Through a stylized model of the R&D process, this article shows how the strategic organization of R&D should simultaneously consider the choice of the type of R&D to be performed (basicness) and the organization of R&D, which includes the choice about the exposure of the R&D project to knowledge from outside the firm (openness).The authors identify how each of these decisions affects the expected benefits and costs (production, transaction and coordination costs) of R&D projects, and formally derive how these decisions interact.The fact that these decisions are customarily allocated to different agents with misaligned objectives pushes top management to strategically adjust the R&D strategy (i.e. the type of R&D performed) in order to affect the organization of the R&D project, an often times decentralized decision taken by a project manager. From the model, the authors develop several implications for theory, explain some observed empirical regularities in the management of R&D and derive novel testable implications.
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