Great Idea, Now What? Three Essays Examining the Relationship between Organization Design and Commercialization of Knowledge

Innovation is a key driver of a firm’s overall performance. Within an organization, innovation involves multiple actors transforming a firm’s knowledge into a final market offering. How an organization is designed can shape this transformation by influencing actors’ behaviors and interactions. However, despite prior studies, our understanding of the relationship between organization design and innovation is somewhat limited. In this dissertation, I offer a framework in which I conceptualize innovation as a process consisting of upstream tasks around invention, and downstream tasks around product development and commercialization. This enables me to combine both knowledge- and incentives- based views of the firm to develop a more complete theoretical understanding of the relationship between organization design and innovation. The design attribute I focus upon is the degree of organizational centralization. On the one hand, more centralized designs are associated with enhanced intra-organizational knowledge flows, which can enhance innovation. On the other hand, more decentralized designs are associated with higher observability of effort and facilitate the more effective use of incentives, which can increase innovation efforts. I empirically examine this trade-off in the context of the pharmaceutical industry. I use a unique dataset of firms’ patents, clinical trials, sales and organization structures supplemented by 61 interviews with senior managers from 28 of my sample firms. I find that greater decentralization while yielding higher numbers of inventions is associated with less original inventions, and fewer inventions progressing through the earlier stages of development. However, greater decentralization is associated with more inventions progressing through the later stages of development and greater sales of new products as a proportion of total sales. Further, I find that firms with decentralized Research & Development units are associated with a higher proportion of externally sourced inventions primarily driven by licensing. This dissertation contributes to the organization design and innovation literatures by highlighting where (in the organization) and when (in the innovation process) design choices can impact both how firms innovate as well as their innovation outcomes