Carnegie Mellon University

University Seminar on Strategy, Entrepreneurship, and Technological Change

Faculty and students in the program participate in a regular university seminar on strategy, entrepreneurship, and technological change. The seminar combines the perspectives of academic researchers and practitioners. It provides a forum for presentations by both faculty and graduate students and periodically features entrepreneurs, business leaders, and policymakers. Other seminars are regularly conducted throughout the university that are of interest to participants in the program.

2009-2010 Seminars

The Internet and Local Wages: Convergence or Divergence?

Did the diffusion of the Internet lead to convergence or divergence of local wages? We examine
the relationship between business use of advanced Internet technology and regional variation in
US wage growth between 1995 and 2000. We show that business use of advanced Internet
technology is associated with wage growth but find no evidence that the Internet contributed to
regional wage convergence. Advanced Internet technology is only associated with wage growth
in places that were already well off in terms of income, education, population, and industry.
Overall, advanced Internet explains one-quarter of the difference in wage growth between these
counties and all others.

Division of Labor across Organizational Forms during a Technological Discontinuity: Evidence from Gene Therapy Research

Studies in creative destruction have shown incumbents underperform entrants in the R&D of radical innovation, even if not in sales.  In this paper, based on a combination of interview, historical and quantitative data on the transition of the anti-cancer drug market into biotechnology, I show that the above mentioned pattern is driven by the high R&D performance of diversifying entrants.  Contrastingly, de novo entrants underperform both diversifying and incumbent firms.  However, I also show that de novo entrants carry out the largest proportion of the variant of biotechnology with the highest risk: gene therapy.  The explanation behind this pattern is twofold.  First, in the highest-risk variant, established firms have no capabilities to re-use.  Therefore, the lack of re-usable capabilities does not confer de novo firms a disadvantage in that variant.  And second, projects in the highest-risk variant are less likely to starve when housed in more even-risk internal markets, a characteristic more often found in de novo firms.  Therefore, their particular organizational structure confers de novo firms an advantage in that variant.  It is in this sense that, through a discontinuity, established firms (whether incumbents or diversifying entrants) take advantage of their capability re-use whereas de novo firms take advantage of their organizational structure, and a division of labor arises.  Overall, this paper clarifies the role of the novo firms in the industrial dynamics of radical innovation: risk bearing.  I discuss implications for research in creative destruction and for the broader discussion of strategy vs. structure.


Robert Atkinson is the founder and president of the Information Technology and Innovation Foundation, a Washington, DC-based technology policy think tank. He is also author of the State New Economy Index series and the book, The Past And Future Of America’s Economy: Long Waves Of Innovation That Power Cycles Of Growth (Edward Elgar, 2005). He has an extensive background in technology policy, he has conducted ground-breaking research projects on technology and innovation, is a valued adviser to state and national policy makers, and a popular speaker on innovation policy nationally and internationally.

Before coming to ITIF, Dr. Atkinson was Vice President of the Progressive Policy Institute and Director of PPI’s Technology & New Economy Project. While at PPI he wrote numerous research reports on technology and innovation policy, including on issues such as broadband telecommunications, Internet telephony, universal service, e-commerce, e-government, middleman opposition to e-commerce, privacy, copyright, RFID and smart cards, the role of IT in homeland security, the R&D tax credit, offshoring, and growth economics.

Previously Dr. Atkinson served as the first Executive Director of the Rhode Island Economic Policy Council, a public-private partnership including as members the Governor, legislative leaders, and corporate and labor leaders. As head of RIEPC, he was responsible for drafting a comprehensive economic strategic development plan for the state, developing a ten-point economic development plan, and working to successfully implement all ten proposals through the legislative and administrative branches. Prior to that he was Project Director at the former Congressional Office of Technology Assessment. While at OTA, he directed The Technological Reshaping of Metropolitan America, a seminal report examining the impact of the information technology revolution on America’s urban areas.

He is a board member or advisory council member of the Alliance for Public Technology, Internet Education Foundation, NetChoice Coalition, the Pacific Institute for Workforce Innovation, and the University of Oregon Institute for Policy Research and Innovation. He is also chair of the Congressionally-created National Surface Transportation Infrastructure Financing Commission. He also serves on the advisory panel to Americans for Computer Privacy, is an affiliated expert for the New Millennium Research Council, a member of the editorial board of the Journal of Electronic Government and the Journal of Internet Policy, a member of the Reason Foundation’s Mobility Project Advisory Board, a member of the Global Innovation Forum Brain Trust and a Nonresident Senior Fellow at the Brookings Institution. Dr. Atkinson was appointed by President Clinton to the Commission on Workers, Communities, and Economic Change in the New Economy. He is also a member of the Task Force on National Security in the Information Age, co-chaired by Markle Foundation president Zoe Baird and former Netscape Communications chairman James Barksdale. In 1999, he was featured in “Who’s Who in America: Finance and Industry.” In 2002, he was awarded the Wharton Infosys Business Transformation Award Silver Medal. In addition, Government Technology Magazine and the Center for Digital Government named him one of the 25 top Doers, Dreamers and Drivers of Information Technology. In 2006, Inc. Magazine listed Atkinson as one of 19 Friends of Small Business in Washington. Ars Technica listed Atkinson as one of 2009’s tech policy People to Watch. Dr. Atkinson has testified before a number of committees in Congress and has appeared in various media outlets including CNN, Fox News, MSNBC, NPR, and NBC Nightly News. He received his Ph.D. in City and Regional Planning from the University of North Carolina at Chapel Hill in 1989.

