The use of knowledge for technological innovation within diversified firms

We propose that searching for and transferring knowledge across divisions in a diversified firm can cultivate innovation. Using a sample of 211,636 patents from 1,644 companies during the period 1985–96, we find that the use of interdivisional knowl-edge positively affects the impact of an invention on subsequent technological devel-opments. Furthermore, the positive effect of the use of interdivisional knowledge on the impact of an invention is stronger than the effect of using knowledge from within divisional boundaries or from outside firm boundaries. Our empirical findings have significant implications for the management of knowledge in diversified firms. As to moving ideas around diverse businesses that don’t have a lot in common, General Electric does this because it has to. If it doesn’t, then it is just a holding company.... A breakthrough in GE’s Med-ical Systems business, with relatively little modifi-cation, led to a method by which an aircraft engine can transmit continuous information about blade speed, engine heat and other relevant data about its in-flight performance well in advance of any possi-ble safety situation. This innovation, in turn, cata-lyzed an important new development with respect to a self-monitoring system for use with heart pace-makers. I could cite any number of other examples having to do with sharing methods of selling, sourc-ing techniques, procedures for improved storage and security of data and so on.-Steve Kerr, vice presiden