The Effect of Organizational Structure Change on Inventor Networks

Abstract: The last decade has witnessed a renewed interest in the relationship between the structure of the R&D function and the resulting innovative outcomes. Research has demonstrated that distinct formal organizational forms are associated with different patterns of innovation. This question is particularly important in light of mounting evidence that that the rate and direction of innovation is influenced by the structure of social networks, through the patterns of informal communication among a firm’s inventors. However, very little work has explored how changes in structure affect these correlations. To address this gap, we study the effect of changes in formal R&D organization structure on both informal organization and innovative outcomes, and explore the degree to which informal networks moderate the relationship between change in formal structure and in innovation. Using information on changes in formal R&D organizational structure undertaken by several firms, we examine the effects of these changes on traditional patent-based measures of innovative search and innovative impact. After documenting the shift in innovation that follows changes to organization structure, we then explore the mechanisms underlying this shift by examining the relationship between changes in formal organization structure and changes in the informal inventor network of relationships within these firms. We find that formal changes that centralize R&D budgetary control have a quick, significant, and persistent impact on the patterns of inventor co-authorship: Inventor networks become more centralized and denser. Conversely, these changes have either no impact or the opposite impact on inventor citation networks. We discuss future work that can exploit these network measures to tease out the relationship between organizational structure and innovation.