Balancing allocative and dynamic efficiency with redundant R&D allocation: The role of organizational proximity and centralization.

By Anand Nandkumar, Vivek Tandon, Ronak Mogra, Kannan Srikanth
Strategic Management Journal | September 2024

DOI

doi.org/10.1002/smj.3662

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Citation

Nandkumar, Anand., Tandon, Vivek., Mogra, Ronak., Srikanth, Kannan. (2024). Balancing allocative and dynamic efficiency with redundant R&D allocation: The role of organizational proximity and centralization. Strategic Management Journal doi.org/10.1002/smj.3662.

Strategic Management Journal, 2024

Abstract

Resource-based-view scholars have mainly examined two resource allocation approaches for competitive advantage in multi-unit firms: resource sharing and resource redeployment. These approaches emphasize allocative efficiency—the optimal allocation of resources to maximize their current value. In technology-intensive industries, firm success also requires achieving dynamic efficiency to increase its future value-creation. We propose that the redundant allocation of resources—the parallel deployment of non-scale-free resources towards the same objective—although allocatively inefficient, increases dynamic efficiency by stimulating interunit competition. Firms’ structural features moderate these effects. An analysis of large pharmaceutical firms reveals that redundant R&D increases innovations with high firm-specific value but simultaneously increases project terminations to reduce wastage. Organizational proximity increases the former effect and decreases the latter. Firm’s R&D centralization amplifies the effect of unit-proximity.

Anand Nandkumar is an Associate Professor of Strategy, Executive Director of SRITNE at the Indian School of Business (ISB), and Associate Dean of the Centre for Learning and Teaching Excellence. He explores industry and firm-level phenomena that influence innovation - the generation of new ideas, and entrepreneurship - distribution and commercialisation of new ideas. His research focuses on high-technology industries such as pharmaceuticals, biotechnology, and software, and it falls in between industrial organisation (IO), economics of technological change, and strategy.

Professor Nandkumar’s current work in the innovation stream examines the effect of stronger intellectual property rights (IPR) on different aspects of innovation, such as the influence of stronger patents on long run incentives for innovation or the influence of stronger patents on the functioning of Markets for Technology (MFT). In the entrepreneurship stream, his current work examines the influence of venture capitalists on entrepreneurial performance.

Professor Nandkumar graduated with a PhD in Public Policy and Management, with a focus in strategy and entrepreneurship from Carnegie Mellon University in 2008. Prior to his PhD, he worked for 3 years with a startup in Silicon Valley, and prior to that, in New York City with one of the world’s largest financial services firms.

True to his expertise, at ISB, Professor Nandkumar teaches Strategic Innovation Management and Strategic Challenges for Innovation-based startups.

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