Evolving through innovation and knowledge reutilization: The case of L'Oréal

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Innovation, Alliances, and Networks
in High-Tech Environments
Recent decades have been characterized by an increasing number of strategic
alliances, mergers and acquisitions and more general collaborative networks. This
phenomenon has primarily involved knowledge-intensive and high-tech indus-
tries where innovation is a key competitive weapon. This book focuses on the
role of these partnerships and provides new insights into how they contribute to
increasing innovation performance.
Despite their growing popularity, there are few contributions that examine
these collaborative strategies. Existing studies tend to investigate the impact of
alliances on financial performance, providing insight into the development and
deployment of alliances, or exploring the governance of strategic alliances and
mergers and acquisitions. This book fills this gap in existing literature by exam-
ining specific contributions of the absorptive capacity of firms, knowledge net-
works and spillovers.
This book will be of interest to graduate students and researchers interested
in Industrial Economics, Strategic Management and Management of Technology
and Innovation.
Fiorenza Belussi is full professor of strategy and innovation management at the
department of economics and management, University of Padua, Italy.
Luigi Orsi is a post doctoral fellow at the department of economics and manage-
ment, University of Padua, Italy.
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Routledge Studies in Global Competition
Edited by John Cantwell,
Rutgers, The State University of New Jersey, USA
and
David Mowery
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For a complete list of titles in this series, please visit www.routledge.com
40 Governance and Innovation
By Maria Brouwer
41 Public Policy for Regional
Development
Edited by Jorge Martinez-Vazquez
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42 Evolutionary Economic
Geography
Location of production and the
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By Miroslav Jovanovic
43 Broadband Economics
Lessons from Japan
By Takanori Ida
44 Targeting Regional Economic
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Edited by Stephan J. Goetz,
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45 Innovation, Knowledge and
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46 Creativity, Innovation and the
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47 Co-opetition Strategy
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53 Innovation and Economic Crisis
By Daniele Archibugi and Andrea
Filippetti
54 The Communications Industries
in the Era of Convergence
By Catherine Mulligan
55 Innovation, Technology and
Knowledge
Edited by Charlie Karlsson, Borje
Johansson and Roger R. Stough
56 Evolution of Competition Laws
and their Enforcement
By Pradeep S. Mehta
57 The Economics of Structural
Change in Knowledge
By Francesco Quatraro
58 Economic Geography and
the Unequal Development of
Regions
By Jean-Claude Prager and
Jacques-François Thisse
59 Social Networks, Innovation
and the Knowledge Economy
Edited by Isabel Salavisa and
Margarida Fontes
60 The Economics of Creativity
Ideas, firms and markets
Edited by Thierry
Burger-Helmchen
61 Epistemic Economics and
Organization
Forms of rationality and
governance for a discovery
oriented economy
By Anna Grandori
62 Universities, Cities and Regions
Loci for knowledge and
innovation creation
Edited by Roberta Capello,
Agnieszka Olechnicka and
Grzegorz Gorzelak
63 Strategies for Shaping
Territorial Competitiveness
Edited by Jesús M. Valdaliso and
James R. Wilson
64 The Economics of Knowledge,
Innovation and Systemic
Technology Policy
Edited by Francesco Crespi and
Francesco Quatraro
65 University Technology Transfer
The globalization of academic
innovation
Edited by Shiri Breznitz and
Henry Etzkowitz
66 Innovation, Alliances, and
Networks in High-Tech
Environments
Edited by Fiorenza Belussi and
Luigi Orsi
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Innovation, Alliances, and
Networks in High-Tech
Environments
Edited by
Fiorenza Belussi and Luigi Orsi
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First published 2016
by Routledge
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and by Routledge
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Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2016 selection and editorial material, Fiorenza Belussi and Luigi Orsi;
individual chapters, the contributors
The right of the editors to be identified as the authors of the editorial
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All rights reserved. No part of this book may be reprinted or reproduced or
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Trademark notice: Product or corporate names may be trademarks or
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without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloguing in Publication Data
Innovation, alliances, and networks in high-tech environments / edited by
Fiorenza Belussi and Luigi Orsi.
pages cm
Includes bibliographical references and index.
1. High technology industries—Management. 2. Technological innovations.
3. Strategic alliances (Business) 4. Business networks. I. Belussi, Fiorenza,
editor. II. Orsi, Luigi, editor.
HD62.37.I535 2015
658—dc23
2015015079
ISBN: 978-1-138-84660-9 (hbk)
ISBN: 978-1-315-72735-6 (ebk)
Typeset in Times New Roman
by Swales & Willis Ltd, Exeter, Devon, UK
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Contents
List of figures x
List of tables xiii
List of contributors xvi
Introduction 1
PART I
Alliances and networks 11
1 The emergence of the red biotech niche and its evanescent
dissolution into the integrated parallel ‘knowledge system’
of a new biopharmaceutical filière: an evolutionary
perspective 13
FIORENZA BELUSSI AND LUIGI ORSI
2 Innovation in US metropolitan areas: the role of
global connectivity 51
KRISTIN BRANDL, MARCELO CANO KOLLMANN, HONGRYOL CHA,
IZZET DARENDELI, T. J. HANNIGAN, AHREUM LEE, SEOJIN KIM,
VITTORIA GIADA SCALERA, ALESSANDRA PERRI, ROBERT D.
HAMILTON III AND RAM MUDAMBI
3 Competition and cooperation in entrepreneurial ecosystems:
a lifecycle analysis of a Canadian ICT ecosystem 65
ANNA MINÀ, GIOVANNI BATTISTA DAGNINO
AND SOUMAYA BEN LETAIFA
PART II
Alliances and innovation 83
4 Partnering strategies in biotech firms: a longitudinal perspective 85
DANIELA BAGLIERI, FIORENZA BELUSSI AND LUIGI ORSI
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viii Contents
5 Management of the collaboration network of Italian
biotech rms: do rms experience a diminishing
return from alliances? 123
LUIGI ORSI AND FIORENZA BELUSSI
6 Which alliance partners become attractive targets for
acquisitions in biotech? Prior experience versus
relational capabilities 139
DANIELA BAGLIERI, FIORENZA BELUSSI AND LUIGI ORSI
7 Do acquisitions increase acquirers’ innovative performance
in the biopharma industry? An empirical investigation 168
MARIA FRANCESCA SAVARESE, FIORENZA BELUSSI, KRISTINA
RAKIC AND LUIGI ORSI
8 Post-M&A absorption-related invention capacity in the
biopharmaceutical industry 185
LUIGI ORSI, ANDREA GANZAROLI AND IVAN DE NONI
9 Are M&As driving exploitation or exploration? 211
FIORENZA BELUSSI, IVAN DE NONI, ANDREA GANZAROLI AND LUIGI ORSI
PART III
Alliances in high-tech environments 243
10 Pasteur scientists meet the market: an empirical
illustration of the innovative performance of
university–industry relationships 245
SILVIA RITA SEDITA, YASUNORI BABA AND NAOHIRO SHICHIJO
11 The relational models of the software industry in Italy
and Spain relative to Germany 264
FRANCESCA GAMBAROTTO, STEFANO SOLARI AND LUIGI ORSI
12 How alliances in biotech are shaping the national systems
of innovation in three European countries 285
MARIA FRANCESCA SAVARESE, STEFANIA MICHELAZZO,
FIORENZA BELUSSI AND KRISTINA RAKIC
PART IV
Case studies 299
13 Evolving through innovation and knowledge reutilization:
the case of L’Oréal 301
FIORENZA BELUSSI, SILVIA RITA SEDITA, ANDREA GANZAROLI AND LUIGI ORSI
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Contents ix
14 The implementation of a new game strategy in biotech
form: from start-up to acquisition: the case of Fidia
Advanced Biopolymers (now Anika Therapeutics)
of Abano Terme 337
FIORENZA BELUSSI
Index 353
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Figures
1.1 The emergence of the biotech niche (1975–2006) 20
1.2 Total alliances of biotech companies (only finance, R&D
and licensing) by year and cumulative number of
companies (1988–2012) 29
1.3 Alliances of US biotech companies (only finance, R&D
and licensing) by year (1988–2012) 29
1.4 Alliances of EU biotech companies (only finance, R&D
and licensing) by year (1988–2012) 30
1.5 Distribution of agreements by number of cumulative
agreements in the top 100 organizations (1970–2006) 31
1.6 M&As in the biopharmaceutical industry per year in
the world (1945–2012) 35
1.7 Distribution of the top 100 organizations by number of alliances
and M&A processes (1970–2006) 36
2.1 Number of inventors in the top 15 CBSAs (sorted by
application date, 1975–2006) 55
2.2 Percentage of US-based inventors in the top 15 CBSAs
(1975–2006) 56
2.3 Growth in number of inventors in the top 35 CBSAs
(CAGR, 1975–2005) 56
2.4 Percentage of internationally connected patents: comparison
between US- and Philadelphia-based patents (1975–2007) 57
2.5 Geographical dispersion of inventors: comparison between
US-, Philadelphia- and non-US-based patents (1975–2007) 58
2.6 Top ten locations of Philadelphia-based inventors
(1975–2007) 58
2.7 Philadelphia CBSA patents as a percentage of US patents
(1975–2010) 59
2.8 Primary technology category of Philadelphia-based patents
(1978–2008) 60
3.1 The business ecosystem 68
4.1 DBF partnering strategies over time in the various categories 102
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Figures xi
4.2 Evolution of agreements over time in the various categories in
the various years 103
4.3 Evolution of agreements over time distinguishing national
and international types 103
4.4 Evolution of agreements over time distinguishing national
and international types as a percentage in the various years 104
4.5 Type of partnership after the first agreement – second
agreement is reported in the rows – all types of agreements
(1–9) are included 104
4.6 Type of partnership after the first agreement – only agreement
types 1–4 (research) 105
4.7 Type of partnership after the first agreement – only agreement
type 5 (licences) 105
4.8 Type of partnership after the first agreement – only agreement
types 6–9 (marketing and distribution) 105
5.1 Effects of alliance types on the relationship between strategic
alliances and new product development 131
5.2 The firm’s network 136
10.1 The Stokes’ classification of scientists 247
10.2 The evolution of TOTO products 250
10.3 TOTO performance results 251
10.4 Distribution of search results by publication country 255
10.5 TiO2 TOTO patent publications 1993–2013: top inventors 256
10.6 TiO2 TOTO patent publications in the period 1993–2013 256
10.7 Distribution by percentage of the TOTO patents
according to the IPC adopted by the World Intellectual
Property Office 259
11.1 Financial relationships 273
11.2 Industrial relationships 274
11.3 Relationships with clients 276
11.4 Relationships with suppliers 280
11.5 Relationships with competitors 282
12.1 The French Genopoles 287
12.2 The financing of the biotech firms 289
12.3 The sources of financing for red Italian biotech 293
12.4 Genesis of Italian pure red biotech 294
13.1 The spaces for exaptations 308
13.2 The evolutive dynamics of an innovation cascade 309
13.3 L’Oréal’s registered patents related to shampoo reported in
the Orbit-QPat database 312
13.4 Innovative activity of L’Oréal in shampoo 315
13.5 The total number of patents published in the last 100 years 319
13.6 The distribution by kind of IPC codes in L’Oréal’s
patent portfolio 320
