Does Firm Size Matter for Breakthrough Innovations? Evidence from a Dataset of Innovation Awards

Abstract 
Does firm size matter for breakthrough innovations? This simple but legitimate question, 
the starting point of this thesis, finds considerable space in the nowadays debates about 
innovation. In fact, if the significant differences between large and small companies are 
well documented in the literature, the way in which these differences impact on the 
outcome of R&D processes remains the subject of lively research. On the one hand, large 
companies benefit from a greater availability of capital, resources and networks; on the 
other hand, the dynamism of small businesses promotes greater renewal capacity and 
better adaptability to the surrounding environment and its innovative needs. Furthermore, 
the evolution of the economy over time may have shaped a new relationship between the 
dimensional variable and innovation. The results of this thesis, obtained by processing a 
dataset of innovation awards assigned annually since 1963 by the American magazine 
Research & Development, show how the size of a company plays a significant role in 
achieving innovations of great value, in the past as today. Therefore, the deepest 
differences between large and small firms, the so-called organizational routines, created 
by companies to manage any process of their own business, become essential structures 
that any innovation manager must consider. 
 
Le dimensioni di un’impresa influenzano i suoi processi di innovazione? Questa semplice 
quanto lecita domanda, punto di partenza di questa tesi, trova notevole spazio nei recenti 
dibattiti riguardo l’innovazione. Infatti, se le notevoli differenze fra grandi e piccole imprese 
sono ben documentate nella letteratura, il modo in cui queste differenze impattano sul 
risultato dei processi di R&D resta oggetto di vive ricerche. Da un lato, le grandi imprese 
possono trarre vantaggio da una maggiore disponibilità di capitali, risorse e network; 
dall’altro lato, la dinamicità delle piccole imprese può favorire maggior capacità di 
rinnovamento e miglior adattabilità al contesto di riferimento e alle sue esigenze di 
innovazione. Inoltre, l’evolversi nel tempo dell’economia potrebbe aver plasmato un nuovo 
rapporto fra fattore dimensionale e innovazione. I risultati di questa tesi, ottenuti 
elaborando un dataset di premi per l’innovazione assegnati annualmente a partire dal 1963 
dal magazine americano Research & Development, mostrano come la dimensione di 
un’impresa sia una determinante altamente significativa nel raggiungimento di innovazioni 
di un certo valore, in passato come oggi. Dunque, le differenze ultime fra grandi e piccole 
imprese, le cosiddette routine organizzative, create dalle stesse imprese per gestire 
qualsiasi processo del proprio business, si configurano come strutture imprescindibili 
rispetto alle quali qualsiasi manager dell’innovazione deve confrontarsi.
1 
 
1. Introduction 
In the modern economic and managerial environment, the role of the so-called 
breakthrough innovations is drawing relevant attention. In fact, due to their revolutionary 
characteristics, this type of innovations can be an important chance for companies to gain 
competitive advantage and pursue strategic renewal. For this reason, almost every 
companies try to take advantage of it, making the most of their R&D departments. 
However, only in some cases they achieve consistent results that are worth defining as 
breakthroughs. 
The different outcomes of R&D activities have fuelled the curiosity of researchers and 
managers, increasingly interested in understanding the underlying determinants. In 
particular, the investigation of the debated relationship between the size of a company and 
breakthrough innovations is the main reason behind this thesis; indeed, the stream of 
research support different perspectives. Some studies show that large companies, taking 
advantage of the greater availability of capital, resources and networks, are more likely to 
introduce breakthrough innovations, while others sustain that small companies, less 
bureaucratic and more dynamic, have a certain advantage. This framework seems to 
suggest the importance of organizational routines, which constitute a clear difference 
between large and small firms from a structural point of view. Therefore, managers should 
probably pay close attention to strategies, internal inhibitors and activators that may affect 
innovative activities of their firms, trying to choose the best management practices to deal 
with innovation issues. 
Processing a dataset of innovation awards, assigned annually since 1963 by the 
Cleveland (US) magazine Research & Development, this thesis will test empirically our main 
question, namely whether firms size matters in the achievement of breakthrough 
innovations. Furthermore, an effort will be made in order to investigate the influence of 
other determinants, such as collaborations between companies and institutions, 
geographical location and economic sectors. Since our dataset collects observations from 
1963 to 2014, the analysis will also take into account potential changes in these 
relationships over time.
2 
 
