The secret to multinational corporations’ success in creating great inventions lies in its development team

Herzliya 2022, A new study by Prof. Niron Hashai, dean of Reichman University’s Arison School of Business, examines how to properly structure development teams in multinational corporations in order to come up with “radical inventions,” that is, major and significant inventions that are cited numerous times as technologies that are the basis of other inventions.

In recent years, we have witnessed more and more multinational corporations establishing development centers abroad, with the goal of creating these “radical inventions.” The biggest difficulty in coming up with such inventions is that creating something truly innovative usually requires diverse knowledge from different sources. One solution to ensuring diversity in knowledge sources is to establish an international development team and cooperating with companies from several different countries. The disadvantages of this solution, however, are that managing an international team is expensive and difficult due to incompatible working hours; resistance to ideas from inventors from other countries; and the risk of proprietary knowledge spillover to other firms.

The solution Prof. Hashai proposes is to either establish development teams from different local companies, or to establish international development teams but with developers from the same company. The first solution is based on the assumption that different companies have different knowledge bases that have been developed over the years and combining them increases the diversity of knowledge sources. Moreover, the fact that the developers are local allows for greater control and cost reduction. The second solution is founded on the assumption that developers from different countries have different knowledge bases, which increases the diversity of knowledge sources, but keeping development within the company's organizational boundaries reduces the risk of knowledge leakage and keeps costs down. The idea is that multinational corporation should choose one of these solutions in order to achieve profitable “radical inventions,” depending on the circumstances and what it is trying to create.

Dean of the Arison School of Business at Reichman University, Prof. Niron Hashai: “We believe that companies have a hard time coming up with radical inventions that are profitable, since most of the time (64 percent of the cases in our study) they focus on one country (usually the home country) and keep development within the limits of their organization, which makes true innovation difficult and conveys a risk-averse approach. On the other hand, there are companies that fail to come up with radical inventions even though they have looked abroad and collaborated with foreign companies. Local development with local partners, or, alternatively, international development within the boundaries of the firm, are two development strategies that increase its chances of success.”