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xii Figures
14.1 The patents’ distribution by year of priority 345
14.2 Inventors 346
14.3 The share value of Anika 347
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Tables
1.1 Accumulated number of pharma and biotech firms in the
period 1900–2006 in the world and total employment
registered 22
1.2 A typology of pharma and biotech firms, and the accumulated
number of pharma and biotech products in the period
1900–2006 in the world 25
3.1 Types of interfirm relationships 72
3.2 Canadian ICT ecosystem’s respondents’ profiles 73
3.3 Evolutionary phases of the Canadian ICT ecosystem:
competitive and cooperative challenges 77
4.1 Descriptive statistics and Pearson’s correlation coefficients
(US biotech firms) 92
4.2 Determinants of patents’ estimates for a Poisson regression
model (US firms) 94
4.3 Determinants of patents’ estimates for a Poisson regression
model in small firms with fewer than 50 employees
(US firms) 96
4.4 Descriptive statistics and Pearson’s correlation coefficients
(EU biotech firms) 98
4.5 Determinants of patents’ estimates for a Poisson regression
model (EU firms) 108
4A.1 Determinants of pipeline products estimates for a Poisson
regression model (US firms) 114
4A.2 Determinants of pipeline products estimates for a
Poisson regression model (EU firms) 116
5.1 Descriptives 127
5.2 Pearson’s correlation matrix 128
5.3 Determinants of new product development estimates for a
Poisson regression model (models 1–6) 132
5.4 Determinants of new product development estimates for a
Poisson regression model (models 7–11) 134
6.1 Descriptive statistics 149
6.2 Correlation matrix 150
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xiv Tables
6.3 Results of the logit regression model 156
7.1 Descriptive statistics on all firms in the sample 176
7.2 Descriptive statistics divided into US firms and EU firms 177
7.3 Descriptive statistics divided into big biotech firms,
big pharmaceutical firms, biotech firms and pharma firms 178
8.1 Hypotheses 191
8.2 Descriptive statistics 198
8.3 Pearson’s correlation matrix 199
8.4 The effect of technological similarity and complementarity,
alliance and M&A management capabilities on
absorption-related invention 200
9.1 Descriptive statistics and correlation matrix
(152 observations) 226
9.2 Results of GLM negative binomial regression predicting
determinants of the number of firm patents in exploitative
patent classes 228
9.3 Results of GLM negative binomial regression predicting
determinants of the number of firm patents in explorative
patent classes 230
10.1 TOTO mission, vision and values 251
10.2 The origin of the history of collaborations between the
University of Tokyo and TOTO 254
10.3 Top 10 IPC subclasses 260
11.1 Descriptive statistics 267
11.2 Governance structure and product typology 270
11.3 Anova test on financial relationships 272
11.4 Anova test on industrial relationships 273
11.5 Anova test on relationships with clients 275
11.6 Anova test on relationships with suppliers 278
11.7 Anova test on relationships with competitors 281
12.1 Models of innovation in the life sciences industry 286
12.2 The French biotech 288
12.3 The first French biotech firms (public companies) 289
12.4 The Medicon Valley regional system 291
12.5 The Italian biotech 292
12.6 The characteristics of innovative output 295
13.1 Description of spaces for exaptations 308
13.2 L’Oréal patents in shampoo 313
13.3 Top 20 IPC codes 321
13.4 Top 10 3-digit IPC subclasses with respect to cited
patents by L’Oréal 322
13.5 Top 10 3-digit IPC subclasses with respect to citing
patents of L’Oréal’s patent portfolio 323
13.6 Descriptive statistics of exaptation potential score 323
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Tables xv
13.7 Anova test results 325
13.8 L’Oréal acquisitions and joint ventures 327
13.9 Descriptions of patent codes of the 13 Innēov patents and
the nutraceutical patents of L’Oréal (7) and L’Oréal
and Nestlé (6) 329
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Contributors
Ahreum Lee, Temple University, USA.
Alessandra Perri, University of Venice, Italy.
Andrea Ganzaroli, University of Milan, Italy.
Anna Minà, Sapienza University of Rome, Italy.
Daniela Baglieri, University of Messina, Italy.
Fiorenza Belussi, University of Padua, Italy.
Francesca Gambarotto, University of Padua, Italy.
Giovanni Battista Dagnino, University of Catania, Italy.
Hongryol Cha, Temple University, USA.
Ivan De Noni, University of Milan, Italy.
Izzet Darendeli, Temple University, USA.
Kristin Brandl, Copenhagen Business School, Denmark.
Kristina Rakic, University of Padua, Italy.
Luigi Orsi, University of Padua, Italy.
Marcelo Cano Kollmann, Temple University, USA.
Maria Francesca Savarese, University of Padua, Italy.
Naohiro Shichijo, Waseda University, Japan.
Ram Mudambi, Temple University, USA.
Robert D. Hamilton III, Temple University, USA.
Seojin Kim, Temple University, USA.
Silvia Rita Sedita, University of Padua, Italy.
Soumaya Ben Letaifa, University of Quebec at Montreal, Canada.
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Contributors xvii
Stefania Michelazzo, University of Padua, Italy.
Stefano Solari, University of Padua, Italy.
T. J. Hannigan, Temple University, USA.
Vittoria Giada Scalera, Politecnico di Milano, Italy.
Yasunori Baba, University of Tokyo, Japan.
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13 Evolving through innovation and
knowledge reutilization
The case of L’Oréal
Fiorenza Belussi, Silvia Rita Sedita, Andrea
Ganzaroli and Luigi Orsi
Introduction
Conventional theories on innovation have tried to explain the technological tra-
jectory of firms, stressing the discontinuities existing in the firm innovation pro-
cess (Tushmann and Anderson, 1986; D’Aveni, 1994). As highlighted over the
years by the Schumpeterian tradition, radical innovations emerge erratically by
chance when dynamic entrepreneurs, exploring new market opportunities, intro-
duce ‘new combinations’ moving the entire economic system far from equilib-
rium (Schumpeter, 1934, 1947). This process, described in an imaginative mode
by Schumpeter himself, has been termed ‘creative destruction’, where new tech-
nologies and new methods of production displace the old modus operandi in the
economy. Schumpeter never discussed in his writings the interplay between dis-
continuities and continuities in firms’ innovation activity, despite it being obvious
that a great deal of technological change and product improvements consist of
marginal and incremental innovations (Arrow, 1962; Malerba, 1992; Freeman,
1994). It was the innovation literature of the 1980s and 1990s, focused prevalently
on basic radical inventions and innovations, which provided a standard definition
of invention and innovation (Clark et al., 1984, who elaborated on Jewkes et al.,
1958). The innovation literature was integrated with the Usher (1955) theory of
inventions, which distinguishes ‘acts of insights’ and ‘acts of skills’, separating
the inventive activity into four stages: the perception of a problem, the setting of
the analysis, the primary act of insight and the critical revision. At the time, inno-
vation literature disregarded the impact of all novelties arising from what Usher
(1955) was defining as ‘acts of skills’, being the consequence of the skilled activi-
ties of engineers and technicians undertaken within the environment of estab-
lished processes. But Usher himself would have agreed. He argued clearly that the
results of those acts do not constitute any invention. As Johnson (1975) clarifies:
[t]o some extent the distinction between the two finds its legal embodi-
ment in patent laws, where obviousness is a ground of exclusion from
patentability. Acts of skills will be normally obvious in the sense that
they will usually be apparent to those who are skilled in the art’ (John-
son, 1975: 30).
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302 Fiorenza Belussi et al.
Academia, at that time, focused mainly on the analysis of breakthrough innova-
tions. Even Schmookler (1966), who is acknowledged for his contributions to
the role of demand growth in pulling inventions into the economic system, for
instance, when referring to the Usher theory, called these ‘acts of skills’ minor
changes introduced by technicians; in other words, mainly, as ‘sub inventions’.
After the end of the 1970s the economic importance of marginal technical
improvements for sustaining innovation in firms became largely acknowledged
(Rosenberg, 1976, 1982; Dosi, 1982; Freeman, 1982, 1984; Basalla, 1988).
But what drives innovation? Schumpeter clearly answered the question. It is the
introduction of a new combination of production means (not necessarily new ideas
deriving from new scientific knowledge). The subsequent Schumpeterian traditions
focused, in contrast, on the new knowledge brought about by science and by the
application of new technical knowledge to productive activities. But old and new
pieces of knowledge can be recombined to trigger inventions and innovations. This
aspect is of paramount importance, because it shows an underestimated aspect of
the innovation activities within the most recent innovation literature and the role
of multiple sources in feeding the innovation activity of firms, which has been dis-
cussed for instance in the dismantling of the linear model and in the popular alter-
native innovation models such as the chain-linked model (Kline and Rosenberg,
1986). We completely agree with the statement of Mokyr (2000): ‘Much if not
most creativity comes from the manipulation of what is already known, rather than
an addition of totally new knowledge’ (Mokyr, 2000: 18). Often innovations are
only fed by a continuous recombination of flows of pre-existing knowledge, com-
ing from different sectors or firms through cumulative learning processes as Pavitt
(1984, 1999) authoritatively showed. Another critical aspect is how old and new
knowledge is integrated by firms and applied to new domains.
While Dosi (1982) has described the continuous development of technology
(with incremental and radical innovations strengthened together) as a path towards a
specific technological trajectory that during the time incorporates important stylized
fact, Levinthal (1998) and Adner and Levinthal (2000, 2002) argued that the crucial
event is not the transformation of the technology, but the application of an existing
technology to a new domain, through a ‘speciation process’. Within the economic
system there is an overwhelming amount of old knowledge that firms reuse and
recombine for new needs, but there is also an overwhelming production of new
knowledge and the presence of dissipative processes with knowledge obsolescence.
Old knowledge might be ‘exapted’ to new uses in other domains, or the firms might
acquire existing knowledge from outside to feed their internal innovation activities,
along with an open innovation strategy (Chesbrough, 2003). This is clearly impor-
tant for firms in traditional sectors, which innovate through knowledge acquisition
from the producers of technologies (Pavitt, 1984; Von Tunzelmann and Acha, 2005;
Hirsch-Kreisen et al., 2006; Hirsch-Kreisen and Jacobson, 2008).
We assist to an exaptation each time a previous artefact/technology is reused
with a new function, more or less, distant from the one it was originated for.
We develop a theoretical framework, which adds to previous contributions on
the economic implications of exaptation (Dew et al. 2004; Marquis and Huang,
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Innovation and knowledge reutilization 303
2010) by introducing some important features of the exaptation process for inno-
vation. Our analysis discusses the following two issues: first, how exaptation
relates to the evolutionary theory of technological change; second, how innova-
tion cascades are formed by a variety of exaptive processes, which can be classi-
fied according to the degree of newness embodied in the new products generated,
distinguishing between narrow and extensive exaptation.
