The Effect of Team Member’s Diversity on Innovative Capability and Appropriation of Economic Rents in Cooperative Cross-Cultural Innovation

The Effect of Team Member’s Diversity on Innovative

Capability and Appropriation of Economic Rents in

Cooperative Cross-Cultural Innovation

J.W. Van Calcar

Rijksuniversiteit Groningen te Groningen Faculteit Bedrijfskunde

International Business Management

The Effect of Team Member’s Diversity on Innovative

Capability and Appropriation of Economic Rents in

Cooperative Cross-Cultural Innovation

J.W. van Calcar Allersmaweg 37 9891 TD Ezinge

Studentnummer: 0887471

Faculteit Bedrijfskunde, International Business Management Studiejaar: 2006-2007

Eerste begeleider: Dr. J. A. Neuijen

Tweede begeleider: Dr. M.A.G. Van Offenbeek

“Niets uit deze uitgave mag worden vermenigvuldigd en/ of openbaar gemaakt door middel van druk, fotokopie, microfilm of op welke andere wijze dan ook, zonder voorafgaande schriftelijke toestemming van de Rijksuniversiteit Groningen te Groningen en de auteur.”

Table of Contents

1. INTRODUCTION... 4

1.1 Background... 4

1.2 Innovation in Cooperation Practice ... 5

1.3 Development of Research Questions ... 7

1.4 Multilevel analysis... 9

1.5 Research Method ... 11

1.6 Outline of Thesis... 12

2. ASPECTS OF DIVERSITY INFLUENCING INNOVATIVE CAPABILITY ... 13

2.1 Defining Innovation... 13

2.2 Past Research on Individual Diversity ... 14

2.3 Researching Diversity Dimensions... 14

2.4 Combining Individual Attributes to the Team Level ... 20

2.5 Network Approach... 22

2.6 Conclusion... 23

3. GENERATING AND PROTECTING INNOVATIVE CAPABILITIES... 25

3.1 Innovative Capability versus Protecting Capability... 25

3.2 Network Variables ... 27

3.3 Effect of Differences in Knowledge and Cognition... 34

3.4 Effect of Personality Differences ... 37

3.5 Effect of Differences in Identifying with Alliance Team ... 40

3.6. Conclusion... 43

4. APPROPRIATING OF RENT ... 46

4.1 Defining Economic Rent... 46

4.2 Network Factors affecting Achieving Economic Rent ... 47

4.3 Diversity Affecting Appropriation of Rent ... 51

4.4 Conclusion... 53

5. CONCLUSION AND DISCUSSION... 55

5.1 Research findings ... 56

5.2 Future Research ... 59

BIBLIOGRAPHY ... 67

1. Introduction

1.1 Background

Organizations frequently enter cooperative agreements with competitors to gain competitive advantages. As Gnyawali and Madhavan (2001) referred to in their article, cooperative linkages among competitors are proliferating in recent years, making up 50 percent of all new alliances. (Yet) even after the establishment of a cooperative agreement, organizations frequently continue to compete, either within the same competitive arena, or in different arenas.

These organizations want to benefit from the ‘active combination of people, knowledge and resources’ (Obstfeld, 2005), which can lead to processes of innovation. As prior research has shown, the relationships of firms in networks allow these firms to access the internal resources which are held by other network members to which they are connected. These internal resources of other network members often complement these firms’ own internal resources, which may consequently increase the rate of return these firms achieve on their internal resources. Moreover, inter-organizational cooperation may contribute to the acquisition of new, competitive, capabilities and as such to a firms’ innovative capability (Gnyawali, et al., 2001).

But, as the transaction-costs economics theory (TCE) has highlighted, given the considerable transaction costs involved as well as the high risk of opportunism on the side of the other network member(s), these inter-organizational forms of cooperation are especially vulnerable to ‘appropriability’ concerns (Klein, Palmer, Conn, 2000). That is, it may be difficult for a firm to realize or capture the potential benefits of cooperation, or one partner firm may benefit (considerably) more from the cooperation than the other, or even ‘steal’ (tacit) knowledge of its partner. It is therefore of utmost importance to study how a firm can actually realize, capture and protect the ‘economic rents’, or (financial) benefits of innovation caused by inter-organizational cooperation.

At the network, team, and the individual level, there are different ways of getting to innovation and appropriation of the (financial) benefits of innovation. A major question here

is what combinations of people (i.e. team members) in a network (diversity) stimulate innovation. Although multicultural teams can provide strategic advantages for organizations, research has also shown possible negative team processes occurring in teams based on diversity, where reduction of the salience (i.e. the prominence or visibility) of team identity leads to e.g., effort-withholding behaviors, in-group favoritism, or task conflicts (Gelfand, et al., 2007).

The objective of this literature study is to increase our knowledge about the role of diversity in creating innovative capability, how team members may be organized to enhance the creation of this capability and how firms can succeed in appropriating the economic rents that may result from such innovative capability.

1.2 Innovation in Cooperation Practice

Knowledge absorption alliances, that focus on one-way transfers of knowledge, expose the focal company to the risk of predatory behavior. Research has shown that cooperating for joint knowledge creation with competitors will make a company especially vulnerable for knowledge spillover (Lubatkin et al., 2001). Especially when one party holds the latent objective of targeting the core assets of its partner, unintended leakage of rents can result, without generating synergetic value creation (Lavie, 2006). Although reciprocal learning occurs less frequently in practice than the other types of alliances, the need for reciprocal learning will increase due to global competition, the convergence of technologies and the pressure to develop new capabilities faster (Lubatkin, et al., 2001).

Research has also shown that countries differ in the extend to which they are able to innovate and acquire rent from innovation. For example, Hamel (1991) has researched several strategic alliances, involving cooperative ventures between competitors from, for example the United States and Japan and several other combinations of ‘collectivistic’ and ‘individualistic’ countries. He found differences in the ability to learn and benefit from cooperation between (such) countries.

A practical example of a company which has a high exposure to the potential of knowledge spillover due to cooperating with partners that turned into competitors, is the biotechnical company Crucell.

