Does Technological Diversity Help or Hurt Small Firms? The Moderating Role of Core Technological Coherence

In this paper, we examine how small firms should develop their technological portfolios in order to attract partners to forge strategic alliances. More specifically, we examine the relationship between a small firm's technological diversity and the number of strategic alliances established by the firm. Existing research on the performance implications of technological diversity has generated mixed findings. One of the main reasons for the inconclusiveness in current studies is that in capturing diversity. These studies focus extensively on firms' innovative outcomes, while the underlying core technological knowledge bases that are key inputs to the innovative outcomes are largely neglected. To resolve the ambiguities in prior research, we draw on the recombinant search literature, which suggests that innovative outcomes are results of recombination of existing knowledge elements. We apply bibliometric techniques to patent data and develop the concept of core technological coherence (CTC), defined as the extent to which diverse technological outcomes originate from similar sets of core technological knowledge bases. We take a contingency perspective and investigate how CTC impacts the relationship between technological diversity and alliance formation in small firms. Based on a sample of 202 small firms in the biotechnology industry, the results support the hypotheses that CTC amplifies the benefits and mitigates the costs of technological diversity.