This chapter is focused on the analysis of the modalities by which firms reuse
knowledge, derived from internal development and external acquisition, which
are later co-opted into the creation of new products in new market niches. Old
knowledge might be embodied in different products, processes and technologies
not necessarily owned by the innovative firm and later moved into other domains
by the firm’s ability to intercept new, and often hidden, demand needs. This pro-
cess occurs not exclusively by chance, but can be interpreted within a strategic
and intersectoral technological trajectory of the firm, which may lead, as in the
case of L’Oréal, to innovation cascades (Lane, 2011).1 This is a new approach and
adds to previous contributions over the issues, such as, for instance, the Corning
case (Cattani, 2006), where the innovation strategy of the firm is shaped by pre-
adaptive processes of internal knowledge reuse for accomplishing new market
demand. Our work shows that triggering factors of exaptation processes can be
unused patents or dormant business agreements with leading firms operating in
other close or distant sectors, generating opportunities for narrow or extensive
internally- or externally-driven exaptation.
The empirical setting is L’Oréal, the world leader in the beauty industry. We
reconstruct the historical pattern of innovations developed by the firm, by means
of a collection of information coming from secondary sources.2 In particular, we
identify the conditions that allowed L’Oréal to enter the nutricosmetics arena, by
means of the creation of a new product out of an exaptation process.
The next section introduces our theoretical background, followed by a discus-
sion of our methodological approach. Thereafter we show our empirical evidence
coming from the long-term qualitative and quantitative analysis of L’Oréal. The
final section puts forward some concluding remarks.
Theoretical background
Exaptation and the evolutionary theory of technical change
A combination of alertness and effectual behaviour (Mastrogiorgio, 2013) allows
entrepreneurs to look at resources and technologies as ‘interpretative flexible’
entities (Bijker, 1987), in other words as entities whose services are a: ‘function of
the ways in which they are used’ (Penrose, 1959: 25). Indeed, as Dew et al. (2004)
have suggested, there is evidence that entrepreneurs behave effectually, namely
they: ‘act to fabricate their own environments and futures’ (Dew et al., 2004: 55).
Our criticism of Levinthal (1998) is that his approach obscures the creative drift
and the post-application dynamics of cascade innovations that an exaptive process
can generate (Lane, 2011).
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304 Fiorenza Belussi et al.
We think that it is important to distinguish between: (a) adaptive evolutionary
patterns related to new variants triggered by the process of variation, retention and
environmental selection (technical change involving adaptation); and (b) exaptive
reuses of knowledge in new domains that give rise to the phenomena of innova-
tion, percolation and cascades (Watts, 2002).
The aim of this chapter is to discuss the latter point within the analysis of
evolutionary technological trajectories of firms involving exaptation. Our contri-
bution is rooted in the evolutionary theory of the firm. The evolutionary theory
of the firm is part of a research program, known as universal Darwinism, aimed
at showing that the schema variation selection and retention can be extended, at
some level of abstraction, to other fields of research (Breslin, 2011) and that these
apply a dialectical thinking, where organizational adaptation is recombined with
strategic choices, as discussed by Abatecola (2015).
There are two theoretical perspectives on the evolution of firms. Our approach
allows us to integrate two important research traditions in organizational analy-
sis. The first is the theory of population ecology (Hannan and Freeman, 1977;
Volberda and Lewin, 2003), which explains evolution of organizational forms as
a consequence of market competition and selection. Incumbents are expected to
lose their capacity to adapt to their environmental changes over time. Thus, evo-
lution is driven by the entry of new firms, which are more efficient and effective
in sighting, seizing and exploiting emerging technological and market opportuni-
ties. In this perspective, therefore, almost no attention is devoted to technological
change, which is taken as exogenous, and internal adaptability, which is the capac-
ity of incumbents to sight, seize opportunities and threats and change accordingly.
The second is the evolutionary theory of economic change, which, in its original
form was proposed by Nelson and Winter (1982). In this second perspective, change
is made endogenously in the model. Environment structure is not taken as given, but
as the emergent construct of market competition. Firms not only adapt to external
changes, but proactively co-construct their competitive environment. The evolu-
tionary theory of economic change is mostly used to explain discontinuities in the
firm innovation process. In contrast, a great deal of attention has been devoted to the
adaptation of the organization and to the continuous evolution of technical change.
The concept of dynamic capabilities (Teece et al., 1997; Eisenhardt and Martin,
2000; Winter, 2003; Helfat et al., 2007; Teece, 2007) stays in some ways in the
middle, but it has been mostly used to explain continuities in the firm innovation
process. Recent literature has pointed out that we need a better investigation of
the existing ‘interregnum’ between discontinuous and continuous innovation pat-
terns, and radical and incremental changes, in terms of gradualism (Levinthal,
1998; Antonelli, 2007), pre-adaptation (Cattani, 2006), the reconfiguration pro-
cess in technological transition (Geels, 2002; Meyer and Stensaker, 2006), the
reconfiguration of operational and dynamic capabilities (Di Stefano et al., 2010;
Helfat and Winter, 2011) and adaptation and selection of capabilities (Fortune and
Mitchell, 2012).
In the evolutionary theory of technical change and in its biological metaphors,
a great deal of effort has been targeted at the narrow evolution of innovation
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Innovation and knowledge reutilization 305
within the firm. Scant attention has been devoted to the ways in which firms
absorb external innovations and use externally created new knowledge. We have
decided, therefore, to enlarge here the analysis of the forms of niche creation and
use of exaptation processes, which involve the external acquisition of knowledge
and innovation. This is an important and often disregarded point, in our view,
once we agree on the importance of the open innovation model.
The term ‘exaptation’, even if not mentioned and acknowledged by Levinthal
(1998), can be considered as an element of the theory of technological speciation.
This theory has been proposed on the grounds of the theory of speciation of Gould
and Eldridge (1977). It is suggested that, differently from what Darwin originally
proposed, new species are not always born from the long-term, gradual accumula-
tion of diverging adaptive changes that are positively selected by the environment
(Gould, 1982), but as consequence of a speciation event that consists of a punctuated
equilibrium, i.e. an event such as the migration in a new niche that triggers a diver-
gent evolutionary path. Thus, the same form of life – the same phenotype – exposed
to a different competitive pressure may evolve into a new species. The same evolu-
tive process applies to technology where it may be activated not by a blind varia-
tion, but by an active strategy selected by firms of knowledge redeployment in new
niches and in new variants. Exaptation mirrors the application of existing technol-
ogy into a new domain of application, precipitating a process of evolution of prior
technologies into new innovative artefacts.
A similar theoretical approach has been proposed by Cattani (2006). According
to him, part of a firm’s prior experience and knowledge, which is accumulated
without the anticipation of subsequent uses, can be co-opted into new domains.
To this end, he introduces the notion of pre-adaptation. This notion was originally
introduced by Darwin to explain the evolution of complex organs, which are com-
binations of parts working together as a complex whole. None of these parts has a
function independently from the others. Thus, how does it happen that these parts
were originally developed? According to Darwin, these functions were co-opted
to their present role from a precedent function, which originally selected and
shaped these parts. While for Gould and Vrba (1982), in the field of evolutionary
biology, pre-adaptation refers solely to features that promote fitness and they are
built to perform the same function, features that evolved for other usage (or for no
function) and that were later co-opted should be called exaptation.
Moving the argument from biology to business, this means that exaptation
must be referred to in the co-evolution of a firm and its business ecosystem. We
adopt an approach to exaptation that takes into account both of these two key
aspects. This approach can be helpful in explaining the emergence of discontinu-
ous and continuous change as an historical sequence of knowledge recombina-
tion, new inventions and exaptation.
Innovation cascades and exaptation forms
In the analyses of the history of technology we find that technological innovations
frequently involve the use of an artefact or a process in a new domain. But clearly
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306 Fiorenza Belussi et al.
very often it is difficult to prove a net switch from one use to another, which
cannot be ascribed to multiple selective market pressures, rather to a non-blind
process of functional shift.
Technological evolution is always directed by an element of foresight or
guided variation, despite the preference of some authors, including Cattani
(2006), for depicting it as a combination of luck and serendipity. Larson et al.
(2013) emphasize that often the terms adaptation and exaptation overlap and that
it can be claimed that all adaptations can also be said to be exaptations. Some
other authors (Dew et al., 2004; Bonifati, 2010; Lane, 2011; Bonifati and Villani,
2013), in contrast, clearly define exaptation as a new pattern of interaction among
agents around the use of new kinds of artefacts leading to the emergence of a
new functionality. In order to distinguish adaptation from exaptation, Bonifati
and Villani (2013) suggest that while adaptation processes can be derived by their
actual functionality, the origin of the artefacts created by exaptation processes
cannot be derived from their current utility. Dew et al. (2004) specify that exapta-
tion refers to connecting a technology with a new domain of use, not to technol-
ogy-technology combinations. Exaptation processes include an initial exaptation
followed by subsequent processes of ‘aptation’, characterized by continuous posi-
tive feedbacks, innovation cascades and interactions.
In addition to the internal firm’s efforts directed to innovation, novelties may
arise by absorbing capability, by interactive learning and by the leading role
played by users, as argued in the past by Rosenberg (1982) and by von Hippel
(1986). However, next to these forms, we can also conceptualize various forms
of exaptation, such as user-producing exaptation or exaptation by fusion (Sedita,
2012). Exaptation serves, here, as an excellent introduction to another aspect of
the innovation theory, because as all the new functionalities attributed to possible
uses of a technology (or to an old piece of knowledge) are still unknown at the
time of its introduction, we are experimenting with the existence of what Lane
and Maxfield (2005) called ontological uncertainty. In our view, three impor-
tant issues must be tackled in order to deepen the study of innovation processes
through exaptation, which is an event but also a process that may occur within a
firm in multiple stages:
1 Exaptation is the result not only of the reuse of internal knowledge for new
uses (internal exaptation) but also of the acquisition of external knowledge
for new uses (external exaptation).
2 Exaptation occurs throughout the reuse of knowledge either in the same
technological classes, or in the same sector (narrow exaptation), or in distant
classes or in different sectors (extensive exaptation).
3 Exaptation may sustain the creation of a complex and multilevel dynamic
innovation ecosystem leading to innovation cascades.
Therefore, three phases characterize the process of exaptation: (1) accumulation
of knowledge from internal and external sources (this process can be either emer-
gent or deliberate); (2) existing knowledge is co-opted for new uses in new market
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Innovation and knowledge reutilization 307
domains (different degrees of exaptation might exist according to the distance
between the old and the new market domain); and (3) the co-opted knowledge
expands the innovation ecosystem of the firm, creating new venues for innovation
cascades. We distinguish between narrow and extended domains of exaptation,
which correspond to a small or large technological distance existing between the
old and the new use of knowledge.
Dynamic capabilities and relational dynamic capabilities are fundamental
to identify, combine and deploy internal and external knowledge (Keil, 2004).
Dynamic capabilities have been originally defined as the ability of a firm to inte-
grate, build and reconfigure internal and external competencies. They reflect the
ability of an organization to achieve new and innovative forms of competitive
advantage given path dependencies and market positions (Leonard-Barton, 1992).
