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Beyond invention: the additive impact of incubation capabilities to firm value
Author(s) -
Markovitch Dmitri G.,
O'Connor Gina Colarelli,
Harper Pamela J.
Publication year - 2017
Publication title -
randd management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.253
H-Index - 102
eISSN - 1467-9310
pISSN - 0033-6807
DOI - 10.1111/radm.12152
Subject(s) - leverage (statistics) , business , incubation , valuation (finance) , industrial organization , enterprise value , exploratory research , investment (military) , value (mathematics) , marketing , accounting , biochemistry , chemistry , machine learning , sociology , politics , computer science , anthropology , political science , law
Incubation is a process whereby the firm nurtures breakthrough discoveries and inventions to test their potential as new business platforms. The recent emergence of organizational roles associated with innovation incubation shows that internal incubation is becoming recognized as an important organizational capability. This development also suggests that firms that invest in discovery for competitive advantage recognize a need to leverage that investment more fully. While case studies describe incubation activities and note their importance, empirical research linking this capability to firm performance is limited. The current study represents an initial attempt at exploring the relationship empirically. Our main finding is that financial markets have difficulty valuing a firm's exploratory discovery investments and that the presence of an incubation capability positively moderates the impact of such investments on firm market valuation. The implication of this result is that investments in certain types of R & D may be suboptimized if there is not a parallel investment in a capability to incubate the opportunities that arise from potentially breakthrough inventions.