R&D Organization Structure, Intra-firm Inventor Networks, and Innovation

Nick Argyres, Washington University in St. Louis; Luis Rios, Management, The Wharton School; and Brian Silverman, Rotman School of Management

Abstract: Prior studies have shown associations between organizational structure and innovation. However, most have been static and cross sectional, only showing variation across firms. This gap is problematic because it is not clear if firms can use structure as a lever to direct their research outcomes. Our analysis thus examines the effect of changes in firms’ R&D organizational structure on patent-based measures of innovative search and impact. We compare firms that centralized or decentralized their R&D structure to firms that remained stable. After documenting the shift in innovation that follows changes to formal organization structure, we explore the mechanisms underlying this shift by examining the relationship between changes in organization structure and changes in the characteristics of the intra-firm inventor networks within these firms. We estimate the effects of changes in R&D budget authority on the structure of intra-firm networks, as well as the effects of changes in these networks on the innovation measures. Finally, we examine the time lag between the initiation of a change in formal organization structure and the subsequent changes in inventor network structure and innovative effort. We find that increased centralization of R&D budget authority leads to increases in both the breadth of technological search and the breadth of impact of a firm’s innovations, as measured by patent statistics. Second, increased R&D centralization leads to changes in a firm’s inventor network. These changes involve the creation of new co-author patenting relationships between researchers who formerly did not co-author patents together. Thus, our study shows how changes in formal authority occur in large part through changes in intra-firm networks, which themselves change slowly.

Michelle Eckert is Marketing and Communications Coordinator for the Mack Institute, where she works to engage students, researchers, and corporate partners in opportunities for collaboration. Michelle received her B.A. in Art from Valparaiso University in 2007. Her background includes two AmeriCorps terms of service working to teach mathematics, computer literacy, and job readiness skills to out-of-school youth in Philadelphia, focusing particularly on promoting access to post-secondary education.