There is an ongoing debate in the literature that attempts, after more than a decade
of strategic management research, to clarify both the meaning and scope of this the-
oretical construct. In particular, recent contributions on the topic have pinpointed
the importance of external relational capabilities (Inkpen, 2000; Hagedoorn and
Duysters, 2002; Helfat et al., 2007), which can be developed through strategic alli-
ances and acquisitions. External relational dynamic capabilities are not only the
capabilities required to adapt to changing customer and technological opportuni-
ties but also embrace the enterprise’s capacity to shape the ecosystem it occupies,
develop new products and processes and design a viable business model (Teece,
2007). A firm can be seen as a nexus of network relationships with partners, cli-
ents and suppliers, which build the business ecosystem (Powell, 1990; Powell
et al., 1996; Hargadon and Sutton, 1997; Sorenson et al., 2006). The network posi-
tion of the firm (Cattani and Ferriani, 2008) affects its propensity to be involved in
knowledge flows that can be potential drivers of exaptation.
Figure 13.1 represents the spaces for exaptations. Organization A develops over
time some core competencies and abilities, which lead it to some innovative output.
This can be the result of internal research and development (R&D) effort (closed
innovation model), or collaboration and interaction with external organizations
(open innovation model – ABCDEFG). In both cases, innovations can have the char-
acteristics of exaptations; in the first case it will be internal exaptation, in the second
external exaptation. Moreover, the reuse of knowledge at the basis of the exaptive
event might be from adjacent or distant technological classes, giving rise to two
spaces for potential exaptations (respectively narrow or extended, see Table 13.1).
The creation of an innovation ecosystem, where generative relationships (Lane and
Maxfield, 1997) can take place, is the consequence of a series of exaptive events. The
relationships with external organizations might, in fact, generate new attributions of
functionality that help in shaping a new artefact.3
Figure 13.2 represents the evolutive dynamics of an innovation cascade. Key
variables in explaining this evolution are time – in the x-axes, and the technologi-
cal artefact – in the y-axes. The exploitation of an innovation may follow a specific
technological trajectory (i.e. 1), which is linearly explained by a continuous innova-
tion path that develops over time (Dosi, 1982). Accidentally, an exaptive event can
lead to an exaptation 1, which extends and multiplies the technological trajectory
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308 Fiorenza Belussi et al.
of innovation A, creating eventually the venue for a new exaptive pattern, giving
rise to exaptation 2. As a result, we observe an innovation cascade along a vari-
ety of technological trajectories. Generative collaborations (within an innovation
ecosystem) that enlarge the space of possibilities and identify new systems of use
alongside the discovery of new functionalities are crucial (Bonaccorsi, 2011).
Narrow
technological
space
D
GF
Ag Af
A1 A
Ad
Ac
Ab C
Extensive
technological
sace
EAe
B
A2
Figure 13.1 The spaces for exaptations
Source: Orbit database: https://www.orbit.com
Table 13.1 Description of spaces for exaptations
Technologically adjacent* Technologically distant**
Internal A1
Narrow internal driven exaptation
A2
Extensive internal driven
exaptation
External AB; AC; AD
Narrow extensive driven exaptation
AE; AF; AG
Extensive external exaptation
*Citation of patents within the same 3-digit patent class.
** Citation of patents within outside the 3-digit patent class.
Source: Authors’ elaboration.
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Innovation and knowledge reutilization 309
The exaptation process is evolutionary in nature and exists alongside the firm
and is able to build a dynamic innovative ecosystem, where external and internal
knowledge may interplay. An innovative ecosystem, which is a specific form of
business ecosystem (Moore, 1993), is a broad community of organizations, insti-
tutions and individuals that impact on the innovation capacity of the enterprise
and the enterprise’s customers and suppliers (Carayannis and Campbell, 2009).
Therefore, as spelled out by Teece (2007), a company can be viewed not as a
member of a single industry, but as part of an innovation ecosystem that crosses
a variety of industries; an environmental context where complementary firms,
suppliers, regulatory authorities, standard-setting bodies, the judiciary and edu-
cational and research institutions all play a relevant role in the choice of the stra-
tegic orientation of the firm. Network position and absorptive capacity (Cohen
and Levinthal, 1990) are two fundamental conditions that favour the innovation
process. In order to absorb external knowledge, the firm must develop learning
abilities. However, the purpose and result of the interaction might not be clear
from the beginning. Innovation can therefore be the result of an exaptation pro-
cess where existing knowledge, belonging to one or more actors, is leveraged on
and co-opted in an unexpected way to eventually generate new products in new
market domains. This aligns with the open innovation argument (Chesbrough,
2003). A random component, but also a guided strategy, shape the way in which
two or more nodes interact within a network. The breadth, diversification and
liquid property of the innovation ecosystem together determine the probability of
exaptation. The more ample, diversified and liquid the network of the firm, the
greater the possibilities of random encounters and exaptation.
Artefact
space
Exaptation 2
Technological
trajectory 3
Technological
trajectory 2
Technological
trajectory 1
Exaptation 1
A
Time
B
C
D
Figure 13.2 The evolutive dynamics of an innovation cascade
Source: Authors’ elaboration.
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310 Fiorenza Belussi et al.
Methodology
We adopted a case study research design, because of the need to explore a phenom-
enon that is still underrepresented in the business and economic literature (Yin,
1984) and asks for an exploratory more than a confirmatory research approach. A
combination of qualitative and quantitative data from a variety of sources allows
us to produce an illustrative case study that informs on the exaptation process in
L’Oréal (Jick, 1979; Miles and Huberman, 1994). Triangulated data were jointly
considered in order to frame the innovation strategies of L’Oréal, gathered from:
(a) the L’Oréal website and press releases collected in the period 2009–2012;
(b) journal articles and books on the global cosmetics industry; and (c) patent
data from the Orbit-QPat database registered in the period 1904–2012. The main
reference for the history of the global beauty industry is Jones (2008, 2010).
Concerning the patent data, we elaborated data from the Orbit-QPat database,
which is a Questel/Orbit internet database providing the searchable full text of
world patents from 1974 to the present day in about 80 countries. Examining pat-
ent information for a given firm or industry will highlight important trends and
directions within the firm and within the industry (Lambert, 2004). We identified
the patents’ population of L’Oréal in the Orbit-QPat database and obtained 12,380
family patents and 50,509 single patents from 1904 to 2012.
The case of L’Oréal
L’Oréal in a nutshell
L’Oréal is one of the largest cosmetic companies in the world. It produces and
markets a range of make-up, perfume, hair and skin care products in over 130
countries. It is headquartered in Clichy (a suburb of Paris), France and employed
66,600 people in 2010 (they employed 50,500 worldwide in 2008). The com-
pany recorded revenues of €19,495.8 million (US$25,865.1 million) during the
financial year ended December 2010. Presently, L’Oréal accounts for 500 brands
(23 international), 5,000 new formulas developed annually, 18 research laborato-
ries worldwide, 100 active research agreements with prestigious universities and
public research organizations and have about 13,000 patents registered (our anal-
ysis from the Orbit-QPat database). The company is now a large multinational.
L’Oréal was founded in 1909 by Eugène Schueller,4 a French chemist who
graduated from the Institut de Chimie Appliqué de Paris in 1904 and who created
his first hair dye formula under the name Oréal in 1907, using a blend of harmless
chemical compounds. Schueller filed for a patent (no. 383920) on 24 March 1908.
This product became very popular with Parisian hairdressers. Two years later,
Schueller established L’Oréal, which was originally named Société Française des
Teintures Inoffensives pour Cheveux. The company became L’Oréal in 1939. In
1963 the company entered the stock market. At the beginning L’Oréal pursued its
growth through the haircare products, but in quick succession added shampoos
and soaps to its product portfolio. The growth of the company is linked to the
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Innovation and knowledge reutilization 311
idea of developing a ‘market of beauty’. To continue this growth, L’Oréal also
activated a series of key acquisitions in the cosmetics, pharmaceuticals and pub-
lishing sectors (fashion journals). It recently entered (and created) the business
of nutricosmetics where the necessary knowledge was ‘exapted’ by Nestlé with
which it made a strategic alliances (Innēov).
Innēov is utilizing the expertise in nutrition and food security of the Nestlé
R&D, to combine it with the dermatological knowledge of the skin (physiology
of cutis and experience in monitoring the effects of the components) accumulated
in the past, in a newly created niche market – nutricosmetics – where new pills for
hair and skin treatment are conceptualized. In particular, L’Oréal is benefiting from
Nestlé’s R&D because it uses the firm’s unique expertise to select raw materials
and components, to optimize their absorption and to verify the quality of safety and
of their conservation. More details on this case of exaptation follow later.
The innovative path of L’Oréal
Over time, the creation of the ‘market of beauty’ process has implied some crucial
steps for L’Oréal. The first was the 1909 breakthrough innovation: a product for
synthetic hair dye using safe compounds invented by Schueller. Before his inven-
tion the Romans, ancient Egyptians and Greeks were experimenting with different
forms of hair dyeing. Most of the early forms of hair dyes were henna, indigo,
sage and camomile, but these methods could only darken the hair. Blond hair
continued to be desirable, with potassium lye or caustic soda being use to bleach
the hair. Venetian women used large hats with an open top to expose their treated
hair to the strong sun. In the 1800s chemists discovered para-phenylenediamine
(PPD) and its use in the creation of synthetic dye. At the same time, it was found
that hydrogen peroxide was a gentler and safer chemical for hair bleaching. These
two discoveries paved the way for Schueller, who created the first commercial
chemical hair dye. He was a French chemist who started to manufacture his own
products, selling them initially to Parisian hairdressers. L’Oréal soon became a
leading firm in Europe, while other firms such as Clairol in the US explored simi-
lar technologies, becoming the top selling brand in hair colouring up to the 1950s
(Sherrow, 2006). After the 1950s, and thanks to its reputation, research activ-
ity and marketing efforts, L’Oréal also conquered the US market and become
in the 1970s a global company. During the 1920s and 1930s Schueller patented
few inventions related to hair dyeing, but later on innovation in L’Oréal become
an institutionalized activity, managed by a large R&D laboratory. In hair dyeing
L’Oréal now has (end 2011) 432 patents, which is about 20 per cent of all patents,
registered in this technological area. L’Oréal is the number one for the exten-
sion of patenting activity in this area (Figure 13.3). Top assignees are Kao (240),
Henkel (119), Wella (99), Clairol (88), Shiseido (56) and Procter & Gamble (52).
The second important step (1928) of the company was the acquisition of
Monsavon, a firm specializing in the production of soap. At that time, soap was
at the basis of many detergents and liquid shampoos. This explains how L’Oréal,
after the acquisition of the knowledge possessed by Monsavon, was able to enter
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1955
0
1 11
66666
2
33
22
1
88 88 8
44 4444
33
77
77
7
12 11 11
9
29
20
24
1414
12 12 12
23 23
25
55
10 10
Number of patents
Earlier publication date
6
12
24
18
30
1959
1964
1965
1966
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1987
1986
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1962
Figure 13.3 L’Oréal’s registered patents related to shampoo reported in the Orbit-QPat database
Source: Authors’ elaboration on Orbit Database.
