Research Policy 32 (2003) 1537–1554

Can creative destruction be destroyed? Military IR&D and

destruction along the value-added chain
Allen Kaufman a , Christopher L. Tucci b,∗ , Mark Brumer a
a Whittemore School of Business and Economics, University of New Hampshire, 15 College Road, Durham, NH 03824, USA
b NYU Stern School of Business, 44 W 4th Street, KMC 8-71, New York, NY 10012, USA

Received 14 November 2000; received in revised form 15 July 2002; accepted 30 October 2002

Abstract
We elaborate a supply chain innovation matrix that can be applied to both commercial and military supply chains. By shifting
the analysis from a focal firm to industry structure, we argue that the market structure of the entire supply chain functions as
a major moderating variable in determining both the timing and adoption of innovations, both for commercial and military
markets. We extend work on supply chain resource dependency by drawing a distinction between market-structure-induced
resource dependency and supplier over-reliance on a customer in a competitive market. This has policy implications for the
organization of military industrial research and development (IR&D). Joint service research and development (Jointness)
will certainly bring about innovation, but it will be incremental, reinforcing established military hierarchies. Policy makers
may need to add this probable consequence when comparing Jointness and inter-service rivalry. The cost savings inherent in
Jointness may unwittingly sustain a military force unready for fighting the next war.
© 2002 Elsevier Science B.V. All rights reserved.
Keywords: Creative destruction; Industrial research and development (IR&D); Value-added chain

1. Introduction elaborate a new supply chain innovation matrix that

How has the military managed to promote inno-
vation during and after the Cold War? To answer
this question, we rely on management theories of
innovation in the for-profit world. By adopting these
concepts, we argue that competition among the ser-
vices promoted rather than hindered innovation. In
deductively building an argument outlining the trade-
off between efficiency and competition in military
industrial research and development (IR&D)1 , we
∗ Corresponding author. Tel.: +1-212-998-0285.
can be applied to both commercial and military sup-
ply chains. By shifting the analysis from a focal firm
to industry structure, we argue that the market struc-
ture of the entire supply chain functions as a major
moderating variable in determining both the timing
and adoption of innovations, both for commercial and
military markets. We extend work on supply chain re-
source dependency by drawing a distinction between
market-structure-induced resource dependency and
supplier over-reliance on a customer in a competitive
market.

E-mail addresses: allenkaufman@comcast.net (A. Kaufman), or targeted toward the military. Our IR&D includes but is not lim-
tucci@stern.nyu.edu (C.L. Tucci). ited to the Pentagon program (cost recovery category) of Indepen-
1 We use the term ‘IR&D’ in this article to refer generally to all dent Research and Development and specific military-sponsored
research and development conducted by industry and sponsored by research programs with the same acronym.

0048-7333/$ – see front matter © 2002 Elsevier Science B.V. All rights reserved.
PII: S 0 0 4 8 - 7 3 3 3 ( 0 2 ) 0 0 1 3 9 - 7
1538 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
1.1. The context: Jointness
Those who study military innovation note that mil-
itary bureaucracies build interest groups resistant to
change, particularly during periods of relative peace
(Posen, 1984; Rosen, 1994; Pierce, 2001). These theo-
rists use political science models of bureaucracy to ac-
count for the military’s resistance to change, a model
that scholars contrast to dynamic markets. The implicit
comparison gives credence to those policy makers who
would bring corporate cost-accounting practices to the
military industrial research and development (IR&D)
process. These reformers contend that business princi-
ples demand joint service IR&D (“Jointness”), which
allegedly saves costs at the generic research and the
system development stages (Jones, 1999).2
However, this dominant paradigm ignores impor-
tant distinctions made within the managerial literature
both on industrial innovation and on supply chain
management. Jointness appears to run counter to
the literature on industrial innovation (e.g. Vonortas,
1997; Fusfeld, 1994) that generic research works
best when organizations cooperate and that product
market development works best when organizations
compete; likewise, the Jointness movement appears
to be unaware of a growing literature (e.g. Afuah,
2002; Christensen and Bower, 1996) that views
downstream relational power as a suppressant of rad-
ical upstream innovation. Instead, the Department
of Defense (DOD) argument has as its basis corpo-
rate cost-accounting methods that seek economies by
eliminating duplication and by gaining scale.
When viewed from the managerial literature on in-
novation, Jointness leads to an unintended outcome.
Centralized control and reduction in duplication of ef-
fort allow downstream users (the incumbent officer
corps) to form a buying “cartel” that has complete con-
trol over innovation’s disruptive consequences. And,
given the private defense industry’s customer focus,
these firms typically become allies in efforts to halt
radical innovation.
2 The services differ in their understanding of Jointness. The
Army and Air Force use the term to mean unification while
the Navy and Marine Corps use it to mean integration (Owens,
1997, 1998). We adopt the Army and Air Force meaning for this
paper. Integration would amplify all the effects proposed in the
paper.
To illustrate the Jointness doctrine, take the case
of the military’s best-advertised weapons IR&D pro-
gram, the Joint Strike Fighter (JSF). Although the JSF
differs in details to accommodate service needs, all
planes are built from the same manufacturing plat-
form. Jointness, so the argument goes, gives the mil-
itary monopsony power. Firms compete first over de-
sign, and then in producing a prototype. Savings come
primarily from consolidating costs of development and
from scale economies in producing and maintaining
one model (Jones, 1999). However, this application of
Jointness actually restricts the ability of the defense
industry to generate technologies that would upset the
Cold War military regime. The Defense Department
explicitly states that the JSF must build from known
technologies and by implication that it must perpetu-
ate the officer corps put in place during the Cold War.
In other words, the JSF offers the next generation of
aircraft that were originally designed to defeat Soviet
fighters. As it is currently structured, Jointness has the
potential to deliver cost-effective incremental techni-
cal change that reproduces the Cold War’s military
hierarchies.
By using managerial concepts devised to understand
industrial innovation and to oversee supply chain man-
agement, we present an alternative viewpoint on mili-
tary IR&D, one that takes much from empirical work
on the Cold War innovative system (e.g. Sapolsky,
1972; MacKenzie, 1993; Flamm, 1988; Koppes, 1982;
Spinaldi, 1994). Defense policy wisdom portrays joint
service product development as a cost-effective means
to foster innovation. In contrast, we argue that this
strategy creates, in effect, a “cartel”, which tends to
suppress radical innovation while encouraging incre-
mental changes supportive of the Cold War officer
corps. Military IR&D works optimally when the ser-
vices first cooperate on generic component part re-
search to reduce risks and enhance knowledge and
then, during the development phase, compete to bring
the new weapon system to “market”. Service rivalry
provides an effective check against incumbent inter-
ests opposed to change (Hayes and Smith, 1994).3
3 With the Cold War’s conclusion, Congress and the Department
of Defense (DOD) took steps to eliminate the competitive phase
by labeling inter-service rivalry inefficient. These reforms were
hardly surprising since they can be found in a long list of blue
ribbon commissions on improving DOD efficiency (Jones, 1999).
