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Business Unit Reorganization and Innovation in New Product Markets


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  • Samina Karim

    (School of Management, Boston University, Boston, Massachusetts 02215)

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    This paper empirically examines how business unit reorganization affects innovation, and explores how the learning process may mediate this relationship. Unit reorganization is the creation, deletion, or recombination of business units within a firm. Innovation is radical and involves product market entry by a firm into markets in which it was not previously active. I test competing hypotheses that predict either a U-shape or inverted U-shape relationship between reorganization and innovation to determine whether and how learning occurs in the presence of unit-level structural change. Theoretical support is drawn from literature on dynamic capabilities and organizational learning. The sample studied is 250 medical firms belonging to the pharmaceutical, healthcare-service, and medical-device industries, studied over a 20-year period. The findings are twofold. First, reorganization is found to exhibit a U-shape relationship with innovation, supporting learning arguments that stress the importance of experiencing a cohort of multiple events. Second, only reorganization experiences within a current period affect future innovation; past experiences do not impact future innovation, implying that firms may face constraints in organizational memory. The study concludes by exploring the structural origin (i.e., from internal, acquired, or recombined units) of innovative activity within firms.

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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 55 (2009)
    Issue (Month): 7 (July)
    Pages: 1237-1254

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    Handle: RePEc:inm:ormnsc:v:55:y:2009:i:7:p:1237-1254

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    Keywords: reorganization; innovation; organizational learning; reconfiguration; market entry; mergers and acquisitions; innovation origin; internal development; organizational memory; organic growth;


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    Cited by:
    1. Cheng, Cheng-Feng & Chang, Man-Ling & Li, Chu-Shiu, 2013. "Configural paths to successful product innovation," Journal of Business Research, Elsevier, vol. 66(12), pages 2561-2573.
    2. Richard Arend, 2014. "Entrepreneurship and dynamic capabilities: how firm age and size affect the ‘capability enhancement–SME performance’ relationship," Small Business Economics, Springer, vol. 42(1), pages 33-57, January.
    3. Yongchuan Bao & Shibin Sheng & Kevin Zhou, 2012. "Network-based market knowledge and product innovativeness," Marketing Letters, Springer, vol. 23(1), pages 309-324, March.
    4. Mukherjee, Debmalya & Gaur, Ajai S. & Datta, Avimanyu, 2013. "Creating value through offshore outsourcing: An integrative framework," Journal of International Management, Elsevier, vol. 19(4), pages 377-389.


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