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Innovation and knowledge reutilization 313
quickly into the production and commercialization of new types of synthetic
shampoo in the market of beauty.5
The invention of very commonly used products is often uncovered by the sci-
entific literature. Since then L’Oréal has registered 660 patents related to shampoo
out of a total number of 9,224 total inventions reported in the Orbit-QPat database
(Figure 13.3 and Table 13.2). L’Oréal covers only about 6 per cent of the total
technological area, but its leadership in the market is indisputable. L’Oréal pat-
ents related to shampoo have received 4,768 citations, 3,701 coming from exter-
nal organizations. Other top assignees are Kao (373), Procter & Gamble (373),
Unilever (279), Colgate (222), Henkel (138) and Shiseido (120).
Step three is related to the invention of a new product. Schueller is credited as
the inventor of the modern sunscreen. L’Oréal released sunscreen Ambre Solaire
in 1935. Others, wrongly, give that honour to Austria’s Franz Greiter who, in
1938, was inspired to create a product named Gletscher Crème (Glacier Cream)
as a result of sunburn he received while mountain climbing at Piz Buin (in 1962
Franz Greiter re-emerged, developing a way to measure a product’s ability to
block ultraviolet rays, known as the Sun Protection Factor, (SPF)). The L’Oréal
sun tanning oil and cream became another milestone for the company.
Step four is related to the creation of an ecological niche in the market of beauty.
Already during the 1930s its market of beauty extended from hair to skin. Thus,
L’Oréal became a world leader specializing both in hair and skin treatments.
Moreover, in 1933 Schueller published Votre Beauté, the first monthly women’s
health and beauty magazine. We cannot imagine a better communicative and mar-
keting strategy for a cosmetic company than to ‘organize’ directly the consumption
of its products, dictating the fashion, helping to create the female identity and, con-
sequently, influencing the demand for its new goods. In order to become the leader
in the market of beauty, L’Oréal activated many acquisitions of important firms that
specialized in similar products. Thus the company built new competencies thanks
to the external acquisitions of new knowledge and patents. This step was organ-
ized around the absorption of various skin cream producers, pharmaceutical and
beauty firms. In this context, L’Oréal also set up numerous R&D agreements with
several international labs. In 1954 L’Oréal signed the first technical agreement with
a pharma company: the Société d’Hygiène Dermatologique de Vichy. We can now
observe a shift towards a more scientific concept of beauty. All the products were at
Table 13.2 L’Oréal patents in shampoo
Patents Patent
citations of
L’Oréal
L’Oréal
patents
self-citations
External
citations
L’Oréal All firms (including
L’Oréal)
Hair dye 432 2,553 2,386 222 2,164
Shampoo 660 9,224 4,768 1,067 3,701
Bath foam 5 143 – – –
Source: Authors’ elaboration on Orbit Database.
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314 Fiorenza Belussi et al.
that time patented, in order to avoid imitation and the entry of substitutive products.
L’Oréal became a giant company, spending a huge amount of money on marketing
and advertising. Thus, it maintained its leadership through its presence in women’s
journals and through agreements with various commercialization networks. During
the 1960s and 1970s, growth occurred mainly through acquisitions: the prestigious
firm Lancôme in 1964 and Garnier in 1965. In 1970 followed the acquisition of
Biotherm and, in 1973, L’Oréal acquired a majority interest in the pharmaceutical
companies Synthélabo and Gemey. Then (in 1979), it started to be a knowledge-
intensive firm, becoming a high-level R&D performer through the dermatology
research centre established in Sophia Antipolis, in France. It is important to note
that through Synthélabo L’Oréal also holds 10.41 per cent of the shares of the big
French pharma Sanofi-Aventis. Between 1984 and 1996 another group of leading
companies was integrated into the giant company L’Oréal: Marie Claire, Helena
Rubinstein, La Roche-Posay, Maybelline and Biomedic. Another interesting feature
of its strategy was the agreement signed in 2006 with Diesel to launch a line of fra-
grances (Diesel is a cult brand for the 18–35 age group worldwide, featuring bold,
modern and unconventional casual chic).
Step five was dedicated to the intensification of its innovation trajectory. In
1945 the company introduced its first ‘cold perm’ – a ‘chemical way’ to transform
the form of the hair, rendering it soft and curly.
Step six was the co-option of its internal knowledge on hair (cold perm and
hair dyeing) and skin in the generation of radically new products. In 1955, from
the R&D labs of the company, came Colorelle: the first colour-enhancing sham-
poo where, again, we see the exaptation of an existing competence into a new
use. This process of expanding into new niches occurred, again, in 1963, with
the launch of OBAO, the first foam bath. L’Oréal patented this product in 1969.
During the 1970s several other improvements were registered and patented.
Step seven is again related to the introduction of permed and dyed hair sham-
poo. In the early 1970s Proctor & Gamble challenged the L’Oréal leadership,
revolutionizing the hair care market with the introduction of the two-in-one sham-
poo plus conditioner. Many other manufacturers followed with two-in-one formu-
las, including L’Oréal. As a reaction, in 1972, L’Oréal launched the first Elsève
shampoo for permed and dyed hair. Combining its knowledge on perming (and
the possible damaging effects of its use) and on shampoo, L’Oréal invented a new
product. The strategy this time was to introduce a product for the mass market
made with an original innovative formula. Subsequently the company diversified
its range of shampoos, emphasizing various distinctive characteristics. Figure 13.4
shows the intense innovative activity of L’Oréal in shampoo, which is at the basis
of the company’s market success. In the shampoo market Proctor & Gamble with
their products never exceeded 20 per cent of sales, while L’Oréal, through its vari-
ous brands, Elsève, Fructis, Ultra Doux (all acquired in 1970s) and Laboratoires
Garnier (a company born in 1904 and acquired in 1965) became dominant with
about 40 per cent of the whole shampoo market (www.lOréal.esade.edu).
Step eight, occurring during the 1980s, is strictly related to the previous phase of
firm acquisitions (phase four). As a consequence, L’Oréal, mainly a cosmetic firm,
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1955
0
111111 1
4444
56666 6 66
7
11 11 13
19
29 29
54
61
64
43
14
18
8
27 28
16
3637
30
9
4
2222 2
33 33
Number of patents
Earlier publication date
14
28
42
56
70
1959
1964
1965
1966
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1962
Figure 13.4 Innovative activity of L’Oréal in shampoo
Source: Orbit database: https://www.orbit.com
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316 Fiorenza Belussi et al.
was able to launch several pharmaceutically-based revolutionary products: in 1982
the sunscreen, Mexoryl SX; in 1994 the ingenious molecule that repairs damaged
hair, Céramide R; and in 1996 the molecule that combats hair loss, Aminexil.
Step nine is at the basis of the formation of a new, futuristic sector: nutri-
cosmetics. Nutricosmetics refers to nutritional supplements, which can improve
individuals’ aesthetics. Products generally focus on three areas: skin, hair and
beauty. Nutricosmetics are available in pill, tablet, liquid and food formats. To
be able to create this new sector, and in order to modify its core competences,
L’Oréal chose to enlarge the firm’s knowledge base through signing an agreement
with a food company, Nestlé. L’Oréal selected Nestlé, deepening its previous,
purely financial relationship. Strategically, in 2002, L’Oréal moved, therefore,
into a completely new field: the new area of nutricosmetics. In 2003 The Research
Institute for Ethnic Skin and Hair opened up in Chicago (US). In 2005 L’Oréal
acquired Skinceuticals and Pro-Xylane in the subsequent year (2006), the latter
being a firm with a product which contains the anti-ageing gene, and SkinEthic,
one of the major international specialists in tissue engineering. During the same
year (2006), in order to grow in the organic sector as well, L’Oréal acquired a
well-known British retail chain, The Body Shop, and subsequently Sanoflore, a
leading name in organic skincare.
The evolution of L’Oréal is not inscribed into a linear process of growth. Each
step realized has increased the synergies between the existing segments of the
firm and also increased the possibility of realizing the processes of knowledge
recombination, exaptation and learning. Thus, a scale effect of increasing returns
intervened.
The huge investments in internal R&D (calculated to be about 3 per cent of
sales annually), dispersed among 18 R&D labs in the US, Europe, China and
Japan, with about 2,350 researchers in different disciplines (e.g. chemistry, biol-
ogy, medicine, physics and toxicology), are complemented by an extended net-
work of external R&D collaborations.
L’Oréal adopted a sophisticated model of open innovation, which combines the
development of internal competencies and the speciation of new market niches,
where both narrow and extensive exaptation occurs. The reutilization of knowledge
in new market niches, through exaptation, was complemented by a flow of new
knowledge internally generated in its R&D laboratory. Exploration and exploitation
processes extended the firm’s boundaries. L’Oréal can be considered a very creative
firm that has been able during its long existence not only to produce very innovative
products but to create a completely new market niche: the market of beauty.
Exploring the role of exaptation in the evolution of L’Oréal’s
technological trajectory and the reutilization of knowledge in new
market niches
The objective of this section is to investigate the role of exaptation in the evolu-
tion of L’Oréal’s technological trajectory. In this section we have studied techno-
logical exaptation at the level of technological artefacts. As discussed by Basalla
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Innovation and knowledge reutilization 317
(1988), we agree that technological artefacts are central in any debate on technol-
ogy and innovation. To perform our analysis we consider a technological artefact
as a patent. In this approach we followed Mastrogiorgio (2013).
Our statistical approach is based on patent data. A critical starting point of any
patent-based analysis is clearly related to the availability of reliable data, accord-
ing to two important dimensions: the coverage of the database and the quality of
the data available for patents. QPat database is one of the currently available patent
databases that satisfy all these characteristics across the world. QPat is Questel/
Orbit’s internet database providing the searchable full text of world patents from
1974 to the present day in about 80 countries. For the industrial researcher, QPat
offers invaluable competitive intelligence and market knowledge. Often, exam-
ining a competitor’s patents will provide indepth and comprehensive informa-
tion about strategies, production costs and product limitations. In a more general
sense, examining patent information for a given firm or industry will highlight
important trends and directions within the firm and within the industry (Lambert,
2004).
We identified the patents’ population of L’Oréal in the QPat database and we
obtained 12,380 family patents and 50,509 single patents from 1904 to 2012.
Mastrogiorgio (2013) proposes a modified version of Trajtenberg et al.’s
(1997)6 distance metric to capture serendipitous and non-connected discoveries.
We hypothesize that non-connected discoveries occurring in remote technologi-
cal areas can be considered as proxies of the ‘exaptation potential’ of a patent. If
knowledge is used in the same technological area, it can be classified in the spill-
over category. In contrast, when knowledge is used in other technological areas it
can be at the basis of a potential exaptive process. Thus, our idea is to measure the
‘exaptation potential’ of a patent by looking at the number of citations obtained
across different technological classes. We conceive each technological ‘jump’ as
a potential technological exaptation. We calculate the exaptation score using the
detailed information contained in patents, relying on citations to other patents,
since these citations provide good evidence of the links between an innovation
and its technological antecedents and descendants (Trajtenberg et al., 1997).
