Collaboration and informal hierarchy in innovation teams: Product introductions in entrepreneurial ventures

• DOI: http://doi.org/10.1002/sej.1331
• Author: Amrita Lahiri,Emily C. Pahnke,Warren Boeker,Michael D. Howard
• Published date: 01 September 2019
• Date: 01 September 2019

SPECIAL ISSUE ARTICLE

Collaboration and informal hierarchy in innovation

teams: Product introductions in entrepreneurial

ventures

Amrita Lahiri

1

| Emily C. Pahnke

2

| Michael D. Howard

3

|

Warren Boeker

2

1

Department of Management, Information Systems and Entrepreneurship, Carson College of Business, Washington State University,

Pullman, Washington

2

Department of Management and Organization, Michael G. Foster School of Business, University of Washington, Seattle,

Washington

3

Department of Management, Mays Business School, Texas A&M University, College Station, Texas

Correspondence

Amrita Lahiri, Department of Management,

Information Systems and Entrepreneurship,

Carson College of Business, Washington State

University, Pullman, WA 99163.

Email: amrita.lahiri@wsu.edu

Funding information

Texas A&M University; University of

Washington

Abstract

Research Summary:Although stars may be particularly inno-

vative, building teams to collaborate with them can be diffi-

cult. Coordinating efforts between stars and non-stars may

be especially complex in new venture, which rely on infor-

mal hierarchy to manage organizational tasks. We investi-

gate how a venture's success at introducing new products

may be influenced by the extent to which company foun-

ders and star performers are involved in co-developing new

technologies. By analyzing innovation teams within a sector

of the medical device industry from 1986 to 2007, we find

that combining both star inventors and founder-inventors

on a venture's innovation team may limit product introduc-

tions. Our results highlight the importance of organizational

design in managing coordination and resource allocation in a

venture setting and suggest important boundary conditions

when stars may impede, rather than benefit, innovation.

Managerial Summary:Designing an innovation team can be

challenging for new ventures. While the presence of a tech-

nologically proficient founder or highly accomplished inven-

tor can significantly bolster a new venture's innovation

Received: 30 June 2017 Revised: 14 June 2019 Accepted: 18 June 2019

DOI: 10.1002/sej.1331

© 2019 Strategic Management Society

326 wileyonlinelibrary.com/journal/sej Strategic Entrepreneurship Journal. 2019;13:326–358.

efforts, our results indicate that these roles must be care-

fully managed to prevent conflicts between them. Our find-

ings suggest that founders who hire star inventors should

establish a clear hierarchy of decision-making within innova-

tion teams, while also offering greater autonomy to the star

inventor in matters concerning innovation leadership and

product development. We also suggest that it may be

advantageous for founders to hire star inventors with prior

experience working in new ventures as opposed to older,

established organizations. Overall, our study indicates that

new ventures need to exercise caution in hiring and manag-

ing star employees.

KEYWORDS

entrepreneurial leadership, innovation, innovation teams, new

product development teams, stars

1|INTRODUCTION

Organizational design choices made during their early years have a long-lasting impact on ventures. New firms must

construct their internal structures in ways that will support the development of innovative products, quickly provid-

ing revenue, and legitimacy while establishing the venture's future viability. Past research has shown how coordi-

nated team efforts create innovations that can lead to successful product introductions (Hargadon, 2002; Matusik,

2002; Taylor & Greve, 2006) and has highlighted the importance of this team, variously labeled the inventive team

(Bercovitz & Feldman, 2011), creative team (Reagans & Zuckerman, 2001; Roberts, 1991), or innovation team

(Knight, 1989; Nerkar, McGrath, & MacMillan, 1996) to new venture success. The manner in which the new ven-

ture's innovation team

1

(the term we adopt here) is organized can have important implications for the innovation

success of the firm.

Although the importance of the innovation team for the new venture's success is well-established (Beckman,

Burton, & O'Reilly, 2007), many questions remain as to how these teams should be configured to enhance their

effectiveness (Bercovitz & Feldman, 2011; Chen & Garg, 2018; Onal Vural, Dahlander, & George, 2013). At the firm

level, prior research establishes the considerable influence of founders and founder backgrounds on organizational

design. Founders with broader functional experience create greater opportunities for growth and success

(Beckman & Burton, 2008), and higher founder human capital may set the stage for the more rapid emergence of

hierarchical structure and greater administrative intensity (Baron, Hannan, & Burton, 1999; Colombo & Grilli, 2013).

By choosing to keep tight control over the firm, founders may ultimately even undermine its value

(Wasserman, 2017).

