Wither the In-House Research and Development (R&D) Lab? Not So Fast!

This content relates to : NEW PRODUCT & SERVICE DEVELOPMENT


Firms often mimic each other, especially the practices of powerful peers, in order to be viewed

It may take an external crisis to spark leadership to overcome organizational inertia. 

Firms often need to invest in in-house R&D capabilities to build the “absorptive capacity” necessary to use externally developed technology.

Jason Pattit

University of St. Thomas 

In 1946, nearly 84% of the 200 largest U.S. manufacturing firms had established their own R&D labs, ushering in a golden era for in-house R&D after World War 2. However, starting in the 1980s, firms began to experiment with R&D alliances and joint ventures. Some suggest that this approach was actually a return to the norm that had existed throughout the late-19th and early-20th centuries, a period marked by robust “markets for technology.” While the number of R&D alliances formed annually surged in the early-2000s, the in-house R&D lab did not disappear. Rather, a more balanced approach to R&D emerged, wherein external R&D and in-house R&D are complements rather than substitutes. 

In this study, we set out to examine these shifts in order to better understand why the “market for technology” declined in the early-20th century only to re-emerge near the end of the century. We also investigated why the in-house R&D model that became so dominant during the middle of the 20th century gave way to the more balanced approach. Based on an inductive analysis of the history of technology development and corporate R&D in the U.S., our study shows that both formal and informal institutional rules and constraints influenced the widespread adoption of in-house R&D labs during the mid-20th century and the shift to a more balanced approach combining internal and external R&D in the late-20th century. 

Importantly, many firms established in-house R&D labs during the mid-20th century to simply mimic iconic firms such as AT&T, DuPont, General Electric, and Kodak in order to enhance their legitimacy, not necessarily because doing so promised to deliver breakthrough new products and technologies. Formal and informal institutions also played an important role in the initial rise of “markets for technology,” their decline during the early-20th century, and their eventual return. New policies implemented by U.S. federal government in the 1980s to encourage collaboration between firms, the government, and universities particularly helped to spur the re-emergence of “markets for technology.” Nonetheless, effectively acquiring and efficiently using external technology may require substantial investment in in-house R&D. 


Jason Pattit, ’12 Ph.D. 

Associate Professor, Opus College of Business, University of St. Thomas 


To learn more, read: 

Pattit, J.M., Raj, S.P., & Wilemon, D. (2012), “An institutional theory investigation of U.S. technology development trends since the mid-19th century,” Research Policy, 41 (2), 306-318.