Intra-Organizational Integration and Innovation: Organizational Structure, Environmental Contingency and R&D Performance

It is widely thought that intra-firm integration has a positive effect on organizational performance, especially in environments characterized by complex and uncertain information. However, counter arguments suggest that integration may limit flexibility and thereby reduce performance in the face of uncertainty. Research and development activities of a firm are especially likely to face complex and uncertain information environments. Following prior work in contingency theory, this paper analyzes the effects of intra-organizational integration on manufacturing firms’ innovative performance. Based on a survey of R&D units in US manufacturing firms and patent data from the NBER patent database, we examine the relation between mechanisms for linking R&D to other units of the firm and the relative innovativeness of the firm. Furthermore, we argue that the impact of integration may vary by the importance of secrecy in protecting firms’ innovation advantages. We find that intra-firm integration is associated with higher self-reported innovativeness and more patents. We also find some evidence that this effect is moderated by the appropriability regime the firm faces, with the benefits of cross-functional integration being weaker in industries where secrecy is especially important. These results both support and develop the contingency model of organizational performance.