On the matter of new weapon development, these reports advocated
 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
To make this argument, we propose that market
structure along the supply chain is a critical deter-
minant of the timing and effects of innovation. We
develop an IR&D supply chain matrix, absent in the
managerial literature, and apply it both to commer-
cial and military ventures. On the military side, we
offer a theory of inter-service rivalry and innovation
derived from microeconomic concepts. Others have
made claims about inter-service rivalry’s benefits, but
these have relied on institutional arguments outside
microeconomics (Sapolsky et al., 2000).
1.2. Method and organization
The literature on innovation and on regulatory pol-
icy provides the basic theoretical tools for our investi-
gation into IR&D supply chain management. Note that
both share a microeconomic foundation in which mar-
kets are assumed to be less than perfect (Williamson,
1985; Stiglitz, 1997; Knight, 1921). Transaction cost
economics and property rights theory best elaborate
a theory of the firm under the assumptions of imper-
fect information and bounded rationality (Hart, 1996;
Williamson, 1985). Further, public choice theory has
extended microeconomics into the public policy do-
main (Riker, 1982; Buchanan and Tullock, 1962).
Our method for answering the question of how the
military promoted innovation during and after the Cold
War proceeds deductively and synthetically. We em-
ploy a deductive method by following the logic of mi-
croeconomic theory in assessing innovation, both in
the commercial and military sectors. We build in each
section of the paper below a series of assumptions
that, when combined, clarify the dynamics of techno-
logical change and creative destruction. Further, our
method is synthetic in that it links together transac-
tion cost and public choice theories of the private and
public sectors. Logical consistency is paramount.
We divide the theoretical exposition into six parts.
Section 2 contains the first three parts and focuses on
building the argument that cartels in a supply chain
change the kinds of innovations the supply chain pro-
centralized administration, i.e. joint service projects. By placing
IR&D weapon system research under a single authority, reformers
promised that the costly redundancies found in separate service
IR&D pursuits would be eliminated. At the same time, centralized
control would bring economies of scale during the project’s IR&D,
manufacturing and maintenance phases.
1539
duces. In Section 2.1, we define terms and review
the literature in the management of innovation relat-
ing to “radical” and “incremental” technology. Then
(Section 2.2), we recount economic rationale for and
obstacles to forming an industrial consortium. During
the generic phase of a radical IR&D project, a research
consortium offers substantial benefits. However, col-
lective action problems associated with the forma-
tion of a consortium regularly thwart the undertaking.
The private sector’s inability to capitalize on IR&D
consortia displays the military’s potential for orga-
nizing such consortia. Finally, we elaborate our own
theory relating to the market structure of the supply
chain.
In Section 3, which includes the last three parts
of the argument, we apply the theory from Section 2
to the context of military IR&D. First (Section 3.1),
we review the military’s advantage in managing a
research consortium. The military’s command and
control structures simply eliminate the collective
action problems that market actors encounter. How-
ever, command and control brings with it substan-
tial problems, which, if not solved, render military
IR&D expenditures ineffectual. Once established, the
“inefficiencies” inherent in the military’s command
structure (impacted information) and in the congres-
sional budgetary process (rotating majorities) provide
an entanglement of interests that can sustain and
expand IR&D investments.
Section 3.2 reviews how coalitions form from the
IR&D project officers’ oversight requirements. The
US political system provides incentives that bias the
military to outsource many key services. Through
outsourcing, technical officers can hone an effec-
tive political lobby. Should these technologies prove
effective and threaten the incumbent officer corps,
a political battle will ensue between these officers
and reformers both inside and outside the military.
Finally, by constructing two hypothetical cases, we
consider (Section 3.3) the dynamics by which a new
technology may advance and devalue an old one, as
when missile technology lessened the importance of
long-range bombers. The first hypothetical assumes a
“Joint” command structure while the latter presumes
a structure divided among services. This exercise
leads to interesting conclusions: (1) radical, new mil-
itary technologies fall into two distinct stages, one in
which the technology is developed and prototyped,
1540 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
and one in which the technology is deployed and
brought to market; and (2) intra- and inter-service
rivalry provides the diversified portfolios required in
undertaking IR&D and the political dynamic for ad-
vancing these technologies, once they move into the
prototyping phase.
The final section (Section 4), offers implications
for theory. We discuss how market power alone is
insufficient for understanding competence-destruction
along the supply chain. Instead, we propose that mar-
ket structure of both customers’ and suppliers’ indus-
tries affect the adoption and timing of innovation. We
conclude Section 4 with policy recommendations.
2. Theory development
2.1. Incremental versus radical innovation
2.1.1. Incremental and radical innovation
defined
Since at least the time of Schumpeter (1934), re-
searchers have been interested in how innovation
reshapes industries. Scholars speak of two kinds
of innovation: incremental and radical (Utterback,
1994; Anderson and Tushman, 1990, 1991; Afuah
and Bahram, 1995). Incremental innovation improves
on a known product or the process for producing
it, reinforcing existing engineering and manufac-
turing know-how (thus, “competence-enhancing”).
These innovations may be simply minor process
improvements—such as introducing statistical pro-
cess control—or incremental product quality im-
provements, as when software firms introduce a new
edition of an existing software package. Such inno-
vations allow firms temporarily to build upon their
former competitive advantage.
Incremental improvements may also be discon-
tinuous. Take the striking case of turbo-jet engines.
Although the turbo-jet dramatically changed engine
performance, the innovation built from existing engi-
neering and manufacturing know-how. In this sense,
the turbo-jet engine enhanced existing engine firm
capabilities. Discontinuous change may be subtle as
when a firm reconfigures known components to make
a new product. The transformation of electric room
air fan into a ceiling fan offers a simple illustration.
Here, the components (blade, motor, control system)
are modified to produce a new product that opens new
markets (Henderson and Clark, 1990).
In contrast, radical (or “competence-destroying”)
innovations economically devalue existing technolo-
gies (Anderson and Tushman, 1990, 1991; Utterback,
1994). These innovations typically depend on scien-
tific understanding and technical know-how that does
not build on a firm’s current capabilities. The transis-
tor illustrates this sort of discontinuous change. The
transistor did not rest on the scientific knowledge or
make use of production skills accumulated by firms
manufacturing vacuum tubes. Those who were unable
to transit into the new technological/manufacturing
system went out of business. To represent this,
Henderson and Clark (1990) proposed knowledge
destruction along two dimensions: core system and
component part knowledge. Note that only the de-
struction of both fully undoes a product market’s
technological determinates.
