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Business Unit Reorganization and Innovation in New Product Markets

  • 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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    File URL: http://dx.doi.org/10.1287/mnsc.1090.1017
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    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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    1. Lind, Jo Thori & Mehlum, Halvor, 2007. "With or Without U? The appropriate test for a U shaped relationship," Memorandum 21/2007, Oslo University, Department of Economics.
    2. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    3. Melissa A. Schilling & Patricia Vidal & Robert E. Ployhart & Alexandre Marangoni, 2003. "Learning by Doing Something Else: Variation, Relatedness, and the Learning Curve," Management Science, INFORMS, vol. 49(1), pages 39-56, January.
    4. Brickley, James A. & Van Drunen, Leonard D., 1990. "Internal corporate restructuring : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 251-280, January.
    5. Langlois, Richard N. & Robertson, Paul L., 1992. "Networks and innovation in a modular system: Lessons from the microcomputer and stereo component industries," Research Policy, Elsevier, vol. 21(4), pages 297-313, August.
    6. Granstrand, Ove & Sjölander, Sören, 1990. "The Acquisition of Technology and Small Firms by Large Firms," Working Paper Series 213, Research Institute of Industrial Economics.
    7. Granstrand, Ove & Sjolander, Soren, 1990. "The acquisition of technology and small firms by large firms," Journal of Economic Behavior & Organization, Elsevier, vol. 13(3), pages 367-386, June.
    8. Abernathy, William J. & Clark, Kim B., 1985. "Innovation: Mapping the winds of creative destruction," Research Policy, Elsevier, vol. 14(1), pages 3-22, February.
    9. Fariborz Damanpour, 1996. "Organizational Complexity and Innovation: Developing and Testing Multiple Contingency Models," Management Science, INFORMS, vol. 42(5), pages 693-716, May.
    10. Capron, Laurence & Mitchell, Will, 1998. "Bilateral Resource Redeployment and Capabilities Improvement Following Horizontal Acquisitions," Industrial and Corporate Change, Oxford University Press, vol. 7(3), pages 453-84, September.
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