Rapid technological progress in high-tech industries often triggers a technology race that pushes the technology frontier outward (Khanna, 1995). In many technology markets the locus of competition revolves around a sequence of co-existing generations of technologies emerging along a clearly defined technological trajectory. Firms in such product markets often confront a critical decision on technology advancement 2 : by how much should they advance the level of the technology in their products (Gaba & Bhattacharya, 2012)? This decision is fraught with major strategic implications stemming from a basic tradeoff. On the one hand, advancing the firm’s current technology strengthens its competitive position (Mas-Ruiz & Ruiz-Moreno, 2011); on the other hand, moving too far ahead may expose the firm to costs and risks inherent in uncharted territory (Chen & Miller, 2007).3 Firms undertake varying degrees of technology advancement when faced with this tradeoff: some firms may move in small steps by deploying technologies that are only slightly more advanced than their current ones, while others may be more aggressive by leaping over several generations at once. One question naturally arises: Which factors can help explain variation in the degree of technology advancement among firms?

Despite many studies of how firms advance their technology (e.g., Aghion, Harris, & Vickers, 1997; Bohlin, Gruber, & Koutroumpis, 2010; Leiblein & Ziedonis, 2007), only a couple studies (Lee, Kim, & Lim, 2011; Lerner, 1997) have examined specifically the degree of technology advancement undertaken by firms. Prior studies have generally analyzed technology advancement decisions by firms as competitive moves in a technology race, focusing mainly on the strategic dynamics underpinning such technology moves. Advancement moves are seen as the revealed strategy of firms (Aghion et al., 1997; Bohlin et al., 2010). These important studies leave somewhat open, however, just what is driving the decision-making process of individual firms in determining their degree of technology advancement. In order to gain deeper insight into firm decision-making processes we focus specifically on behavioral factors underlying the firm’s technology advancement decisions. We endeavor to isolate behavioral factors from other influences so as to derive a more theory-based understanding.

To this end, this paper builds upon the perspectives of problemistic search and slack search from the behavioral theory of the firm (BTOF) to study technology advancement. These perspectives can explain a variety of risk-taking behaviors by firms (Massini, Lewin, & Greve, 2005; Miller & Chen, 2004). The empirical relevance of these two theoretical perspectives has been demonstrated for many strategic decision areas, including corporate venture capital (Gaba & Bhattacharya, 2012), R&D intensity (Chen & Miller, 2007; Greve, 2003), and innovation (Nohria & Gulati, 1997).