Converting inventions into breakthrough innovations: The role of exploitation and alliance network knowledge heterogeneity

We investigate how firms’ exploratory and exploitative invention can lead to breakthrough innovations, and how heterogeneous knowledge available to firms through their R&D alliance network moderates this relationship. Using panel data of U.S. biopharmaceutical firms, we find that emphasis on exploitative invention has a stronger positive effect on breakthrough innovation than does a firm's emphasis on exploratory invention. Furthermore, heterogeneous knowledge available in firms’ R&D alliance network increases the number of breakthrough innovations, up to a point, and then it begins to exert a negative effect. Interestingly, engaging alliance partners with heterogeneous knowledge strengthens the positive effect of exploitative invention on a firm's production of breakthrough innovations.