Entry into new niches: the effects of firm age and the expansion of technological capabilities on innovative output and impact

Abstract

We provide evidence that young firms systematically differ from older firms in their innovative output when they enter 'new to the firm' technological niches. We analyze data from 128 biotechnology firms since their inception and track these firms over time. Our analyses reveal that the organizational age at which the firm branches into new technological niches significantly influences its innovative activity. We refine the focus of the extant literature by separately examining the effects of branching on the quantity of innovative output, and the impact that this output has on the technology domain. Subsequent to branching into new niches, we find that older firms have a higher quantity of output than their younger counterparts; whereas young firms tend to outpace their older rivals with higher impact. The implications of these findings for the literature on dynamic capabilities and entrepreneurship are discussed. Entry into New Niches 3How does the timing of capability development matter? We examine whether the benefits that accrue to expanding technological capabilities are contingent upon firm age. We draw on the organizational aging and dynamic capability literatures to study how the expansion of a firm's capabilities by entering 'new to the firm' technological niches, termed as branching, at different points in the firm's age would vary in its influence on subsequent innovative activity.Though commonly assumed that startups create breakthrough inventions, some contrarian evidence suggests that mature incumbents also generate such discoveries (Dushnitsky and Lenox, 2005;Phene et al., 2006). In a study of large chemical firms, Ahuja and Lampert (2001) proffer evidence to suggest that mature incumbents overcome pathologies of aging by branching into new domains and by recombining new with old knowledge. Other researchers have investigated the temporal and structural effects of recombining new with old knowledge on innovative output (Nerkar, 2003;Rosenkopf and Nerkar, 2001;Rothaermel and Boeker, 2008;Yayavaram and Ahuja, 2008). We contribute to this conversation by examining the role of entry into novel technology areas, i.e. branching, and how the effects of branching on innovative activity vary with firm age.To examine whether the pattern of optimal technological expansion is conditional on firm age, we study innovative output of biotechnology firms from their inception over a twenty year period. This sample allows us to investigate the underlying conditions when firms optimize their output and impact by managing entry into new technological niches. The study engages the literature on capability development, especially in young firms. The entry into new niches corresponds with the expansion of a firm's technological capabilities to drive innovation within and across these technological domains. We also refine the focus of the extant literature by Entry into New Niches 4 separately examining the effects of branching on the quantity of innovative output and the impact that the output has on the technol...

Dynamic capabilities and organizational performance: The mediating role of innovation

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“…Employees who hold the key knowledge may be reluctant to make specialized human capital investments when they are deployed inappropriately (Wang, He, & Mahoney, 2009). To some extent, older firms or firms with more experiences can develop and understand their technological domains and recognize optimal conditions for recombination (Zahra & George, 2002;Kotha, Zheng, & George, 2011). Therefore, reconfiguration activities could improve technology innovation.…”

The Schumpeterian entrepreneur: a review of the empirical evidence on the antecedents, behaviour and consequences of innovative entrepreneurship

“…Moreover, building social capital is important for making progress with both types of ventures. Kotha, Zheng, and George (2011) use data from 128 biotechnology firms to analyze the innovation output of young and old technology firms after branching into a new technological niche. They find that older firms show a higher quantity of innovation output (measured by the number of patent applications), whereas younger firms produce innovations of higher impact (measured by the number of forward citations).…”

What Determines the Technological Capabilities of the Agribusiness Sector in Mexico?

“…Other works have focused on analyzing the relationship of technological capabilities with knowledge management (Zahra, Neubaum & Larrañeta, 2007), with the impact of the turbulence of technology and the market (Su, Peng, Shen & Xiao, 2013), with innovation (Zheng & Wu, 2010), with branching (entry into new niches) (Kotha, Zheng & George, 2011) and with the internationalization process (Kuramoto & Kindl, 2012).…”