Explaining Involuntary Spinoffs from Teams

A firm consists of different teams with each of them producing a separate product (which may be related to other products of the firm). In turn, each team has individuals of different talents (though some talents may be substitutable across products) who work together to achieve synergies. Some team members may find it advantageous to induct new talents into an existing team and/or introduce new products based on their experience. The firm will efficiently integrate a new product by forming a new team if it (a) has the organizational capabilities to translate potential synergies to reality, (b) can accommodate the strategic bargaining power of the existing team members in resource allocation across talents, and (c) can attract and coordinate the efficient combination of talents. A Spinoff, i.e., the production of the new product in a separate firm, will occur if any one, or more, of these conditions is not satisfied. A variant of the CES function can be shown to provide the most efficient analytical device to examine the stability of teams and spinoffs when teams cannot maintain such cohesion.