One of Crucell’s proprietary technologies is PER.C6(TM), which is a human cell line technology developed for the large-scale production of a range of biopharmaceutical products including vaccines, antibodies, therapeutic proteins and gene therapy products (www.fd.nl). This technology is licensed to pharmaceutical companies, which can use PER.C6(TM) to develop and produce medicine. As the co-founder of Crucell stated "Licensing our PER.C6(TM) technology is key to our business strategy, and we are experiencing growing demand for this safe, cost-effective, scalable manufacturing technology from the biopharmaceutical industry.” Although Crucell has entered licensing agreements to reduce the financial loss from knowledge spillover, they have also been aware of not being able to protect themselves fully by legal actions (http://hugin.info/132631/R/979089/144810.pdf). Although the biotechnical market in Europe has been known for its strong scientific basis, reports have been found that this market has a lack of sufficient commercialization (Ernst & Young, Beyond Borders: Global Biotechnology Report 2007). In reaction to this, Crucell replied with a major shift in strategy, moving from a technology Platform Company, to one that is also involved with in-house product development, thereby becoming a competitor in the market of its own licensees (www.fd.nl). Crucell has defined their partners into strategic partners and licensees. Their partnerships with DSM, for example, can be defined as strategic, whereas their cooperation with Asian partners is frequently based on licensee agreements, in order to reduce potential financial losses from knowledge spillover. Within Crucell’s cooperation with DSM, DSM biologics will contribute the production expertise and process optimization capabilities, while Crucell will bring in its unique know-how of PER.C6(TM) technology, which will form the basis for achieving the required productivity (www.fd.nl). In 2007 both Crucell and its technology partner DSM have signed a PER.C6(TM) research licensee agreement with the Taiwanese based AbGenomics Corporation (www.fd.nl). This company was founded by a group of leading biomedical scientists in June 2000. AbGenomics Corporation is a biopharmaceutical company that is focused on the development of antibodies for the development of medicines against e.g., cancer (www.abgenomics.com). AbGenomics’ president, Shih-Yao Lin, wanted to use PER.C6(TM) for the research and development and early clinical studies for antibodies (www.crucell.com).

A question which Crucell needs to have answered is how to shape the cooperation with its strategic partner DSM and Abgenomics (licensee) in order to benefit from cooperation, but at the same time to protect itself against the negative effects on its competitive advantage of potential knowledge leakage.

1.3 Development of Research Questions

Although research in diversity, innovation research and strategic management research has separately looked into different aspects of inter-organizational cooperation, until now an integrated framework is still missing.

Diversity research, for example, has focused on the effects of differences in socio-demographics of team members on team performance (Knippenberg et al., 2007). Apart from the fact that research results have not always been consistent (Earley & Mosakowsky, 2003), another problem is the necessity to move beyond general socio-demographics (Knippenberg et al., 2007) to dimensions of diversity that are really related to creating and protecting innovative capability, realizing the economic rents this may bring, and subsequently capturing and protecting these benefits.

Innovation research scholars as e.g., Dyer and Singh (1998) investigated what kinds of aspects are important in shaping inter-organizational cooperation and fostering innovative capability. Moreover, Santos et al. (2004) have divided innovative activity in learning activities and protecting activities. These research results give e.g., credence to the existence of an optimal level of openness versus closure in alliances for innovation to blossom. Caldwell and Ancona (1992) have also distinguished several types of interactions in project teams. Among other things, they found support for the existence of guarding activities. Guarding activities are for example deliberately withholding information on innovative activities. But as this research was mostly focused on communication activities and not guarding activities, this research did not further investigated these protecting activities. Moreover, this research did not investigate the effect of personal characteristics, like personal differences in e.g., skills, capabilities, personality, values, and culture.

Finally, as part of research into strategic management, research attention has been focused on the appropriation of economic rents which may be brought about by innovative capability. In our context, the appropriation of economic rents relates to whether and how a firm can capture the profits or benefits that may result from inter-organizational cooperation. In this respect, Lavie (2006), for example, has researched what factors lead to the appropriation of economic rent, hereby differentiating between the joint rent of partners and the possible benefits of knowledge leakage between partners. Yet, just like the previous two strands of

research (diversity and innovation research) neither does this strand of research fully captures all aspects that are relevant to achieving the previously identified research objective.

The main contribution of this study will therefore reside in combining and applying the insights from these three currently isolated strands of research to increase our knowledge about the role of diversity in creating innovative capability, how team members may be organized to enhance the creation of this capability and how firms can succeed in appropriating the economic rents that may result from such innovative capability.

To achieve the above research objective, this study therefore needs to answer the following research questions:

1. Which aspects of (team) diversity influence the innovative capability in inter-organizational cooperation?

2. How can (alliance) team diversity be organized to enhance the generation and protection of innovative capability in inter-organizational cooperation?

3. Assuming that innovative capabilities lead to innovation, how can members of a company participating in inter-organizational cooperation succeed in appropriating these economic rents for the firm?

These research questions lead us to the conceptual model as depicted in figure 1 below.

Figure 1. Conceptual Model

(Team) Diversity Innovative Capability Economic rents

Research by Mehra, et al. (2001) has looked into the relationship between an individual’s attributes and performance. Although this research has focused on just one individual attribute (self-monitoring) and looked at individual level performance, it could possibly aid in understanding the relationship between attributes and performance. Among other things, they found that the individual attribute self-monitoring not only influences performance, but that this attribute also influences performance indirectly due to its influence on an actor’s structural position within an (alliance) team. We will therefore pay special attention to the role of network positions on a firm’s innovative capability and the generation of economic rents.

1.4 Multilevel analysis

Apart from defining the content of this study’s analyses, it will also be necessary to define how the individual attributes are combined to have an effect at the level of the alliance, and it is also important to define the level of analysis.

Process of Emergence from Individual Attributes to the Group

The process of emergence plays an important role in the linkages in inter-organizational relationships and cross-cultural relations (Kozlowski & Klein, 2000).

A phenomenon is emergent when it originates in the cognition, affect, behaviors, or other characteristics of individuals, is amplified by their interactions, and manifests itself as a higher-level, collective phenomenon. (Kozlowski & Klein, 2000, p. 55)

Individual cognition, affect, behavior and several other individual attributes denote the elemental content. Team mental models (cognition), group commitment (affect), and innovation or appropriation (behavior), all represent emergent group properties that have their origins in this elemental content which is provided by individuals. Individuals subsequently communicate, and exchange information, affect and valued resources. These processes of interaction, combined with the elemental content, comprise the emergent phenomenon. Kozlowski and Klein (2000) have defined two polar types of emergence which form the opposite ends of a continuum. The first type of emergence is called composition and is based on the concept of isomorphism. The second type of emergence is called compilation and is based on discontinuity. Several types of emergence lay between these two types of emergence.

