Upstream Petroleum Industry Reveals 'Modified' Schumpeter Mark II

While the notion of technological regimes has proved powerful in explaining inter-sectoral differences in industry innovation, until now the relationship between these regimes and patterns of innovation at different stages of development has remained largely unexplored.

Now, an Innogen working paper, The Effect Of The Dynamics Of Knowledge Base Complexity On Schumpeterian Patterns Of Innovation, has set out to correct this by exploring changes in patterns of innovation in the upstream petroleum industry.

The authors, Ali Maleki, Alessandro Rosiello and David Wield, argue that the shifts that took place from the 1970s – when the oil crises began – to 2005 can be explained by the dynamics of knowledge base complexity. When complexity dominates, the relative position of big and incumbent companies compared to new firms are reinforced and the barriers to entry increase.

However, the authors' investigation of the shift from Schumpeter Mark I (in which small competitive innovators predominate) towards Mark II (in which large companies predominate) revealed that sizeable innovators were not always incumbents. Rather, a number of service companies had emerged and succeeded because they were acting as knowledge integrators, helping incumbents to cope with excessive complexity.

As knowledge base complexity has increased, patterns have shifted from a broadly Schumpeter Mark I to a 'modified' form of Schumpeter Mark II, one in which large integrated service companies are now the dominant innovators. In relative terms, meanwhile, oil operators have become weaker and new operators (such as Petrobus and other state oil giants of emerging countries) have made little headway.

Read The Effect Of The Dynamics Of Knowledge Base Complexity On Schumpeterian Patterns Of Innovation: The Upstream Petroleum Industry.