The impact of partner organizational structure on innovation

Balachandran, S and Eklund, J (2024) The impact of partner organizational structure on innovation. Administrative Science Quarterly, 69 (1). pp. 80-130. ISSN 0001-8392

Abstract

Inter-organizational partnerships can spur innovation, but their value may be diminished by frictions in knowledge flows between firms. We consider how the knowledge accessible via partnerships may be impacted by a partner’s organizational structure. We focus on how a partner’s structure trades-off localized autonomy for its managers, which facilitates timelier decisionmaking, and unified control, which facilitates integration. By shaping this balance, centralization of decision-rights within the partner organization shapes access to its knowledge. Centralized structures generate wide-ranging internal knowledge pathways that enable access to a greater breadth of a partner’s knowledge. However, the reduced managerial autonomy afforded by centralization makes decision-making more cumbersome, which constricts the rate of access to a partner’s knowledge. We find evidence of this trade-off in the context of corporate venture capital relationships between incumbents and startups in the pharmaceutical industry. An increase in the diversity of knowledge possessed by the incumbent or in that required by the startup enhance the value of a greater breadth of access. Whereas the degree to which the startup can leverage social ties (affinity) or hierarchical fiat (authority) alleviate the costs of a reduced access rate. Each of these makes centralization of the incumbent organization more valuable to the startup.