The concept of isomorphism assumes that the type and amount of elemental content are similar for all individuals in the collective. Due to exposure to common organizational features, events and processes, individual interpretations will dissipate as a collective interpretation converges. Aggregation takes place by summating the individual attributes or taking the overall mean. For example, in researching social loafing, this would mean that if one team member refuses to add to team work, the effect of this one member will be averaged away. However, research has also shown that the effect of such an (loafing) individual frequently can be detrimental to the overall group, which would mean that this behavior has more effect than the before described process of averaging would allow for.

Looking at compilation based on the assumption of discontinuity, discontinuity assumes that the kinds of contributions that individuals make to the collective are variable, not shared and consistent.

“Compilation processes involve complex interactions among individuals and the integration of their unique skills in order to bring about higher-level outcomes.” (Kozlowski et al., 2000: p.188)

The compilation form of emergence is based on a non-uniform distribution of the elemental individual attributes. Whereas emergence that is based on (a) uniform distribution, refers to a pattern of distribution that indicates strong or weak agreement, non-uniform distribution refers to strong or weak disagreement, which makes it possible to research subgroup formation, or the configuration of networks. The formation of subgroups resulting from very high variance may be indicative of polarized factions, or ‘faultlines’, whereby faultlines are a metaphor for the division in attributes that may erupt and split the group (Kozlowski & Klein, 2000). On the other hand, a network structure includes a process of emergence leading to configurations. Although measures of network position are assigned to actors, these measures are not the properties of isolated strands of actors or dyads, but they represent the actor’s relation to the other actors in the network. Basically, a change in position of any actor will influence the overall position of (the) other actors. The process of aggregation is therefore different, resulting from the adding of individual interactions to form a overall network. When researching how team diversity needs to be organized in order to enhance the creation of innovation, and thereby preventing the possibility of a race in learning, it will be important to

allow for disagreement, and configurations of individual attributes. Therefore, we will focus on the compilation form of emergence in this literature study.

Delineating the Boundary of the Alliance Team

For compositional forms of emergence, the level of analysis in researching inter-organizational cooperation can be easily demarcated. But for the compilation type of emergence, the delineation of the level of analysis is not very easy. For example, researching subgroup formation will require establishing subgroups, but these subgroups will differ depending on the context of the groups, and their process of interaction. Therefore, defining the group is exposed to changes. Defining the level of analysis in social networks will not be any easier. This is due to the fact that the level of analysis of social networks does not easily fit with traditional notions of levels of analysis, because the unit of analysis is the relationship among actors rather than the actors themselves. Therefore, special attention needs to be given to defining the boundary of the network (Brass, 2000).

In this research, the first research question will focus on the attributes of an individual actor. The second research question will include the different actors and their relationships within the alliance team, containing members of the focal firm and partners that are assigned to the task of innovating. The third research question will focus on the embedding of the alliance team activities within the overall industry network, and within the internal organization of the focal company and its partners.

1.5 Research Method

A literature study will be used to answer the research questions and achieve the research objective. More specifically, to find an answer to these questions, the main concepts and according keywords most relevant for this research were identified. Subsequently, using these keywords, the relevant literature in Business Source Premier, Econlit, ABSEES, SocINDEX, PsycINFO and the Military & Government collection was searched for published articles as well as working papers. Moreover, general search engines on the Internet were used to locate relevant literature and important research findings. Initially, the following search terms were used: “innovation”, “new product development”, cooperation”, “co-opetition”, “guarding activity”, “spillover”, “isolating mechanisms”, “appropriation”, “culture”, “cross-cultural”, “collectivism”, “personality”, and “values”. After studying the literature to which these keywords led, more specific keywords were found that could be used to search for additional

literature on the topic of this study. Also, relevant references from this literature were tracked down and moreover, using the Social Science Citation Index and the Web of Science, additional publications of the most important authors were found. All in all, both forward and backward snowballing techniques were used.

1.6 Outline of Thesis

To answer these research questions and achieve the objectives of this study, this report is divided in several chapters.

In chapter 2, the first research question will be dealt with. To answer this research question, we will first define what contains innovation. Then the aspects of diversity that are possibly important for creating innovation, protecting innovation and generating rent will be identified.

In chapter 3, the second research question will be discussed. In this chapter we will study how diversity of networked team members should be shaped to enhance the generation and protection of innovative capability in inter-organizational cooperation. In order to do this, it is first necessary to investigate the combination of network variables that influence the generation and protection of innovative capability. Second, we will illustrate how positioning the diverse team members, each with their own values, personality, knowledge, experience, and other background characteristics, in such a network may contribute to or diminish the possibilities for generating and protecting the innovative capability of such an inter-organizational cooperation.

In chapter 4, the third research question comes to the fore. In this chapter, we will first elaborate on the concept of economic rent and what this constitutes. Then, it will be investigated how the earlier discussed diversity as well as organization of team members in a network structure affects the possibilities for a firm to appropriate (i.e. capture) the economic rents of innovative capability.

Finally, in chapter 5, a number of overall conclusions will be drawn and we will outline perspectives for future (related) research.

2. Aspects of Diversity Influencing Innovative Capability

2.1 Defining Innovation

"Often, in common parlance, the words creativity and innovation are used interchangeably. They shouldn't be, because while creativity implies coming up with ideas, it's the "bringing ideas to life" . . . that makes innovation the distinct undertaking it is." Amabile et al. (2006:

1154-1155)

Following Schumpeter, Obstfeld (2005) saw innovation as emerging from the active combination of people, knowledge and resources. How this active combination needs to be brought to life within organizations has been subject for research for quite some time, but this research has not touched upon the specifics of combining the agents (with their personalities, knowledge and access to resources) that are responsible for innovation.

For example, Cohen and Levinthal (1990), defined absorptive capacity as the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends and argued that this absorptive capacity is critical to its innovative capabilities. Zahra and George (2002) redefined this concept of absorptive capacity to also include the ability to transform (jointly generated) knowledge and the ability to generate rent. Others have extended this to also include the appropriation of rent (Lavie, 2006). But as Jones (2006: 1350) highlighted,

“Although Zahra and George identify links between absorptive capacity and dynamic capabilities they focus entirely on structural issues at the expense of individual agency.”

