Innovating through Acquisition and Internal Development: A Quarter-century of Boundary Evolution at Johnson & Johnson

This article discusses how firms innovate within and across firm boundaries by reconfiguring their resources and business units over time. Focusing on acquisitions and internal development as key aspects of business dynamics, the authors track the evolution of 87 product lines and 88 business units in Johnson & Johnson’s medical sector from 1975 to 1997. The study highlights the dual importance of acquisitions and internal development as sources of value and innovation for a firm, along with the complementary role of business unit reconfiguration. The company commonly looked beyond its boundaries for new resources, acquiring most of its product lines and units during the period, and actively reconfiguring most acquired units in attempts to create new value, rather than simply leaving them to operate within their original boundaries. In addition, unit reconfiguration commonly preceded product line movement across unit boundaries, providing evidence of the embedded nature of resources within structure. At the same time, however, internally developed resources and units were more likely to be retained: indeed, stable internally created units, where business routines were most understood, were the most common sources of innovations. The underlying message of these evolutionary patterns is that innovation stems from maintaining a deep understanding of organizationally-embedded routines, while undertaking careful ongoing redefinition of unit and firm boundaries.