Founders must determine how to organize the innovation effort, specifying the roles that key members of the

innovation team should play and how decisions regarding new product introductions are made. These choices are

likely to be particularly challenging and impactful when managing star performers (Chen & Garg, 2018). Prior

research has shown that there is a significant positive impact of highly accomplished individuals or “stars”on team

innovation, reinforcing the intuitive notion that these members may make a team more innovative (Toole &

Czarnitzki, 2009; Tzabbar & Kehoe, 2014; Zucker, Darby, & Armstrong, 2002). However, as Chen and Garg (2018:

LAHIRI ET AL.327

p.1240) note, “[Organizations] face a tradeoff in utilizing stars. On the one hand, stars possess unique skills and bring

new ideas to the organization. On the other hand, these unique skills may also make it difficult for organizations to

use stars effectively because organizational routines are typically geared to utilize more conventional skill sets”.

Founder characteristics, choices and consequences extend to the strategy and design of the innovation team (Eesley,

Hsu, & Roberts, 2014; Ott, Eisenhardt, & Bingham, 2017), illustrating the critical nature of these early organizational

decisions.

While established organizations typically have existing routines and formal hierarchy for managing organizational

tasks, new ventures are more likely to rely on informal hierarchy—an implicit rank ordering determined by the extent

to which they defer to each other's individual expertise and competence (Freeman, 1986; Magee & Galinsky, 2008;

Sørensen, 2007). However, the extent to which this informal hierarchy is understood and agreed upon is likely to

vary (Blau, 1977). For example, some teams may be implicitly organized based on social affinity, while others may be

based on their task expertise. When members of an innovation team derive their prior successes and standing within

the team from different sources there is likely to be less clarity and agreement among members as to whom should

be deferring to whom (He & Huang, 2011). As we suggest in this study, this ambiguity can impair the ability of the

venture to successfully innovate. In particular, we explore the challenges to ventures that configure their innovation

teams such that star inventors, who have already amassed an extremely successful record of accomplishment of

innovation, collaborate on invention with company founders, who are often originators of the initial ideas that led to

the firm's creation. Organizations face a tradeoff in utilizing stars. On the one hand, stars possess unique skills and

bring new ideas to an organization. On the other hand, these unique skills may also make it difficult for organizations

to use stars effectively because organizational routines are typically geared to utilize more conventional skill sets.

Our research is motivated by whether configuring teams to bring together individuals with expertise derived

from different sources can actually lead to subpar outcomes for the firm. For example, highly accomplished team

members may have a detrimental effect on innovation if competition among them undermines their ability to

work together effectively (Loch, Huberman, & Stout, 2000). Recent research has demonstrated how star per-

formers may have trouble collaborating effectively (Chen & Garg, 2018; Groysberg, Polzer, & Elfenbein, 2011)

or may engage in unproductive status-seeking when there are too many of them (Overbeck, Correll, & Park,

2005) or when group members hold differing perceptions of the informal hierarchy of expertise on the team

(Kilduff, Willer, & Anderson, 2016).

The empirical context of our study is the minimally invasive surgical device (MIS) segment of the US Medical

Devices industry, a quintessential example of an industry driven by innovation and entrepreneurship. We examine

the industry from its inception in 1986 through 2007, tracking all new ventures over this history. By setting our

study in a population of new ventures that are initially focused on the creation and launch of a single product, we

are able to identify the innovation team members (Gruber, MacMillan, & Thompson, 2012). We examine the role of

two types of team members on product introductions in these new ventures: (a) founder-inventors—founders of the

new venture who also engage in patenting for the venture they start and (b) star inventors—extraordinarily produc-

tive individuals whose past innovative output places them among the top 5% of all inventors in the industry.

Our findings suggest that the presence of star performers and founder-inventors on a firm's innovation team is

positively associated with improved firm performance. Surprisingly, combining founder-inventors and stars on the

team may actually limit successful product introductions. Our post-hoc analysis suggests that this outcome is likely a

result of a lack of innovation leadership within the venture arising of the informalorganizational hierarchy. Our study

makes several contributions. First, we inform the literature on innovation in new ventures by exploring how entre-

preneurial ventures' internal organization shapes innovative performance. Specifically, we contribute to further

understanding how individual expertise and hierarchical structures act together to promote or limit the efforts of

innovation teams, highlighting some of the boundary conditions around the benefits that star performers can provide

for innovation. In doing so, our study extends an emerging body of evidence (e.g., Chen & Garg, 2018; Groysberg,

Lee, & Nanda, 2008; Kehoe & Tzabbar, 2015) that suggests that there are also significant challenges in managing

highly productive individuals within organizations. Second, we extend recent research on the effects of informal

328 LAHIRI ET AL.