Summary by SMJ Associate Editor, Olivier Chatain (HEC Paris)
The topic and the findings of this paper are of interest to anyone who wants to know about the role of firms in the production of scientific knowledge and innovation. Moreover, this paper is a good example of work in strategy that seeks to establish important stylized facts. Moreover, this paper could also be seen as contributing to the debate about whether science is harder to develop than before as suggested by Robert Gordon of Northwestern University (“The death of innovation”).
Total corporate spending in the production of scientific knowledge has experienced a secular decline since the early 1980s in the USA. The reasons for this decline are unclear, and teasing them out can help better assess its significance as well as better address underlying causes. Are managers spending less on basic science because discoveries are less and less intrinsically useful, or because firms are less able to capture value from theses discoveries while they are still useful for society? In the former case, the basic issue would be the diminishing efficacy of scientific research for economic development. In the latter case the question is rather whether private firms are correctly incentivized to perform this research. Either way this raises important questions about the role of the private sector in the production of scientific knowledge.
The authors confirm first a steady decline in scientific activities by firms over time, measured as scientific publications. This decline is happening within firms across all industries and is particularly affecting firms that used to be conducting a lot of these activities. This is consistent with the impression given by the closure of large R&D labs by firms that used to be famous for those, such as Xerox or AT&T.
What are the root causes of this decline? Is it that science is less conducive to innovation in general? No, answer the authors. Innovation (measured as new patents) is still building as much on recent science as before – in short, new science is still as relevant a basis for innovation. But then, why are firms investing less in science? According to the authors, this is because firms are less able than before to get a direct return from the scientific knowledge they own. This is visible in the lower premiums that acquirers put on the accumulated scientific outputs of target firms. Instead large firms are more and more content with using knowledge generated by others, such as universities and smaller innovative firms.
The implication is that while science is as important as before, there is more disconnection between the places where it is generated and the firms that will ultimately deploy the results of new scientific discoveries throughout their business. Instead of large firms integrating scientific discovery, innovation and commercialization, large firms may be more and more specializing in the latter stages of the chain, letting other actors to fill the gaps.