Notes from the Field

Abstract

After World War II, the market for vacuum tubes was threatened by the development, first, of transistors and, later, integrated circuits. It was essential for European electronic companies, including the Dutch company Philips Electronics, to adopt American technology to gain a position in the semiconductor market. Philips was a lamp manufacturer that during the 1920s started to expand its activities to semiconductors. Successful international knowledge transfer depends on the active role of firms, in particular their ability to recognize the value of new, external information and to assimilate and apply it to commercial ends; this ability is called the absorptive capacity. The Philips case underscores the findings in most studies in this field that a solid knowledge-base is essential for absorptive capacity because it enables a company to scan the environment for external knowledge and then to assimilate that acquired knowledge. There is a continuous interaction between internal knowledge-building and external knowledge-acquisition. But whereas during the late 1940s and early 1950s external knowledge was indispensable to commence the production of transistors, from the mid-1950s onward in-house research and development (R&D) became more important and Philips became less receptive to knowledge from outside its own organization. Although Philips’s internal knowledge-base in semiconductors was enhanced due to the acquisition of capabilities as well as investments in R&D, its absorptive capacity decreased because the company felt more confident in its own judgments.

In reading this article, "Absorptive Capacity in Solid-State Technology and International Knowledge Transfer: The Case of Philips," the phrase "Not Invented Here" (NIH) comes to mind, since it is a major reason that people within companies give for not adopting something new. Innovative ideas that come from outside the organization are always suspect by "insiders," and adopting these innovations is typically met with resistance and tougher scrutiny than ideas developed on the "inside." In many cases, this resistance-to-change strategy is often done subconsciously and can disguise itself in many ways; for example, in forming committees to study the innovation; in analysis paralysis; or in conducting lengthy feasibility studies.

Initially at Philips (after World War II), the company sought to bridge the knowledge gap between European and U.S. electronics innovations by forming partnerships and acquiring knowledge through working groups both internal and external to the company. As internal confidence and subsequent success increased, however, the company began to prefer the previously held model that internal research and external knowledge held by existing tube-producing companies were the future for Philips. The company became suspect of ideas and future scenarios that fell outside its "in-house built knowledge base."

This is not to say that feasibility studies and business cases should not be done for new innovations and R&D activities. Clearly, the case demonstrates that there are times when organizations need to look internally for solutions, and at other times external opportunities are more desirable. For product development, these distinctions are perhaps more critical, but even in situations that do not involve the core business of an organization, there needs to be a balance between internal and external sources of knowledge. In the 1999 situation where Hewlett-Packard split its company into HP and Agilent, the new HP began to focus on reinventing itself while Agilent embarked on an aggressive strategy to acquire (through mergers and acquisitions) new technology, ideas, and research knowledge to rebuild the product lines. The feeling among Agilent employees at the time was that innovation built the original HP, so they could do it again.

Internally, the division of the large HP into two smaller organizations also faced an interesting situation whereby the existing financial systems needed to be split and employees were given the option of which company they wanted to work for. Within a year, the company needed to: 1) identify the core competencies needed to run the respective financial organizations that were undergoing massive reorganization as a result of the split; 2) identify the gaps in each organization (which depended on the individual choices made by employees...