Novelty and Scope of Innovation in Manufacturing: The Role of Related and Unrelated Production Experience

Abstract

In manufacturing, the accumulation of experience that occurs with production is likely to impact an organization's ability to innovate. However, how different types of experience may relate to the characteristics of an organization's innovation output is an open question. In this study we investigate how a firm's accumulated related and unrelated manufacturing experiences are associated with this firm's ability to innovate its production methods. We choose as our context the manufacturing of active pharmaceutical ingredients (APIs) for anti-cancer drugs that have lost product-patent protection. This allows us to examine our research question in a multi-product and multi-firm longitudinal setting. To characterize firms' innovation output we observe their portfolios of patented manufacturing inventions, which we qualitatively evaluate over time (through a unique collaboration with expert patent attorneys) along two critical dimensions: novelty and scope. We find that experience with manufacturing related products is associated with a decrease in the novelty and an increase in the scope of the manufacturing methods that a firm develops and patents for a focal product. Conversely, experience with manufacturing unrelated products is associated with an increase in a focal product's patents' novelty and a decrease in its patents' scope. This simultaneous consideration of both novelty and scope allows us to demonstrate how different types of experience may enhance one dimension of innovation while hurting another, and helps to reconcile conflicting conceptual arguments that have been presented in the literature. Our findings provide practical guidance regarding how managers might want to structure their firms' product portfolios and the longitudinal effect of their choices on their firm's intellectual property.