A firm consists of different teams with each of them producing a separate product (which may be related to other products of the firm). In turn, each team has individuals of different talents (though some talents may be substitutable across products) who work together to achieve synergies. Some team members may find it advantageous to induct new talents into an existing team and/or introduce new products based on their experience. The firm will efficiently integrate a new product by forming a new team if it (a) has the organizational capabilities to translate potential synergies to reality, (b) can accommodate the strategic bargaining power of the existing team members in resource allocation across talents, and (c) can attract and coordinate the efficient combination of talents. A Spinoff, i.e., the production of the new product in a separate firm, will occur if any one, or more, of these conditions is not satisfied. A variant of the CES function can be shown to provide the most efficient analytical device to examine the stability of teams and spinoffs when teams cannot maintain such cohesion.
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A team can be generally defined as a group of individuals, often with different talents, who agree to work together to achieve an objective specified in advance1.Teams have been a preferred form of organizing production in a large number of knowledge intensive industries. Similarly, team organization has been particularly significant in the IT industry where the service component of production is high. Team formation receives prominence even in activities like biotechnology where the partnership of university scientists with an industry partner has been important for its development.
The emergence and significance of teams may be explained by the observation that team production offers several advantages. First, individuals within a team acquire different knowledge sets, offer their expertise to others as required and learn from each other, and internalize organizational goals. This has been noted in deVaro and Kurtulus (2006) and Garicano (2000). Second, teams can be an important source for new ideas regarding the way a given task can be accomplished as well as new product ideas. These features suggest that innovations, that require extensive knowledge, are by necessity a result of team effort. Third, large teams with diverse talents can also prevent other competitive firms from having access to certain types of critical expertise. This provides some monopoly advantages to the team. In general, team members share common goals and are interdependent for achieving these goals. Such an organizational mechanism has become a necessity to attract the requisite diversity of talents for corporate success. See, for instance, Milliken et al. (2003), Dahl and Reichstein (2007), and Jones (2009)2.
There are many aspects of team formation and its dynamics. The present study considers only the integration, or otherwise, of new ideas within the firm. In this context, new ideas may themselves be originated either by a member of the team or someone from any other organization when either of them perceives a need for it. Two types of new ideas have been recorded. First, given a product and some team that is executing it, one of the team members or a manager at a higher level, may suggest the introduction of a new talent into the team and the corresponding reorganization as efficient3. Second, either as a result of some members of a team perceiving it or someone from outside the organization suggesting it, a new product introduction may be considered worthwhile. The firm may conceptualize a new team and some reorganization to integrate such projects. However, there is no evidence to suggest that organizational mechanisms and team formation depend on whether the new ideas emerge from team members or they are suggested by someone outside the team. Hence, both the possibilities may be treated symmetrically. Whenever a new idea is proposed and pursued it necessitates changes in team formation. This was noted in Wruck and Wruck (2008). On occasions, the firm may also withdraw an existing product to accommodate the new idea if there is an expectation that the prospects of the existing product are poor. See, for instance, Wong et al. (2007), Bernard et al. (2010), and Thompson and Chen (2010).