Scholars agree that innovation dynamics differ depending on the characteristics of a firm. This paper discusses how the ability of firms to innovate depends on their size as well age.
The size of the company affects its ability to innovate. In particular, Day & Schoemaker (2005) observe that start-ups are more likely to develop emerging technologies and new markets. In small start-ups, people work on rationalizing “weak signals” and expanding the ideas on the periphery. By contrast, in large companies maverick employees with the peripheral vision are only seldom tapped. Similarly, Bower & Christensen (1995) assert that large companies with established pools of customers are likely to overlook innovative technologies, such as Xerox and Canon. They argue that small companies are good at changing market and product strategies in agile fashion.

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The age of a company, too, affects its ability to innovate. Based on Day & Shoemaker (2005), young businesses are innovative whereas old and ell-established companies lack this ability because they have set hierarchies where ideas flow top down. Argue that young companies are more likely to succeed through innovation because they avoid seeking their share in the traditional market, but create new markets and become market drivers, owing either to breakthrough marketing or breakthrough technologies, rather than remaining market driven (Kumar, Scheer, & Kotler, 2000). Likewise, Chesbrough (2003) argues that new, young companies are more prone to innovation due to their use of the open innovation model. Old companies, which often retain the closed innovation model, lack opportunities to explore the options that do not seem promising at the beginning but may bring huge benefits in the future. They simply overlook them. Next, based on Fagerberg (2004), it turns out that young firms have an advantage over old ones in innovation because they are likely to have “organisational process innovation,” i.e. use new ways to arrange work, in addition to “technological processes innovation”. Also, Bower & Christensen (1995) observe that young companies have a clear advantage in innovation because they capitalise on the technologies rejected by leading companies as those that do not meet the needs of their mainstream clients.

Overall, the literature review allows claiming that both size and age both affect the ability of firms to innovate. In this way, young and small companies have a lot of advantages over the old firms.

  • Bower, J. & Christensen, C. (1995). Disruptive Technologies: Catching the Wave. HBR, January-February, pp. 43-53.
  • Chesbrough, H. (2003). The Era of Open Innovation. MIT Sloan Management Review, 44 (3), pp. 35-41.
  • Day, G. S. & Schoemaker, P. J. H. (2005). “Scanning the Periphery” Harvard Business Review, Nov-Dec.
  • Fagerberg, J. (2004). Innovation: A Guide to the Literature. In Fagerberg, J., Mowery, D., and Nelson, R. (eds.) The Oxford Handbook of Innovation, Oxford University Press, chapter 1, pp. 2-25.
  • Kumar, N., Scheer, L., & Kotler, P. (2000). From Market Driven to Market Driving. European Management Journal, 18 (2), pp.129-142.