Santa Clara University


The Next Big Thing

Sharing Information Inside a Company Could Trigger It

Where will the next big invention come from? A recent research paper co-authored by a Leavey School of Business professor suggests there’s a fair chance it will be the result of people within a diversified company sharing knowledge across divisions.

“When people working on a product draw on distant knowledge outside their own area of expertise and combine this with their existing knowledge, they’re more likely to come up with a radical innovation,” says Michael Fern, assistant professor of strategy at Santa Clara’s Business School. “Our research shows that in large, diversified firms that can occur within the organization.”

Assistant Professor Michael Fern

To determine whether there’s a trend of that sort of innovation occurring in business today, Fern and his co-authors looked at 211,636 patents granted to 1,644 companies in the years between 1985-96. They were particularly interested in comparing the knowledge used for both non-influential and influential patents (those cited frequently in subsequent patent applications).

Their findings were published in an Academy of Management Journal paper called “The Use of Knowledge for Technical Innovation Within Diversified Firms,” written by Douglas J. Miller of the University of Illinois, Fern, and Laura B. Cardinal of Tulane University.

Patent applications require the submitting inventor or organization to cite prior work that substantively influenced the application, and that allowed Fern’s research group to track both the source of ideas and the transformative impact of a patent, as measured by the frequency with which it was cited in later patent applications. Only 270 patents cited work from other divisions within the applying company, but their influence, as measured by future citations, was disproportionate to their small number.

The paper cites a concrete example of how that can work, by quoting Steve Kerr, vice president of corporate leadership development for General Electric Corporation, who says:

“A breakthrough in GE’s Medical Systems business, with relatively little modification, led to a method by which an aircraft engine can transmit continuous information about blade speed, engine heat and other relevant data about its in-flight performance well in advance of any possible safety situation. This innovation, in turn, catalyzed an important new development with respect to a self-monitoring system for use with heart pacemakers.”

Why does the transfer of knowledge across company divisions work so well? Fern points out that when people work within their own group and domain of knowledge, their innovations are likely to be more incremental than transformative. In order to take a big leap forward, they generally need to go outside their own frame of reference and conduct a “distant search” for knowledge.

There are a number of ways of doing that, including hiring new employees, acquiring other companies, going to conferences and conducting extensive web searches. But working with other divisions within the company can offer significant advantages.

“If you go to a conference, you can hear a good idea from someone and maybe talk to them for 45 minutes,” Fern says. “If you’re talking to other people within your own company, you can have a number of in-person meetings to ensure the knowledge is transferred and implemented appropriately.”

Fern says the practical application of the paper is that any firm with multiple product lines or units can benefit from identifying opportunities for sharing knowledge between these divisions within the company.

“In order to have an effective knowledge transfer system within the firm,” he notes, “you need to have processes, a corporate culture that supports them, and incentives to make it happen. Sharing of knowledge across divisions can be very impactful, but it’s not happening as often as it could.”

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