Aging, obsolescence, and organizational innovation
Quite a large part of the literature on innovation and organizations and industries speaks to the question of a relationship between age and innovation. There is conflicting information on age. On the one hand, large established Fortune 500 firms patent at a much higher rate than new firms. On the other hand, Utterback and Abernathy's work speaks about process innovation and product innovation and life cycles of established firms which suggests that established firms may be vulnerable.
Sørensen and Stuart aim to contribute to the literature on organizations and aging in a number of ways. Unlike much of the literature that distinguishes between entrants and incumbents, the authors treat age as a continuum and look at its relationship to innovation. Second, they depart from the industry life-cycle model by considering each firm based on its own "internal" clock of life time.
The authors suggest four formal hypotheses (all quoted verbatim):
- Organizational age will be positive associated with the rate of innovation.
- When compared to young companies, older firms will show a greater tendency to build on their previous innovative activity.
- As firms age, their current-period innovations will tend to elaborate on and refine older areas of technology.
- In the broader industrial community, the innovations of older firms will be less influential on subsequent technology development than will those of their younger counterparts.
The authors empirical work is presented with firms from both the semiconductor industry and biotechnology. Innovative activity was measured as the rate of patenting. They looked as self-citing versus non-self-citing patents to test hypothesis 2. The authors use event-history analysis to test their hypotheses. They control for firm size.
The results show strong support for the authors hypotheses. They show that older organizations gain efficiency over time through the creation of routines and produce more patents controlling for firm size. However, they also show that organizational capabilities seem to decline with age. Essentially, increased productivity seems to be connected to an increased entrenchment into a particular area which, in environments like semiconductors and biotechnology where the demand of the environment are changing quickly, puts the firm out of sync and ultimately less well adapted.
Theoretical and practical relevance:
Sørensen and Stuart's article has been cited more than 400 times in the 10 years since it was published in the literature on organizations, environments, and learning.