Technological Search Behavior in the Semiconductor Industry

Gautam Ahuja
University of Michigan

Nandini Lahiri
Indian School of Business, Gachibowli

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     Last modified: June 14, 2006

Abstract
The construct of exploration is central to theories of organizational learning and is associated with many positive organizational outcomes such as creating breakthrough inventions and successful organizational adaptation. Yet, limited work addresses the antecedent question of why firms vary systematically in their exploration behavior. In this study we suggest that organizational design choices, specifically vertical integration, may be a key determinant of exploration behavior. We argue that vertical integration entails several implications for the firm, it leads to technological interdependence between upstream and downstream business units, potentially greater vertical communication within the firm, and also increases the operating leverage of the firm. All these aspects of vertical integration lead to reduced exploration. We argue however that building on the notion of a firm as a bundle of choices, also suggests one factor that may at least partially work to moderate this exploration dampening tendency of vertical integration and can be used to offset it, the degree of financial leverage adopted by the firm. Our study of exploration behavior in the semiconductor industry provides support for our arguments.