Perspiring Effectively: Understanding the Relationship between Decentralization and the Development and Commercialization of Inventions

Though most patented inventions never come to fruition, strategic management scholars have paid more attention to the invention as opposed to the development and commercialization stages of innovation. I examine how firms’ organizational structures can shape how effectively they develop and commercialize their inventions. A pertinent structural tension that firms face regards their degree of decentralization. On the one hand, decentralization enables greater adaptability to react to changing circumstances. On the other hand, decentralization comes with the cost of reduced intra-organizational coordination. Through unpacking innovation into both development and commercialization and examining the decentralization of both firms’ Research and Development (R&D) units and overall organizations, I can start to gain richer insights into this tension. In the earlier, knowledge-rich stages of development and for firms that have greater knowledge diversity, the coordination costs of decentralization outweigh the adaptability benefits, thus leading to poorer development outcomes. Similarly, corporate decentralization is negatively associated with firms’ development outcomes regardless of the development stage. For commercialization, for firms with more complex product portfolios, the benefits of greater coordination and access to a firm’s full knowledge base outweigh the costs of reduced adaptability when addressing new products’ technical problems, thus R&D decentralization is associated with reduced new product sales. However, on average, corporate decentralization is positively correlated with the sales of new products as adaptability is more critical than coordination in the marketing and sales of new products. I find support for these arguments in the context of the pharmaceutical industry between 1995 and 2015.