On the heels of giants: Internal network structure and the race to build on prior innovation

Research Summary: Strategy research has long been concerned with how firms build on the technological knowledge they create, and has focused on legal enforcement, complementary assets, and location decisions. Less attention has been paid to how internal firm structures support the appropriation of future cumulative innovations: what has been termed “generative appropriability.” Drawing on innovation and social network research, we propose that more integrated intrafirm inventor networks, and those with nearly decomposable structures, facilitate generative appropriability by accelerating within-firm generation of follow-on innovations, thus outpacing rivals. We find evidence for these effects in patent data from 1,417 large corporations over 26 years. The acceleration effect is strongest in the critical first few years after an initial invention. Managerial Summary: Innovation is a cumulative and competitive process, so if firms fail to build on their own innovations quickly, rivals will capture value by doing so. We study how the degree to which a firm's inventors are connected to each other through co-patenting relationships is related to its ability to build on its prior innovations faster than rivals. We find that firms whose researchers are connected to more of its other researchers are better able to quickly develop follow-on innovations, but this advantage decays over time. We also find that the pattern of connectedness most associated with this outcome is one in which tight clusters of researchers in the core of the network are linked to each other by “bridging ties.”.