Dependency between learning and profitability in different industry conditions: A system dynamic simulation

Technological change and especially radical changes are a major source of uncertainty for strategic management of technology. The traditional approach to this problem has been a race to be the first mover to the markets. We look at this situation through the lens of the Resource Based View, and study how the innovation and imitation strategies pay off under different industry conditions. The resource based view of the firm proposes that the competitiveness of industrial companies depends on their ability to manage portfolios of rare and valuable resources. Learning is an important mechanism in resource development and management. We develop a system dynamic model to understand the linkage between learning and profitability under different conditions set by resource appropriability and transferability. The research problem is to examine how profitable the innovator and imitator are in different industry conditions after the radical innovation is launched to the market. The setting informs the industrial manager whether it is economically feasible to open up the R&D to external influences in a situation of discontinuous change, given the industry parameters. The results show that expected profit varies strongly depending on ability to learn from different sources. Strategies based on external learning performed better in open and less protected market environment and internal learning became more interesting when resources could be efficiently protected.