Georgia Tech researchers recently won the 2008 Sloan Industry Studies Best Paper Award for their holistic examination of strategies employed by pharmaceutical firms for innovating in the realm of biotechnology.

Titled “Building Dynamic Capabilities: Innovation Driven by Individual-, Firm-, and Network-Level Effects,” the study was co-authored by Frank Rothaermel, associate professor of strategic management at Georgia Tech; and Drew Hess, who recently completed his doctorate in strategic management at Georgia Tech and accepted a faculty position at the University of Virginia.

They published their paper in the journal Organization Science in 2007. The Best Paper Prize they won is awarded annually to articles in leading academic journals that demonstrate excellence in industry studies research.

The industry studies community is multidisciplinary, composed of researchers who gain an in-depth understanding of industries through a wide range of quantitative and qualitative research methods (including direct observation and primary data collection). They usually conduct their research across multiple firms within a particular industry.

For the Best Paper Prize, Rothaermel and Hess were up against researchers from a variety of other fields, including economics, sociology, psychology, political science, and engineering. Rothaermel and Hess reportedly impressed their peers with their comprehensive research approach, involving close field contact with industry people and multiple-level analysis of tremendous amounts of data from a 22-year period. One of the evaluators wrote that the “study is possibly the most comprehensive” of its kind.

The authors say their most surprising finding concerned the role that very high-performing scientists (termed “star scientists”) have on innovation within a pharmaceutical firm. Several previous studies have emphasized the importance of star scientists, but Rothaermel and Hess found that average performers (the rank-and-file or “nonstar scientists”) were primarily responsible for drug development. The stars are more important as visionaries, guiding the firm in promising new research directions.

“This research demonstrates that individuals matter, but it’s important to understand that not all human capital is created equal,” says Rothaermel, who considers the study’s findings relevant to innovation in other industries. “Once firms understand that, they can organize their structure accordingly to enhance their innovative performance.”

In addition to the individual-level contributions of scientists, the researchers also studied other strategies employed by pharmaceutical firms to build innovative capability, including the acquisition of biotechnology firms and the formation of alliances with other firms or universities.

Many firms employ multiple strategies to innovation at once, but that grab-bag approach may actually lead to decreases in innovative output, found Rothaermel and Hess. “In other words, when investigating the number of innovation mechanisms a firm should employ, more is not always better,” they write. “Instead, the managers who take a discerning and discriminating approach towards selecting innovation mechanisms will be most successful in building the dynamic capabilities necessary to continuously innovate.”

Their Best Paper Prize was presented May 1 at the Alfred P. Sloan Foundation’s 2008 Industries Studies Conference in Boston.

Since 1990, the Alfred P. Sloan Foundation’s Industry Studies program has operated on the belief that industries are sufficiently different from one another that they individually merit rigorous academic study. Rothaermel won a two-year Sloan Industry Studies Fellowship in 2006. He holds the College of Management’s Angel and Stephen M. Deedy Professorship.