Jones (2006) elaborates the role gatekeepers and boundary spanners play in the acquisition and assimilation of knowledge, and the role that change agents and entrepreneurs have in the transformation and exploitation of knowledge. But to what extend the diversity in cross-cultural innovative teams influence the overall team’s ability to perform these needed roles, and to what extend diversity will influence the ability to appropriate rent, and protect against knowledge spill-over, has not been elaborated upon. Jones (2006) neither resolves the dual

role of membership of cooperating across company borders, which requires insight into the effect of identifying with the firm (or possibly with the alliance). Research into the dimensions of diversity that may affect innovative capability, protecting ability and the appropriation of rent will therefore be necessary.

2.2 Past Research on Individual Diversity

Research into the effect of differences in individual attributes at the level of the group has mainly focused on demographic, functional and/or educational diversity (Knippenberg & Schippers, 2007). Many inconsistent results on diversity in demographics research have led to a need for changing the direction that was taken until this moment in diversity research (Erez & Gelfand, 2006). In this light, researchers have requested to focus more on personal characteristics and value orientations which are theoretically more relevant to the subject matter of interest (Kahlish & Robins, 2006). Moreover, Harrison et al. (2002) have found that the effect of surface-level (demographic) diversity will reduce over time, whereas deep-level (psychological) diversity will be gaining in strength. Given the enduring nature of these deep-level characteristics, this makes differentiation between the different psychological dimensions extra important. In addition to these findings, Harrison et al. (2002) also found that perceived diversity mediated the negative impact of actual diversity on team social integration, thereby affecting the task performance of (student) teams. In researching the effect of individual differences that might influence member’s ability to innovate, protect and attain rent, the perception of differences may therefore be more important than actual differences.

2.3 Researching Diversity Dimensions

Diversity as seen as a characteristic of social groupings has frequently been defined as the degree to which there are objective or subjective differences between people within the group, generally leaving open which aspects define diversity and how to conceptually deal with diversity (Knippenberg & Schippers, 2007). Larkey (1996) found that diversity had been broadly defined in the management literature as differences in race, gender, national origin and the like. In order to predict interactions in culturally diverse workgroups, Larkey (1996) redefined diversity to include interaction between different groups. Larkey (1996) defined

diversity as differences in (objective and) subjective culture and differences in identity among group members in relation to other groups. The first aspect of diversity, subjective culture, assumes that members of a given group are likely to share a set of common symbols, values and norms, and that these differences are enacted in communication. The second aspect of diversity, identity, looks at shared sets of cultural knowledge and behaviour that translate to a group identity.

“This group identity evokes not only the sense of self as a member of that group, but it can also evoke perceptions of others not belonging to that group as out-group members. This view acknowledges that individuals vary in how much they identify with cultural knowledge and communication patterns, they may vary in their expression of identity, depending on the context of interaction.” (Larkey, 1996: p.466)

Research has shown that individuals differ in the extend of identifying with groups (Kahlish & Robins, 2006), that individuals’ willingness to accept diversity influences identifying with the group (Swann et al., 2003), and that identification with a group can have differing effects in terms of knowledge transfer, etc. (Frank & Yasumoto, 1998).

In defining diversity for inter-organizational teams cooperating cross-culturally, we will therefore define diversity by focusing not only by the different aspects of importance, but also on the concept of identifying with the group (s). Whereby it will be of importance to mention that certain diversity aspects influence identification. For example, certain psychological aspects influence the preference for generating shared identity or shared schema (Luijters et al., 2006).

Dimensions of Diversity

In researching innovative capability, we will therefore move beyond just researching individual differences in functional and educational differences. We will research the effect knowledge, cognition and personality factors as relevant dimensions of diversity as identified in the literature. Self-monitoring has also frequently been mentioned as facilitation innovation. Research on personality generally assumed that most of the variability in behaviour across individuals can be attributed to extraversion and neuroticism, conscientiousness, agreeableness, self-efficacy, and how one’s social identity is construed (see e.g., Kahlish et al., 2006). Besides emphasizing the importance of studying (perceived)

personality dimensions, other authors have emphasized the importance of studying socially shared cognition (Knippenberg et al., 2007), self-efficacy and political skills (Kahlish & Robins, 2006). Research in socially shared cognition researches how individuals’ understanding of their team and their task(s) may be shared among group members to a greater or lesser extend (Knippenberg et al., 2007). Frequently, shared cognition is being defined as task representations, mental models, team schema’s or beliefs. As the extend of sharing affect has been shown to be related to group cooperation and conflict, and relevant team- and task- cognitions affect group performance, these types of diversity deserve our special attention (Knippenberg et al., 2007). Although research on socially shared cognition and affect have been hardly considered in diversity research, these dimensions will be considered.

Knowledge Bases

The basis of developing innovations is the combination individual team members’ knowledge and their links to knowledge holders outside these teams. Tenure and level of education have frequently been used as substitutes for team members’ knowledge, but these measures do not fully capture individual knowledge (Klein et al., 2004). In their research into the optimal level of cognitive distance on inter-firm alliance performance, Nooteboom et al. (2005) have used, e.g., prior cumulative patents and R&D expenditure to determine innovative performance. Although these measures are closer to the actual types of knowledge generated, they are also based on the level of the firm, therefore giving no insight into the effect of differences in knowledge of individual team members.

Cognitive Schemas

In order to find creative solutions and to increase one’s innovative capability, it is important to find non-redundant sources of information. That is, one needs to find information that is more additive or complimentary rather than overlapping to the information already present in a team (Burt, 2001). Structural holes separate such non-redundant sources of information, which are often present in weakly or unconnected teams (cf. “the strength of weak ties” (Granovetter, 1973). Finding people that are less connected to others, but who are able to bridge these structural holes, increases the probability to work on innovative solutions. Yet, having accurate knowledge about the structure of (network) relations is not only necessary for locating members with different knowledge bases, this is also important for identifying the bargaining position of your partner in the overall network.

Past research has shown that people rely on two basic relational schemas when encoding, representing and inferring social relationships (Janicik, 2005). The first schema, called the balance schema, is a cognitive schema that leads people to perceive friendship relations as reciprocated and transitive. Basically, if team member A is befriended with team member B, then people infer B also to be befriended with A. The second schema is the linear-ordered schema, which assumes that influence relations are asymmetric and transitive. Basically, if team member A is perceived to influence team member B, and B influences C, than people tend to infer that A also influences C.

