Break­through inno­va­tions like the Internet, peni­cillin and even sliced bread changed the world for­ever. For busi­nesses in every industry, inno­va­tion remains a top pri­ority as they strive to make their own indelible marks on history.

But how do com­pa­nies innovate?

Most com­pa­nies state that in order to enhance their inno­v­a­tive­ness, they need to leverage the knowl­edge acquired from external part­ners. But my research says the oppo­site,” said assis­tant pro­fessor Denise Dunlap-​​Hinkler. “The com­pet­i­tive advan­tage is actu­ally gained by internal knowl­edge transfer—the sharing of knowl­edge within the global bound­aries of the firm.”

Dunlap-​​Hinkler is a tenure-​​track pro­fessor in the Inter­na­tional Busi­ness depart­ment of Northeastern’s Col­lege of Busi­ness Admin­is­tra­tion. Her ini­tial research focused on how phar­ma­ceu­tical firms develop new prod­ucts and where they gain the knowl­edge that results in break­through innovation.

She chose the phar­ma­ceu­tical industry because in order to bring a new product to market in the United States, all phar­ma­ceu­tical com­pa­nies must gain approval from the Food and Drug Admin­is­tra­tion (FDA). “It can be dif­fi­cult to pin down what’s con­sid­ered break­through and inno­v­a­tive,” said Dunlap-​​Hinkler. “The FDA uses a con­sis­tent set of def­i­n­i­tions in the eval­u­a­tion of new prod­ucts, which allows me to examine this phe­nom­enon across companies.”

In addi­tion, the industry’s use of patent pro­tec­tion for intel­lec­tual prop­erty pro­vided a way to mea­sure the knowl­edge shared to develop each inno­va­tion by company.

Dunlap-​​Hinkler exam­ined the com­pa­nies’ busi­ness devel­op­ment strate­gies and iden­ti­fied two main methods used for growth. Com­pa­nies either accu­mu­lated new knowl­edge through out­side part­ner­ships and acqui­si­tions or built on existing knowl­edge through internal sharing, or both.

She com­pared the effec­tive­ness of these strate­gies by ana­lyzing patent infor­ma­tion for each com­pany and dis­cov­ered that the com­pa­nies using more internal knowl­edge transfer were also devel­oping more break­through products.

When a com­pany shares knowl­edge across bor­ders and at least half of it comes from internal sources, it’s even more likely to be a break­through,” said Dunlap-​​Hinkler. “I found the same results for both for­eign and U.S. –based firms.”

She also observed that the majority of com­pa­nies still treat their inter­na­tional oper­a­tions as “out­posts” with knowl­edge flowing one-way—from out in the field back to headquarters.

Given the global mar­ket­place and the com­pe­tency of people over­seas, there’s a need for knowl­edge to flow both ways,” she said. “These find­ings should make man­agers pause and ask, ‘Are we truly taking advan­tage of our rich global knowl­edge net­work?’ and help them to max­i­mize the use of their over­seas capabilities.”

She is cur­rently devel­oping an approach to examine the unique ways that knowl­edge transfer occurs in emerging economies around the world, par­tic­u­larly in coun­tries where busi­ness net­working is heavily influ­enced, and poten­tially lim­ited, by cul­tural factors.

By Rachel Sockut