From depth and breadth of knowledge to technological capability: a journey inside a firm's intellectual capital

In the current knowledge-intensive economy, a firm's intellectual capital refers to its idiosyncratic internal and external knowledge-related assets. While technological knowledge is a major constituent of intellectual capital, past research has often equated it with technological capability. However, technological capability includes not only codified knowledge, but also tacit know-how that is not captured by formal intellectual property. We argue that while a firm's patents might serve as a proxy for measuring its base of technological knowledge, they are not a good proxy for a firm's technological capabilities. Therefore, we offer a novel approach based on a machine learning technique to capture a biopharmaceutical firm's technological capabilities using the clinical trials that it carries out. Picturing a hypothetical journey where firms transform and exploit technological knowledge to move towards building technological capabilities, we address a research gap on the link between a firm's depth and breadth of technological knowledge on the one hand, and its technology diversity on the other. Analyzing a sample of 204 biopharma firms from 2006 to 2018, we find a positive relationship between the breadth of technological knowledge and technology diversity in a firm. In contrast, the relationship between the depth of technological knowledge and technology diversity is negative. We also find that in the presence of product/market diversification, the positive relationship between the breadth of technological knowledge and technology diversity is stronger. Implications for research and practice are also discussed.