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Organizing for Innovation in Large Firms

  • Julian, Birkinshaw

    ()

    (London Business School)

  • Fey, Carl

    (Dept. of Business Administration, Stockholm School of Economics)

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    Determining how a firm can best be organized to facilitate innovation is a topic of central importance to managers and academics alike and is thus the focus of this paper. Specifically, this paper focuses on two important components of organizing for innovation: design of R&D resource allocation systems and the use of external sources of technology. The study makes a theoretical contribution by developing the metaphor of the "internal market" as useful mechanism for resource allocation inside the firm. In addition, the research benefits from using a two-phase empirical approach. The first phase consists of four in-depth case studies of HP, ABB, Ericsson, and Xerox's global R&D organizations. For the second phase of the study, a questionnaire was developed to test the study's hypotheses on a sample of 103 large firms. The study's key findings are that increased use of external sources of technology results in increased efficiency, but decreased effectiveness. However, results also indicate that it is always important to perform environmental scanning activities. No strong relationships were observed between the use of internal markets as a resource allocation system and firm performance. The case studies reveal that this lack of relationship is likely because leading firms have learned to develop checks and balances to help overcome the weaknesses that their resource allocation system possesses.

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    Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Business Administration with number 2000:5.

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    Length: 31 pages
    Date of creation: 19 Apr 2000
    Date of revision:
    Handle: RePEc:hhb:hastba:2000_005
    Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, SE 113 83 Stockholm, Sweden
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    1. Teece, David J., 1996. "Firm organization, industrial structure, and technological innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 31(2), pages 193-224, November.
    2. Veugelers, Reinhilde, 1997. "Internal R & D expenditures and external technology sourcing," Research Policy, Elsevier, vol. 26(3), pages 303-315, October.
    3. John Hagedoorn & Rajneesh Narula, . "Innovating through strategic alliances: moving towards international partnerships and contractual agreements," STEP Report series 199805, The STEP Group, Studies in technology, innovation and economic policy.
    4. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 217-23, December.
    5. Teece, David J., 1993. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," Research Policy, Elsevier, vol. 22(2), pages 112-113, April.
    6. Narula,Rajneesh, 1999. "Choosing between internal and non-internal R&D activities: some technological and economic factors," Research Memorandum 022, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    7. Iansiti, Marco, 1997. "From technological potential to product performance: an empirical analysis," Research Policy, Elsevier, vol. 26(3), pages 345-365, October.
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