How Personal Relationships and Digital Technologies Help Drive Innovation in New Ventures

By Eric Hollenbeck

For successful entrepreneurs, “let’s stay in touch” is more than an empty saying. By maintaining social ties with former colleagues and other businesses associates, entrepreneurs can get new ideas for their companies by tapping critical sources of knowledge.

Award-winning research from Washington State University, Texas A&M University, University of Washington, and Baruch College published in the Journal of Business Research shows how founders’ prior relationships developed in former workplaces, along with strong IT capabilities, help foster the creation of high-quality knowledge in the form of innovations. The research received international recognition at an entrepreneurship conference in Stuttgart, Germany.

After-work gatherings at local pubs, restaurants, and parties once served as the primary forums for exchanging ideas with peers outside of one’s own organization. Over the past three decades, however, the evolution of information technology (IT) has created a new space for sharing knowledge, especially for geographically isolated companies.

Researchers analyzed 632 U.S. biopharmaceutical firms founded from 1990 to 2000. They tracked the number of highly cited patents granted in the first ten years after founding—an indicator of innovativeness and strength of organizational knowledge.

From the data, researchers identified five factors that drive a company’s ability to accumulate high-quality knowledge: the innovativeness of parent firms, as well as that of the founder’s co-inventors; the geographical location of firms within the same industry; and the IT strength of both the parent firm and co-inventor firms.

“There’s a multiplying effect. The more of these components that are present, the faster the ventures gain new knowledge,” says Arvin Sahaym, one of the paper’s authors and associate professor of entrepreneurship and management at WSU’s Carson College of Business.

Companies can acquire high-quality knowledge and outperform their competitors by leveraging the innovativeness of their parent firms, co-inventors, and firms within the same geographical area, say the researchers.

A Kind of ‘Digital Watercooler’

While it is no surprise interpersonal relationships and prior collaborations serve as meaningful sources of knowledge, the research also reveals how the rise of digital technologies has improved the exchange of high-quality information.

The increased adoption of personal computers in the workplace during the 1990s, coupled with advances in internet technology, thrusted business into the “Age of Information.” Where it was once common for employees to “meet around the watercooler” and share ideas, advancements in IT have increasingly created faster and more effective ways to share knowledge, a kind of “digital watercooler,” says Sahaym.

“IT has accelerated the pace of collaboration. In the biotech industry, we are talking about quality of knowledge that is very sophisticated, very technical,” Sahaym says. IT has made the sharing and storing of this type of information much easier.

The strength of IT capabilities is even more important when similar firms aren’t located in “industry clusters,” like the Silicon Valley, or Seattle or Portland tech corridors. Busy executives can also use technology to exchange ideas with their peers, lessening the time commitments required to attend conferences or other in-person gatherings.

When companies don’t have connections to innovative parent firms or co-inventors, they can still acquire cutting-edge information, but it often requires proactive technological steps, Sahaym says.

“Forming strong alliances, leveraging cutting-edge information and communications technologies, and hiring personnel with technology expertise from other quality firms can help bridge the gap,” he says.