2.1.2. Market resistance to radical innovation
The possibility that a new, radical technology may
displace established firms accounts for their frequent
efforts to seek out and suppress new, threatening tech-
nologies. This behavior regularly occurs when indus-
trial markets have matured. Two literatures, one from
economics and the other from management, have doc-
umented alternative ways that entrenched firms have
resisted radical innovation.
Economists and political scientists argue that es-
tablished firms regularly organize to help establish or
to capture state regulatory agencies. These provide
an effective—some say the only effective—defense
against price competition and radical innovation
(Stigler, 1971; Peltzman, 1976). These regulatory
agencies have the power to set entry barriers, establish
price, and regulate technological change. Still, regula-
tory agencies have the capabilities to promote change
by using regulatory incentives and by promoting com-
petition. The Cold War innovative system provides
the most cogent example (Mowery and Rosenberg,
1998; Nelson and Wright, 1992). Economists con-
sider the defense industry a de facto regulatory sys-
tem, even though no independent regulatory agency
controls entry and exit. The military effectively acts
as this agency because of its monopsony procurement
powers (Ferguson, 1994; Sandler and Harley, 1995;
Scherer, 1964). Unlike their regulatory counterparts,
 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
like the now defunct Civilian Aeronautics Board, Cold
War military technical and procurement officers use
their resources to promote radical innovation. Even
critics of Cold War budgets concur on the military’s
excellence in conducting weapon system IR&D (Alic
et al., 1992).
Researchers who employ this concept of a Cold
War innovative system usually refer to (1) the ways
that DOD budgets spurred IR&D; and (2) how firms
used this new technical know-how to spin-off commer-
cial products beyond the military’s regulatory reach
(Mowery and Rosenberg, 1998). The Cold War, how-
ever, was a military campaign, not a commercial ven-
ture. The military evolved a regulatory framework that
provoked radical innovation, remaking industries and
undoing military hierarchies. Here, economists have
done little work in accounting for how this innovative
military system overcame vested bureaucratic interests
to generate radical new technologies.
The managerial literature relating to supply chain
management identifies the second way by which firms
suppress economically threatening innovation. Trans-
action cost economics provides the logic of this pro-
cess. Firms (customers/suppliers) co-specialize their
assets to gain efficiencies and establish collaborative,
long-term relationships to optimize on transaction
costs (Williamson, 1985; Kay, 1997). These relation-
ships allow for firms within the supply chain to engage
in joint product design and concurrent engineering,
to share personnel and equipment, and to leverage
financial and marketing resources (Kaufman et al.,
2000; Dyer and Singh, 1998). Thus, supply chains
that invest in complementary assets and collaborate to
improve their competitive positions have: (1) a joint
interest in uncovering innovations that enhance their
capabilities; and (2) a joint interest in suppressing in-
novations that devalue these investments and relation-
ships (Afuah, 2002). Should a downstream firm—say
the end supply chain customer (an original equipment
manufacturer)—gain monopoly power, it could use
its monopsony position to enforce the supply chain
propensity to promote incremental innovations. Al-
ternatively, if a few downstream firms account for a
large portion of the market, technological threats to
their investments may provide sufficient incentive for
them to overcome their collective action problems
and act as an oligopoly to suppress value-destroying
innovations.
1541
Afuah (2000) offers an example of how this re-
sistance to innovation works in a commercial supply
chain. When a supply chain member attempts to in-
troduce a technology that would disrupt the chain,
others band together to resist its introduction. These
circumstances make it difficult for the innovative firm
to quickly deploy the new technology. Christensen
and Bower (1996) offer a second example found
in the disk drive industry. They describe how disk
drive suppliers that are heavily dependent upon cus-
tomers failed to develop new technology that, while
potentially competence-enhancing to the supplier,
were competence-destroying for existing customers
(which they labeled “disruptive”). In both cases, the
firms that resisted the new technologies successfully
prevented their suppliers from adopting it. However,
innovations eventually entered the market through
alternative suppliers that sought out savvy customers.
2.2. Private sector Industrial research and
development
2.2.1. The promise of industrial research consortia
The literature on innovation makes it plain that
radical industrial research and development (IR&D)
is an uncertain business (Freeman and Soete, 1997;
Stiglitz and Wallsten, 1999; Utterback, 1994; von
Hippel, 1988; von Hippel, 1998). Results may be
long in coming, intangible, and inapplicable to devel-
oping proprietary products. In fact, radical industrial
research is so risky that typically only the most dar-
ing and well-financed firms engage in these activities.
Nevertheless, uncertainty itself induces investments
because of the high returns that the few successes
bring.
When product development managers pursue inno-
vation, they invariably define the product as a system
composed of subsystems or component parts. Some
components set the design parameters of others and
some are so fraught with practical problems that they
constrain the system’s movement from design to de-
velopment to production (Vincenti, 1990). Product de-
velopment managers identify these troublesome spots
and put extra resources at the disposal of those re-
sponsible for developing the component. Solutions to
a problem hindering a component may rearrange the
order of addressing design problems and the relation-
ships among components; hence the idea that critical
1542 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
components pose reverse salient problems (Hughes,
1989).
The distinction between generic and proprietary re-
search opens the possibility for a research consor-
tium where competing managerial teams collaborate
to solve generic, component part problems. Because
generic knowledge precedes proprietary applications,
firms can share this information without divulging
“trade” secrets. Obviously, if a firm uncovers answers
to these basic engineering problems and develops the
data for a “critical” component part solution before
others, it will have a competitive advantage in being
first to market. However, the costs of going it alone are
extremely high given the various solution paths and
the multiple kinds of research and disciplinary train-
ing required. Thus, firms have incentives to form con-
sortia to share risks and costs and exclude others from
their joint knowledge (Ouchi and Bolton, 1988).
An IR&D consortium reduces the associated costs
of basic research by enhancing information flows and
by distributing the risk among multiple participants.
In a research consortium, member firms: (1) divide al-
ternative routes for developing non-proprietary com-
ponent parts; and (2) share information on the results
of these vying solutions. This arrangement reduces
overall costs by allowing firms to share complemen-
tary technologies and know-how. Research regularly
puts firms on paths that take them outside their expert
domains. A consortium brings together firms whose
combined technical inventory can handle many prob-
lems as they arise. Consequently, cost sharing reduces
high IR&D overhead investments.
An IR&D consortium also reduces market risk.
Since technical problems have competing solutions,
redundancy must be built into research and develop-
ment projects. By dividing the multiple paths among
members, the consortium reduces its members’ risks:
each firm holds a diversified research portfolio (Corey,
1997; Stiglitz and Wallsten, 1999; Grindley et al.,
1994).
A consortium reduces another sort or risk: informa-
tion asymmetry (cf. Williamson, 1985; Casson, 1998).
