The use of knowledge for technological innovation within diversified firms

We propose that searching for and transferring knowledge across divisions in a diversified firm can cultivate innovation. Using a sample of 211,636 patents from 1,644 companies during the period 1985-96, we find that the use of interdivisional knowledge positively affects the impact of an invention on subsequent technological developments. Furthermore, the positive effect of the use of interdivisional knowledge on the impact of an invention is stronger than the effect of using knowledge from within divisional boundaries or from outside firm boundaries. Our empirical findings have significant implications for the management of knowledge in diversified firms.