Creative Sparks: Innovating by Moving and Processing Knowledge

Does knowledge help innovation? This is a simple question that is difficult to answer. In science, training people well enough to build on the knowledge of others is essential for advancing knowledge. But also, knowing too much forces thinking into established streams, making incremental additions easier but radical innovation harder. In business, most firms will place their bets on knowing more, to the extent of locating R&D in places with expertise, such as Los Angeles for video games or Silicon Valley for electronics and software more generally. Some firms even scatter their R&D around to have multiple listening posts to capture local expertise.

It is exactly this practice of multiple R&D teams that has helped us learn more about knowledge and innovation. In a paper published in Administrative Science Quarterly, Alex Vestal and Erwin Danneels analyze breakthrough innovations in the nanotech industry. This industry has multiple places with expertise (“hotspots”), such as San Jose, Boston, and Los Angeles, and firms have a blend of R&D teams that are in these hotspots or in places with less concentrated expertise.
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So, does it help to be near expertise? It turns out that being too close to a hotspot with the same expertise as the firm is a drawback, just as scientists believe, but if the hotspot has slightly different expertise, the firm is more likely to produce a technological breakthrough. If the hotspot has expertise that is too different, a breakthrough is much less likely. The insight here is that one learns the most by being near, but not too near, the expertise of others. Maybe this is because being too close to the outside expertise means that there is little outside knowledge that needs to be moved inside the firm?

The explanation is not so simple as that. Instead, a hotspot with the same type of expertise as the firm may generate so much knowledge that it becomes difficult to process internally. But some firms had very close personal networks within their R&D team in the hotspot, which makes processing and integration of knowledge easier. For firms like that, there is no cost to being in a hotspot with the same expertise as the firm, because this makes technological breakthroughs much more likely.

Close networks among the local R&D team are not all good, however. Closely connected R&D teams are prone to ignoring knowledge gained from R&D teams in other locations, so they can fail to move knowledge that is already inside the organization but outside their specific location. As a result, the teams with close networks are less likely to make technological breakthroughs based on knowledge from outside their local hotspot.

This is interesting because it shows how the creative spark leading to innovation depends on how knowledge is moved around and processed. We have long known that hotspots for technology and innovation have knowledge moving quite freely, so firms can locate there to detect interesting knowledge and move it inside. Getting knowledge into the firm is not the same as using it effectively though. It needs to be moved to the right place in the firm, and it needs to be processed effectively.  

The key to gaining advantages is the social network inside the firm. Location relative to a hotspot of knowledge looks like an easy solution to the problem of facilitating innovations, but the firm also has to be able to move knowledge internally and process it internally. That means having employees who are willing and able to share knowledge.
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Vestal, Alex and Erwin Daneels. 2021. Technological Distance and Breakthrough Inventions in Multi-Cluster Teams: How Intra- and Inter-Location Ties Bridge the Gap. Administrative Science Quarterly, forthcoming.