In this study, we extend the new product development (NPD) literature that proposes that firms' knowledge depth, defined as the reuse of well understood technical knowledge, and scope, defined as the use of newly acquired technical knowledge, and new knowledge accessed fromR&Dalliances all positively impactNPD. Building on the knowledge‐based view of the firm, we posit that the impact of firms'R&Dalliances is limited when their internal knowledge depth and scope are adequate forNPDneeds. We suggest that although firms formR&Dalliances to gain the right to access external knowledge ofR&Dalliance partners, they are not obligated to invest in resources to integrate external knowledge fromR&Dalliances. We propose that they wait to see if their internal knowledge depth and scope prove sufficient forNPD. If the external knowledge proves to be unnecessary, firms choose not to invest the resources required to integrate this knowledge with their internal knowledge. Alternatively, we suggest an increased impact ofR&Dalliances onNPDwhen firms are more limited in their internal knowledge depth and scope. We propose that when knowledge depth and scope prove insufficient, firms make the additional investments required to integrate external knowledge fromR&Dalliances with their internal knowledge stock. This reasoning is consistent with real options theory as it has been applied in alliance research, where strategic alliances are characterized as real options. We find support for our hypotheses using panel data of 738 firm year observations for 143U.S. biopharmaceutical firms operating in 2007. Our study contributes to theNPDliterature and suggests new directions for future research.
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