing on cost
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
261
and volumes. It may, moreover, be argued that the networks permitted Dynal to establish a clear complementarity in the division of activities with its close network. This again permitted Dynal to build a more focused way of operating, which allowed the "rm to prioritize its established competences. By developing a system of coordinated actions, routines, procedures, etc., Dynal created a more coherent way of working internally. 4.3. The evolution of resources Whereas the main resource at start-up (and the reason for establishing the joint venture) had been the patented technology, other resources over time became more critical. Throughout Dynal's evolution an identity emerged. As members of the Dynal organization created their own set of routines, the joint venture gradually decreased its dependency on the owners. Dynal gradually developed its own way of operating, manifest in the emergence of symbolic acts, unwritten rules and stories. Thus, the development of the joint venture could be regarded as an ongoing process of gaining autonomy from the two owner companies. Over time Dynal developed a commonly accepted history of its own and Dynal increasingly developed its own objectives. The owners over time mattered less and less in terms of the day-to-day operations of Dynal. As seen by the chairman, Mr. Ragnar Halvorsen: &&They work in areas where we have little knowledge. We accept the judgement of Dynal's management.'' The ability to initiate activities outside the "rm boundaries was built through research and development projects, joint sales initiatives, and other knowledge developments with companies and research institutions. As a consequence of the gradual integration of the network, where Dynal could use partners for multiple projects and where these again cooperated with each other, the learning from the network came to represent a crucial competence. In sum, the resources not only became more intangible over time, they also became more integrated and bundled. By 1996 one could not understand Dynal's sources of superior value-creation simply by identifying speci"c resources. Rather, one needed to point to the processual factors, such as the integration of services, the mix of products and competences and the "rm's reputation.
5. Linking the 5ndings to existing literature The "ndings from the study of Dynal's evolution suggest that it may be fruitful to link the resource-based perspectives in strategic management to network theory. Various contributions to network theory may provide further insights into understanding the interrelated growth of Dynal and its collaborating "rms. In general, network theory postulates that one given "rm's resources, both tangible and intangible, are in#uenced * potentially both positively and negatively * by its market relations. Johanson and Mattsson (1987) described networks as a complex array of relationships that could be used to de"ne industrial markets. Firms were seen to invest in their relationships through interactions in order to obtain competitive advantages.
262
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
In line with this, Jarillo (1988) de"ned strategic networks as networks consisting of special relationships with characteristics of &&hierarchies'', such as relatively unstructured tasks, a long-term perspective and relatively unspeci"ed contracts. Thus, the build-up of such networks require high investments and incur a certain resource speci"city. Studying the pharmaceutical and biotech industries, several authors have noted that a high occurrence of network relationships (both to public and private science and commercial organizations) is correlated with high research productivity (Koenig, 1983; Henderson and Cockburn, 1994). Moreover, Roberts and Hauptman (1986) found that "rms that maintained richer contacts outside the "rm developed technically more advanced products. Similarly, a study by Kreiner and Schultz (1993) on "rms in the biotech industry describes how an informal, liberal sharing of information across organizational boundaries actually represented a rich source of innovation. Closely connected to this, Gambarella (1992) found that "rms with superior in-house research programs were better positioned to exploit public science * an ability that was closely connected to research productivity. Henderson and Cockburn (1994) document that the most successful "rms maintained a rich #ow of information across the "rm boundaries and di!erent areas within the "rm. This view has later been supported by Powell, Koput and Smith-Doerr (1996), who concluded a study of learning in biotechnology "rms by the following: Rather than using external relations as a temporary mechanism to compensate for capabilities the "rm has not yet mastered, "rms use collaborations to expand all their competencies. (Powell et al., 1996: 143) Some of Dynal's most important sources of value-creation were external (e.g. reputation and relationships) and these had to be addressed through di!erent mechanisms than ownership. This "nding seems to be closely related to the notion of external resources in connection to networks (Jarillo, 1989). The external resources mobilized by Dynal were not available to all companies in the network, but rather speci"c to Dynal due to its relationships and competences. External resources can be de"ned as those resources not already controlled by the "rm, which are mobilized in formal or informal ways. In the Dynal case the external resources included the early use of "nancial, physical and other organizational resources from the owners. But, more importantly, it also included the mobilization of (1) external researchers with technological competences (especially in the early stages), and (2) commercial partners for obtaining various resources (e.g. market network, regulatory know-how, capital and access to technology). Jarillo (1989) also found the use of external resources to be closely connected to fast growth, a "nding which is supported by this study of Dynal. The nature of the external resources was initially related to the informal relations of the people in and around Dynal. These became a source of innovation and led to the
Similar "ndings have also been reported from other industries, such as computer software (Stinchcombe and Heimer, 1988).
