Inter-temporal Effect of Technological Capabilities on Firm Performance: a Longitudinal Study of the U.s. Computed Tomography Industry (1972-2002)

Abstract

In this dissertation, I investigate how capabilities drive firm performance as an industry evolves. I show that in spite of significant research on firm capabilities, we do not understand whether technological capabilities continue to drive firm performance as an industry evolves or whether they become weaker drivers of performance over time. This question is also important to managers because its answer would inform whether in a given context, firms should invest in building technological capabilities or not.

I predict and find that in low complementarity contexts, as technology advances, customer demand for greater product performance becomes satiated. As a result, customers neither pay for greater product performance nor buy higher performing products pre maturely. As firms lose these two levers by which technological capabilities drive performance, they find that technological capabilities become weaker drivers of performance. I also propose that when technological capabilities become weaker drivers of performance, firm performance becomes more persistent, in the sense that past performance drives future performance.

Through a rigorous quantitative analysis, complemented by an in-depth qualitative analysis of the US CT scanner industry from its inception, I find support for the theory. Using robust regression and multinomial logistic regression models, I find that as technology in an industry advances, technological capabilities become weaker drivers of firm performance.

I discuss the shortcomings of this research and potential for future research. I also discuss the implications of this research on capability theory, resource based view, and on existing explanations of industry shakeout.