Pawn to Save a Chariot, or Drawbridge Into the Fort? Firms' Disclosure During Standard Setting and Complementary Technologies Within Ecosystems
| DOI | http://doi.org/10.1002/smj.2655 |
| Date | 01 November 2017 |
| Published date | 01 November 2017 |
Strategic Management Journal
Strat. Mgmt. J.,38: 2213–2236 (2017)
Published online EarlyView 3 May 2017 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2655
Received 15 December 2014;Final revision received26 February 2017
Pawn to Save a Chariot, or Drawbridge Into the Fort?
Firms’ Disclosure During Standard Setting and
Complementary Technologies Within Ecosystems
Puay Khoon Toh1*and Cameron D. Miller2
1Department of Management, McCombs School of Business, University of Texas at
Austin, Austin, Texas
2Department of Strategic Management and Entrepreneurship, Carlson School of
Management, University of Minnesota, Minneapolis, Minnesota
Research summary: Within an ecosystem, standard setting coordinates development of comple-
mentary technologies across rms. But each rm can itself own multiple of these complementary
technologies. Westudy how a rm’s own complementary technologies inuence its disclosureincli-
nation during standard setting. We identify a tradeoff: disclosure increases value-creation of the
rm’s non-disclosed complementary technologies, but also heightens expropriation risk. Using
data on the U.S. communications equipment industry 1991– 2008, we show that the rm’s com-
plementary technologies increase its disclosure inclination when its technological areas are less
crowded, but decrease such inclination when there are SSO members with strong expropriation
abilities. Findings stress that disclosure involves but a piece of the rm’s portfolio; a systemic
perspective of the entire portfolio providesa more comprehensive picture of value-creation during
standard setting.
Managerial summary: Why should a rm disclose its key technology to participate in standard
setting within an ecosystem? Weurge managers to think beyond “disclosing to ensure compatibil-
ity with other rms’ complementary technologies within the ecosystem” as a motivation, to also
consider how disclosure affects the rm’s own complementary technologies within its portfolio.
Disclosure in one technological area makes the rm’s nondisclosed complementary technologies
in other areas more valuable to itself, especially with fewerrivals competing in these other areas.
But disclosure also renders the rm susceptible to losing these complementary technologies to
rivals, especially when rivals have strong expropriation abilities. Analyzing disclosure decisions
by communication equipment rms, we show that this tradeoff is indeed a relevant consideration
in managers’ strategic calculations when participating in standard setting. Copyright © 2017
John Wiley & Sons, Ltd.
Introduction
When an innovation ecosystem comprises differ-
ent complementary technologies, coordination is
often required in developing these technologies so
Keywords: disclosure; standard setting; complementary
technologies; competition; appropriation
*Correspondence to: Puay Khoon Toh, Department of Manage-
ment, McCombs School of Business, University of Texas at
Austin, 2110 Speedway, B6000, CBA 4.210, Austin, TX 78705.
E-mail: pk.toh@mccombs.utexas.edu
Copyright © 2017 John Wiley & Sons, Ltd.
that they will be interoperable (Adner & Kapoor,
2010; Rosenkopf & Tushman, 1998). Complemen-
tary technologies refer to ones where value created
by one is higher when the other is in place and
functioning (Makri, Hitt, & Lane, 2010; Milgrom
& Roberts, 1990). For instance, in a Wi-Fi sys-
tem, different complementary technologies related
to transmission protocols, customer premise equip-
ment, chipsets, network, switchboard, and so on
have to connect and work together for the entire
Wi-Fi system to be functional. This coordination is
2214 P. K. Toh and C. D. Miller
increasingly managed by standard setting organiza-
tions (SSOs), which provide forums enabling rms
to disclose their intellectual properties (IP) over
particular technologies voluntarily and to estab-
lish them as part of the industry standard so as to
facilitate coordination within the system (Dokko &
Rosenkopf, 2010; Leiponen, 2008).
From a strategy perspective, a key question then
arises: what strategic concerns does a rm have as it
considers participating in such coordination via dis-
closures to SSOs? Past research along this inquiry
usually starts by depicting, either explicitly or
implicitly, situations where the necessary comple-
mentary technologies within the ecosystem are all
owned by other rms (e.g., Adner & Kapoor, 2015),
so that the focal rm’s preoccupation is on coordi-
nating with these other rms (Kapoor & Lee, 2013).