Research has shown that balance and linear-ordered schemas are default schemas used by people with little experience to encode incomplete network patterns (Janicik, 2005). But for people with experience in incomplete social networks, the ability to perceive real network structures will be dependent on the type of networks he or she has been involved in. Team members having experience with densely connected relationship structures will assume that other structures are also densely connected. In terms of influence relationships, Janicik (2005) found that a better recall accuracy leads to better coalition choices.

Self-Monitoring

Cooperating across company borders with a partner that is or may turn into a competitor one day, may not only require insight into the location of knowledge and resources within the alliance network, but it may also require ‘strategically regulating one’s behaviour’. Self-monitoring captures the extend to which people differ in observing and controlling their expressive behaviour and self-representation (Kahlish et al., 2006). Although Kahlish et al. (2006) found no effect of self-monitoring on preferences for types of relationships, the authors assumed that this was due to the student sample used; bridging between different social circles at university may not require much self-monitoring. On the other hand, Mehra et al. (2001) researched members of high-technology firms and found that self-monitoring theory does adequately predict friendship relationships and work flow within networks. The authors found, that compared to low self-monitors, high self-monitors develop friendship relations at work with distinctly different people, developing relationships across groups, using their flexible identities to play different roles in different groups. In terms of work flows, high self-monitors will bridge social worlds, acting as in-betweens otherwise

unconnected people to facilitate information exchange. Low self-monitors, on the other hand, will be part of relatively homogenous social worlds.

Extraversion and Neuroticism

Among other things, in terms of predicting network structure, Kahlish et al. (2006) found two types of personality variables to lead to preferences for different network structures. For extraverted people, i.e. people preferring large groups and gatherings, and who are more assertive, active and talkative, research has shown support for the positive link between extraversion and being strongly connected within networks. Although statistically insignificant, these authors also found a positive effect between extraversion and strong structural holes (Kahlish & Robins, 2006). Other authors have found significant effects between e.g., extraversion and specific aspects of knowledge transfer (De Vries et al., 2006). Moreover, people prone to neuroticism tend to experience negative emotions, tend to adopt negative view of others, and are assumed to have preferences for weak(er) network ties. Research results have shown that neuroticism is indeed positively related to weak network ties.

Conscientiousness

Other authors have looked at conscientiousness as a personality characteristic to influence team performance. For example, Harrison, et al. (2002) investigated the role of the personality characteristics conscientiousness, values (task meaningfulness and outcome performance), and attitudes, which are critical in task performance. Although conscientiousness had no effect, the task meaningfulness and outcome importance did influence a team’s social integration within (other) student teams. The authors moreover highlighted the possibility of different results, when researching within a business setting instead of a student setting. Agreeableness influencing Affect

De Vries et al. (2006) distinguished between people’s willingness to share knowledge and their eagerness to share knowledge. The willingness to share knowledge is based on peoples’ desire to attain a balance between donating knowledge and collecting knowledge, also called the norm of reciprocity. De Vries et al. (2006) found team members’ agreeableness, team members’ extraversion, and one’s personal job satisfaction and performance beliefs, to positively influence these persons’ willingness to share information with(in) the team. On the other hand, eagerness to share knowledge contains the desire to spread the word regardless of

the group’s goals or any tangible benefit that can be expected from it. Although the authors hypothesized that a persons agreeable character will influence the eagerness to share knowledge, no such result was found. De Vries et al. (2006) found eagerness to share knowledge to be positively related to a person’s own performance belief and job satisfaction and the extraversion of one’s team members, but not with this person’s agreeable character. The authors explained this by highlighting the mediating role of eagerness to share knowledge, by emphasizing the positive role of agreeableness in creating positive affect in the target, thereby creating stronger emotional attachment and commitment to the relationship, both of which stimulate the willingness to reciprocate.

Self-Efficacy

In researching the motivational mechanisms underlying knowledge sharing, Quigley et al. (2007) found self-efficacy as a determining factor of knowledge exchange. The authors have used, in accordance with Bandura (1997), task-specific confidence to define self-efficacy. Quigley et al. (2007) found only a modest relationship between motivational factors and knowledge transfer. Yet, after incorporation of the mutual norms for knowledge sharing that developed between knowledge sender and recipient, they found a substantially stronger relationship between motivational factors and knowledge transfer.

Construction of (Social) Identity

Cross-cultural research has suggested that individuals differ in the extend in which they integrate with others and their social environment (Kahlish & Robins, 2006). In this light, a distinction can be made between collectivist cultures that lend their identity from group affiliation, and individualistic cultures, which view themselves as independent and unique, prioritizing individual goals (Kahlish & Robins, 2006).

However, the concept of collectivism, as being different from individualism, has been heavily criticized, conceptually as well as empirically (Brewer & Chen, 2007). Researchers have found that members of individualistic cultures (who generally score high on measures of individualism) are no less collectivistic than members of countries that generally score high on measures of collectivism. For example, compared to Japanese, Americans score higher on collectivism items, such as “belonging to the in-group”, “seeking others’ advise”, whereas they score lower on collectivism variables that emphasize “valuing group harmony”, “valuing hierarchy and group goals”, and “preference for working in groups” (Brewer & Chen, 2007).

From the existing theories, one would expect, however, that the Americans would consistently score lower on all collectivism items.

Brewer and Gardner (1996) have tried to reconcile some of the found inconsistencies, by making a distinction between the individuated or personal self (those aspects of the self-concept that differentiate the self from all others) and a relational or social self (those aspects of the self-concept that reflect assimilation to others or significant social groups). The authors thereby also made a distinction between two levels of social selves. On the one hand, there is a social self that is derived from interpersonal relationships and interdependence with specific others, based on personalized bonds of attachment. On the other hand, there is a social self that is derived from membership in larger, more impersonal collectives or social categories, based on common identification with some symbolic group or social category. Paxton and Moody (2003) made a similar distinction, highlighting relational and ideational aspects of attachment.

