Companies need strong networks of inventors to build on innovations, research shows

Many firms fail to quickly capitalize on their technologies—only to watch rivals come up with new uses for their inventions.

Decades ago, for instance, Merck developed Boceprevir to fight hepatitis C. Recently, Pfizer found a way to redeploy Boceprevir to its blockbuster COVID treatment drug Paxlovid.

Pfizer raked in billions while Merck watched from the sidelines. A 2022 estimate suggested Pfizer would realize $17 billion from Paxlovid in that year alone.

“Such cases highlight the importance of understanding how firms can fail to exploit technologies in which they should have had a lead over rivals,” said Nick Argyres, Olin’s Vernon W. & Marion K. Piper Professor of Strategy.

Argyres received the 2024 Olin Award for the paper “Internal Network Structure and the Speed of Generative Appropriability,” which is under review at Strategic Management Journal.

He and his coauthors set out to learn how organizational structures within large companies stimulate innovations that build on their previous inventions. They used patent data from 1,391 large corporations over 26 years, along with social network measures.

Connection is key

They found that companies with the most connected internal inventor networks build on their own innovations the fastest. They measured connectedness based on patent coauthorship patterns, and measured “building on prior innovations” using patent self-citations. In earlier research, they showed that connectedness was associated with more impactful innovations.

“One of the strengths of this research is that it’s extremely broad in its coverage of different industries,” Argyres said.

Luis Rios, of Purdue University, and Brian Silverman, of the University of Toronto, coauthored the paper.

The companies they studied were active in such industries as pharmaceuticals, chemicals, electronics, machinery, oil and gas, transportation, food processing and more. Basically, the companies are in “any industry with significant patenting in the United States,” Argyres said.

“Our results are generalizable across large companies. It's precisely when they get very large that it's hard to connect people,” he said.

“A message of our research is that companies should make great efforts on those connections.”

The findings are significant because many decisions executives make affect how researchers connect, or don't, with each other in the company. Taking into account that connecting those inventors—making them more aware of what the others are doing and encouraging them to work together—is an essential part of research management that executives should take into account in a host of decisions they make.

The researchers found that a certain kind of connectedness is especially effective for building on a company's innovations. “You want very tight clusters of researchers,” Argyres said. Then, he said, you want to connect those tight clusters with other inventors.

Takeaways

• Large companies with the most connected internal inventor networks build on their own innovations the fastest.
• The results are generalizable across the many industries in which patenting is important.
• Connecting inventors—making them more aware of what each other is doing, and encouraging them to work together—are crucial for managing R&D in large companies.