Organizational change and the dynamics of innovation: Formal R&D structure and intrafirm inventor networks

Research Abstract Prior research has argued and shown that firms with more centralized R&D produce broader innovations, but the organizational mechanisms underlying this relationship are underexplored. This gap limits our understanding of whether and how formal R&D structure can be used as a lever to influence research outcomes. To address this question, we study the relationship between formal R&D structure, internal inventor networks, and innovative behavior and outcomes. We find that centralization of R&D budget authority increases the connectedness of internal inventor networks, which in turn increases the breadth of both innovation impact and technological search. Surprisingly, decentralization does not have the opposite effect. Our results suggest that changes in formal structure influence innovation outcomes through changes in inventor networks, with a lag reflecting organizational inertia. Managerial Abstract Diversified corporations can organize their R&D functions to be more or less centralized. Prior research has shown that this organizational choice is associated with different types of innovative outcomes. But what happens when a corporation changes its level of R&D centralization? This paper suggests that centralization of R&D gradually leads to new patterns of collaboration among inventors, which in turn will be associated with innovations that draw on and influence a wider range of technologies. However, future work is needed to understand why decentralization does not appear to have the opposite effect.