An IR&D consortium fashions a dense and an exten-
sive information network, in which firms co-mingle
(Fransman, 1990). The formation of this intensive and
extensive selective learning network provides mem-
bers with anticipated and unanticipated information
to which non-members are denied access (Noteboom,
1999; Kaufman et al., 2000; Simonin, 1999; Dyer and
Singh, 1998; Powell and Koput, 1996).
Once a consortium solves the generic technical
problems, member firms proceed to integrate the
components into proprietary products until one de-
sign holds sway over the market, either through con-
sumer choice or through regulatory fiat. At this point,
the managerial literature tells us product innovation
moves into a third period. Firms begin to compete to
improve incrementally the product and the processes
required for its production and distribution (Utterback,
1994; Anderson and Tushman, 1990; Mowery, 1998).
2.2.2. The hindrances in forming an IR&D
consortium
The incentives for IR&D collaboration seem com-
pelling. However, IR&D managers know that market
hindrances typically offset collaboration’s benefits.
Free riding is the most pervasive problem (Olson,
1965). A consortium attempts to resolve this problem
by functioning as a “selective” organization, in which
only its members share in the collaborative payoffs
(Hardin, 1982). But the problem persists. Each mem-
ber firm hopes that others will delegate their best staff
and best resources to the project. When one firm con-
ducts research in its facilities or its team takes on a
project in a joint facility, the firm has an incentive to
less than fully disclose information. Personnel shar-
ing may mitigate this tendency, but effective research
teams take time to form, so that inter-firm collabora-
tion brings substantial costs. Consortium coordination
poses another set of costly problems relating to setting
the agenda and defining a generic research program.
Given the multiplicity of interests and the complexity
of the consortium’s connections to outside parties,
consortia tend to leak information. These difficulties
typically lead firms to favor competition over collabo-
ration, creating a less than socially “optimal” outcome.
2.2.3. An IR&D supply chain taxonomy
A consortium, then, functions as a supplier to the
industrial firms that design and develop the product. In
fact, innovation, whether of a competence-destroying
(radical) or a competence-enhancing (incremental)
sort, can work through a supply chain (Afuah and
Bahram, 1995). The firm that designs and develops
the product or system functions as the customer while
the firm or research laboratory that performs com-
 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
Fig. 1. Market structure of supply chain and innovation.
ponent part research and development functions as
the supplier. Customers may compete or cooperate
in managing their supply chain; and they may either
arrange their supply base either in a cooperative or
competitive manner. Fig. 1 illustrates the industrial
forms that this innovation supply chain can assume.
In those cells in which customers (or suppliers) coop-
erate, competence-enhancing innovation dominates.
In these situations, customers have market power
and can use it to sustain capabilities rather than to
“destroy” them.
In the cells to the right, customers have neither
monopoly nor monopsony power. Market compe-
tition functions, making for uncertain outcomes.
The possibility that a rival might undo the reigning
paradigm compels each to pursue both incremental
and radical research. In the upper right, which we
label “supplier-led innovation”, customers compete
with other firms in their own markets, while suppliers
either cooperate or enjoy monopoly positions. The
1543
lower right, “traditional”, is the cell in which com-
petition reigns along the supply chain. Those cells to
the left, where customers cooperate and exert market
power, typically requires cartel legislation or exemp-
tions from anti-trust laws. The US government has
not allowed for the cartel arrangement in the lower
left hand cell—except during the two world wars
and a brief experiment during the Great Depression.
However, during 1970s and 1980s, when Japanese
firms captured market share in numerous markets,
Congress relaxed antitrust laws when it passed the
Cooperative Research and Development Act of 1984.
This allowed firms to cooperate on industrial research
and development.
Perhaps the best-known IR&D example, Semat-
ech (see lower left cell: “cartel-induced innovation”),
arose from 1987 Congressional legislation (Corey,
1997). The DOD, fearing Japanese encroachments
into the US semiconductor industry, lobbied for this
bill on national security grounds. The Act authorized
1544 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
DOD subsidies and exempted the companies from
anti-trust constraints, claiming that they would be
engaged in non-competitive basic research and devel-
opment. However, the industry failed to cooperate in
establishing a basic research agenda. Instead, Semat-
ech became an association by which the industry’s
primary players, Intel, IBM, Motorola, etc. organized
its supplier base. By setting standards and improve-
ment milestones, Sematech has effectively promoted
incremental innovation (Corey, 1997; Mowery, 1998).
3. Application of the theory to military IR&D
3.1. The officer corps, budgets and radical IR&D
projects
The pitfalls for firms in forming IR&D consortia
points to a general problem: that profit-maximizing
firms tend to under-invest in R&D. To correct this
market imperfection, government frequently invests in
R&D and subsidizes private initiatives (Mowery et al.,
1999; Stiglitz and Wallsten, 1999; Cohen and Noll,
1991; Narin et al., 1997). However, national security
provides its own rationale for government-sponsored
IR&D.
As government representatives, the military does
not encounter the collective action problems found
in the marketplace. This potentially allows the mil-
itary to be a more effective agent for IR&D than
the market. However, advocates for a radical IR&D
weapon system consortium must overcome the in-
cumbent officers’ misgivings about investing in
competence-destroying technologies and create the
administrative means to coordinate the project.
3.1.1. The incumbent warrior officer corps’
resistance to radical change
Modern militaries have developed two kinds of
officers: the traditional warrior who plans and car-
ries out military campaigns and the technical offi-
cer who reviews industrial and scientific advances
that affect a military’s war-making capabilities (Van
Creveld, 1991). Within the US military, warriors have
dominated the officer corps. These officers’ careers
are generally tied to a particular weapon platform:
bombers, aircraft carriers, etc. (Hundley, 1999). This
officer corps welcomes opportunities for incremen-
tally improving its weapon platform’s performance,
for developing the next generation of the existing
technology, and for amassing budgets to carry out
these IR&D projects. However, incumbent officers
have little inherent interest in introducing weapon
systems that sabotage their commanding position,
and they have the power to delay or halt deployment.
This contrasts with private markets, in which radical
technologies improve consumer wealth and enrich
first-mover suppliers.
So why does an incumbent officer corps invest in
potentially radical IR&D? For two reasons: to increase
military budgets (Niskanen, 1971) and to develop tech-
nologies that enhance capabilities (Pierce, 2001). The
incumbent officer corps can garner additional funds
beyond those required to sustain and improve the given
force structure by embracing radical IR&D projects.
Investments in IR&D programs have long time hori-
zons and uncertain prospects. In fact, officers know
that most radical technologies fail. Because the incum-
bent officer corps closely monitors program managers,
they must seek out senior officer alliances and dis-
guise implications if radical technologies are to move
forward (Davis, 1967; Pierce, 2001).
