IDEAS home Printed from https://ideas.repec.org/a/inm/ororsc/v14y2003i2p107-122.html
   My bibliography  Save this article

The Dynamics of Innovative Activity and Competitive Advantage: The Case of Australian Retail Banking, 1981 to 1995

Author

Listed:
  • Peter W. Roberts

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Raphael Amit

    (The Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, Pennsylvania 19104-6364)

Abstract

This study examines the adoption of new products and processes in the Australian retail banking industry over the 1981 to 1995 period. Our analysis demonstrates that the vast majority of observed innovative activity was based on ideas sourced from outside the focal firm, and that innovations diffused very quickly across competing banks. As such, there were no periods during which any bank had proprietary possession of a major product or process innovation. We therefore ask how the banks' innovative activity could affect their relative financial performance positions. We answer this question by developing a set of hypotheses that relate specific features of their histories of innovative activity to their current financial performance. These hypotheses are tested using a detailed data set describing 1,297 modifications made to products and services, distribution technologies, and back-office processes within a sample of Australian retail banks over the sample period. Our results provide support for the general position that establishing an attractive competitive position depends on the specific history of a firm's innovative activity. Banks that undertook more innovative activity, that were more consistent in that activity, and whose composition of activity was somewhat differentiated from the industry norm tended to display superior financial performance. Rather than looking solely for internally generated, inimitable innovations to deliver competitive advantage, these results suggest that active and consistent innovative activity that is somewhat differentiated from competitors can also deliver superior financial performance.

Suggested Citation

  • Peter W. Roberts & Raphael Amit, 2003. "The Dynamics of Innovative Activity and Competitive Advantage: The Case of Australian Retail Banking, 1981 to 1995," Organization Science, INFORMS, vol. 14(2), pages 107-122, April.
  • Handle: RePEc:inm:ororsc:v:14:y:2003:i:2:p:107-122
    DOI: 10.1287/orsc.14.2.107.14990
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/orsc.14.2.107.14990
    Download Restriction: no

