Towards a theory of the technology-based firm

Abstract

The modern firm is a very viable economic institution, drawing strength from a competitive market economy, with embedded `super-markets' for corporate control and `sub-markets' for internal organization. The technology-based firm in addition draws strength from its co-evolution with modern science and technology (and vice versa), and thereby becomes increasingly important. However, received theories of the firm, of which there are many, have not particularly taken account of technology and technology-based firms, nor their management. This paper takes an empirical point of departure from recent findings regarding the positive relationship between technology diversification on the one hand and corporate growth and business diversification on the other. These findings are not readily explainable by received theories of the firm, which the paper reviews, and the findings are thus taken as an explanandum for a proposed approach to formulate a theory of the technology-based firm. The approach is compatible with various other theoretical approaches such as the resource-based, the transaction-cost and the evolutionary approach, but specifically takes the idiosyncrasies of technology (i.e., technical competence) as well as management into account. Through notably strong economies of scale, scope, speed and space associated with the combination of different technologies and resources, the technology-based firm is subjected to specific dynamics in its growth and diversification and shifts of businesses and resources. In particular, a technology-based firm tends to engage in technology diversification, thereby becoming multitechnological. As such the technology-based firm has incentives to economize on increasingly expensive new technologies by pursuing strategies of internationalization on both input and output markets, technology-related business diversification, external technology marketing and sourcing, R&D rationalization and technology-related partnering.