Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27561
Authors: 
Schmidt, Tobias
Schwiebacher, Franz
Sofka, Wolfgang
Year of Publication: 
2008
Series/Report no.: 
ZEW Discussion Papers 08-084
Abstract: 
Innovation success depends heavily on firm's ability to set priorities and select the most promising options from its project portfolio before the odds of success or failure become visible and reliable. We ask: What does previous innovation experience tell firms about what not to do in the future? With this in mind, we focus on projects that did not materialise or were abandoned - an important building block for choosing and implementing the 'right' projects. We suggest two major learning mechanisms. On the one hand, real options theory suggests a process based on financial data. On the other hand, research on absorptive capacities finds that previous innovation experience translates into superior ability to value, extract and exploit external knowledge. We test both hypotheses on an empirical basis for more than 600 German firms, covering innovation activities in the period 1997 to 2005. Our results indicate congruence between firms' innovation experience and their project selection patterns. Extensive R&D experience materialises as a stock of knowledge that enables firms to judge projects based on knowledge criteria. Non-R&D innovation experience, stemming from producing and introducing products to markets, resonates as decision-making based on economic factors in the future. Both types of innovation experience appear to generate distinct decision-making capabilities inside the firm which are subsequently exploited in selecting projects for the future.
Subjects: 
Project selection
real options
absorptive capacity
JEL: 
O32
O31
F23
D83
Document Type: 
Working Paper

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