The thesis is structured as follows. Chapter 2 reviews some relevant topics highlighted 
in the economic and managerial literature, such as the incremental and radical nature of 
innovation, the theory of disruption and the role of competences, past experience and 
knowledge. Chapter 3 introduces the dataset through descriptive statistics, looking at each 
of its aspects in detail. Chapter 4 presents the empirical results of our analysis, obtained by 
the computation of the Kaplan-Meier estimators and the complementary log-log models. 
Finally, Chapter 5 draws the conclusions, seeking a reconciliation with the existing literature 
and trying to contribute to a little theoretical and empirical enrichment.
3 
 
2. Literature Review 
The purpose of this chapter is to shed light on some important aspects about innovation. 
As many other relevant arguments, innovation is broadly discussed in the economic and 
organizational literature, in multiple ways and according to different perspectives. 
However, although many authors have discussed the topic, innovation is still at the centre 
of nowadays economic debate. Probably, the main reason for this appeal is that we have 
many approaches that deal with innovative activities, many levels and units of analysis that 
sometimes draw different conclusions. Therefore, it is worthwhile to provide a summary of 
the most relevant approaches to the study of innovation in economics. 
 
2.1. The Concept of Innovation 
Before starting to think about specific aspects of the issue, we have to understand what 
“innovation” actually means. Why are some firms called innovators and others not? 
Basically, an innovator firm offers something unique to the market or, at least, it offers 
something that already exists in a totally different way. For instance, an entrepreneur who 
starts a McDonald’s franchise or a Volkswagen dealership cannot be considered in this 
perspective. On the contrary, firms as Dell Computer, eBay, Intel, Nintendo, PayPal, Skype 
can be considered as innovators. They have specific capabilities of associating, questioning, 
observing, networking, and experimenting, fundamental skills that converge into a 
different business culture (Dyer et al., 2011). All the companies just listed can be considered 
“big” innovators, but it would be wrong to think that they are the only possible sources of 
newness; in fact, also smaller firms and family businesses can be important sources of 
innovation, although they may innovate according to different structures and strategies 
(De Massis et al., 2015). 
To be more specific, among innovators, we can distinguish between two different 
profiles: product innovators and process innovators. The former introduce something that 
fills the gap between current market offer and unfulfilled needs of customers, bringing new 
benefits to them; instead, the latter create a different methodology that can be applied to 
the production of an existing product, meaning substantially a new technology or a new 
way to operate. Each of these activities, unless they have distinctive characteristics, can be
4 
 
considered as innovation in a strict sense. From the point of view of a firm, what ultimately 
defines an innovation is its degree of novelty, namely its distinctive characteristics and 
especially the knowledge that it needs to work, whether we are talking about product or 
process innovations. In particular, we recognize four types of knowledge deficits that 
should be filled: technological uncertainty, i.e. degree of new knowledge creation; 
technical inexperience (i.e. degree of use of lacking skills and equipment); business 
inexperience (i.e. degree of new knowledge concerning business practices); technology 
costs (i.e. degree of investment in acquisition of knowledge and equipment). It is 
interesting to observe that these deficits can be higher for small enterprises, which have 
less perception about the market supply (Amara et al., 2008). Most important, for many 
firms “the challenge is less about whether or not to innovate than about increasing the 
degree of novelty of their innovations in order to improve their competitive advantage and 
create opportunities to access new markets” (Amara et al., 2008, p. 450). 
The product-process distinction is not the only one we can observe. For example, 
following the structural approach described by Gatignon et al. (2002), we can explore three 
complementary dimensions of innovative activities: locus, type, and characteristics. The 
first refers to the level at which we observe the influence of the innovation; if we imagine 
a product as a structure of subsystems and linking mechanisms between them, an 
introduction can impact on core or peripheral subsystems,
1
 having different importance for 
the final product. Furthermore, a change in the linking mechanisms can be defined as 
“architectural innovation”, while a “generational innovation” has a direct impact on the 
subsystems. These are two different types of innovation that have many implications from 
an organizational point of view (Henderson and Clark, 1990; Christensen and Rosenbloom, 
1995). The third level of analysis concerns the specific characteristics of an innovation, 
namely whether it is incremental or radical, competence-enhancing or competence-
destroying. Due to their importance, these issues will be addressed in detail in the following 
Sections 2.1.1 and 2.1.2. 
Changing perspective, from a wider point of view we observe that, many times, 
innovations are introduced in situations that Bessant et al. (2005) define “steady states”, 
 
1
 “Core subsystems are those that are tightly coupled to other subsystems. In contrast, peripheral subsystems 
are weakly coupled to other subsystems” (Gatignon et al., 2002, p. 1106).