Knowledge Base Structure and Governance Choice

Abstract

Whereas research on recombination indicates that the structure of the firm’s knowledge base has an impact on the usefulness of its innovation, it emphasizes that the usefulness of innovation increases when firms’ search spans organizational boundaries. Current literature is limited however in providing insight in how a firm should organize its boundary-spanning search for recombination, given the specific characteristics of its knowledge base. Delineating a continuum of knowledge structures from highly decomposable to non-decomposable, we contribute to extant literature by demonstrating that the knowledge base and in particular its structure also impacts the organizational governance choice for collaborative recombination. In particular we demonstrate on a sample of 108 Biotech firms engaged in 968 contractual agreements and 152 joint ventures with 928 partners that firms with a decomposable knowledge base are more likely to engage in equity joint ventures for collaboration. Furthermore, we demonstrate that when the partner has a decomposable knowledge base, a joint venture is also more likely to be the chosen mode of collaboration. Results imply that the structure of the knowledge base is not only important for the innovation potential of the firm, but also impacts the governance choices firms make for collaborative recombination.