How tightly should people inside a firm be connected if the goal is innovation? A study by researchers at National Taiwan University examines this question by analyzing the internal collaboration networks of pharmaceutical and biotechnology firms. The intuitive assumption that more connection always leads to better innovation turns out to be incorrect. Instead, the study finds that firms innovate most effectively when their internal networks are moderately connected, not so sparse that ideas fail to circulate, but not so dense that everyone ends up sharing the same knowledge.
The researchers constructed each firm’s internal network using patent data, treating two inventors as connected whenever they appeared together on the same patent. The key concept is network connectivity, which captures how frequently an inventor’s collaborators also collaborate with one another, forming tightly connected clusters. Using patent records from 329 firms between 1991 and 2012, the study identifies an inverted U-shaped relationship, illustrated in Figure 1. Innovation increases as connectivity rises from low to moderate levels, reaches its peak at an intermediate level of connectivity, and then declines as networks become excessively dense. This pattern reflects a balance between two competing forces. Loosely connected networks expose inventors to diverse and non-overlapping ideas, while tightly connected networks foster trust and shared routines that facilitate knowledge sharing. Moderately connected networks combine the advantages of both.
The optimal level of connectivity, however, depends on the environment in which a firm operates. As shown in Figure 2, firms in highly munificent environments, where resources and growth opportunities are abundant, benefit more from relatively loose networks because access to diverse ideas helps them capture emerging opportunities. In less resource-rich environments, moderately connected networks remain the more effective structure.
The findings offer an important managerial implication: fostering innovation is not about maximizing collaboration, but about calibrating it appropriately. Firms can increase connectivity by pairing junior inventors with senior mentors or by forming cross-functional teams. They can also reduce excessive connectivity by bringing in employees from outside the research laboratory who contribute unfamiliar perspectives. The appropriate level of connectivity ultimately depends on the surrounding market environment, reminding managers that, in innovation networks, more connection is not always better.
The inverted-U relationship between internal network connectivity and firm innovation performancePharmaceuticals
How environmental munificence shifts the optimal level of network connectivity
