Costs and Benefits of Inter-departmental Innovation Collaboration

Research on management and organization science has identified inter-departmental innovation collaboration as a mechanism to facilitate corporate innovation performance. Inter-departmental collaboration increases the exchange of information thereby benefiting innovation processes and outcomes. At the same time, inter-departmental innovation collaboration has been identified as a source of increased costs. Costs, such as project delays, can arise because departments set different task priorities and pursue incongruent objectives but also because of differences in educational backgrounds of employees. In the worst case, these differences between departments can cause dysfunctional conflicts that may lead to innovation project terminations. Such costs may absorb the gains generally associated with inter-departmental innovation collaboration. Drawing from organizational information processing theory, this paper builds and tests hypotheses on the costs and benefits of innovation-related collaboration within firms. Based on a sample of 433 German manufacturing firms we show inter-departmental innovation collaboration to increase process innovation performance, but not product innovation. In line with information processing theory, we submit that process innovation, more so than product innovation, depends strongly on company specific knowledge embedded throughout the organization and the exchange thereof. Our empirical results also detect costs produced by inter-departmental innovation collaboration in terms of project delay and termination. These costs, however, do not affect innovation performance at the firm level. We conclude firms to be well able to balance the costs and benefits of inter-departmental collaboration across their innovation project portfolio.

Cuijpers, Maarten, Hannes Guenter and Katrin Hussinger (2011), Costs and Benefits of Inter-departmental Innovation Collaboration, ZEW Discussion Paper No. 11-003, Mannheim, published in: Research Policy.