Organizing Knowledge Production within a Firm: How the Locus of Knowledge Diversity Shapes Firm-Level Innovation

Vikas Aggarwal, INSEAD; David Hsu, Management, The Wharton School; and Andy Wu, Harvard Business School

Abstract: While there is broad acknowledgement among strategy scholars that recombining diverse individual-level knowledge benefits firm-level innovation, prior literature has paid less attention to how variance in intra-firm organization may impact the efficacy of the knowledge recombination process. To this end, we examine the link between how a firm’s knowledge production teams are organized and the overall innovation output of the firm. Access to diverse knowledge is known to aid knowledge recombination; yet, the prior literature focuses primarily on only one way of achieving that: diversity of inventor-held knowledge within a given knowledge production team (“within-team knowledge diversity”). We introduce the concept of “across-team knowledge diversity,” which captures the extent to which knowledge diversity of a firm’s inventors is distributed across, rather than within, knowledge production teams. We propose that these two forms of knowledge diversity differ with respect to the conditions under which they are beneficial for firm-level innovation: within-team knowledge diversity is more beneficial when the firm pursues combinatorially-novel inventions; on the other hand, across-team knowledge diversity is generally beneficial for innovation, although the positive effect of across-team knowledge diversity is attenuated by higher levels of within-team collaborative experience. Using a panel dataset of all venture capital-backed U.S. biotechnology ventures founded over a 21-year period and followed annually from inception, we document supporting empirical patterns.

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