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The 80/20 rule: Corporate support for innovation by employees

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  • Krasteva, Silvana
  • Sharma, Priyanka
  • Wagman, Liad

Abstract

We model an employee's decision to pursue an innovative idea at his employing firm (internally) or as a start-up (externally). We characterize an idea by its market profitability and the degree of positive/negative externality that it imposes on the employing firm's profits. The innovation process consists of exploration and development. Exploring an idea internally grants the employee access to exploration support provided by the firm but reduces his appropriability of the idea. We demonstrate that ideas exhibiting weak externalities are explored and developed externally, whereas ideas with strong externalities are explored and handled internally. Moderate externalities are associated with internal exploration but subsequent external development. An increase in the firm's exploration support attracts internal exploration of a wider range of ideas but may increase the likelihood of subsequent external development. We further show that while the optimal level of exploration support rises with the firm's innovation appropriability, overall profits may decline.

Suggested Citation

  • Krasteva, Silvana & Sharma, Priyanka & Wagman, Liad, 2015. "The 80/20 rule: Corporate support for innovation by employees," International Journal of Industrial Organization, Elsevier, vol. 38(C), pages 32-43.
    • Handle: RePEc:eee:indorg:v:38:y:2015:i:c:p:32-43
    DOI: 10.1016/j.ijindorg.2014.11.002
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    More about this item

    Keywords

    Innovation; R&D; Entrepreneurship; Exploration support;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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