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
263
discovery of new opportunities. Hence, Dynal obtained network advantages from its informal cooperative structure. However, over time the external resources became more formalized and were more a source of commercialization than technical innovation. Some events illustrate the importance of external resources in the resource mobilization process in Dynal from 1986 to 1996. E The development of HLA tissue typing technology was done by researchers at the National Hospital and the initial commercialization was largely facilitated by their use of their network to spread the use of the particles. E The contact with Applied Biosystems was a result of collaboration with a research group in Sweden. E Dynal could start seeking FDA approval because it had a partner with the required experience and the "nancial resources. Dynal's process of building up a network was one of mutual, but often divergent, value-creation, and it seemed to be mutually reinforcing. A similar observation was made by Kreiner and Schultz: Collaboration breeds collaboration, and the collaborative relations expand in multiple directions, adding new participants and new contents to the proceedings. (Kreiner and Schultz, 1993, p. 194) The process observed in the Dynal case was similar in terms of network development. The competences of Dynal's management (and the researchers contributing to Dynal from the National Hospital and the Cancer Hospital) made Dynal an interesting partner for pharmaceutical companies and research groups. Moreover, Dynal in this process became a center of attention in the form of resources and opportunities, which is similar to what Kreiner and Schultz (1993) call a &¢er of gravity''. A similar process is described in another study of biotech collaborations by Bower: The focal "rm and others continually change the context through their interactions...which acknowledges the cumulative processes of technical and organizational learning within the group of interacting organizations. (Bower, 1993, p. 368) One may argue that Dynal's evolution really was a co-evolution with some strategic partners. The concept of co-evolution has generally been used to explain how technology and institutions go hand in hand (Nelson, 1991, 1995; Levinthal and Myatt, 1994). However, in this case we can also use the concept to describe how the network became a source of "rm-speci"c advantage for Dynal. Generally, a positive network in#uence took place in at least two ways. First, Dynal's competences enabled it to collaborate with competent "rms, which in-turn expand its initial competences (Cohen and Levinthal, 1990). For instance, having leading edge customers and Cohen and Levinthal (1990) explain how prior related knowledge furthers the ability to recognize and use the value of new information. They label this &&absorptive capacity''.
264
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
partners may expose the "rm to technological advances, or simply push its performance (Has kanson, 1987; Von Hippel, 1988). Second, the build up of complementary resources made Dynal perform more e$ciently in collaboration with another "rm. One example of this was seen in how the customers testing and later deploying the particles increased their quality requirements, which again forced Dynal to improve quality. The network clearly constituted a critical resource for Dynal, representing both an important source of innovation and a vehicle for commercialization. But the competences of Dynal * allowing them to identify partners and to mobilize these * were necessary for the network to create value. These internal competences were attracted by several characteristics of the Dynal work environment, such as (1) the drive for results, (2) the prestige of working in ''the&& biotech company in Norway, and (3) the professional challenges o!ered. In addressing the issue of how individual resources were mobilized, the importance of people should clearly not be underestimated. The Dynal evolution was one where professional curiosity and scienti"c enthusiasm (both internally and externally) built a company. The resource mobilization was related to the ambitious objectives and the vision * or &&dream'' * behind the particle development.