The World Intellectual Property Organization divides the entire set of patents
into searchable collections based on the technology claimed (International Patent
Classification (IPC) in the QPat database). The primary groupings are referred to
as classes. Classes are divided into relatively small collections of patents called
subclasses. We use 3-digit patent subclasses to capture the patent spread across
different technological classes and calculate the potential exaptation of the entire
L’Oréal patents’ portfolio. We utilize the entire patent portfolio of L’Oréal as
a reference to calculate the degree of exaptation for each patent. We construct,
accordingly, two sets of measures: (1) ‘backward-looking’ measures, which are
derived from the relationship between a given patent and the body of knowledge
that preceded it; and (2) ‘forward-looking’ measures, which are derived from the
relationship between a patent and subsequent technological developments that
build upon it. We use the patent citations obtained by each patent to identify its
antecedents and the subsequent patents that cite it to identify its descendants. For
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318 Fiorenza Belussi et al.
each of these patents we have information on their technological and temporal
location, the number of citations that they received and the identity of the assignee
(Trajtenberg et al., 1997).
We have about 20,000 family patents cited by L’Oréal and about 25,000 fam-
ily patents citing L’Oréal patents. The major difficulty of this type of analysis,
besides the enormous amount of data to analyse, has been the matching of data
from the classes of the L’Oréal patents with the classes of cited and citing patents,
because many patents have multiple subclasses to match and because there may
be more citations per patent so as to significantly increase the number of possible
combinations.
Backward exaptation potential of a L’Oréal patent
pdummy
no citedb
yp
x
x
ncitedbyp
==
∑.
1
°
Forward exaptation potential of a L’Oréal patent pdummy
no cite
dp
x
x
ncitedbyp
==
∑.
1
where:
p = a patent belonging to L’Oréal’s patent portfolio from 1904 to 2012
no. cited by p = number of citations made by patent p up to the end of 2012
no. citing p = number of citations received by patent p up to the end of 2012
dummy
if classofcitingorcited patentxis classofpaten
tp
if
x=
=0
1

cclassofcitingorcites patentxis classofpaten
tp
≠





The values vary in the [0 1] interval; a score close to 1 indicates higher exapta-
tion potential while 0 indicates the absence of exaptation potential. We expect
an important number of citations between patents which do not share the same
technological class, hence a high exaptation potential.
We analyse the patents at three analytical levels: country (country group),
assignee institution and technology field (represented by subclass IPC categories)
to calculate the degree of potential exaptation for each patent with respect to the
patents cited by L’Oréal and those citing L’Oréal’s.
Figure 13.5 shows the total number of patents published in the last 100 years. It
is worth noting that L’Oréal patents reached their peak starting from 2010–2011.
After an initial smooth, little and slow increase in patent applications, L’Oréal
registered an exponential growth. In fact, from 2000 patent applications rapidly
grew after stabilizing for four years and it is still increasing.
In Figure 13.6 and Table 13.3 we represent the distribution by kind of IPC
codes in L’Oréal’s patent portfolio.
The most important technological subclasses in R&D of new products repre-
sent also the L’Oréal core business. The two subclasses in which the company
patented the most are A61K and A61Q representing preparations for medical,
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Earlier publication date
Documents count
9
3
1
7
2
4
3
4
2
4
3
6
7
12
27
32
54
37
21
22
25
37
45
32
42
77
94
82
83
68
71
66
79
83
100
76
93
79
97
97
88
105
70
104
62
92
107
95
124
168
170
262
234
328
312
376
478
444
598
481
645
605
600
594
640
764
780
708
0
160
320
480
640
800
1904
1934
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Figure 13.5 The total number of patents published in the last 100 years
Source: Authors’ elaboration on Orbit Database.
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320 Fiorenza Belussi et al.
dental or toilet purposes and the use of cosmetics or similar toilet preparations,
followed by A45D representing hairdressing or shaving equipment, manicuring or
other cosmetics treatment. Table 13.4 shows the ten IPC 3-digit subclasses where
we count more technological ‘jumps’ and so potential exaptation with respect to
cited patents by L’Oréal. It should be noted that the two subclasses in which the
number of exaptations is the most are not core in L’Oréal’s technological trajec-
tory. However, it should also be noted that these two subclasses are dealing with
more fundamental knowledge compared to the core ones. Thus, the productivity
of these subclasses in terms of exaptation may be a consequence of the wider
applicability of the patented knowledge.
In Table 13.5 we represent the top 10 IPC 3-digit subclasses where we count
more technological ‘jumps’ with respect to citing patents of L’Oréal patent port-
folio. As we can see from a first descriptive analysis of the subclasses, the classes
that contain the largest number of potential exaptations are C07 ‘acyclic or car-
bocyclic compounds, heterocyclic compounds’, A61 ‘use of cosmetics or similar
toilet preparations’, A45 ‘hairdressing or shaving equipment; manicuring or other
Other,4k
A01N, 145
G01N, 183
B05C, 198
C08G, 222
B01F, 226
C11D, 280
C08F, 289
A46B, 392
B05B, 406
C08L, 498
D06P, 510
C09B, 514
C07C, 759
C07D, 777
A61P, 917
B65D, 1K
A45D, 2K
A61Q, 8K
A61K, 9K
Figure 13.6 The distribution by kind of IPC codes in L’Oréal’s patent portfolio
Source: Authors’ elaboration on Orbit Database.
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Table 13.3 Top 20 IPC codes
Code Description Doc. no.
A61K Preparations for medical, dental or toilet purposes 9165
A61Q Use of cosmetics or similar toilet preparations 7914
A45D Hairdressing or shaving equipment; manicuring or other
cosmetic treatment 2026
B65D
Containers for storage or transport of articles or
materials, e.g. bags, barrels, bottles, boxes, cans,
cartons, crates, drums, jars, tanks, hoppers, forwarding
containers; accessories, closures or fittings therefor;
packaging elements; packages
1207
A61P Therapeutic activity of chemical compounds or
medicinal preparations 917
C07D Heterocyclic compounds 777
C07C Acyclic or carbocyclic compounds 759
C09B Organic dyes or closely-related compounds for
producing dyes; mordants; lakes 514
D06P Dyeing or printing textiles; dyeing leather, furs or solid
macromolecular substances in any form 510
C08L Compositions of macromolecular compounds 498
B05B Spraying apparatus; atomizing apparatus; nozzles 406
A46B Brushes 392
C08F Macromolecular compounds obtained by reactions only
involving carbon-to-carbon unsaturated bonds 289
C11D
Detergent compositions; use of single substances as
detergents; soap or soap-making; resin soaps; recovery of
glycerol
280
B01F Mixing, e.g. dissolving, emulsifying, dispersing 226
C08G
Macromolecular compounds obtained otherwise than by
reactions only involving carbon-to-carbon unsaturated
bonds
222
B05C Apparatus for applying liquids or other fluent materials
to surfaces, in general 198
G01N Investigating or analysing materials by determining their
chemical or physical properties 183
A01N
Preservation of bodies of humans or animals or plants
or parts thereof; biocides, e.g. as disinfectants, as
pesticides, as herbicides; pest repellants or attractants;
plant growth regulators
145
B67D Dispensing, delivering or transferring liquids, not
otherwise provided for 143
Source: Authors’ elaboration on Orbit database.
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322 Fiorenza Belussi et al.
cosmetic treatment’, B01 ‘mixing, dissolving, emulsifying, dispersing’, B67 ‘dis-
pensing, delivering or transferring liquids’ and C11 ‘detergent compositions; use
of single substances as detergents; soap or soap-making; resin soaps; recovery of
glycerol’. The three technological classes A61, A45 and C07 also constitute the
core business of the company as we saw in Table 13.3. There are also IPCs that
contain many technological jumps, but they do not represent the core business of
the company. They are intermediate IPCs that are halfway between the core and
peripheral classes such as G01 ‘investigating or analysing materials by determin-
ing their chemical or physical properties’, B67 ‘dispensing, delivering, or trans-
ferring liquids’ or D06 ‘dyeing or printing textiles; dyeing leather, furs, or solid
macromolecular substances in any form’.
The IPC structure is also similar between the citing and cited patents’ sub-
groups. There are, however, some differences, for example B44 ‘decorative arts’
for the citing group and D21 ‘paper making; production of cellulose’ for the cited
one. As a second step of analysis, Table 13.6 reports mean, standard deviation,
minimum, maximum and sample size of exaptation potential scores among dif-
ferent subsamples.
The first descriptive analysis represents the distinction between the average
score of the cited group and the citing one. We can observe that the average score
of the cited (0.385) is higher than the citing group (0.357).
The second analysis represents the division between the average score of inter-
nal exaptation potential, external exaptation potential and the score of the group
Table 13.4 Top 10 3-digit IPC subclasses with respect to cited patents by L’Oréal
IPC cited Freq Description
C07 70773 Acyclic or carbocyclic compounds, heterocyclic compounds
C11 22527 Detergent compositions; use of single substances as detergents;
soap or soap-making; resin soaps; recovery of glycerol
A61 22209 Use of cosmetics or similar toilet preparations
B01 20996 Mixing, e.g. dissolving, emulsifying, dispersing
A45 20205 Hairdressing or shaving equipment; manicuring or other
cosmetic treatment
D06 19372 Dyeing or printing textiles; dyeing leather, furs or solid
macromolecular substances in any form
A01 9622 Disinfectants, as pesticides, as herbicides; pest repellants or
attractants; plant growth regulators
B67 8380 Dispensing, delivering or transferring liquids, not otherwise
provided for
G01 5505 Investigating or analysing materials by determining their
chemical or physical properties
D21 2395 Paper making; production of cellulose
Source: Authors’ elaboration on Orbit database.
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Table 13.5 Top 10 3-digit IPC subclasses with respect to citing patents of L’Oréal’s
patent portfolio
IPC citing Freq Description
C07 39598 Acyclic or carbocyclic compounds, heterocyclic compounds
A61 20668 Use of cosmetics or similar toilet preparations
A45 10996 Hairdressing or shaving equipment; manicuring or other
cosmetic treatment
B01 7505 Mixing, e.g. Dissolving, emulsifying, dispersing
B67 6690 Dispensing, delivering or transferring liquids, not otherwise
provided for
C11 5802 Detergent compositions; use of single substances as
detergents; soap or soap-making; resin soaps; recovery of
glycerol
D06 2902 Dyeing or printing textiles; dyeing leather, furs, or solid
macromolecular substances in any form
A01 2546 Disinfectants, as pesticides, as herbicides; pest repellants or
attractants; plant growth regulators
B44 2525 Decorative arts
G01 2427 Investigating or analysing materials by determining their
chemical or physical properties
Source: Authors’ elaboration on Orbit database.
