Performance and survival implications of sourcing choice sequence across an architectural innovation life cycle

This study investigates follower firms' make-buy sourcing choices and sequences in response to an architectural innovation by an innovator. We argue that the dynamic trade-offs among knowledge acquisition, knowledge transformation, and transaction cost reduction underlie the performance impacts of make-buy sourcing choices and sequences across the architectural innovation life cycle. Using the data gathered from the gear-shifting market of the U.S. bicycle industry, we empirically demonstrate that buy is a superior sourcing choice before key market-winner features (i.e., dominant design) have emerged. After that, make becomes a superior choice. We then demonstrate that the buy-to-make sourcing sequence is associated with superior technological and financial performances in the postdominant design phase of the architectural innovation period, as well as with greater firm survival during the market shakeout in the later period of modular standardization. The theoretical and managerial implications of our findings are also discussed.

Automated summary

The study found that make-buy sourcing choices and sequences affect the performance and survival capability of firms during the architectural innovation lifecycle.