Technological Platforms and Diversification

Abstract

As the invention of fundamental new sciences spawns subsequent research, discovery, and commercialization, core technologies branch into new applications and markets. Some of them evolve over time into many derived technologies, whereas others are essentially “dead ends.” The pattern of evolution and branching is called a “technological trajectory.” An intriguing question is whether some firms can ride the trajectory by developing proprietary experience in a “platform technology.” Because the knowledge is proprietary, firms that originate in industrial fields based on a platform technology acquire the technological skills to diversify and to mimic the branching of the underlying technological trajectory. The ability to compete in hypercompetitive markets depends on the acquisition of know-how that is applicable to a wide set of market opportunities. Such capabilities serve as platforms into quickly evolving markets. To respond rapidly to market changes, a firm must have already acquired fundamental competitive knowledge. In a high-technology industry, such knowledge invariably is derived from experience with the underlying science and related technological fields. The authors examine capabilities as platforms by analyzing the temporal sequence of diversification as contingent on market opportunities and previous experience. The pattern of diversification of firms reflects the evolutionary branching of underlying technologies. In that sense, the aggregate decisions of firms are driven by the technological trajectories common across an industrial sector. Certain technologies have wider technological and market opportunities, and consequently experience in those technologies serves as a platform for expansion. The authors propose that a firm's experience in platform technologies increases the likelihood of diversification when environmental opportunities are favorable. The proposition is tested with the sample of 176 semiconductor startup companies founded between 1977 and 1989. Evidence from multidimensional scaling of expert opinion and from an analysis of patent records was gathered to identity relatedness among subfields and the evolutionary direction of the technologies. A discrete hazard model is specified to estimate the effect of technological histories on subsequent diversification. The results confirm the relationship between relatedness and directionality of technologies and the industrial path of diversification. The finding that diversification depends on technological experience and market opportunity has important implications for firms' entry decisions. The authors discuss those implications by describing experience as generating options on future opportunities and distinguishing between the historical path by which the stock of knowledge is accumulated and the path by which new knowledge is generated and commercialized.