This study examines how business unit reorganization affects innovation in 250 medical firms over 20 years. The researcher hypothesizes that the relationship between reorganization and innovation follows an inverted U-shape (Hypothesis 1A) or U-shape (Hypothesis 1B) as learning mediates this relationship. Results support Hypothesis 1B, showing that only current reorganization experiences positively impact future innovation in a U-shape, not past experiences. Additionally, highly active and larger firms that pursue acquisitions demonstrate more radical innovation. The researcher concludes reorganization can create value when firms learn from several experiences in a U-shape pattern over time.

1. Presented By : Ajit Kunwar
Presented To: Prof. Young-Kon Kim

2. Overview
Introduction
Purpose
Research Gap
Background and Literature Review
Hypothesis Development
Measures and Methodology
Results, Findings and discussion

3. Examines how business unit reorganization affects innovation
Explores how the learning Process may mediate this relationship
250 medical firms studied over a 20 year period
Theoretical support: dynamic capabilities and organizational learning
Degree of innovation (dependent variable)
Degree of reorganization (independent variable)
Learning (Mediating variable)
Control variables: firm level and industry level

4. Structural organization determines:
Resource allocations, use of internal routines and communication networks, flow
of information and tasks
Reorganization changes these circumstances
Creating a new environment for learning and the potential for resources to be
used in new combinations leading to innovation
Past findings suggest that firms are attempting to create value by realigning
units’ resources and activities within the firm
There is an underlying belief that reorganization is potentially beneficial

5. To determine if there are any innovative benefits of reorganization
Determine how learning occurs in the presence of unit-level structural change
To find whether firms learn immediately from a few reorganization attempts
If not, how many experiences are needed before there is learning?

6.  Reorganization has been explored at the resource level, divisional level, and
activity level
No study has explored how business unit reorganization affects innovation
Research to date has revealed very little about the underlying structures and
processes by which firms actually achieve continuous innovation and ultimately,
change

7. Literature on Reorganization
Reorganization has been explored in various contexts
Chosen unit of analysis has varied between: resource, divisional and activity level
Innovation literature has addressed how new resource combinations or similar
resources combined in new ways (i.e., recombination) may result in innovation.
Brown and Eisenhardt (1997) theorize, based on complexity theory, that an
inverted U-shape relationship may exist between structural flexibility and
innovation
Eisenhardt and Brown (1999, p. 73) observe patching, “ the adding, deleting,
splitting, transferring, combining chunks of businesses,” as firms frequently
remap their divisional structures to react to changing market opportunities

8. Business Unit Reorganization and Innovation
Reorganization leads to grafting and cross functional teams which lead to new
opportunities and innovation as well as faster product development
Both dynamic capabilities and organization learning theories caution against too much
change or disorder.
Huber (1991, p. 103) warns that firms may experience information overload if “the
information to be interpreted exceeds the units’ capacity to process the information
adequately
Fiol and Lyles (1985, p. 806) predicted an inverted U-shape relationship between level
of change and level of learning, regardless of whether or not the intent for change was
thoughtful
As with general change and learning, excessive amounts of reorganization may lead to
disruption, inefficiency, and misinterpreted information that result in declining
innovative performance

9. Hypothesis 1A. Business unit reorganization
(within a given period) will have an inverted
U-shape impact on future innovation (in the
next period).

10. Learning as a Mediating Factor
learning how to reorganize alone may not be enough to innovate in a new product
market
Classic learning literature has focused on a model of learning-by-doing, exemplified
by the learning curve where the inputs needed per item of output decline at a
declining rate due to experiential learning (Arrow1962).
Experimental learning supports U shape relationship between change and
performance
Time affects learning because learning is built on memories, associations, and the
ability to recognize useful information (Huber 1991)
Learning is highly path dependent which can lead to competency trap
Haleblian and Finkelstein (1999) examined the effect of acquisition experience on
acquisition performance found it to be U-shaped

11. Based on these arguments, firms may not have success innovating after
reorganization until they have experienced several reorganization events and
practiced the appropriate application of what is learned to various circumstances
Hypothesis 1B. Business unit reorganization
(within a given period) will have a U-shape impact
on its future innovation (in the next period).

12. Data and Sample
Data gathered from several editions of ‘The Medical & Healthcare Marketplace
Guide’
Operating in US medical industry
250 medical firms studied over a 20 year period
Including their units and product markets
Pharmaceutical, health care service & medical device industry
Of 250 only 85 firms were still alive in 1977
866 business units and 1274 product lines

13. Dependent and Independent Variables
Degree of innovation( DV)
is a count variable that is calculated as the number of entries into new product
markets by the firm within a time period.
Degree of Reorganization( IV)
counts the number of unit boundary changes that occur in a firm within a time
period
Industry and firm level control variables
Firm level control variables include number of employees, medical sales, percent
medical sales, age, public status & foreign status.
Industry level variable includes category of pharmaceutical or healthcare services,
it is a dummy variable
Dummy variables are used to test the appropriateness of various models and
generate descriptive statistics

14. Poisson regression model for goodness of fit test
Time-varying lagged values of independent variables are used as the regression in
the estimated equations
Linear lagged model :
study is comprised of seven panels with six periods of data observed
Incorporating a two period lag the following four equations (at most) are observed
for each firm j:
observed for each firm j:

15. Hypothesis 1A not supported
Hypothesis 1B supported
Firms’ level of product activity and acquisition activity were significant
Major Findings
First; reorganization has a U-shape relationship with innovation
Second; only current reorganization experiences affect innovation, past
reorganization experiences do not affect future innovation
 Third; Acquisition active firms innovate more than non- acquisition active firms
Other findings
Highly active in reorganization activity, larger firms, acquisition active firms
radically innovate more

16. Managerial Implications
Distinguish between reorganization events and be wary not to generalize
Learn from a cohort of several experiences
Increase the memory capacity; codify the past experience
Acquisition active managers should not neglect internal units
Limitations and Future Research
examined radical innovation only at the product level
Study includes only healthcare related organizations
 Future studies should be more granular, incremental innovations
More accurate timings of events can provide more clear results

17. This research indicates that firms create value & pursue successful change when
there is a U shape relationship between reorganization & innovative performance,
where learning is a mediating factor.
My Analysis
Past experiences are as important as current experiences.
 I think it is important that organizations to arrange training in change
management
Too much acquisition is not always good.
 Concentrating on development of internal units in organizations is as important
as acquisition
Business unit reorganization is one way in managerial innovation

18.  TH