    File URL: https://libkey.io/10.1287/orsc.14.2.107.14990?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Cockburn, Iain & Griliches, Zvi, 1988. "Industry Effects and Appropriability Measures in the Stock Market's Valuation of R&D and Patents," American Economic Review, American Economic Association, vol. 78(2), pages 419-423, May.
    2. Tufano, Peter, 1989. "Financial innovation and first-mover advantages," Journal of Financial Economics, Elsevier, vol. 25(2), pages 213-240, December.
    3. Klevorick, Alvin K. & Levin, Richard C. & Nelson, Richard R. & Winter, Sidney G., 1995. "On the sources and significance of interindustry differences in technological opportunities," Research Policy, Elsevier, vol. 24(2), pages 185-205, March.
    4. Paul Geroski & Steve Machin & John Van Reenen, 1993. "The Profitability of Innovating Firms," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 198-211, Summer.
    5. Bill McEvily & Akbar Zaheer, 1999. "Bridging ties: a source of firm heterogeneity in competitive capabilities," Strategic Management Journal, Wiley Blackwell, vol. 20(12), pages 1133-1156, December.
    6. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-337, May.
    7. Zvi Griliches, 1984. "Market Value, R&D, and Patents," NBER Chapters, in: R&D, Patents, and Productivity, pages 249-252, National Bureau of Economic Research, Inc.
    8. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
    9. Ian MacMillan & Mary Lynn McCaffery & Gilles Van Wijk, 1985. "Competitors' responses to easily imitated new products—exploring commercial banking product introductions," Strategic Management Journal, Wiley Blackwell, vol. 6(1), pages 75-86, January.
    10. Johannes M. Pennings & Farid Harianto, 1992. "Technological Networking and Innovation Implementation," Organization Science, INFORMS, vol. 3(3), pages 356-382, August.
    11. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    12. Rebecca Henderson & Iain Cockburn, 1994. "Measuring Competence? Exploring Firm Effects in Pharmaceutical Research," Strategic Management Journal, Wiley Blackwell, vol. 15(S1), pages 63-84, December.
    13. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and the Sustainability of Competitive Advantage: Reply," Management Science, INFORMS, vol. 35(12), pages 1514-1514, December.
    14. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3, Specia), pages 783-832.
    15. David L. Deephouse, 1999. "To be different, or to be the same? It’s a question (and theory) of strategic balance," Strategic Management Journal, Wiley Blackwell, vol. 20(2), pages 147-166, February.
    16. William P. Barnett & Henrich R. Greve & Douglas Y. Park, 1994. "An Evolutionary Model of Organizational Performance," Strategic Management Journal, Wiley Blackwell, vol. 15(S1), pages 11-28, December.
    17. David J. Teece & Gary Pisano & Amy Shuen, 1997. "Dynamic capabilities and strategic management," Strategic Management Journal, Wiley Blackwell, vol. 18(7), pages 509-533, August.
    18. Levinthal, Daniel A, 1998. "The Slow Pace of Rapid Technological Change: Gradualism and Punctuation in Technological Change," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 7(2), pages 217-247, June.
    19. Charles W. L. Hill & David L. Deeds, 1996. "The Importance Of Industry Structure For The Determination Of Firm Profitability: A Neo‐Austrian Perspective," Journal of Management Studies, Wiley Blackwell, vol. 33(4), pages 429-451, July.
    20. Rosenberg,Nathan, 1994. "Exploring the Black Box," Cambridge Books, Cambridge University Press, number 9780521459556, September.
    21. Jan W. Rivkin, 2000. "Imitation of Complex Strategies," Management Science, INFORMS, vol. 46(6), pages 824-844, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Heli & Chen, Wei-Ru, 2010. "Is firm-specific innovation associated with greater value appropriation? The roles of environmental dynamism and technological diversity," Research Policy, Elsevier, vol. 39(1), pages 141-154, February.
    2. Bruce Rasmussen, 2010. "Innovation and Commercialisation in the Biopharmaceutical Industry," Books, Edward Elgar Publishing, number 13680.
    3. Basu, Sandip & Phelps, Corey & Kotha, Suresh, 2011. "Towards understanding who makes corporate venture capital investments and why," Journal of Business Venturing, Elsevier, vol. 26(2), pages 153-171, March.
    4. Frank T. Rothaermel & Andrew M. Hess, 2007. "Building Dynamic Capabilities: Innovation Driven by Individual-, Firm-, and Network-Level Effects," Organization Science, INFORMS, vol. 18(6), pages 898-921, December.
    5. Maria Chiara Di Guardo & Kathryn Rudie Harrigan & Elona Marku, 2019. "M&A and diversification strategies: what effect on quality of inventive activity?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(3), pages 669-692, September.
    6. Jie Wu & Kathryn Rudie Harrigan & Siah Hwee Ang & Zefu Wu, 2019. "The impact of imitation strategy and R&D resources on incremental and radical innovation: evidence from Chinese manufacturing firms," The Journal of Technology Transfer, Springer, vol. 44(1), pages 210-230, February.
    7. Cohen, Wesley M., 2010. "Fifty Years of Empirical Studies of Innovative Activity and Performance," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 129-213, Elsevier.
    8. Villalonga, Belen, 2004. "Intangible resources, Tobin's q, and sustainability of performance differences," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 205-230, June.
    9. Tammy L. Madsen & Michael J. Leiblein, 2015. "What Factors Affect the Persistence of an Innovation Advantage?," Journal of Management Studies, Wiley Blackwell, vol. 52(8), pages 1097-1127, December.
    10. Grillitsch, Markus & Nilsson , Magnus, 2013. "Technological competencies and firm performance: Analyzing the importance of internal and external competencies," Papers in Innovation Studies 2013/24, Lund University, CIRCLE - Centre for Innovation Research.
    11. Nicolai J. Foss & Keld Laursen & Torben Pedersen, 2011. "Linking Customer Interaction and Innovation: The Mediating Role of New Organizational Practices," Organization Science, INFORMS, vol. 22(4), pages 980-999, August.
    12. Giovanni. Gavetti & Daniel A. Levinthal, 2004. "50th Anniversay Article: The Strategy Field from the Perspective of Management Science: Divergent Strands and Possible Integration," Management Science, INFORMS, vol. 50(10), pages 1309-1318, October.
    13. Choi, Jin-Uk & Lee, Chang-Yang, 2022. "The differential effects of basic research on firm R&D productivity: The conditioning role of technological diversification," Technovation, Elsevier, vol. 118(C).
    14. Schwiebacher, Franz, 2013. "Does fragmented or heterogeneous IP ownership stifle investments in innovation?," ZEW Discussion Papers 13-096, ZEW - Leibniz Centre for European Economic Research.
    15. Wu, Jianfeng & Shanley, Mark T., 2009. "Knowledge stock, exploration, and innovation: Research on the United States electromedical device industry," Journal of Business Research, Elsevier, vol. 62(4), pages 474-483, April.
    16. Lee, Po-Yen & Lin, Hui-Tzu & Chen, Hung-Hsin & Shyr, Yi-Hwan, 2011. "Dynamic capabilities exploitation of market and hierarchy governance structures: An empirical comparison of Taiwan and South Korea," Journal of World Business, Elsevier, vol. 46(3), pages 359-370, July.
    17. Kathryn Rudie Harrigan & Maria Chiara DiGuardo, 2017. "Sustainability of patent-based competitive advantage in the U.S. communications services industry," The Journal of Technology Transfer, Springer, vol. 42(6), pages 1334-1361, December.
    18. Kim, Jungho & Lee, Chang-Yang, 2016. "Technological regimes and firm survival," Research Policy, Elsevier, vol. 45(1), pages 232-243.
    19. Li, Zhengyu, 2016. "Essays on knowledge sourcing and technological capability : A knowledge structure perspective," Other publications TiSEM b8ff31fc-c57b-4bc3-b5a4-0, Tilburg University, School of Economics and Management.
    20. Dosi, Giovanni & Nelson, Richard R., 2010. "Technical Change and Industrial Dynamics as Evolutionary Processes," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 51-127, Elsevier.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ororsc:v:14:y:2003:i:2:p:107-122. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.