1. Acs & Audretsch (1988) - Innovation in Large and Small Firms p. 2
2. Nooteboom (1994) - Innovation and Diffusion in Small Firms p. 3
3. Christensen & Sundahl (2001) - The Process of Building Theory p. 5
4. Shane (2000) - Prior Knowledge and the Discovery of Entrepreneurial Opportunities p. 7
5. Mintzberg & Waters (1985) - Of Strategies, Deliberate and Emergent p. 10
6. Dew et al. (2004) - Dispersed knowledge and an entrepreneurial theory of the firm p. 12
7. Breschi et al. (2000) - Technological regimes and Schumpeterian patterns of innovation p. 15
8. Klepper (1997) - Industry Life Cycles p. 18
9. Buenstorf (2015) - Schumpeterian incumbents and industry evolution p. 22
10. Christensen & Rosenbloom (1995) - Explaining the attacker’s advantage p. 25
11. Yu & Hang (2010) - A Reflective Review of Disruptive Innovation Theory p. 28
12. Cohen & Levinthal (1990) - Absorptive Capacity p. 34
13. Danneels (2002) - The dynamics of product innovation and firm competences p. 38
14. Dew et al. (2011) - On the entrepreneurial genesis of new markets p. 42
15. Suri et al. (2012) - Documenting the birth of a financial economy p. 45
16. Adner (2006) – Match your innovation strategy to your innovation ecosystem p. 47
17. Adner and Kapoor (2010) – Value creation in innovation ecosystems p. 49
18. Casadesus-Masanell&Ricart (2010) – From strategy to business models and onto tactics p. 52
1
, Innovation in Large and Small Firms: An Empirical Analysis
Acs & Audretsch (1988)
This paper presents a model suggesting that innovative output is influenced by R&D and market
structure characteristics. It finds that;
1. The total number of innovations is negatively related to concentration and unionization, and
positively related to R&D, skilled labour, and the degree to which large firms comprise the
industry
2. These determinants have disparate effects on large and small firms
Previous studies have focused mainly on large firm, while almost half of the number of innovation
have been done by firms which employ fewer than 500 employees. The purpose of this paper is to add
to the existing literature by introducing a more direct measure of innovative activity, and to illustrate
its use with an empirical model.
It tests two hypotheses;
1. The degree to which R&D expenditures produce innovative output is conditioned by the
market structure characteristics
2. Small- and Large-firm innovative activity respond to distinct technological and economic
regimes
The innovation data
Taken from a data base build by examining over 100 technology, engineering, and trade journals, and
consisted of over 8000 innovations, from which 4476 were identified as occurring in manufacturing
industries. (mainly product innovations)
Conclusion
- There does not appear to be a great difference in the “quality” and significance of the
innovations between large and small firms
- While the total number of innovations is closely related to R&D expenditures, and patented
inventions, the exact relationship between R&D and innovation is somewhat different from
that between R&D and patents
- Privately financed R&D has a larger effect on private productivity and profitability than does
government-financed R&D
- The number of innovations increases with increased industry R&D expenditures but at a
decreasing rate
- Industry innovation tends to decrease as the level of concentration rises
- Unionization is negatively related to innovation activity
- Small-firm innovations tend to be small in industries which are high in R&D, capital-
intensive, and which are concentrated, and high in industries in which there is only a small
share of small firms, and in which skilled labour plays an important role
- The innovation activity of small and large firms responds to considerably different
technological and economic environments
2
, Innovation and Diffusion in Small Firms: Theory and Evidence
Nooteboom (1994)
Introduction
The article gives an inventory of strengths and weaknesses of small firms in innovation and diffusion.
Relevant characteristics include not only traditional economic categories but also cognitive (learning)
and social dimensions.
Conditions of diversity
The most striking and possibly the most important characteristic of small business is its diversity. The
conditions that allow for diversity lie in the extent to which managers or entrepreneurs are disciplined
to adhere to common standards of profit or conduct, which in turn depends on the conditions of
ownership and the market. To the extent that firms obtain capital from shareholders, they are subject to
standards of profit in relation to risk. The risk to management of not adhering to standards of profit or
for missing opportunities for profit is that it may be replaced due to intervention by shareholders or
due to takeover.
- Small firms mostly derive their capital from banks or private sources. This results in limited
profit expectations as banks (and often friends/family) only require repayment of debts.
- Small businesses are likely to have both more and less risk aversion;
o Fewer risk due to less diversification
o Greater risks than faced by managers of large firms, whose income largely consists of
more secure salaries
- Government regulations are often more lenient towards small businesses
Sources of diversity
People resort to independent entrepreneurship for a variety of reasons;
1. Push (discontent with present position, or there may simply be no employment opportunities)
o There is a relation between entrepreneurship and social security: in many poor
countries entrepreneurship is the only way to provide for oneself or for sick or old
relatives
o There is a relation between economic downturn and self-employment
2. Pull (attractiveness of self-employment; will to power, will to creation, independence)
o The will to maintain independence restricts financial re- sources for growth and thus
perpetuates smallness
3. Coincidence (a potential customer who signals demand; an invitation to join a partnership; an
inheritance as a source of capital, inheriting the family firm)
Summing up: in small business there are conditions and sources that generate a large diversity of
purpose and conduct. Radical innovation is to be expected only from a minority, which is nevertheless
a significant group.
Complementarity of large and small firms
The advantages of large business are material (resources, knowledge, science, method, control of
external conditions) and those of small business behavioural (labour, entrepreneurship, motivation,
design, ideas). Small businesses fill the niches.
Large businesses have however changed; its focus has shifted from efficiency to quality, to flexibility
and to innovativeness. Organizations have become increasingly decentralized with increasing
autonomy of business units, in other words, they have become more like small businesses.
