Knowledge diversity and technological innovation: The moderating role of top management teams

Abstract

Knowledge diversity between a firm's groups of inventors enables recombinatory search for innovation. Yet, such diversity remains rather useless unless it is actively exchanged among inventor groups. Inventor groups, however, tend to specialize by engaging in so-called perspective-making activities, that is, in intra-group knowledge exchange and specialization. This makes them increasingly unable to communicate and understand other inventor groups and creates a risk of incommensurability, which attenuates a firm's effectiveness in its recombination for innovation. Here, we draw on transformational leadership theory to understand how TMTs are enabled to motivate and inspire their inventor groups to share information and knowledge, to mitigate incommensurability risks. For a TMT to act as an effective transformational leader, information is key, and their ability to send, receive, and process information is shaped, following classic organization theory, by their structural attributes. Hence, we study three key TMT structural attributes that underlie its information-processing capacity: Hierarchical structure, functional structure, and administrative intensity. Based on a longitudinal dataset that includes 124 pharmaceutical firms, 2815 top managers, and 34,203 inventors, we show that the positive relation between inventor group knowledge diversity and innovation performance strengthens with a functional structure yet weakens with administrative intensity. We contribute to the literature with its emphasis on how TMT compositional characteristics influence its cognitive processes and decision-making on innovation, by studying how TMT structural characteristics shape its information-processing capacity to be effective as transformational leaders in motivating and inspiring inventor groups to engage in perspective-taking and overcome incommensurability.