6. Conclusions and implications This study has given us new insight about strategic resources, and thereby demonstrated that studying "rm activities may represent an appropriate way to learn more about resources. Nevertheless, the "ndings are based on only one case, and further studies are needed in order to make generalizations and infer these to other companies and contexts. However, by inquiring into the evolution of one "rm a deeper understanding of this has allowed for insights that would be di$cult to obtain from surveys or broader studies of a comparative nature. The Dynal study has in particular brought up two issues that could not be predicted directly from the received theory. First, it was clear by looking at Dynal's evolution many of the resources that turned out to be critical, such as the ability to cooperate both with scientists and business "rms, were not initially recognized explicitly as resources and hence not mobilized. Many of the resources that became critical were recognized and understood through a collective process with formal and informal partners. This seems to indicate that perceiving or otherwise identifying new resources should be understood as a social process, and the idea that resources have the same value to all "rms should not be taken for granted. Identifying resources may be seen as a creative process. Rather, for Dynal the value created with a speci"c resource generally depended upon two factors; (1) the opportunities seen, and (2) the ability to actually mobilize the needed complementary resources. Hence, the case demonstrated how identifying new opportunities represented a &&meta'' resource, because it again facilitated the perception of new resources and the access to both internal and external resources. Moreover, the case showed how resources needed neither to be controlled nor owned by Dynal to
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
265
represent a potential for value-creation. Rather, they could be owned or controlled by other organizations. If Dynal saw opportunities, external resources could often be mobilized. This extends our understanding of resources, which in the resource-based literature often regards resources as equal for all companies (e.g. Barney, 1991; Peteraf, 1993). Furthermore, the "ndings support the literature that shows resources as path dependent and di$cult to change rapidly (Dierickx and Cool, 1989). The case supports Penrose (1959) by showing how expansion was driven by existing resources. It has been argued in connection to the resource-based view that excess resources with multiple uses represent the basis for the diversi"cation of the "rm (Peteraf, 1993). The perspective, however, has not yet directly addressed the fact that the resources of the "rm may attract external resources, which allows for more #exibility. Dynal's evolution was greatly built on the "rm's ability to mobilize external resources, e.g. in research institutions and large pharmaceutical companies. Dynal neither owned nor controlled resources that constituted a large part of the total value-creation. This seems to support the claim that there is a need to merge resource-based and network perspectives on strategy and value creation. It seems that an understanding of how resources emerge and are used to create value should be seen as contextual and this fact will often not be well understood if the "rm is viewed as a closed entity. It was, for instance, clear that Dynal became a &&magnet'' for external resources. Scientists and companies came to Dynal because they saw potential for value-creation (of di!erent kinds) in the company's activities. What represents a resource for one "rm may not be a resource for any other "rm, if the focal "rm is the only one which sees a potential for value-creation. Mobilization involves complementary resources, and the value of a resource is thus dependent upon whether the "rm is able to bundle and connect it with other resources. Finally, an implication of this study is that theorizing about value-creation is possible, and that the empirical insights that follow from an explicit focus on activities may be of interest. By looking speci"cally at activities the case shows that the "rm boundaries are very unclear. Moreover, it shows that value-creation can be understood as a process of recognizing new opportunities and new resource combinations, and of accessing and putting into action the resources needed to seize these opportunities. A related implication is that is may be fruitful to bridge the resource-based and network approaches to strategy through studying activities and "rm value-creation. It is, however, clear that more work needs to be done in order to develop an appropriate balance in focus between these two aspects of strategy.
Acknowledgements This paper is a revised and extented version of a paper with the same title presented at the FIBE Conference at the Norwegian School of Economics and Business Administration, 1997. It has bene"tted from the insightful comments and suggestions by Peter Lorange and Bente Lowendahl, as well as two anonymous reviewers.