The second IR&D investment reason, to enhance
current capabilities, affords radical change through
unanticipated outcomes. To understand this point, re-
call Henderson and Clark (1990), which Pierce (2001)
adapts to military organizations. Unlike Henderson
and Clark, Pierce considers a third variable: doctrine
(cf. Rosen, 1994). By this, he refers to unified con-
cepts by which the military organizes its war-making
capabilities. In a logical—structure follows strategy—
sense, doctrine precedes weapon systems and its vari-
ous components. However, history rarely conforms to
logic. Doctrinal changes typically occur when an of-
ficer group discovers how incremental technological
changes allow for a radically new way of making war
(Hayes and Smith, 1994). The blitzkrieg provides the
salient example, for it radically changed land warfare
by combining known technologies—radio commu-
nication and armored vehicles (Posen, 1984; Pierce,
2001). Here, radically different refers both to the
military’s novel integration of proven technologies
into a new weapon systems and to the new career pos-
sibilities that open to young officers when a doctrinal
shift occurs.
Fig. 2 presents Pierce’s (2001) modification of
Henderson and Clark. Notice that in Pierce’s matrix
 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
Fig. 2. Architectural innovation and military doctrine (Pierce, 2001).
two types of innovation—radical and architectural
innovation—challenge established interests. Where
radical innovation does this by replacing one weapon
system (and so, one officer corps) with another
(competence-destroying), architectural threatens the
existing order by working directly with the old tech-
nologies to undermine the military’s career patterns.
Thus, military officers may invest in IR&D to enhance
a given weapon system and only later find out that
these investments—contrary to expectations—caused
a military upheaval.
3.1.2. The technical officer corps’ complex interest
in radical IR&D
Technical officers’ career paths depend less on the
prevailing weapon system than combat officers. Al-
though military officers, they are also scientifically
trained professionals. These experts—whether as op-
erational technical officers or as staff officers—pursue
technical objectives and provide advice on possi-
bilities. Here, scientific and engineering knowledge
gauges actions, making for internal conflict between
1545
those who pursue technological advances and those
who make use of technology to reinforce set authority
patterns (Davis, 1967).
Governmental “inefficiencies” sustain military in-
vestments in radical IR&D. By “inefficiencies”, we
are not referring to mismanagement or programs that
lack effective cost controls and oversight. Rather, we
are speaking about the information asymmetries inher-
ent in large-scale government bureaucracies and the
“log rolling” tendencies of democratic governments.
Though reformers generally rally against these allege-
dly wasteful consequences of democratic government,
these practices play an important role in sustaining
military innovation. They ensure the overlapping
experimentation in which innovation thrives.
3.2. Project IR&D coordination and outsourcing
All of this may give technical/procurement officers
space for developing radical technologies. However,
such research requires effective organization. For the
military to be successful in this endeavor, it must co-
1546 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
ordinate the IR&D project. To proceed, procurement
officers must decide on whether to invest in additional
research capacity or to purchase these services from
university laboratories and private firms. In making
the decision on the “optimal” proportion of in- and
out-of-house research, military officers must consider
such variables as the costs of building and adminis-
tering in-house capacity against the costs of writing,
monitoring and enforcing contracts. This accounting
problem, however, becomes complicated when mili-
tary officers consider the consequences of their de-
cision on the military’s internal power relations and
on its abilities to build budgetary coalitions (Kaufman
et al., 1993).
3.2.1. The military’s propensity to outsource
In general, the officer corps’ composition and the
US political system provide incentives for outsourc-
ing. Since World War II (WWII), warriors have domi-
nated the officer corps. They assure that the military’s
core competency revolves around winning wars rather
than managing weapon programs. Typically, warrior
officers prefer outsourcing to building in-house re-
search capacity; an expansion of the latter may rework
the relative positions of warrior and technical officers.
Tradition, however, limits outsourcing. More impor-
tantly, if the military outsourced all its technical ca-
pabilities, it would become information-dependent on
outsiders, e.g. firms, research labs, consultants, etc.
Technical officers who oversee IR&D projects have
a second compelling reason to build links with civil-
ians. IR&D works best when it occurs among various
organizations and disciplines and when information
flows among these “partner” and affiliate organiza-
tions. Conceptually, the link between the applied
sciences’ desire to dominate nature and the military’s
desire to dominate adversaries strikes an intuitive
chord. Both have an interest in demonstrating their
prowess over nature. This fact—and not the lobbying
benefits associated with it—persuaded the post-WWII
military to enter into a cooperative relationship with
the scientific and engineering communities (Kelves,
1975).
The military must consider another non-accounting
issue when considering its make/buy decision: the
budgetary process. As Buchanan and Tullock (1962)
noted, democratic politics do not allocate resources to
correct market failures. Instead, representatives form
rotating majorities that redistribute tax dollars to lo-
cal constituencies through public programs, including
military IR&D (Riker, 1982; Schattschneider, 1960).
Since budgets are fundamentally political, military of-
ficers must consider how expenditures on in-house ca-
pacity and on subcontracting will affect the military’s
political influence.
This structure ensures that the budgetary process
will be anything but straightforward. The process’s
multiple entry points allow interests ample opportuni-
ties to revise and counter-revise budgets. To participate
effectively, interests must enter into coalitions. Though
these coalitions are hardly stable, the constitutional
structure does provide two general rules: align oneself
with (1) broad congressional-constituent interests;
and (2) powerful private sector interests. In short, the
political process biases the military toward outsourc-
ing. Once procurement officers secure a budget and
once they have built a constituency, they may perpet-
uate their programs by exercising political influence
(Cohen and Noll, 1991). These lobbying forces may
overcome incumbent officers’ self interest to weaken
threatening programs, or they may overcome well
founded technological or balance of power objections.
3.2.2. Managing the IR&D complex
Given its predisposition to outsource, the military
must develop procurement skills to minimize transac-
tion costs. First, long-term contracts offer one method
by which to reduce these costs. Procurement officers
require discretionary authority to grant these contracts
on a non-competitive basis. Research teams and re-
search problems exist in well-defined communities in
which peer review serves as a substitute for market
competition. Still, contractors may shirk, falsify data,
and act in other opportunistic ways. The military has
two effective means for overcoming this problem: (1)
the military can establish a monitoring system by as-
signing procurement officers (or their civilian equiva-
lents) to research facilities and by assembling expert
review committees; and (2) the military can punish
non-performers by refusing to award them future con-
tracts.
The military may turn either to private firms, univer-
sity research centers, or to non-profit research organi-
zations to conduct IR&D on a component part or in a
field that may contribute in finding technical solutions.
In general, the closer the project is toward prototyp-
 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
ing, the more likely the military will subcontract with
a production firm. For firms, IR&D contracts must
be sufficiently promising for production contracts or
closely enough related to ongoing weapon system
expertise to divert resources from profit generating
activities.
