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When are firms most likely to innovate?

October 25, 2016

Practitioners' Guide

Conventional wisdom suggests that big firms invest less in disruptive technologies, to which Professors J.P. Eggers and Aseem Kaul add a new perspective. They report a ‘fundamental mismatch between the pursuit of path-breaking new innovations and their likelihood of success’.

It’s not inability or reluctance that ‘limit[s] established firms from developing new technologies’. It’s the when and where they do it that may the problem, Eggers and Kaul write in an article in Harvard Business Review.

Kaul, from the University of Minnesota, and Eggers, from the New York University Leonard N. Stern School of Business, explored organisational patenting behaviour from 1980 to 1997. In their research, they found that struggling companies tend to over-invest in, and eagerly pursue, new technologies, while those firms that are doing well – with higher chances of succeeding in finding new solutions – tend to opt to under-invest in innovation.

Eggers and Kaul advise stronger firms ‘to fight against the biases that sap their motivation to be innovative (…) building a culture and incentive system [in which] experimentation and even failure are tolerated and encouraged’. In contrast, companies in weaker positions should address their problems and missing capabilities first in order to ‘realistically hope to pursue path-breaking new technologies’.

Read the full article here and the study here.

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