Not surprisingly, the rm’s concerns, brought up
thus far in past research, are mostly about what
happens to the rm’s disclosed technology itself
upon disclosure to SSOs, in terms of its subsequent
value (Bekkers, Bondard, & Nuvolari, 2011; Rys-
man & Simcoe, 2008), its survival of the disclosure
process, and licensing revenue (Farrell & Simcoe,
2012; Lerner & Tirole, 2006). Few have shed light
on, or even taken into account, how other technolo-
gies that the rm owns may also be relevant consid-
erations in the rm’s participation in these forums.
In reality,though, it is typical for the participating
rm itself to own a variety of the complementary
technologies within the ecosystem (Cassiman,
Colomb, Garrone, & Veugelers, 2005; Toh & Kim,
2013). Ready examples that come to mind, such as
Qualcomm1and Nokia within the communications
equipment ecosystems, are seldom just specialists
in particular technology. In fact, as we demonstrate
later, a rm that has a wide range of different
complementary technologies is far more likely to
be active in SSOs than a specialist. This raises a
suspicion that perhaps the rm’s concern is not
only to coordinate development of its disclosed
technology across rms (Kapoor & Lee, 2013);
rather, enhancing returns from its nondisclosed
complementary technologies could be just as
crucial, if not more so. To date, we know little
about how this rm’s concerns about participating
1Qualcomm owns and develops multiple complementary tech-
nologies surrounding wireless Code Division Multiple Access
(CDMA), ranging from hardware chipsets, application enablers
used to decode transmission signals, transmission power in
CDMA cellular mobile systems, data sending and receiving via
satellites, handsets, modem cards, and so on.
in standard setting may differ from that depicted in
prior research. Moreover, the disclosing rm often
has to agree to license out its disclosed technology
to any other rm at a “fair, reasonable and non-
discriminatory” (FRAND) rate, or even royalty-free
(Bekkers, Iversen, & Blind,2012; Updegrove,
2007). Perhaps the disclosed technology per se
is no longer the most imperative, or protable,
locus of returns to the rm’ disclosure strategy. We
would be remiss by ignoring the disclosing rm’s
own complementary technologies.
Accordingly, we shift the focus of inquiry to
instead ask: does having complementary technolo-
gies make the rm more inclined or less inclined to
disclose to SSOs and participate in standard setting?
While the answer at rst glance may seem straight-
forward, we argue that it is in fact not so. On the
one hand, disclosing a technology to include it as
a part of the industry standard may raise the rm’s
returns from its other complementary technologies.
Hence, the rm with more complementary tech-
nologies would be more inclined to do so. But on
the other hand, as the obligated out-licensing of the
disclosed technology could constitute a “point of
access” allowing others to learn about and expropri-
ate the rm’s related (nondisclosed) technologies,
the rm with more complementary technologies has
“more to lose” and hence could be less inclined
toward disclosures. This tradeoff is worth bringing
to light. It helps us understand the tension stemming
from the rm’s owncomplementary technologies as
it participates in standard setting, and pushes us to
examine the conditions under which one inuence
is accentuated and supersedes the other.
The general idea that “standardization of one
technology benets others in the rm’s portfolio”
has indeed hovered broadly in past studies (e.g.,
Dokko, Nigam, & Rosenkopf, 2012; Rosenkopf
& Tushman, 1998). But, to our knowledge, none
has examined specically the inuences of a rm’s
complementary technologies on its disclosure incli-
nation to SSOs. More importantly, the inherent
tradeoff, pointed out above, has not yet been
brought to light. The closest exception is Ran-
ganathan and Rosenkopf (2014), who show that a
rm centrally positioned in commercialization net-
works is likely to contest a new standard to prevent
it from disrupting and devaluing its existing down-
stream assets. Their inherent notion that “the rm’s
other assets matter in standard setting” has broad
similarity, though they focus on the rm opposing
new standards to protect its existing downstream
Copyright © 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 2213–2236 (2017)
DOI: 10.1002/smj
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