Vikas Aggarwal, INSEAD; David Hsu, Management, The Wharton School; and Andy Wu, Harvard Business School
Strategy Science, Volume 5, Issue 1, March 2020
Abstract: How should firms organize their pool of inventive human capital for firm-level innovation? Although access to diverse knowledge may aid knowledge recombination, which can facilitate innovation, prior literature has focused primarily on 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 distribution of inventor knowledge diversity across production teams, an overlooked dimension of a firm’s internal organization design. We study two contrasting forms of organizing the firm-level knowledge diversity environment in which a firm’s inventors are situated: diffuse (high within-team diversity and low across-team diversity) versus concentrated (low within-team diversity and high across-team diversity). Using panel data on new biotechnology ventures founded over a 21-year period and followed annually from inception, we find that concentrated structures are associated with higher firm-level innovation quality, and with more equal contributions from their teams (and the opposite for diffuse structures). Our empirical tests of the operative mechanisms point to the importance of within-team coordination costs in diffuse structures and across-team knowledge flows in concentrated knowledge structures. We end with a discussion of implications for future research on organizing for innovation.