When research tends toward generic knowledge,
universities or private research institutes become likely
contractors. For universities, the research must be con-
sistent with the faculties’ perceptions of their knowl-
edge generating activities and must be conducive to
peer reviewed journal writing (Van der Meulen, 1998).
For those who publish first, research grant opportuni-
ties become plentiful, whether from public or private
research institutions. Successful researchers capitalize
on their reputation by converting research grants into
laboratories and by garnering prestigious outside ad-
visory positions, including military advisee roles.
In-house military officers find their rewards through
the normal promotion process, while civilian employ-
ees are civil servants who are subject to its established
procedures. Neither of these reward systems is attrac-
tive to research engineers. The first takes researchers
outside civilian networks in which researchers distin-
guish themselves. And, the second (civil service) puts
researchers in an organization that works like a union,
securing benefits by years of service rather than by
merit (Johnson and Libecap, 1994). If the military is
to enlist academics into this effort, it must devise con-
tracts that university officials will find beneficial and
compatible with the institution’s knowledge creation
and dissemination purpose. If such a contract cannot
be written, procurement officers must create novel or-
ganizations that can accommodate both the military’s
and the researcher’s needs. Typically, these organiza-
tions (such as Rand, MITRE, the Applied Physics Lab-
oratory, and the Jet Propulsion Laboratory) become a
military–civilian hybrid: military sponsored and civil-
ian controlled (Koppes, 1982; MacKenzie, 1993).
As component IR&D evolves into an ongoing
weapons program, the military must assemble a
coordinating committee to rationalize efforts. To
“command” a consortium, the military must have
in-house know-how: (1) to divide up the various com-
ponent problems and their possible solutions; (2) to
assign them to the most capable research team; (3)
to monitor progress and redress problems; and (4) to
ensure that (re)integration proceeds smoothly.
1547
Because the military tends to outsource and because
the coordination requires such a diverse set of skills,
the military will favor a civilian coordinating team.
The military cannot easily delegate the task to a pri-
vate firm or to a university research center. When a
firm takes on this role, other companies will look sus-
piciously at their rival’s decisions. University research
centers are unwilling to manage a project that produces
a weapon system prototype. The military cannot use
a component part center for this undertaking because
it does not have expertise in assessing the weapon
as an integrated system. The coordination agencies
may be ad hoc committees for the project’s duration
or sponsored organizations with system integration
skills.
3.3. The dynamics of military: creative destruction
All of these factors prepare a fertile environ-
ment for developing prototype radical technolo-
gies. However, incumbent officers usually resist
competence-destroying technologies when they enter
into the prototyping phase. Because the officers work
within well-defined bureaucratic regimes, they are
more likely to suppress threatening technologies than
private firms that operate in open markets. How, then,
do radical new weapon platforms make it into the
field when no clearly defined external threat exists?
Rivalry, within—but especially among—the services
is the most salient force for change.
3.3.1. Military IR&D under a joint command
To illustrate how these two factors operate, con-
sider a hypothetical situation in which no clear danger
exists (as was the case before 11th September 2001)
and the military operates through a “Joint” command.
Though this structure eliminates inter-service rivalry,
it cannot fully repress intra-military rivalry. Also as-
sume that the military has competent technical staff
and line units and that the incumbent officer corps
has secured budgets large enough to initiate IR&D
on several competence-destroying weapon systems.
However, the problems associated with the weapon
system’s development: (1) are so complex that they re-
quire diverse, specialized disciplines; and (2) in some
instances, demand fundamental research. These prob-
lems exceed the intra-military units’ in-house capabil-
ities.
1548 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
Although this hypothetical case assumes a joint
command structure and a pre-operational radical tech-
nology, competition still plays a role. Because IR&D
requires diverse disciplines and because it serves
different functional parts of the military, multiple tech-
nical units will evolve inside the joint command. Each
has constrained budgetary discretion. To pursue new
technologies, the units attempt to loosen budgetary
rules and to build budgetary accounts. In the battles
over budgets, each unit pursues a self-interested strat-
egy that makes for rotating coalitions, both in and
outside the military. To strengthen its political stand-
ing, each unit hones civilian networks, allowing for
alternative funding sources.
Markets can augment this process. Research scien-
tists and engineers can uncover market opportunities
to manufacture either component parts or subsystems
for a new weapon system. Usually, the opportunity
appears when incumbent firms find little market
prospect for the device’s growth potential, or they
lack the skills for designing and manufacturing it
(Nelson and Wright, 1992). Once researchers become
entrepreneurs, they have a paramount interest in pro-
moting the new component and the weapon system to
which it belongs (Howells, 1997), which may foster
intra-military rivalry both during the developmental
and deployment stages.
Established firms also have an interest in pursuing
novel technologies. These firms compete for IR&D
dollars both as a revenue source and as a way to stay
technologically current. These firms need to hold a
diverse technological portfolio, both to reduce risk
against radical change and to enhance in-house learn-
ing. Serendipitous discovery is the “raw material” out
of which profits, or to be precise, new wealth, is made.
Since defense firms serve an incumbent officer corps
with monopsony power, competence-destroying inno-
vation seems an unlikely option. However, profits can
be a subversive force. If an incumbent firm believes
that it can be the first-mover in manufacturing a radical
technology, it has a monetary, though risky, incentive
to promote the technology and build discord between
officers divided by generation or function.
3.3.2. Military IR&D under service commands
Here, let us assume that: (1) the military is divided
among services, though the line of command subordi-
nates these rival services to a single authority; (2) they
compete for missions and budgets; and (3) no clear en-
emy exists. This situation offers more opportunities for
radical change than a joint military command. How-
ever, these opportunities come with increased costs.
Each service has an incentive to pursue new tech-
nologies that diminish the others’ strategic importance
and its budgetary share. The services pursue these new
technologies through programs aimed at creating spe-
cific weapon systems. In effect, each looks at the other
as a “market” competitor. However, the services are
more likely than market players to have accurate in-
formation about the others’ strategic plans and its or-
ganizational capabilities. The budgetary process alone
forces information “disclosure” that can incite a lax
service to invest in radical R&D. Unless the services
collude, which is a possibility given the small numbers
and the stakes involved, each service must engage in
this inter-service competition or simply succumb.
Service rivalry has another effect. It promotes
redundancy (functional divisions and IR&D units)
greater than that found in a joint command. Thus,
service rivalry multiplies the avenues for IR&D fund-
ing, for start-up initiatives, and for firm technological
diversification. These redundancies make for a fertile
IR&D field.