External Economies: How innovative small manufacturers compete

Using survey data on U.S. parts-manufacturing firms, we find that the most productive firms differ significantly from other firms in their ability to benefit from external economies such as urbanization, clustering, and networking. We look at complementarities between firm strategy with respect to these external economies and internal operations (corporate structure, use of skilled workers, capital) in relation to innovative outcomes (productivity, new product designs, profits).

Innovation and Entrepreneurship: A Perspective from Silicon Valley

Hierarchy in Industry Architecture: Strategic Transaction Choices under Technological Constraints

This study analyzes how firms are organized at the sector level, in order to understand how strategic transaction choices of single firms may shape industry architectures, and meanwhile are constrained by technologies. Previous theories have often assumed the existence of hierarchical relationships among industrial firms and empirical work has focused on single industries or bilateral relationships between firms. However, quantitative evidence on the hierarchy in large industrial sectors is lacking. In this study, I develop metrics and methods to define and measure the degree of hierarchy (one-way flow of transactions) in transactional relationships among firms, and apply them to two sectors in Japan: automotive and electronics. I compile the networks of firms connected by transactional relationships. Empirical analysis shows that the electronics sector exhibits a much lower degree of hierarchy than the automotive sector due to the wide existence of transaction cycles. I further create a network simulation model to relate the sector-level hierarchy to transaction specificity and transaction breadth at the firm level. The empirical measurement and model analysis together indicate that it is the lowtransaction specificity that drives down the degree of hierarchy in the electronics sector. Based on interview data and existing knowledge on product technologies, further analysis shows the difference in transaction patterns in turn may result from the difference in the power level of underlying technologies, which affects product modularity, asset specificity, innovation dynamics and the strategic transaction choices available for firms. Thus, the degree of hierarchy in a sector may be traced back to fundamental properties of the underlying technologies, via the strategic choices of firms under technological constraints.

A Spatial Ecology of Structural Holes: Scientist and Communication at a Biotechnology Firm

This paper focuses on the relationships between individuals, their local spatial environment, and their ability to form networks that span the internal structure of an organization. I contend that the prevailing view about spatial proximity - that high spatial density leads to greater opportunities to expand one’s network - is at best incomplete and potentially misleading. Instead, I argue that an individual’s spatial proximity must be considered in an ecological context - i.e., in relation to the location and expertise of proximate colleagues. Using a unique dataset of email communication patterns, fine‐grained blueprints of office‐locations, scientific publication records and associated keywords, as well as the formal organization chart from the research division of a biotechnology firm, I find that co‐location alone is not associated with an individual’s ability to assume network positions that bridge structural holes. In fact, spatial proximity to workgroup (i.e., same laboratory) members inhibits an individual’s ability to form networks that reach across the organization. By contrast, proximity conditioned on the expertise overlap of nearby, non‐workgroup (i.e., different laboratory) colleagues is associated with having a less constrained network (i.e., one rich in structural holes). Lastly, spatial ecological effects are as important as human capital in providing an individual with opportunities to occupy brokering positions in the network. This paper contributes to the literature on networks and the organization of innovative work by developing a theory of spatial ecology and demonstrating its connection to network structural features that have been repeatedly linked to superior performance in knowledge production contexts.

The Mirroring Hypothesis: Theory, Evidence and Exceptions

The mirroring hypothesis is the claim that, in development projects, organizational patterns, including employment ties, hierarchical groupings, geographic location and communication links, will correspond to the technical patterns of dependency in the system under development. Thus the hypothesis predicts that developers with few or no organizational linkages will design independent components, while developers with many linkages will collaborate to develop highly interdependent components. (The hypothesis claims a correspondence between organizational structure and technical architecture, but allows causality to flow in either direction.)

Scholars in a range of disciplines have argued that mirroring is either a necessary or highly desirable feature in the design of development projects, but empirical research shows that some projects deviate from strict mirroring, seemingly without harmful effects. In this paper, we formally define the mirroring hypothesis, describe its theoretical underpinnings and systematically review the empirical evidence for and against it. Our review includes 129 studies spanning three levels of organization: within a single firm, across firms, and open community-based development. Across the three levels, the hypothesis was supported in 69% of the relevant cases, but not supported in 31%. It was most strongly supported within firms, less strongly across firms, and often violated in open collaborative development.

