Organisations, Innovation and Complexity: New Perspectives on the Knowledge Economy

University of Manchester
9-10th September 2004

Conference Aims | Paper Abstracts | Programme | Further Information

Application of Complexity Theory to Firm Level Studies of Innovation: Preliminary Analysis

Judy Matthews

ANU, Australia.

Abstract

Organisations appear most successful in innovation when they maximize internal sources of knowledge, their network of relationships with suppliers and customers (Kogut, 2000) and selected external sources of knowledge (Thomke & von Hippel, 2003). Indeed the joint application of these knowledge sources sets them apart from other firms and may create competitive advantage (Kay, 1995).

Organisations represent the coordination of multiple agents and their knowledge, skills know-how and other resources into a focused whole which is engaged in varieties of productive activity. The organisation is characteristised by its history, context and structure and develops capabilities for production through organisational routines (Nelson & Winter, 1990) and experimentation (Thomke, 2003). The firm is also engaged in consumption and may develop a potential for ongoing change in a changing environment. The ‘structure’ of the organisation operates in a changing environment through the co-ordination of internal resources but increasingly through the co-ordination of links with external sources of resources of information, knowledge and expertise (Ritter & Gemunden, 2003).

This paper builds on the notion of the ‘law of excess diversity’ (Allen, 2001) the importance of microdiversity (Andriani, 2001) and the notion of distributed knowledge (Alderson, 2000) to address the way that firms execute the combinatorial function of combining together knowledge from different sources. It reframes Hardagon’s (203) recent work on how breakthroughs happen in organizations, and the reuse of knowledge in terms of complex systems. In reality many firms use a complex solution space to develop products, services and their delivery in multiple combinations to create value for customers (Prahalad & Ramaswarmy, 2004). The critical source of knowledge is what will make a difference for the customer, not only in terms of an immediate solution but as a distinct competitive advantage.

The literature on complexity and organizations is substantial (Allen, 2001; Andriani, 2001; McKelvey, 2001, Macquire and Mc Kelvey 1999 etc.), but with some exceptions (e.g. Fisher and Frohlich, 2001), there are gaps in the application of these notions to innovation at the firm level. This paper addresses some of those gaps.

First the paper begins with a review of some recent work on complexity in relation to organisations and multiple sources of knowledge. Second the literature on knowledge and innovation in organisations is examined to identify potential applications of complexity themes through existing research. An example would be the recombinant view of innovation, where organisations have learnt how to structure the innovation process to build from existing ideas rather than to invent new ones (Hargadon, 2003). Organisations may develop simple rules for complex situations, such as Nordstrom’s approach to customer service. Indeed, “some of the most consistently innovative organisations (e.g. Unilever, Shell) do not focus on innovation as such. Instead, they focus on clear outcomes, supported by the right organisational cultures, rewards and methods that ensure innovation is pervasive” (Mulgan & Albury, 2003:6).

Finally, gaps in current work are identified and propositions for future research are identified.

Some References

Alderman, N. (2000) Distributed Knowledge in Complex Engineering Project Networks: Implications for Regional Innovation Systems. In Fischer, M.M.& Frohlich, J. Knowledge, Complexity and Innovation Systems. Advances in Spatial Science. Springer. Berlin. P 209-227.

Allen, P.M. (2001) A Complex Systems Approach to Learning in Adaptive Networks International Journal of Innovation Management, Vol. 5, No. 2 (June 2001) pp. 149 –180.

Andriani, P. (2001) Diversity, Knowledge and Complexity Theory: Some Introductory Issues, International Journal of Innovation Management, Vol. 5, No. 2 (June 2001) pp.257-274.

Hargadon, A. (2003) How Breakthroughs Happen: The Surprising Truth about How Companies Innovate. Harvard Business School Press, Boston Mass.

Hargadon, A. & Sutton, R. (1997) Technology brokering and innovation in a product development firm, Administrative Science Quarterly; Dec 1997; 42, 4; 716- 749.

Kogut, B. (2000) The network as knowledge: generative rules and the emergence of structure. Strategic Management Journal, 21 (Special Issue on Strategic Networks), 405– 425.

McQuire, S. & McKelvey, (1999) Complexity Theory and Management: Moving from Fad to Firm Foundations, Emergence, 1, 2, 19-61.

Mulgan, G. & Albury, D. (2003) Innovation in the Public Sector, Working Paper Version 1.9, October, Strategy Unit, UK Cabinet Office.

Prahalad, C. K. and Ramaswarmy, V. (2004) The Future of Competition: Co–creating Unique Value with Customers, Harvard Business School Publishing, Boston. Mass.

Ritter, T. & Gemunden, H. G. (2003) Network competence: its impact on innovation success and its antecedents, Journal of Business Research, 56, 745-755.

Thomke. S. 2003 Experimentation Matters: Unlocking the Potential of New Technologies for Innovation, Harvard Business School Press, Boston, Mass.

Back to paper abstracts

Top