266
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
References Amit, R., & Schoemaker, P. J. H. (1993). Strategic assets and organizational rent. Strategic Management Journal, 14, 33}46. Barney, J. (1986). Types of competition and the theory of strategy. Academy of Management Review, 11, 123}141. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99}120. Bower, D. J. (1993). New product development in the pharmaceutical industry: pooling network resources. Journal of Product Innovation Management, 10, 367}375. Burgelman, R. A. (1983). A process model of internal corporate venturing. Administrative Science Quarterly, 28, 223}244. Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128}152. Collis, D. J. (1991). A resource-based analysis of global competition: the case of the bearings industry. Strategic Management Journal, 12, 49}68. Conner, K. (1991). An historical comparison of resource-based theory and "ve schools of thought within industrial organization economics: do we have a new theory of the "rm? Journal of Management, 17, 121}154. Contractor, F., & Lorange, P. (1998). Why should "rms cooperate? The strategy and economic basis for cooperative ventures, In: F. Contractor, & P. Lorange (Eds.), Cooperative strategies in international business (pp. 3}30). Lexington, MA: Lexington Books. Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35, 1504}11. Eisenhardt, K. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532}550. Gambarella, A. (1992). Competitive advantage from in-house scienti"c research: the U.S. pharmaceutical industry in the 1980s. Research Policy, 1}17. Gibson, W. D. (1993). Buddy systems: partnerships between biotech "rms and drug makers are increasingly becoming a necessity. Chemical Marketing Reporter, 8 March. Gilhuus-Moe, C. C., & Haanvs, K. (1996). Dynal som eksempel pas mobilisering av materielle og immaterielle ressurser. Praktisk }konomi og ¸edelse, 4, 121}129. Glaser, B. G., & Strauss, A. L. (1967). ¹he discovery of grounded theory. Chicago, IL: Aldine. Haanes, K., & Lorange, P. (1987). ¹he Dynal Biotech joint venture, IMD case study, GM 593. Has kanson, H. (1987). Industrial technological development. A network approach. London: Croom Helm. Henderson, R., & Cockburn, I. (1994). Measuring competence? Exploring "rm e!ects in pharmaceutical research. Strategic Management Journal, 15, 63}84. Itami, H. (with T. Roehl) (1987). Mobilizing invisible assets. Cambridge, MA: Harvard University Press. Jarillo, J. C. (1988). On strategic networks. Strategic Management Journal, 9(1), 31}41. Jarillo, J. C. (1989). Entrepreneurship and growth: the strategic use of external resources. Journal of Business
K. Haan~s / Scand. J. Mgmt. 15 (1999) 249}267
267
Nelson, R. R. (1995). Co-evolution of industry structure, technology and supporting institutions, and the making of comparative advantage. International Journal of the Economics of Business, 2(2), 171}184. Penrose, E. (1959). ¹he theory of the growth of the ,rm. London: Basil Blackwell. Penrose, E. (1960). The growth of the "rm * a csse study: the Hercules Powder Company. Business History Review, 34(1), 1}23. Peteraf, M. (1993). The cornerstone of competitive advantage: a resource-based view. Strategic Management Journal, 14(3), 179}192. Porter, M. E. (1980). Competitive strategy. New York: Free Press. Porter, M. E. (1991). Toward a dynamic theory of strategy. Strategic Management Journal, 12, 95}117. Porter, M. E. (1996). What is strategy? Harvard Business Review, November}December, 61}78. Powell, W. W., Koput, K., & Smith-Doerr, L. (1996). Interorganizational collaboration and the locus of innovation: networks of learning in biotechnology. Administrative Science Quarterly, 41, 116}145. Roberts, E., & Hauptman, O. (1986). The process of technology transfer to the new biomedical and pharmaceutical "rm. Research Policy, 15, 107}119. Rumelt, R. (1984). Towards a strategic theory of the "rm, In: Lamb, R. B. (Ed), Competitive strategic management (pp. 556}570). Englewood Cli!s, NJ: Prentice-Hall. Stabell, C. B., & Fjeldstad, ".D. (1998). Con"guring value for competitive advantage: On chains, shops and networks. Strategic Management Journal, 19(5), 413}437. Stevenson, H. H., & Gumpert, D. E. (1985). The heart of entrepreneurship. Harvard Business Review, March}April, 85}94. Stinchcombe, A. L., & Heimer, C. A. (1988). Interorganizational relations and careers in computer software "rms, In: Simson, I. H. and Simpson, R. L. (Eds). Research in sociology of work, high tech work (Vol. 4, pp. 179}204) Greenwich, Conn.: JAI Press. Von Hippel, E. (1988). ¹he sources of innovation. New York: Oxford University Press. Wernerfelt, B. (1984). A resource-based view of the "rm. Strategic Management Journal, 5, 171}180.