How does firm diversification impact innovation?. Issue 4 (3rd April 2018)

• Record Type: Journal Article
• Authors: Orlando, Beatrice; Renzi, Antonio; Sancetta, Giuseppe; Cucari, Nicola
• Is Part Of: Technology analysis & strategic management. Volume 30:Issue 4(2018)
• Page Start: 391
• Page End: 404
• Publication Date: 2018-04-03
• Subjects: R&D -- sunk costs -- resource slack -- diversification; Technological innovations -- Management -- Periodicals; Research, Industrial -- Management -- Periodicals; High technology industries -- Management -- Periodicals; Strategic planning -- Periodicals; 658.401205
• DOI: 10.1080/09537325.2017.1313405
• Languages: English
• ISSNs: 0953-7325

Abstract

ABSTRACT: This study sheds light on the relationship between business diversification and innovation. A diversification strategy is both a driver of sunk costs and strategic slack. Strategic slack is a valuable reserve of knowledge, usable to foster innovation. Using linear models, we explore the interplay between research and development (R&D) and organisational slack in large and diversified companies listed on the Euronext 100 Index. We consider the diversification pattern over time, and its interactions with the following three categories: sunk costs, slack resources, and R&D. The results show an antithetic effect of diversification and slack on R&D expenditures. In contrast to unabsorbed and potential slack, diversification and sunk costs hinder innovation. However, diversification is a huge source of strategic slack and, thus, has a positive effect on innovation, indirectly.