Crossing the Valley of Death: The Effect of Organizational Form and Technology Age on Exploration

Abstract

In this article, we study the effect of organizational form (i.e., universities, entrants, and incumbents), technology age, and prior failure in the technology class on the success in exploring new technology. Utilizing data from over 7000 biological drug discovery projects over a 30-year period, we model the likelihood that a drug discovery project will be carried over to a Phase 1 clinical trial. We find that, despite early and pioneering success, projects by universities and specialist biotech companies are less likely to succeed as technology ages, while the likelihood of big pharma projects succeeding increases. Moreover, prior failure in the technology class has a detrimental impact on the likelihood of success of projects originated by biotech companies and universities while big pharma’s projects remain relatively undeterred by these failures. We argue that, contrary to the recent literature, these findings suggest that the exploration by large established organizations remains important to the innovation process and, consequently, they should remain active in exploration. In the article, we explain the mechanisms underpinning these empirical findings and clarify why our findings on the role of different organizational forms in exploration seemingly contradict the recent literature on innovation.