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Innovation , Resources and Investment Strategies in the US Energy Sector

Recent studies show that the US energy sector’s investment (particularly by the private sector) in technology development and innovation has been declining, lagging behind other sectors in the economy, and mainly focused on the fossil fuel-based areas related to the needs of the oil and gas industry. In this paper, we offers new insights on whether the U.S. energy sector has optimally managed the deployment of different types of slack (unused) resources in pursuing investment in R&D and new technologies vs. existing assets and core efficiencies. Using a multi-industry sample of technology-intensive firms provided by the Boston Consulting Group (BCG), our results provide important evidence showing that, beyond macroeconomic influences, firm-specific factors have played an important role in explaining the energy sector’s observed lack of adaptability. Energy sector’s slack resources and R&D investment profile was found, on average, to be markedly different from those in other sectors. The energy sector did not pursue a balanced investment strategy by simultaneously exploiting existing assets and exploring new opportunities – being ambidextrous. Energy was the most “exploitative” and the least “explorative” sector with the highest (the lowest) average capital expenditures (R&D) intensities among the remaining sectors in the sample. The results also show that, in terms of longer-term profitability, the energy sector was significantly outperformed by the majority of other technology-intensive sectors. From a public policy perspective, our results call for more effective regulatory and tax policies focused on enhancing private-sector investment in energy innovation. We further believe as more adaptable technology intensive companies achieve higher profitability over time, energy firms will be pressured to better manage the balance between their slack resources and investment strategies to achieve higher performance through innovation.