As know-how about a technology grows and dis-
seminates, service coordination offers opportunities
for lowering costs and improving development cycle
time. An organizational network may also arise by
“design”. Take the case in which several services con-
tract with a research center to work on a set of related
topics. This research center acts as a hub where tech-
nical personnel from the services and private firms
gather to learn about recent developments. Rival ser-
vices may bring their contractor to learn about generic
advances on a component part. These contractors can
take this information and rework it into proprietary
designs for a component to be included in a specific
weapon system. Alternatively, the research center may
be a hub around which agencies that have existing in-
formation connections rotate. Here, the hub functions
more like a coordinator of efforts than as a new knowl-
edge creator and transfer mechanism among discrete
research entities.
Finally, if the new technology can benefit each
service, they may join together to form a research
consortium. This effort typically requires DOD inter-
vention, for inter-service rivalry produces collective
 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
action problems like those found in private mar-
kets. To take advantage of the promising technology,
the DOD must command the services to cooper-
ate. The coordination agency needs to identify the
salient problems and parcel out solution paths to
each service. Recall that the problems themselves
pertain to individual component parts or the assem-
bly of these parts into a system. Thus, the services
may search for answers by developing experimental
weapon systems. In these situations, the services will
duplicate weapon systems, e.g. air-to-air missiles,
surface-to surface missiles, surface-to-air missiles.
However, for efficiencies to be had, each service
must pursue unique solutions to component part de-
velopment and to systems integration; further, each
service must have access to the other’s progress.
Again, the DOD plays the role of coordinator and
judge.
Once a radical technology approaches operational
status, the services will race to be first in bringing the
“product to market” with the inherent advantages. Of
course, if the incumbent officer corps colludes, they
may halt the deployment of this radical technology.
This is much more likely to happen if the military
promotes Jointness than if it promotes rivalry.
3.3.3. A military IR&D supply chain matrix
The concepts that structure these two hypothetical
cases allow for a military IR&D supply chain ma-
trix comparable to the one developed for the com-
mercial sector, as shown in the lower portion of each
cell in Fig. 1. Again, the industrial systems on the
left tend to foster competence-enhancing innovation
and those to the right both competence-enhancing and
competence-destroying. Notice that the lower right
hand corner utilizes cooperation to form an industrial
research consortium and product development compe-
tition to bring weapon systems into the field. In the
case of the Service Arsenal/Shipyard System, it did
not have a central apparatus (DOD) to facilitate a mil-
itary consortium. In the US, this system operated until
WWII, when the Office of Scientific Development was
established to oversee research efforts. After the war,
Congress established the DOD that, by subordinating
the services and their arsenals/shipyards to a central
authority, set the foundations for the Cold War inno-
vative system (Vander Meulen, 1991; Cooling, 1979;
Smith, 1985).
1549
Jointness constrains both product design and de-
velopment competition. The Jointness cell captures
current DOD military IR&D doctrine. Here, the ser-
vices cooperate to enhance their buying power over
private defense contractors. Service arsenals/shipyards
and non-profit research and development organiza-
tions mediate the relationship between the joint ser-
vice program officers and the private contractors. The
officer corps’ concentrated buying power gives it in-
centives to, like a monopsonist, invest only in those
innovations that augment its current capabilities.
4. Implications and conclusions
Our theory on supply chain IR&D management
has implications for both commercial and military
managers. As discussed above, firms may not want
to develop or even adopt innovations if they are
competence-destroying to customers. If a supplier
pursues such a technology, the customer may switch
to another supplier. If the innovative supplier de-
pends heavily on this customer, then, the technol-
ogy may be slow in coming to market. Because the
supplier–customer relationship runs along a supply
chain, the threatened customer need not be the final
user.
Supply chain inflexibility is particularly unyielding
in the defense industry. In the military IR&D scenario
developed above, we found a paradox in which the
customers (incumbent officers) encouraged innova-
tion but prevented it from entering the marketplace.
When public policy restrains inter-service rivalry,
the officer corps may gain absolute market power
along the value-added chain and wholly prevent
competence-destroying innovations from diffusing.
Unlike the Christensen and Bower (1996) example
discussed earlier, there is no competitor to enter and
offer new technology.
If the officer corps succeeds in stopping innovation,
the innovating firm may not be hurt, as in the com-
mercial situation (cf. Afuah and Bahram, 1995). The
supplier need not worry about a new entrant convinc-
ing risk neutral firms from adopting the new technol-
ogy. The military monopsony simply has no interest
in change. Ironically, the military IR&D process has
the potential to disable entrants and destroy “creative
destruction” itself.
1550 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
4.1. Implications for theory
There are several theoretical implications of the sce-
narios developed above. In particular, if we examine
the market structure of both suppliers and customers,
it may help us understand both military and commer-
cial patterns of entry timing and technological evo-
lution. In this section, we first examine how market
structure might affect resource dependency; then how
technological changes that are radical to customers
might affect suppliers’ performance; and finally, how
technological changes that are competence-destroying
to customers might affect suppliers’ entry timing. We
include testable propositions that result from these as-
sertions.
4.1.1. Resource dependency
Our study suggests that market structure may cause
resource-dependent relationships. Thus, as market
structure varies, firm dependence varies. Resource
dependence theory has not explicitly examined the
relationship between market structure and firm depen-
dence. Christensen and Bower (1996), for example,
do not distinguish between resource dependence due
to market structure and resource dependence due
to over-reliance on a single customer in a competi-
tive market. Specifically, if one examines the lower
left corner of Fig. 1, market structure of suppliers
(competitive) versus customers (cooperative) ensures
that suppliers are dependent on customers. Likewise,
the upper left dictates that there is a mutual depen-
dence between suppliers and customers. In the upper
right, market structure dictates that customers will be
resource-dependent upon suppliers. But in the lower
right, suppliers may or may not be dependent upon
customers. If suppliers are dependent on customers in
this quadrant, it is because they have over-invested in
one customer when they had the option of maintaining
relations with more than one.
To use Afuah’s (2002) terminology, the customer
may be “dominant” because of market structure rea-
sons (monopsonist or cartel), or the customer may be
dominant for other reasons (e.g. the customer hap-
pens to be important despite its position in a compet-
itive market). In a sense, we have overlain on top of
our matrix another dimension: resource dependence;
however, as resource dependence is partially deter-
mined by market structure along the supply chain we
will focus exclusively on the most interesting cells:
the lower left versus lower right of Fig. 1 and the
lower right of Fig. 1 with high versus low resource
dependence.
4.1.2. Customer performance
Market structure interacts with customer firm per-
formance in an interesting way. If we assume an inno-
vation is competence-destroying to a customer firm,
the firm will most likely reject the technology. But the
ramifications of this rejection depend in a substantial
way on the competitiveness of the market in which the
customer competes. If there is absolutely no competi-
tion and no way that the technology could lead to an
entirely new value network, then the firm (customer)
will not be hurt by rejecting the technology. However,
as soon as we move away from this iron-clad pro-
tectionist world, it is clear that the firm may be sub-
stantially damaged or in need of major restructuring.