The exceptions in turn were of two types: In 4 cases, closely collaborating teams within single firms created modular systems made up of independent components. More surprisingly, in 28 cases, independent and dispersed contributors made highly interdependent contributions to the design of a single technical system (or sub-system). Based on a detailed analysis of the latter 28, we introduce the concept of actionable transparency as a means of achieving coordination without mirroring. Independent contributors can achieve actionable transparency by embedding their design in a centralized system with a shared design language and near-real-time updating, where everyone with an interest in improving the design has the right and the means to act on it. We present examples from practice and then describe the more complex organizational patterns that emerge in lieu of genuine mirroring when actionable transparency allows people to “break the mirror.”

Digital Innovation Ecosystems - and their Size: Evidence on a Parallel Development Regime

Incentive and Creativity: Evidence from the Academic Life Sciences

Despite its presumed role as an engine of economic growth, we know surprisingly little about the drivers of scientific creativity. In this paper, we exploit key differences across funding streams within the academic life science to estimate the impact of incentives on the rate and direction of scientific exploration. Specifically, we study the careers of investigators of the Howard Hughes Medical Institute (HHMI), which tolerates early failure, rewards long-term success, and give its appointees great freedom to experiment; and grantees from the National Institute of Health, which are subject to short review cycles, pre-defined deliverable, and renewal policies unforgiving of failure. Using a combination of propensity-score weighting and difference-in-differences estimation strategies, we find that HHMI investigators produce high-impact papers at a much higher rate than two control groups of similarly-accomplished NIH-funded scientists. Moreover, the direction of their research changes in ways that suggest the program induces them to explore novel lines of inquiry.

See No Evil, Taste No Evil? Consumer Opinion, Labeling, and Innovation in Agricultural Biotechnology

Mandatory labeling policies intended to notify consumers of genetically modified food contents may adversely affect the incentives of upstream agricultural biotechnology innovators. In 2000, European Union regulators established strict labeling requirements for genetically modified foods. This paper estimates the effect of the resulting negative market size shock on late-stage GMO innovation activity. Two complementary factors caused the market size shock: (1) EU consumer distaste for GMOs and (2) labeling requirements that solved the consumer's inability to discern GMOs in food products. I exploit the differential impact of the labeling requirements and consumer use across organisms to estimate the impact of labeling on agricultural biotechnology innovation. I find a significant decrease of 70-80% in development activity in organisms that would be marketed to consumers with a GMO label. I quantify the welfare costs of these policies through a counterfactual estimation of innovation activity in the sugarbeet market. The costs of reduced innovation in this medium sized market ($1.1 billion in 2000) range between $100 to $200 million over the period 2001-2007. The magnitude of this single crop estimate suggests that consumer notification regulations have significant, overlooked welfare effects that must be considered when analyzing the benefits of GMO consumer notification regulations.

The Determinants of Individual Performance and Collective Value in Private-Collective Software Innovation

We explore the patterns of innovation generation in a collaborative community setting. Private-Collective innovation systems are distinguished by their free revealing of knowledge and the ability of actors to reinterpret and repurpose existing knowledge created by others in making their own new creations. We examine if there is consistency amongst the actions of an individual to create effective new innovations and the needs of the many in the community to make use of the efforts of others for their own use. We study this relationship in a unique setting of "wiki-like" collaborative programming contests each involving over a hundred contributors and several thousand attempts at creating the "best" software solution to a difficult programming challenge over a one week period. In particular we investigate; 1)The factors that predict a coding entry being ranked at the top upon submission (top performance) and; 2)The factors that predict increasing using of the new code in an entry by others in the community (community value). Using data from eleven such contests, involving over 1100 participants and over 26,000 entries, we find that increasing amounts of novel code, both de novo and novel combinations of reused code of others, increases the odds of an individual creating a top performing entry and the subsequent reuse (community value) of the new code by community members. However increasing use of borrowed code (reuse) in an entry lowers the odds of top performance but increases the community value of the new code indicating a tension between the needs of the individual and the community. Similarly, code structures that are increasingly non-generalizable increase the odds of being a top performer but decrease subsequent reuse by others. Surprisingly, increasing code complexity (non-modularity) raise the odds of top performance and increased social value. We discuss the implications of these findings in light of the literature on collaborative communities of innovation and highlight the importance of considering both individual and community perspectives as it relates to knowledge creation and reuse.

Equilibrium Default

Of Mice and Academics: Exploring the Impact of Openness on Innovation

This paper argues that openness of upstream research does not simply encourage higher levels of downstream exploitation, it also raises the incentives for additional upstream research by encouraging the establishment of entirely new research directions. We test this hypothesis by examining a “natural experiment" in openness within the academic community: NIH agreements signed during the late 1990s that limited the IP restrictions imposed on academics regarding certain genetically engineered mice. Using a sample of engineered mice that are linked to specific scientific papers (some affected by the NIH agreements and some not), we implement a differences-in-differences estimator to evaluate how the level and type of follow-on research using these mice changes after the

NIH-induced increase in openness. We find a significant increase in the level of follow-on research. Moreover, this reects increased exploration of more diverse research paths. Overall, our findings highlight a neglected cost of IP: reductions in the diversity of experimentation that follows from a single idea.

User Innovation: Overview of findings

High-Tech Immigrant Entrepreneurship in the U.S.