Limitations and competencies of the Pharmaceutical Industry in the United States: Critical analysis of its impact on the performance of the firms in United States

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CHAPTER 1: INTRODUCTION

There has recently been a revival of interest in the “resource based view of the firm." Those working within this tradition have drawn inspiration from the work of authors such as Selznick (1957) and Penrose (1959), and have suggested that inimitable firm heterogeneity, or the possession of unique "competencies" or "capabilities" may be an important source of enduring strategic advantage (Lippman and Rumelt, 1982; Wernerfelt, 1984; Barney, 1986; Rumelt, 1991; Peteraf, 1993; Amit and Schoemaker, 1993; Dosi and Teece, 1993).

This perspective promises to be an important complement to the strategic management field's more recent focus on industry structure as a determinant of competitive advantage (Porter, 1980). However despite the renewed theoretical interest in these ideas, empirical work in the area is still at a preliminary stage.

Several studies have shown that heterogeneous firm effects account for a high proportion of the variance of profit rates across firms (Cool and Schendel, 1988; Hansen and Wernerfelt, 1989; Rumelt, 1991), and at the same time an important stream of research has confirmed that idiosyncratic firm capabilities both shape diversification strategy and drive the performance of diversified firms (Hitt and Ireland, 1985; Montgomery and Wernerfelt, 1988). But in general this work has been forced to rely on measures of competence constructed at such an aggregate level that they cannot capture the richness of the constructs of the theoretical literature. Studies of the evolution of capability at individual firms have greatly enriched our understanding of the nature of particular competencies (Burgelman, 1994; Iansiti, 1993; Leonard-Barton, 1992), but by and large these insights have not been incorporated into studies of aggregate firm behavior or systematic studies of competition. With some notable exceptions (see, for example, work by Clark and Fujimoto, 1991; Kogut and Kim, 1991; and Mitchell, 1989, 1992) relatively little empirical work has attempted to combine the richness of measures of competence derived from field work with large scale statistical studies of competition. This paper explores the role of “competence” in pharmaceutical research. In "Scale, Scope and Spillovers: The Determinants of Research Productivity in Drug Discovery" (Henderson and Cockburn (1993), hereafter "Scale, Scope and Spillovers") we drew upon detailed qualitative and quantitative data obtained from ten major pharmaceutical firms at the program level to show that large firms were at a significant advantage in the management of research through their ability to exploit economies of scope. But this paper raised a number of puzzling questions. In the first place, we found that a large proportion of the variance in research productivity across firms could be attributed to firm fixed effects. In the second place, our results suggested that despite the fact that differences in the Current Situation and Research Problem structure of the research portfolio had very significant effects on research productivity, variations in portfolio structure across firms were both large and persistent. Both findings are consistent with the ...