The distinction between relational and group collectivism, found by Brewer and Chen (2007), can be used to explain the relationship between intra-group cohesion and inter-group competition. Research performed in individualistic cultures has suggested that intra-group cohesion and inter-group competition tend to be reciprocally related. Basically, in the absence of out-group or inter-group competition, individualists are likely to focus on personal identity rather than social identity, also being less concerned about cooperation and maintaining harmonious relationships among group members. But if group membership becomes salient (i.e. in situations of group competition), intra-group cohesion is enhanced in the inter-group context. Contrary, when identity formation is based on relational interconnectedness, devotion to the group is less affected by competition with out-groups. In this situation, the attainment of in-group harmony and cooperation are promoted by relational values which are independent of the inter-group context.

2.4 Combining Individual Attributes to the Team Level

Although some researchers have started to move away from focusing solely on demographic variables, preliminary research into the effects of personal characteristics and value orientations on e.g., performance, have not resolved some of the earlier found inconsistencies (Knippenberg & Schippers, 2007). Researchers have tried to find a way to reconcile some of

these inconsistencies, by investigating whether the way of combining these different attributes of individual team members to the level of the team or alliance could have caused differences in results.

Contrary to the traditional focus on different dimensions of diversity in isolation or in additive models, faultlines refer to combinations of correlated dimensions of diversity that yield a clear basis of differentiation between subgroups (Knippenberg & Schippers, 2007). For example, in case a group contains several members that are more homogeneous in characteristics along several combinations of correlated dimensions (gender, tenure, age, etc.), the overall group may create a fault (break), making the group fall apart into several more homogeneous subgroups, thereby accelerating possible differences in positions (for example, in terms of opinion on task execution). In other words, faultlines may help to understand the forming of different (social) subgroups. Lau and Murnighan (1998) felt a group’s faultlines can be an important determinant of subgroup conflict, especially when the group’s task is related to one of its faultlines. For example, if ethnicity, national culture, tenure and opinions are divided along the partner company lines participating in the alliance, the concept of fault lines assumes this will increase the probability of strengthening differences in opinions on task execution if present, possibly leading to irreconcilable conflict.

Research performed by Bezrukova and Thatcher (2004) have shown that alignment theory (faultlines) compared to dispersion theory (group heterogeneity) explained the cross-level effects of diversity on conflict and performance better.

“Members of groups with strong faultlines had higher levels of intra-group conflict, lower levels of bonuses, and were less satisfied with their group experience and perceived performance than members of heterogeneous groups.” (Bezrukova and Thatcher, 2004:2)

Research has also shown that faultlines explain more variance in perceptions of team learning, psychological safety, satisfaction and expected performance than single attribute heterogeneity (Lau and Murnighan, 2005). In comparing ethically homogeneous groups, with groups having an ethic minority member present, who was either also in the informational minority (faultlines) or in the information majority (cross-cutting informational and ethic diversity), Sawyer et al. (2005) found informational diverse decision-making groups marked by cross-cutting dimensions of diversity, to outperform homogeneous and faultlines groups.

Research using the concept of faultlines has furthermore shown that the dynamics of faultlines are strongest and most likely to occur when the diversity of individual member’s characteristics is moderate (Lau & Murnighan, 1998). While investigating the development of hybrid team cultures within transnational teams as facilitator of group interaction using the concept of faultlines, Earley and Mosakowsky (2000) found that in the long run (multi-attribute) homogeneous and highly heterogeneous teams outperformed moderately heterogeneous ones. As studies looking at the curvilinear effects of faultlines have frequently used measures of moderate faultlines, that could also be labeled as moderate cross-categorization, it is unclear to what extend these findings point to the benefits of moderate faultlines (eliciting subgroup categorization) or of crosscutting dimensions of diversity (diversity without associated subgroup salience) (Knippenberg & Schippers, 2007).

2.5 Network Approach

Network analysis may help to gain insight into the social relations within a work group that moves beyond the notion of split in subgroups and thus enable a more fine grained analysis of social categorization processes (Knippenberg & Schippers, 2007). Moreover, such analyses are useful in capturing external linkages (Reagans et al., 2004), a.o. linkages with alliance partners, or linkages beyond the alliance boundaries.

Kahlish and Robins (2006) have studied the effect of individual psychological differences on network structure. The authors found personality factors to influence the preferences for certain types of network structure. Although previous research has shown that self-monitoring influences the presence of structural holes (Mehra et al., 2001), no significant results were found in this study. In comparison to Mehra’s (2001) organizational sample, the sample of university students as used by Kahlish and Robins (2006), did not require much self-monitoring.

But as Kahlish and Robins (2006: 57) stated:

“…an individual’s network partners are actors themselves and there needs to be some process of concordance between individual and partner to permit a social tie to form”.

Therefore, in order to be able to account for the interaction between the different partners, and not just their level of diversity, it is important to study the networks in which these partners operate.

So, in reconciling the differences found in diversity research by using a network approach, special precautions need to be taken to account for the process of concordance between the individual and other actors within the alliance. The differences in perceived characteristics of the individual actors within the network, and the effects of differences in characteristics on the interaction of the actors on the innovative capability are especially worthy to be researched. In the next chapter, we will continue on the usage of network theory in more detail.

2.6 Conclusion

In this chapter, we studied the aspects of diversity that are possibly important for creating innovation, protecting innovation and generating rent. The previous analysis has shown that researching the generation of innovation requires moving beyond researching the number of patents generated, the tenure and education of team members, but instead requires capturing individual knowledge bases. Whereby individuals’ cognitive schema’s may increase the ability to detect less connected people, bridging structural holes, therefore increasing the potential to detect innovation potential, though the ability to detect relationships may also add to the relative bargaining position. Self-monitoring can give insight into the tendency to develop relationships across groups, but also the ability to strategically regulate one’s behavior, whereby the ability of high self-monitors to control expressive behavior may add to the ability to protect. In terms of personality characteristics, extraversion increased the tendency to be strongly connected, and neuroticism was related to a preference for weak network ties. Alongside extraversion and self-efficacy, agreeableness positively influenced the willingness to share information. But agreeableness did not influence the eagerness to share information (desire to spread information regardless of the expectation of reciprocation). Researchers assumed that the effect of agreeableness on eagerness was mediated by the presence of affect. Previous research has found that without the presence of positive affect, the willingness to share information will be based on the presence of the mutual norms of knowledge sharing. Also, the effect of self-efficacy on knowledge sharing was strengthened by the presence of mutual norms of knowledge sharing, whereby these mutual norms will be influenced by commitment to the alliance; in this context the distinction between the individuated self and the relational and social self are important.