However, some differences remain;
3
2. Nooteboom (1994) - Innovation and Diffusion in Small Firms p. 3
3. Christensen & Sundahl (2001) - The Process of Building Theory p. 5
4. Shane (2000) - Prior Knowledge and the Discovery of Entrepreneurial Opportunities p. 7
5. Mintzberg & Waters (1985) - Of Strategies, Deliberate and Emergent p. 10
6. Dew et al. (2004) - Dispersed knowledge and an entrepreneurial theory of the firm p. 12
7. Breschi et al. (2000) - Technological regimes and Schumpeterian patterns of innovation p. 15
8. Klepper (1997) - Industry Life Cycles p. 18
9. Buenstorf (2015) - Schumpeterian incumbents and industry evolution p. 22
10. Christensen & Rosenbloom (1995) - Explaining the attacker’s advantage p. 25
11. Yu & Hang (2010) - A Reflective Review of Disruptive Innovation Theory p. 28
12. Cohen & Levinthal (1990) - Absorptive Capacity p. 34
13. Danneels (2002) - The dynamics of product innovation and firm competences p. 38
14. Dew et al. (2011) - On the entrepreneurial genesis of new markets p. 42
15. Suri et al. (2012) - Documenting the birth of a financial economy p. 45
16. Adner (2006) – Match your innovation strategy to your innovation ecosystem p. 47
17. Adner and Kapoor (2010) – Value creation in innovation ecosystems p. 49
18. Casadesus-Masanell&Ricart (2010) – From strategy to business models and onto tactics p. 52
1
, Innovation in Large and Small Firms: An Empirical Analysis
Acs & Audretsch (1988)
This paper presents a model suggesting that innovative output is influenced by R&D and market
structure characteristics. It finds that;
1. The total number of innovations is negatively related to concentration and unionization, and
positively related to R&D, skilled labour, and the degree to which large firms comprise the
industry
2. These determinants have disparate effects on large and small firms
Previous studies have focused mainly on large firm, while almost half of the number of innovation
have been done by firms which employ fewer than 500 employees. The purpose of this paper is to add
to the existing literature by introducing a more direct measure of innovative activity, and to illustrate
its use with an empirical model.
It tests two hypotheses;
1. The degree to which R&D expenditures produce innovative output is conditioned by the
market structure characteristics
2. Small- and Large-firm innovative activity respond to distinct technological and economic
regimes
The innovation data
Taken from a data base build by examining over 100 technology, engineering, and trade journals, and
consisted of over 8000 innovations, from which 4476 were identified as occurring in manufacturing
industries. (mainly product innovations)
Conclusion
- There does not appear to be a great difference in the “quality” and significance of the
innovations between large and small firms
- While the total number of innovations is closely related to R&D expenditures, and patented
inventions, the exact relationship between R&D and innovation is somewhat different from
that between R&D and patents
- Privately financed R&D has a larger effect on private productivity and profitability than does
government-financed R&D
- The number of innovations increases with increased industry R&D expenditures but at a
decreasing rate
- Industry innovation tends to decrease as the level of concentration rises
- Unionization is negatively related to innovation activity
- Small-firm innovations tend to be small in industries which are high in R&D, capital-
intensive, and which are concentrated, and high in industries in which there is only a small
share of small firms, and in which skilled labour plays an important role
- The innovation activity of small and large firms responds to considerably different
technological and economic environments
2
, Innovation and Diffusion in Small Firms: Theory and Evidence
Nooteboom (1994)
Introduction
The article gives an inventory of strengths and weaknesses of small firms in innovation and diffusion.
Relevant characteristics include not only traditional economic categories but also cognitive (learning)
and social dimensions.
Conditions of diversity
The most striking and possibly the most important characteristic of small business is its diversity. The
conditions that allow for diversity lie in the extent to which managers or entrepreneurs are disciplined
to adhere to common standards of profit or conduct, which in turn depends on the conditions of
ownership and the market. To the extent that firms obtain capital from shareholders, they are subject to
standards of profit in relation to risk. The risk to management of not adhering to standards of profit or
for missing opportunities for profit is that it may be replaced due to intervention by shareholders or
due to takeover.
- Small firms mostly derive their capital from banks or private sources. This results in limited
profit expectations as banks (and often friends/family) only require repayment of debts.
- Small businesses are likely to have both more and less risk aversion;
o Fewer risk due to less diversification
o Greater risks than faced by managers of large firms, whose income largely consists of
more secure salaries
- Government regulations are often more lenient towards small businesses
Sources of diversity
People resort to independent entrepreneurship for a variety of reasons;
1. Push (discontent with present position, or there may simply be no employment opportunities)
o There is a relation between entrepreneurship and social security: in many poor
countries entrepreneurship is the only way to provide for oneself or for sick or old
relatives
o There is a relation between economic downturn and self-employment
2. Pull (attractiveness of self-employment; will to power, will to creation, independence)
o The will to maintain independence restricts financial re- sources for growth and thus
perpetuates smallness
3. Coincidence (a potential customer who signals demand; an invitation to join a partnership; an
inheritance as a source of capital, inheriting the family firm)
Summing up: in small business there are conditions and sources that generate a large diversity of
purpose and conduct. Radical innovation is to be expected only from a minority, which is nevertheless
a significant group.
Complementarity of large and small firms
The advantages of large business are material (resources, knowledge, science, method, control of
external conditions) and those of small business behavioural (labour, entrepreneurship, motivation,
design, ideas). Small businesses fill the niches.
Large businesses have however changed; its focus has shifted from efficiency to quality, to flexibility
and to innovativeness. Organizations have become increasingly decentralized with increasing
autonomy of business units, in other words, they have become more like small businesses.
However, some differences remain;
3
