R&D area diversity and innovation quality: a cross-functional absorptive capacity perspective

Although many studies have investigated how the diversity of R&D human capital influences innovation performance, the impact of the diversity of functional areas in R&D centres remains poorly understood. Drawing on the absorptive capacity framework, this study examines how R&D area diversity influences innovation quality. As R&D activities are embedded in organisational social networks and knowledge networks, we further investigate how social cohesion, knowledge cohesion, and social-knowledge cohesion moderate the effect of R&D area diversity on innovation quality. We argue that R&D area diversity improves intra-organisational cross-function absorptive capacity, which enhances innovation quality. The positive effect of R&D area diversity increases when social cohesion and knowledge cohesion are high, and the coupling of social-knowledge cohesion is low. An analysis of a large longitudinal dataset of 3,061 firm-year observations covering 486 global pharmaceutical firms provides strong support for our hypotheses. We end with a discussion of the theoretical and practical implications.