Capabilities, Technological Diversification and Divisionalization

This paper develops and tests the hypothesis that greater R&D diversification is associated with less divisionalization in multidivisional firms. It argues, from transaction cost theory, that the extent of divisionalization of a large firm is indicative of its emphasis on interdivisional coordination, since fewer divisional boundaries reduce interdivisional bargaining costs. Also, greater interdivisional coordination is required to pursue strategies which exploit R&D undertaken in diverse but complementary fields, that is, strategies aimed at broadening technological capabilities. Conversely, less interdivisional coordination is required for more specialized R&D, that is, for strategies aimed at deepening existing capabilities. The hypothesis finds support in patent and organizational data.