Table 13.6 Descriptive statistics of exaptation potential score
Variable Mean S.D. Min Max Sample
Cited (all patents) 0.385 0.327 0 1 70853
Citing (all patents) 0.357 0.263 0 1 70853
Internal (all patents) 0.362 0.102 0 1 70853
External (all patents) 0.376 0.119 0 1 70853
Co-assignee (all patents) 0.338 0.107 0 1 70853
Internal (only cited) 0.317 0.321 0 1 33065
External (only cited) 0.446 0.275 0 1 33065
Co-assignee (only cited) 0.379 0.199 0 1 33065
Internal (only citing) 0.377 0.267 0 1 37828
External (only citing) 0.333 0.214 0 1 37828
Co-assignee (only citing) 0.325 0.313 0 1 37828
Source: Authors’ elaboration on Orbit database.
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324 Fiorenza Belussi et al.
with the presence of a co-assignee as a patent owner. Internal exaptation potential
is defined as the number of citations received or made by patent p, up to the end
of 2012, by patents owned by the same firm owning patent p; external exaptation
potential is defined as the number of citations received or made by patent p, up
to the end of 2012, by patents owned by a different firm owning patent p; and
co-assignee exaptation potential is defined as the number of citations received or
made by patent p, up to the end of 2012, by patents owned with a co-assignee. The
external exaptation potential score (0.376) is higher than the internal (0.362) and
the co-assignee score (0.338) with respect to all patents considered. If we consider
only the average score with respect to the cited patents’ group (third analysis),
also in this case, the external exaptation potential is the highest (0.446), followed
by the co-assignee score (0.379) and the internal score (0.317). In the case of
the citing patents’ group (fourth analysis), the internal exaptation average score
(0.377) is higher than the external score (0.333) and the co-assignee score (0.325).
As a third step of the analysis we conducted an analysis of variance test
(Anova) on the statistical significance of the differences between different groups
with respect to the exaptation potential score. The one-way Anova compares the
means between the groups one is interested in and determines whether any of
those means are statistically significantly different from each other. Specifically,
it tests the null hypothesis:
H0: µ1 = µ2 = µ3 ... = µκ
where µ = group population mean and k = number of groups.
Estimates represent the difference between the mean of the first group (taken as
a reference) and the mean of each other group. The results of the test are reported
in Table 13.7.
The Anova test highlights some interesting characteristics of the role of exapta-
tion in L’Oréal’s technological trajectory. First, it shows that, on average, there
is a slight but significant difference in the exaptation potential of backward cited
patents and forward citing patents. This result could be affected by the asymmetry
existing between cited and citing patents in terms of probability of being cited,
following a certain year. However, in the case of L’Oréal, this distortion is mini-
mal due to the long time series of patents available. This may reflect the scientific
orientation and exploitive capacity of the firm, which invests in the production
and acquisition of scientific knowledge and transforms it into market products. In
fact, as we have already argued, the exploitation potential of scientific knowledge
is higher than that of applicative knowledge. This is due to the abstract nature of
scientific knowledge, which may find application in many different technological
classes and subclasses.
Second, it shows that firms’ boundaries and control are relevant for the exapta-
tion potential of both cited and citing patents. In case of cited patents, exaptation
potential is affected negatively by the level of control exercised by the company in
the production of that knowledge. It is the highest when the cited patent is granted
to an external assignee, who is not directly related to L’Oréal. This implies that
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Innovation and knowledge reutilization 325
L’Oréal has the capacity to perceive the potential embedded in the application of
knowledge developed outside of the company and translate (exapt) it into poten-
tial value in technological subclasses that are different from the original ones. It
is the lowest when the cited patent is owned by L’Oréal itself. This implies that
innovation is more adaptive. Thus, there is more strategic foresight in the exploi-
tation of internal patents, which may bind the capacity of the company to perceive
alternative technological applications for the same knowledge. It is intermediary
when L’Oréal is co-assignee. The interaction with an external partner seems to
affect positively the exaptive capacity of the firm, but to a lesser extent than the
market.
The opposite is true in the case of citing patents. The exaptation potential
is the lowest in the case of citing patents granted to an external assignee. This
implies that external parties find it difficult to exploit the potential embedded
in patents owned by L’Oréal in different technological subclasses. This may be
consequence of an aggressive patent strategy applied by L’Oréal, which aims
to protect the value of the patents’ portfolio and is more orientated to exploit
internally the knowledge either produced or acquired. It is the highest when the
assignee is L’Oréal. It is again intermediary when L’Oréal is co-assignee of the
citing patents.
L’Oréal and the acquisition of externally-based dynamic capabilities
The acquisition path relates to an important feature of the L’Oréal modality
through which exaptation was pursued: when new desired competencies were not
Table 13.7 Anova test results
Variable Coeff. (Std. err.)
Cited (all patents) 0.385 (0.351)
Citing (all patents) −0.055 (0.021)*
Internal (all patents) 0.365 (0.573)
External (all patents) +0.011 (0.733)
Co-assignee (all patents) −0.027 (0.611)
Internal (only cited) 0.317 (0.493)
External (only cited) +0.129 (0.015)***
Co-assignee (only cited) +0.062 (0.025)*
Internal (only citing) 0.367 (0.212)
External (only citing) −0.331 (0.115)**
Co-assignee (only citing) −0.462 (0.037)***
Significant codes 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘ ‘ 1
Source: Authors’ elaboration on Orbit database.
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326 Fiorenza Belussi et al.
internally available, they were acquired in the market. In 1973 the company diver-
sified into pharmaceuticals and publications through two acquisitions: a French
pharmaceutical firm, Synthélabo, and a French publication house, Marie Claire.
Synthélabo made products for arterial diseases and hospital equipment and its
acquisition allowed L’Oréal to become the third largest pharmaceutical company
in France. Nevertheless, L’Oréal’s investment in the pharmaceutical industry
never translated into a source of innovation in beauty products until the 1990s. At
that time many companies in the pharmaceutical industry tried to enter into the
‘cosmetic’ market of beauty, competing directly with L’Oréal. However, after a
while, they were out of the market and many of them (or the technicians from their
laboratories) were absorbed by L’Oréal (Jones, 2008).
Thus, for a long time, the new scientific competence acquired in the area of
the pharma industry remained ‘silent’. In 1974 François Dalle, managing director
of L’Oréal since 1954, was looking for a large company to invest in L’Oréal and,
after trying to reach an agreement with Unilever, (which in the end rejected his
offer), successfully persuaded Nestlé to acquire a 25 per cent stake in the L’Oréal
business. Thus, nearly by serendipity (historical accident), Nestlé became a sig-
nificant shareholder in L’Oréal. In addition, Nestlé also became the majority
owner of Cosmair, a private US company, which had the exclusive licence to
distribute L’Oréal’s brands in the US. This was an important step towards the
internationalization of L’Oréal, but also set out their future technological collabo-
rations. In 1979 L’Oréal, together with Nestlé, founded a new research centre, the
International Dermatology Research Centre (CIRD) in Sophia Antipolis, France,
with the aim of conducting fundamental research into skin physiology. The acqui-
sition of a pharma firm in 1973 was thus developed into something more demand-
ing and innovative. After the complete debacle of many pharma firms that have
tried to enter into the cosmetic market, which is well protected by the cosmetic
leader, L’Oréal entered into the pharma market, bringing its accumulated experi-
ence. Thus, in 1981, Nestlé and L’Oréal formed a joint venture that became one
of the world’s leading dermatology players: Galderma. From the 1980s onwards,
L’Oréal strengthened its presence in the global beauty industry by acquiring dif-
ferent companies in a variety of geographical locations and product segments.
Yet, in the 1990s, L’Oréal still remained primarily a hair care company, with skin
care and cosmetics confined to the smaller luxury component of the company
and heavily dependent on the European market. When François Dalle retired in
1988, he chose as the new chief executive of the company Lindsay Owen-Jones,
who was able to boost the globalization of L’Oréal and enlarge its product port-
folio. The effects are clearly visible in Table 13.8, where, from 1993 onwards,
we see a huge expansion of L’Oréal through acquisitions of American brands
(Cosmair, Redken, Matrix, Maybelline, etc.). While in the mid-1990s, L’Oréal
still generated 63 per cent of its sales in Western Europe and 20 per cent in North
America, by 2008 these proportions had changed to 45 per cent and 23 per cent
respectively. L’Oréal, therefore, became a truly global company, well established
in the new emerging markets. L’Oréal’s acquisitions and joint ventures are shown
in Table 13.8.
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Table 13.8 L’Oréal acquisitions and joint ventures
Year Company Country Product segment
1928 Monsavon* France Soap business
1961 Cadoricin France Shampoos
1965 Lancôme France Skin care – luxury products
1970 Biotherm France Skin care – luxury products
1973 Marie Claire** (equity investment)
Synthélabo (53% stake)
France
France
Publication (magazine)
Pharmaceuticals
1984 Canal Plus (10% stake)
Warner Communications’
fragrance and cosmetics business
(Gloria Vanderbilt and Ralph
Lauren Fragrances)
Helena Rubinstein (first operations
in Latin America and Japan,
acquisition completed in 1988)
France
US
US
Pay television
Perfumes and cosmetics
Cosmetics
1988 Mennen
Laboratories Pharmaceutiques La
Roche-Posay
Lanvin***
US
France
France
Cosmetics
Cosmetics
Fashion house
1990s Liechtenstein Pharmazeutica
Irex
Germany
France
Generic Drug Co.
Make up
1991 Laboratories Delagrange
Delalande
Vita Farmaceutici
France
France
Italy
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
1993 Redken US Professional hair care
1994 Cosmair US Professional hair care
1996 Maybelline US Make up
1998 Soft Sheen
Carson
US
US
Ethnic hair care
Ethnic hair care
2000 Matrix Essentials US Hair care (salon only)
Kiehl’s
Shu Uemura (35% stake, majority
control in 2003)
Respons
Dermablend
US
Japan
US
US
Hair care, skin care
Make up
Shampoos, hair care
Cosmetics
2001 Colorama
Biomedic
Brazil
US
Make up, hair care
Skin care
2002 ARtee US Hair care
2003 Innēov (joint venture with Nestlé) US Marketing for nutritional
supplements for skin &
hair skin care
(continued)
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328 Fiorenza Belussi et al.
L’Oréal and Innēov: how to perform an activity of extensive exaptation,
creating a complex dynamic innovation ecosystem
As consumers worldwide increasingly seek out new ways to stay healthy and
maintain a youthful appearance, cosmeceuticals and nutricosmetics have been
hailed as the next ‘big thing’ in the beauty industry. Euromonitor International
estimates that sales of beauty supplements totalled more than US$2.7 billion in
2009, equating to 8 per cent of global retail expenditure on dietary supplements.
The cooperation of L’Oréal and Nestlé was initially only based on finance
issues (in 1974 Nestlé became a significant shareholder in L’Oréal) but over time
the two organizations have started to cooperate at the productive level as well. In
the 1970s Nestlé expanded its product portfolio to include pet foods, pharmaceu-
tical products and cosmetics too. Thus the two organizations started to become
technologically more similar.
The alliance with L’Oréal was kept alive through a common investment in the
creation of CIRD in Sophia Antipolis, France, in 1979. The collaboration gave rise
to a joint venture based in Switzerland: Galderma, a global leading pharmaceuti-
cal company specializing in the research, development and marketing of innova-
tive medical solutions in dermatology. The two industry giants joined forces to set
up another joint venture based in France: Laboratoires Innēov, in 2003.