Overall these results can be concluded by stating that knowledge, cognition, personality and the level of self-representation are important in researching the ability to create and protect innovation simultaneously, and generate economic rents. In researching the effect of team diversity on the ability to jointly create innovation and appropriate rents, it will be important to research an individual’s possession of knowledge, cognitive ability, the typifying personality characteristics and his or her level of self-representation. The use of network analysis might be very useful in order to gain insight into the effect of diversity within the alliance that moves beyond the notion of split in subgroups.

In terms of implications for cooperating with possible competitors in practice, it is important to pay attention to the actors scoring high on dimensions known to influence innovation (protection) and appropriation. For example, looking at the actors involved in establishing the cooperative agreement between Crucell and DSM, and their joint licensing agreement with Abgenomics Corporation (Taiwan), some members are important for analysis. Dr. Dominic Valerio was the initiator of the cooperation with the Taiwanese firm, he was co-founder of the biotechnical firm Crucell, and is currently also involved in a venture capital firm (high self-monitoring). Dr. Jones earned a degree in Chemical engineering, participated in the process of developing Crucell’s proprietary PER.C6(TM) technology. He also played a part in the recent breakthrough on the development of the PER.C6(TM) platform, though he has always preferred to be less emerged in the firm (neuroticism). Dr. Fiztgerald is member of DSM, he has developed expertise in a wide area of expertise, sharing common knowledge with both partners. He is know to be likeable, and is proud of its expertise (agreeable). The Taiwanese president of Abgenomics, Shih-Yao Lin PhD, stated the desire to “learn from the unique characteristics of PER.C6(TM)”, having a more long term perspective (high self-monitor). He has a lot of friendship relationships with other Asian partners, University, and others (high relational self). Dr. Tjeng Lin started as en engineer at Abgenomics, he is currently active in the consulting branch of Abgenomics, focusing on business development and alliance management activities (cognition).

In the next chapter, we will study how diversity of networked team members should (ideally) be shaped to enhance the generation and protection of innovative capability in inter-organizational cooperation.

3. Generating and Protecting Innovative Capabilities

In order to answer how diversity of team members can be organized in ways such as to enhance the generation and protection of innovative capability in inter-organizational cooperation, it will be important to gain insight into the (network) variables that influence innovation. Basically, it will be important to answer how interactions between members in a cooperation needs to be organized to enhance the capacity to innovate, and also to prevent core knowledge from being unwillingly leaked to (possible) competitors. Once the variables leading to innovation have been established, we will focus our research efforts on the effect of diversity on interactions taking place within the alliance and the resulting effect on a firm’s capability to innovate.

3.1 Innovative Capability versus Protecting Capability

Lavie (2006) hypothesized that the ability to protect plays a role in preventing knowledge to be leaked to partners, but also assumed that the capability to protect does not play a role in jointly generating innovation in cooperation. Rather, Lavie (2006) has highlighted the role of opportunistic behaviour in jointly creating innovation. The role of opportunistic behaviour on the willingness to learn jointly has also been reported on by other research (Nti & Kumar, 1998; Hamel, 1991). But frequently, these authors assumed that the willingness to create knowledge in cooperation is dependent on member’s ability to protect. Other authors have tried to separate the effect of transferring resources and the ability to learn from the ability to protect (Santos, Dussauges and Mitchell, 2004).

Research has differentiated between cooperation with a pure learning goal orientation from cooperation with a purely protective orientation and orientations that takes both aspects simultaneously into account. Santos, Dussauges and Mitchell (2004) found a positive and significant effect of the ability to protect and learn simultaneously on the focal firms learning ability. But the ability to protect without learning decreased the focal firms learning significantly (Santos, Dussauges and Mitchell, 2004). Although the authors were not certain about the results found on the ability to learn by the partner firms, this research does give credence to the need for simultaneous learning and protecting ability in cooperation, versus

solely protecting. Therefore, in interacting with alliance partners, team members need to focus on learning while at the same time protect information.

Capability to Generate Innovation

In terms of the capacity to innovate, researchers have often looked at the concept of absorptive capacity. Cohen and Levinthal (1990) defined absorptive capacity as the firm’s ability to value, assimilate and apply new knowledge. Zahra and George (2002) have extended the conceptualization of these authors, by extending the acquisition and assimilation of knowledge (Potential Absorptive Capacity), with transforming knowledge and exploiting knowledge (Realized Absorptive Capacity).

Zahra and George’s (2002) conceptualization divided potential absorptive capacity into two stages, where the first stage focuses on the identification and acquisition of externally generated knowledge and the second stage researches the ability to analyze, process, interpret and understand the information obtained from external resources. Although researchers have not always been very consistent in defining the phases of absorptive capacity, researchers did frequently study the ability to search for (external) information and the ability to transfer externally generated knowledge separately, as they assumed that different factors would influence these phases of innovation differently (Dahlin, Weingart and Hinds, 2005).

Looking at Realized Absorptive Capacity, transformation is the firm’s capability to develop and refine the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge. Beyond Dahlin et al.’s (2005) ‘integrating of knowledge’, research on creativity could probably also give insight into this process of transformation. McEvily and Marcus (2005) found empirical support for the role of joint problem resolution in acquiring competitive capabilities. In this chapter we will not look at exploitation, as this contains the ability to harvest and incorporate knowledge into its operations, therefore relating to the appropriation of rent, which will be discussed in the next chapter.

Protecting Capability

Whereas the differentiation into stages of innovation can be useful in distinguishing factors that lead to innovative capability, the concept of absorptive capacity does not give insight into the ability to protect. Research has shown that the embeddedness of the alliance within the focal company can influence protection of knowledge (Santos, Dussauges and Mitchell,

2004). Other researchers have emphasized the importance of comparability of structure between partners in cooperation (structural equivalence), and research on inter-organizational cooperation has emphasized the need for special attention to members interacting between partners in the alliances (Conn et al., 2000), also called the network interface. In order to research the simultaneous learning and protecting capability, special emphasis needs to be placed on these factors.

Network Actors as Representatives of the Capability to Innovate

Jones (2006) extends the absorptive capacity framework developed by Zahra and George by adding the roles that individuals play in achieving potential and part of realized absorptive capacity. Jones (2006) elaborates the role that gatekeepers and boundary spanners play in the acquisition and assimilation of knowledge, and the role that change agents and entrepreneurs have in the transformation (and exploitation) of knowledge.

