The decline of science in corporate R&D

• Author: Ashish Arora,Andrea Patacconi,Sharon Belenzon
• Date: 01 January 2018
• Published date: 01 January 2018
• DOI: http://doi.org/10.1002/smj.2693

RESEARCH ARTICLE

The decline of science in corporate R&D

Ashish Arora

1

| Sharon Belenzon

1

| Andrea Patacconi

2

1

Fuqua School of Business, Duke University,

Durham, North Carolina

2

Norwich Business School, University of East

Anglia, Norwich, U.K.

Correspondence

Andrea Patacconi, Norwich Business School,

University of East Anglia, Norwich Research

Park, Norwich NR4 7TJ, U.K.

E-mail: a.patacconi@uea.ac.uk

Research summary: In this article, we document a shift

away from science by large corporations between 1980

and 2006. We find that publications by company scien-

tists have declined over time in a range of industries. We

also find that the value attributable to scientific research

has dropped, whereas the value attributable to technical

knowledge (as measured by patents) has remained stable.

These trends are unlikely to be driven principally by

changes in publication practices. Furthermore, science

continues to be useful as an input into innovation. Our

evidence points to a reduction of the private benefits of

internal research. Large firms still value the golden eggs

of science (as reflected in patents), but seem to be

increasingly unwilling to invest in the golden goose itself

(the internal scientific capabilities).

Managerial summary: There is a widespread belief

among commentators that large American corporations

are withdrawing from research. Large corporations may

still collaborate with universities and acquire promising

science-based start-ups, but their labs increasingly focus

on developing existing knowledge and commercializing

it, rather than creating new knowledge. In this article, we

combine firm-level financial information with a large and

comprehensive data set on firm publications, patents and

acquisitions to quantify the withdrawal from science by

large American corporations between 1980 and 2006.

This withdrawal is associated with a decline in the private

value of research activities, even though scientific knowl-

edge itself remains important for corporate invention. We

discuss the managerial and policy implications of our

findings.

KEYWORDS

development, innovation, patents, scientific research,

use of science in inventions

Received: 26 May 2015 Revised: 21 June 2017 Accepted: 23 June 2017 Published on: 22 November 2017

DOI: 10.1002/smj.2693

Strat Mgmt J. 2018;39:3–32. wileyonlinelibrary.com/journal/smj Copyright © 2017 John Wiley & Sons, Ltd. 3

1|INTRODUCTION

During the 20th century, and especially the post-war period, the United States created a scientific-

industrial complex that greatly contributed to scientific progress and resulted in many important

innovations. A key component of this scientific-industrial complex was the large corporate lab in

corporations such as AT&T, Du Pont, IBM, and Xerox. Research from such labs has led to many

important discoveries such as the transistor, the laser, and the first computer with a graphical user

interface as well as breakthroughs in medicine and pharmacology.

Since the 1980s, however, the United States scientific-industrial complex has undergone pro-

found transformations (Hounshell, 1996; Mowery, 1995, 2009; Pisano, 2010). A key transformation

has been the redirection, by many leading firms, of resources and attention from more exploratory

scientific research toward more commercially-oriented projects. But though articles in the popular

press do lament the demise of top-flight corporate labs (e.g., Economist, 2007), researchers have yet

to document the breadth and depth of this transformation, or whether this decline in “corporate sci-

ence”is related to a decline in the economic value of research, and if so, whether it is private or

social economic value.

1

In this article, we take a step toward filling these gaps. A fuller understanding of the nature and

extent of this withdrawal is a first step toward understanding the possible reasons, such as the

growth of technology markets (Arora, Cohen, & Walsh, 2016; Arora, Fosfuri, & Gambardella,

2001; Chesbrough, 2003), globalization (Autor, Dorn, Hanson, Pisano, & Shu, 2016; Bloom,

Draca, & Van Reenen, 2016), and managerial short-termism (e.g., Marginson & McAulay, 2008).

Our findings are likely to be relevant to managers and scientific entrepreneurs who operate within

and must understand the evolution of their ecosystem (e.g., Pisano, 2010), and to policy makers

who might wish to influence it.

Our primary contribution is to establish a set of important facts about the changing nature of cor-

porate R&D over a quarter of a century. To do so, we develop publication-based indicators of scien-

tific research at the firm level. We link scientific publications in “hard science”journals (including

engineering science) from the Web of Science to publicly traded firms in the United States, using

the affiliations of the authors. Our primary firm sample consists of 4,068 publicly listed, R&D-

performing companies with at least one patent over the period 1980–2006. Collectively, these firms

account for 452,297 “firm publications”—scientific articles where at least one of the authors is a

company employee.

We find that, over the period 1980–2006, participation in scientific research by publicly traded

American companies diminished. A significant fraction of the decline can be attributed to entry by

firms that do not publish or publish very little. However firms with established research programs

also markedly decreased research. In terms of the nature of research, the decline is most evident in

high-quality publications. The implied value of scientific capability, as measured by stock market

valuations or by the acquisition price in M&A deals, also declined. By contrast, patenting by large

American firms increased and the implied value of patents, including the premium paid for patents

in M&A, did not decrease. We find no evidence that invention became less science-intensive, or that

the science used in inventions grew older. These patterns are present across a broad range of indus-

tries, except perhaps biotechnology.

1

For simplicity, we use the terms science and research (or scientific research) interchangeably. The key distinction we make is

between research (as measured by publications in scientific journals) and development (as measured by patents). We largely avoid

finer distinctions such as that between basic and applied research because these distinctions are often difficult to draw in practice.

4ARORA ET AL.