Innēov, the joint venture between L’Oréal and the Nestlé Group, was organized
with the aim of exploring the new niche market, that of nutricosmetics, through a
line of new products (functional foods, mainly available in pills, tablets, creams
and beverages) that are supplements to a person’s diet. It represents the research
laboratory where the knowledge on properties and conservation of foodstuffs has
been exapted into the cosmetic sector knowledge for the creation of nutritional
health and beauty supplements. L’Oréal was interested in what has been gener-
ally known as ‘beauty pills’ for a number of years, but it waited until a clear
Table 13.8 (continued)
Year Company Country Product segment
2004 Yue-sai China Make up and skin care
2005 SkinCeuticals
Delial
US
US
Professional skin care
Suncare
2006 The Body Shop
Sanoflore
SkinEthic
GB
France
France
Natural beauty
Natural beauty
Tissue engineering
2007 PureOlogy US Professional hair care
2008 YSL Beauté France Perfumes, cosmetics, skin
care
*L’Oréal sold Monsavon to P&G in 1961 and used the cash to invest in research and other acquisitions.
**L’Oréal divested 49% stake in Marie Claire in 2001.
***L’Oréal divested 100% stake in Lanvin in 2001.
Sources: Our adaptation on http://www.loreal.com/ and Jones (2010).
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Innovation and knowledge reutilization 329
EU directive framework was formalized before making its move. Actually, one
of the major recent launches of Innēov includes the lycopene-containing supple-
ment Innēov Fermeté. Lycopene was initially marketed on the basis of its cancer-
fighting properties; however, it is now promoted as a beauty/skin health enhancer.
Innēov Fermeté, designed to be taken daily, reportedly slows the effects of skin
ageing. It is currently being sold in parts of Europe, Latin America and the UK.
Nearly all of the 26 patents registered in the last decade by Innēov, L’Oréal
and Nestlé share the common feature of being classified both as cosmetic (A61K)
and toilet (A61Q) preparations, but in 13 cases they incorporated new knowl-
edge related to therapeutic preparations (see Table 13.9) and, in 9 cases, the new
knowledge is related to the conservation of foodstuffs.
Thus, nutraceutical supplementary diet tablets exapt knowledge from distant
technological domains. These beauty and functional pills develop a new func-
tionality in comparison with the typical L’Oréal products. In particular, elements
of natural products such as green and roasted coffee beans are reused to extract
phenols to support skin regeneration and regulation of pigmentation disorders.
Old ingredients like vanillin in this context are used as important preservative
compounds. We have also analysed the collaboration network for the cited patents
by Innēov from one side and the collaboration network for the cited patents by
L’Oréal and Nestlé on the other. We have seen that the previous patents registered
by Innēov are only a small subcluster in comparison with the wide structure of
the entire network, which is dominated by two large cliques related to nutritional
food stuffs. In reference to the second network of collaborations, we have seen
the marginal position of the self-citation of L’Oréal and Nestlé in generating the
new knowledge in comparison with wide co-assignees’ networks. This new niche
Table 13.9 Descriptions of patent codes of the 13 Innēov patents and the nutraceutical
patents of L’Oréal (7) and L’Oréal and Nestlé (6)
Code Description Number of patents in the class
A61K Preparations for medical, dental or
toilet purposes
25
A61Q Use of cosmetics or similar toilet
preparations
23
A61P Therapeutic activity of chemical
compounds or medicinal preparations
16
A23L Foodstuffs and preservation 9
C07C Acyclic or carbocyclic compounds 7
C07D Heterocyclic compounds 1
C08G Macromolecular carbon-to-carbon 1
C11C Fatty acids 1
C11D Detergent compositions 1
Source: Authors’ elaboration on Orbit database.
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330 Fiorenza Belussi et al.
in nutraceuticals has arisen from the recombination of knowledge deriving from
multiple external research groups. This supports the important role played by the
exaptation of old knowledge derived from the complex recombination of compe-
tences of various research groups.
The possibility of cooperation between food and personal care manufacturers
has been around for a long time; nevertheless, in the 1970s this alliance opened
up new niche markets for health and beauty food supplements. The venture estab-
lished draws on key strengths from each participant. The new products – dietary
supplements – are intended to improve the appearance of hair, nails and skin, mainly
by combining Nestlé’s nutritional know-how with the dermatological expertise of
L’Oréal. Aside from the benefits of sharing knowledge, one advantage of entering
the cosmeceuticals industry is that there is no necessity for the rigorous health and
safety testing routinely applied to new drugs in pharmaceuticals. Nestlé and L’Oréal
have taken the risk of being the first to move into this industry. There are clear
advantages to this: there will be less regulation in the market then in pure pharma
markets, no competition during the market entry phase and the opportunity to estab-
lish a brand name and win consumer loyalty early on. Nestlé, by aligning its inter-
ests in nutricosmetics with other partners, has spread its risk. Colgate-Palmolive has
teamed up with Nestlé to develop portable oral care products. The new partnership
aims to build up the distribution of Colgate dental gum and the development of new
oral care confectionery products. The venture has proved to be successful and the
two companies have launched innovative, portable oral care solutions worldwide.
Colgate has brought its expertise in oral care to the table. Nestlé, meanwhile, has
knowledge of the confectionery market and, crucially, has a strong distribution net-
work with both highly fragmented confectionery vendors and multiples.
The potential for functional confectionery solutions is strong. Most confection-
ery products are available in single serve portions, are typically small and easy to
eat on the move and are not excessively intrusive into people’s diets. The popu-
larity of sugar-free chewing gums to combat tooth decay has been a worldwide
success, monopolizing the share of sugared gum in almost all markets. Future
developments of functional chewing gums may stretch beyond oral care to focus
on delivery of medical care, personal care or performance boosts. Whatever new
products are dreamt up in the future, Nestlé is keen to spearhead the development
of functional foods in a big way. By aligning its interests in nutricosmetics with
other partners it can spread risk, speed up development and share expertise. Up
until now the functional foods’ segment has been a tough market to crack, with
much promise and only a handful of success stories, such as Yakult drinks. Nestlé
is clearly keen to boost its own chances of success by bringing several parties to
the table and there may be opportunities for other companies to team up with them
in their next potential functional food joint venture. The network of Nestlé partners
can, in turn, be very useful also for the development of new products by L’Oréal.
One example is that of the partnership with Coca-Cola. In the early 1990s, Nestlé
entered into an alliance with Coca-Cola in ready-to-drink teas and coffees in order
to benefit from Coca-Cola’s worldwide bottling system and expertise in prepared
beverages. In 2007 Coca-Cola signed an agreement with L’Oréal to launch a new
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Innovation and knowledge reutilization 331
skin-enhancing beverage. The product will be called Lumaé and will be a bever-
age based on tea targeted towards women over 25 years old who want to take care
of their skin wellbeing. This very active involvement within the niche market of
nutricosmetics did not limit the overall innovation activity of the firm, that during
recent years has intensified in terms of registered patents.
Conclusions
In this study, through the lenses of the evolutionary theory of the firm, we examined
how the exaptation process can shape a firm’s innovative capabilities. A combina-
tion of knowledge accumulation, external relationships, luck and foresight might be
seen as part of an exaptation process, which allows the firm to create new products
and enter or generate new market niches. Our arguments are validated through the
analysis of the L’Oréal case, the giant of the beauty industry that more than oth-
ers has played a crucial role in the evolution of the beauty ecosystem, being able
to co-evolve with the business environment. We reconstructed the historical pat-
tern of innovations developed by the firm, by means of a collection of information
coming from secondary sources. An important mechanism of exaptation has been
described through which the firm evolved, forming a complex system of research
alliances and embarking on numerous acquisitions. In the case of L’Oréal, we high-
lighted two types of exaptive processes based on acquisitions: narrow and extensive
exaptations. They were both based on strategic acquisitions, for acquiring external
knowledge to sustain the innovation strategy of the firm. The latter was the case of
nutricosmetics innovation, where the competencies of Nestlé were combined with
those of L’Oréal to create a new market niche: nutricosmetics.
We contribute to existing literature on innovation by offering a new typology
of the exaptive processes, giving an accurate description of the interface between
exaptive innovations, depending upon the reuse of knowledge for other function-
alities and non-exaptive, internal R&D-based innovations. We pinpoint the inter-
play between internal and external resources as drivers of exaptation. In our view,
exaptation works not only with resources that are internally created by the firm
but also within the complex net of external research collaborations and acquisi-
tions that dynamic firms are able to create and settle. The capacity of the firm to
co-evolve with its business ecosystem is another relevant element.
The quantitative analysis clearly pointed out that the L’Oréal exaptation poten-
tial related to its own patents and, also, to external patents, is significantly higher
than other firms’ exaptation potential regarding L’Oréal’s patents. This means
that the profound knowledge of its own technological base, joined with several
acquisitions/R&D collaborations, can lead to a greater capability in the reuse of a
technological artefact in different technological areas and for different functions,
more or less, distant from the one it was originated for. From a managerial point
of view, acquisitions and R&D collaborations seem to be the essential ingredients
to maximize the exaptation potential inside a firm.
Shifting from biology to business, we were able to demonstrate that exaptation
is not only a single event but can manifest itself within a process, which can be
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332 Fiorenza Belussi et al.
articulated by firms in their long period of development. Moreover, we showed
that exaptation may originate from outside the acquired resources (through rela-
tional dynamic capabilities) and that innovation can be linked to a complex spiral
of continuous and discontinuous innovation that characterizes the specific evo-
lutionary trajectory of a firm, giving rise to a complex and multilevel dynamic
business ecosystem. In this chapter we approached the analysis of the exaptation
process by applying a case study methodology. We studied, through a qualita-
tive historical reconstruction, the firm innovation activity and how competence,
knowledge and capabilities were reused and recombined into new products, gen-
erating market niche speciation à la Adner and Levinthal (2000).
Notes
1 The shift of the concept of exaptation from biology to economics needs to acknowledge
that firm behaviour cannot be seen as a completely random phenomenon, but can be
interpreted as the consequence of the capacity to exploit visible and latent opportuni-
ties hidden in technologies, processes and market needs, in Gould and Vrba’s (1982: 6)
words, pushing characters (old knowledge) towards fitness.
2 Mainly the company website, Jones (2010) and the QPat database.
3 The generation of a new artefact from an enlarged agent/artefact space might be con-
fused with a diversification process, but it is not if the artefact is not only new to the firm
(in the case of Figure 13.1, organization A) but also new to the market.
4 He only had one daughter, Liliane, who married the French politician, André Bettencourt,
in 1950. In 1957 Liliane Bettencourt inherited the L’Oréal fortune when her father died,
becoming the principal shareholder of L’Oréal.
5 The products known as shampoos derive from the Hindi word for massage and date
back to 1877 when English hairdressers boiled soap in soda water and added herbs for
health, fragrance and manageability. During the Victorian age, their use was widespread
in thermal baths in England. Originally, soap and shampoo were very similar products:
both containing surfactants, a type of detergent.
6 For the details on the original measure, see Trajtenberg et al. (1997: 28).
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