Like Zahra and George (2002), Jones (2006) views the use of social integration mechanisms as lowering the barriers to information sharing while increasing the efficiency of assimilation and transformation capabilities. Zahra and George (2002) state the importance of structural, cognitive and relational dimensions in shaping the integration. The specifics of these dimensions are, however, not resolved by the authors. Lavie (2006) saw here a special role for social network theory, but also did not further explicate this role.

3.2 Network Variables

In this section, we will look at the network variables that will lead to the generating of innovation in cooperation with a partner which later may turn into a competitor. Based on insight from the previous chapter, we will firsts look at the network variables that will influence the acquiring of knowledge, then we will look at the network factors that influence the creation of knowledge, then we will discuss the joint problem solving approach and the transfer of knowledge. As successful innovating also requires the simultaneous protection of knowledge, the network variables that will influence the capability to protect will be discussed alongside the capacity to innovate. As the context of innovation is inter-organizational cooperation, embeddedness of team members within the alliance, the interaction between the different subgroups within the alliance team and the position of individual members, will need special emphasis.

Figure 2. Conceptual model knowledge generation

Acquiring Knowledge

Linkages between members in inter-organizational cooperation can be associated with two distinct kinds of network benefits. First, they provide the benefit of resource sharing, allowing firms to combine knowledge, skills and physical assets. Second, they also provide access to knowledge spillovers, serving as conduits through which news of technical break-troughs, new insights to problems or failed approaches travels from one partner to another (Ahuja, 2000). Linkages between members of an (alliance) network can be of a direct or indirect nature, whereby the indirect ties are established by the interaction of (one or several) other members. The chains of relations trough which pairs of actors can be linked are sometimes called paths (Moody & White, 2003). Whereas research has shown, that direct ties provide resource-sharing and informational spill-over benefits, indirect ties only provide information spillover benefits (Ahuja, 2000). The indirect ties can benefit the focal company in terms of non-redundant information, thereby enlarging the possibility of creating novel insights (Granovetter, 1973). However, these indirect ties can also lead to the leakage of core information to the competitor, which again could lead to a reduction of the competitive advantage. Range (Structural) Cohesion Commitment Alliance Team Centrality Personality Identity Information search Knowledge transfer Creating knowledge

Joint problem solving Mutuality Cognitive schema Alliance team Network variables Individual Appropriation Knowledge

Beyond the directness of ties, the strength of the relationships can also provide clues about the ability to acquire knowledge. It is especially important to highlight the level of emotional closeness and interaction frequency between actors (Granovetter, 1973). Strong ties increase the sharing of knowledge, but weak ties provide access to diverse perspectives, due to its access to heterogeneous social circles (Perry-Smith, 2006). These different social circles give insight into previously unexplored ideas, force individuals to think in broader terms and combine these differences in unique ways, and facilitate the autonomy that is necessary for independence of thought.

As peripheral actors are less strongly embedded in the network structure, acquiring novel ideas sparked by outside connections to different networks is easier for these actors. But for highly central actors, outside ties can be detrimental to creativity, creating unnecessary noise and they may distract from recognizing and valuing novel contributions (Perry-Smith et al., 2006). Having a central position is more in line with being a catalyst for the creative ideas of others, than being a creator of new ideas. As empirical research by Perry-Smith et al. (2006) has shown, network centrality and outside ties will interact in such a way, in that outside connections will facilitate creativity for peripheral positions, but will constrain creativity for central positions.

Transferring Knowledge and Creating New Joint Knowledge

Network ties between actors in a network structure say something about the ability to reach members with differences in their range of knowledge. But beyond this, it will also be necessary to gain insight into the willingness to share knowledge and to gain insight into whether shared knowledge will be acted upon in cooperation. The concept of mutuality and the level of subgroup formation have frequently been used to gain insight into the willingness and the ability to share knowledge.

The concept of mutuality contains both equivalence and immediacy. Where equivalence describes the discrepancy between what is exchanged and what is reciprocated, immediacy refers to the timing of the reciprocated act. The failure to reciprocate (timely) can engender loss of credibility and can bring about exclusion from further exchanges (Khorram et al., 2006). Based on Portes and Sensenbrenner’s (1993) concept of ‘enforceable trust’, Frank and Yasumoto (1998) found that although actors generally abstain from hostile action more frequently than they engage in directly supportive action, this tendency is more pronounced

between members being part of the same group than between other pairs of actors (Frank & Yasumoto, 1998). The authors found that actors are more likely to engage in reciprocity transactions if they are not members of the same subgroup, than when they are members of the same sub-group. They also found that actors are more likely to enforce each others trust versus engage in reciprocity transactions if they are members of the same subgroup than if they are not members of the same subgroup.

Once an actors’ willingness to share information is established, the information needs to be understood and acted upon. For example, when the portion of unfamiliar information is smaller, more time will be spent analyzing this smaller portion of unfamiliar information. Therefore diverse groups will have both less unfamiliar information to analyze and more time to do so, providing an advantage in developing depth with respect to unfamiliar information (Dahlin et al., 2005). The presence of cliques within a subgroup will strengthen this relationship even further. As cliques are generally smaller than a team as a whole, each clique member has more time available to share information. As unshared information is generally pooled later in the discussion, within cliques a comparatively large portion of unshared information will be shared (Khorram et al., 2006). On the other hand, research has also shown that members holding relatively large amounts of unshared information (cognitively peripheral members) were judged to be more influential than cognitively central members. Especially in cases where there is an intention to learn form the partner (spillover) the desire to explore unshared information will be of particular interest to the partner (Wittenbaum, et al., 2000).

Joint Problem Resolution

While information sharing and trust have been theorized to facilitate the acquisition of competitive capabilities, McEvily and Marcus (2005) found that these mechanisms do not give a full explanation of transferring more complex (tacit) knowledge. The authors found that joint problem solving arrangements play an important role in transferring complex and difficult-to-codify knowledge, the type of knowledge that underlies competitive capabilities. Griffith et al. (2005) have looked at the role of problem resolution in transferring knowledge. These authors have researched whether relationships resources underlie the development of knowledge resources. For example, Griffith et al. (2005) have researched the extend to which relational resources, characterized by a relationship between trust and commitment, does indeed influence knowledge resources, characterized by a relationship between information