This is due to the fact that if the customer’s market is
competitive, the technology will spread in any case to
competing incumbent firms that have different capa-
bilities, or to new entrants. If the firm does not adopt
the technology, it may be severely impaired. If the firm
does adopt the new technology, it may find itself in
need of substantial restructuring. In this case, its own
suppliers will likely be harmed (Afuah and Bahram,
1995).
4.1.3. Supplier performance
This leads to the next question. How do these sorts
of contingent resource dependencies influence sup-
plier performance when the innovation destroys cus-
tomer capabilities? We claim that resource dependency
that is not due to market structure (lower right corner
of Fig. 1) would hurt suppliers. The logic is as fol-
lows: if the innovation is competence-destroying, we
can assume customers will tend to resist the change.
However, as the customer is in a competitive market,
either another incumbent with different capabilities or
an entrant will accept the technology and the customer
itself will be negatively affected, either severely weak-
ened, destroyed, or restructured, thus directly hurting
the resource-dependent supplier. Afuah and Bahram
(1995) make this argument by implicitly assuming a
competitive customer market.
However, if we look at the lower left quadrant,
we see the potential for the supplier, even though
 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
resource-dependent upon the customer, to be unaf-
fected by the change. In this situation, the customer
rejects the technology as above. However, as the
customer itself is not in a competitive market, there
is little chance of the technology diffusing and the
customer being substantially hurt.4 This leads to our
first proposition.
Proposition 1a. Suppliers in a competitive market
that are resource-dependent upon customers that oper-
ate in a competitive market will be negatively affected
by innovations that destroy customer capabilities.
Proposition 1b. Suppliers in a competitive mar-
ket that are resource-dependent upon tightly con-
trolled cartelized or monopsonistic customers will
not be affected by innovations that destroy customer
capabilities.
4.1.4. Supplier entry timing
In the previous section, we examined the incen-
tives for a supplier to adopt a competence-destroying
innovation. Here, we examine how market structure
affects the speed of these innovations. Suppliers to
market-dominant customers (cartel or monopsony, see
lower left corner of Fig. 1) know that the customer
will not be harmed due to market competition. Con-
sequently, these suppliers, whether in competitive or
non-competitive markets, will develop new technol-
ogy as quickly as or quicker than suppliers providing
goods to dominant customers in competitive markets.
If the dominant customer accepts the technology, the
supplier can adopt the technology in a wholesale man-
ner, thus making a major commitment to it. In other
words, the downside risk is limited.
Contrast this situation to one in which the supplier
is dominated by a customer in a competitive market
(Fig. 1, lower right). In this case, development of rad-
ical technology has a negative downside risk that the
innovation may undo the supplier. Thus, the supplier
will be slower in both development and adoption of the
new technology than a supplier that serves a customer
4 Regarding the top row of the matrix in Fig. 1, in the upper
right corner suppliers are not dependent on customers. In the upper
left corner, where there is mutual dependence, it seems plausible
that the innovation may not hurt the supplier based on the same
logic as above.
1551
operating in a non-competitive market. These argu-
ments are consistent with Afuah’s (2002) findings on
the development of supercomputer technology, even
though Afuah does not frame the argument explicitly
in terms of development versus adoption and again im-
plicitly assumes a competitive customer base. These
arguments are also consistent with King and Tucci’s
(2002) findings that incumbent suppliers of disk
drives were quick to adopt new technology. Our
matrix suggests that most disk drive suppliers in
the King and Tucci study had little resource depen-
dency on customers (who were themselves in an
intensely competitive market). Thus, resource depen-
dency in and of itself does not necessarily predict
a firm’s innovative speed. However, once market
structure is known, then resource dependence does
act as powerful predictor. In combination with mar-
ket structure of both markets, it might be a better
predictor.
Proposition 2a. Suppliers that: (i) operate in a com-
petitive market; and (ii) are resource-dependent upon
customers operating in competitive markets will be
slower to develop customer competence-destroying in-
novations than suppliers that: (i) operate in compet-
itive markets; and (ii) are not resource-dependent on
a customer operating in competitive markets.
Proposition 2b. Suppliers that: (i) operate in a
competitive market; and (ii) are resource-dependent
upon tightly-controlled cartelized or monopsonis-
tic customers will be faster to develop customer
competence-destroying innovations than suppliers
that: (i) operate in a competitive market; and (ii)
are resource-dependent on customers operating in
competitive markets.
4.2. Implications for military policy
When considering whether to promote inter-service
rivalry or Jointness, policy makers typically have ex-
amined the tradeoff between duplication costs and
flexibility. In making these calculations, policy mak-
ers have relied on economies of scale, noting that
these follow business practices. However, policy mak-
ers have rarely asked whether Jointness promotes
or squelches competence-destroying innovation. In
1552 A. Kaufman et al. / Research Policy 32 (2003) 1537–1554
attempting to answer this question, we too have made
use of a market analogy, namely, creative destruction.
Our theory of supply chain market structure has
categorized Jointness as a collusive activity dam-
aging to radical innovation. Jointness will certainly
bring about innovation, but it will be of an incremen-
tal sort, reinforcing established military hierarchies.
In our estimation, policy makers need to add this
probable consequence when comparing Jointness and
inter-service rivalry. The cost savings inherent in
Jointness may unwittingly sustain a military force un-
ready for fighting the next war. This persistent status
quo does not surprise military organization theorists
who contend that radical military innovation comes
infrequently and with great difficulty (Hundley, 1999).
As in other bureaucratic regimes, these theorists iden-
tify elite decision-makers—in the military case, the
incumbent officer corps—as the principal obstruc-
tion. They propose four factors that may undo this
resistance: (1) a clear foreign threat that places the ex-
isting military regime’s capabilities into question; (2)
intra-service rivalry in which a dormant officer corps
aligns its future with a new weapon system that chal-
lenges the established order; (3) civilian intervention
that overcomes incumbent officer corps interests; and
(4) inter-service rivalry over budgets during which
the services use new weapon systems to encroach on
rival services’ missions and budgetary appropriations
(Posen, 1984; Rosen, 1994).
The first threat (a clear and present danger) has be-
come apparent since 11th September 2001, and it has
added to civilian calls for radical military innovation
(Rumsfeld, 2002; Cohen, 2002). As civilians act to
overcome incumbent military interests, policy makers
must reevaluate whether the costs savings that Joint-
ness promises is worth the costs that it imposes on
those who wish to foster radical change.
Acknowledgements
The authors thank Harvey Sapolsky and Engene
Gholz for many insights into military IR&D and thank
the anonymous Research Policy referees for their help-
ful suggestions. The authors acknowledge the support
of the MIT Security Studies Program and the Berkley
Center for Entrepreneurial Studies at the NYU Stern
School of Business.
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