Essays on firm R&D performance management

Abstract

R&D investment has been accelerated to sustain competitive advantage due to the competition of technological development and changing business environment. The total R&D spending in South Korea is approximately 60,528 million dollars, which has the 6th largest R&D spender in the world and one of the highest rates on R&D spending of GDP among OECD countries. However, South Korea was criticized for the most vulnerable to protection for inventions, and has been point out that effectiveness of their intellectual property rights protection must be reinforced with policy support as well as a need to increase revenue in South Korea. In order to increase sustainability of firms, firms need to have a virtuous circle such as a cycle of investment, financial returns, and future investment. All of this implies and shows the need for efforts to capture financial returns from R&D activities and intangible assets in order for firms to create outcomes and thereby survive sustainably. It emphasizes the importance of value capture of potential value, which is created from innovative inventions in the aspect of performance management. The managerial accounting fields mainly focus on the conceptual framework of PMS by discussing management control of generating values such as compensation, performance evaluation, and goal achievements in departments or an individual person. However, the most of previous managerial accounting studies have not fully addressed and discussed from the perspective of value capture. This dissertation focuses on the value capture mechanism to obtain return from innovative inventions and prevent loss due to potential uncertainty. The purpose is to investigate the role of value capture mechanism in R&D performance management. Thus, this dissertation deal with three primary pillars regarding to value capture mechanism in R&D performance management: (1) R&D productivity in value capture mechanism, (2) Source of Unintended non-financial performance, and (3) protection effectiveness for new product performance. The first essay investigated which value capture strategies are efficient in the R&D invention stage and R&D commercialization stage for small and medium enterprises (SMEs). According to the characteristic of four primary value capture strategies, the authors categorized the formal-oriented strategy (patent), informal-oriented strategies (secrecy, lead-time), mix strategies (both formal and informal strategies), and whether to invest in complementary assets. In order to assess R&D productivity based on value capture strategies, this paper applied the two-stage data envelopment analysis using the data from Korea Innovation Survey 2010. The results suggest that informal strategies (secrecy, lead-time) are efficient in the invention stage. Furthermore, mixed use of formal (patent) and informal strategies generate higher productivity in the commercialization stage. Lastly, the results suggest that productivity may vary depending on the investment in complementary assets. The investment in complementary assets may reduce R&D productivity at the invention stage, but it also may increase the productivity at the subsequent commercialization stage. The second essay empirically investigates the unintended non-financial performance in R&D cooperation. The effects of appropriability and sectorial conditions on the unintended non-financial performance in R&D cooperation were examined. The unintended performance in this essay operationalizes the unintended performance as supernormal outcome throughout firm’s product-oriented and process-oriented R&D activities, which exceeds the firm’s recognized ex-ante assessments of performance indicators. Binary logistic regression was used to analyze the manufacturing firms sampled from the KIS 2012. Our estimation results show that the high-tech focal firms cooperating with competitors under strong appropriability regime increase the likelihood of their unintended performance. For the high-tech focal firms under weak appropriability regime, their cooperation with demanders and universities increases the likelihood of their unintended performance. For the low-tech firms under strong appropriability regime, their cooperation with the demanders and advisory organizations increases the likelihood of unintended performance. For the low-tech firms under weak appropriability regime, their cooperation with competitors and government research institutes increases the likelihood of unintended performance. As a whole, the significance of this paper lies in shedding a new light on approaching the performance with the notion of unintended innovation performance, which is influenced by different partner types and environmental conditions. The last essay is to explore how the knowledge exploration capacity affects the relationship between different types of appropriability regime and their new product financial performance. Multivariate regression is used to analyze the manufacturing SMEs sampled from the Korea Innovation Survey 2007. Our results demonstrate that both formal and informal appropriability regimes can improve firm’s new product performance. Furthermore, although both inventive and absorptive capacity have positive moderating effects on the relationship between the informal appropriability regime and new product performance, the inventive capacity moderates negatively the relationship between the formal appropriability regime and new product performance. As a whole, the significance of this paper lies in providing further understanding of the different types of appropriability regime and knowledge exploration capacity in SMEs. The dissertation, which consists of three essays, shows that the value capture mechanism takes a big part in strategic implementation R&D activities, R&D related capabilities, firm’s goal overachievements, financial performance, etc. This implies that the value capture concept is an important consideration for performance management of managerial accounting studies. Firstly, studies from the cost-efficiency perspective has not yet discussed even though previous studies mention that strategies for capturing value could be a heavy financial burden. Therefore, this dissertation empirically identifies the changes in efficiency in each R&D process stage. Also, most SMEs realize the importance of informal appropriability strategies because they do not have to bear the costs. However, the following the results of the study, they suggest it is not the best way to reach financial goals. Instead, from the cost perspective, formal strategies that have a heavy financial burden may be important for improving financial performance, which emphasizes ambidextrous practice for value capture. Second, although previous studies of performance management consider non-financial performance importantly, there is lack of studies about firm’s goal overachievements. In this connection, the dissertation shows that appropriability regime has an important role in overachieving goals during R&D activities as well as compatibility with R&D strategies. Especially, appropriability regime has a key role in an intermediate stage in R&D activity for generating non-financial performance. Finally, the study offers firms’ characteristics to consider when establishing performance management system for maximizing protection effect of innovative inventions. Although previous studies put much attention on various capabilities, they have not yet empirically focused on knowledge exploration capacities from the value capture mechanism perspective. The knowledge exploration capacity is one of new knowledge related capacity, which tolerates failure in openness innovation performance. For this reason, the dissertation gives implications that the knowledge exploration capacity has influence on protection effect of innovative invention. Furthermore, it suggests that balanced ambidextrous practice is one of the factors that firms need to consider.