Structural Recombination and Innovation: Roles of technological capability, diversity and coherence

This paper examines how structural recombination of business units within firms may serve as a mechanism for knowledge reconfiguration and affect firm innovation. We argue that one way in which knowledge can be recombined within the firm is by merging together business units. Such structural combination creates the potential for recombinant innovation, but it may also have a disruptive effect on firm innovation, with the magnitude of the two effects depending upon the strength, breadth and coherence of firm knowledge prior to the recombination. Results from a 20-year panel of 71 firms operating in the U.S. medical sector show that structural recombination has a positive effect on subsequent innovation for firms that have strong and coherent technological knowledge prior to the recombination, while recombination by firms with high and incoherent technological diversity harms subsequent innovation. These results provide insight into the contingent nature of recombination, while highlighting the role of structural recombination in driving firm innovation.