Resource constraints as triggers of radical innovation: Longitudinal evidence from the manufacturing sector

Abstract Despite the significant role of radical innovation as a driver of firm growth and performance, the consequences of resource constraints for radical innovation outcomes remain unknown. Our paper addresses this gap. We combine arguments from entrepreneurship theory and the theory of recombinative innovation to construct an overarching theoretical framework that argues why resource constraints can promote, rather than impede, radical innovation. We then build hypotheses on two specific resource constraints, knowledge and financial, and test these by a lagged-variable random-effects Tobit model with longitudinal data from an exceptionally large and detailed innovation survey. Controlling for absorptive capacity, firm age, and firm growth, we find full support for the hypothesis that knowledge constraints spur radical innovation and partial support for the hypothesis that financial constraints spur radical innovation. We discuss the theoretical significance of these findings and point to managerial implications and paths for future research.

[1]  Ryuhei Wakasugi,et al.  Why are Japanese firms so innovative in engineering technology , 1992 .

[2]  Joseph F. Porac,et al.  Are more resources always better for growth? Resource stickiness in market and product expansion , 2004 .

[3]  M. Freel,et al.  Barriers to Product Innovation in Small Manufacturing Firms , 2000 .

[4]  Daniel A. Levinthal,et al.  The myopia of learning , 1993 .

[5]  David B. Audretsch,et al.  Technological Regimes, Industrial Demography and the Evolution of Industrial Structures , 1997 .

[6]  Lori Rosenkopf,et al.  Balancing Exploration and Exploitation in Alliance Formation , 2006 .

[7]  F. Damanpour.  Organizational Innovation: A Meta-Analysis Of Effects Of Determinants and Moderators , 1991 .

[8]  W. Orlikowski,et al.  Windows of Opportunity: Temporal Patterns of Technological Adaptation in Organizations , 2011 .

[9]  S. Kotha,et al.  Knowledge Creation Through External Venturing: Evidence from the Telecommunications Equipment Manufacturing Industry , 2006 .

[10]  I. MacMillan,et al.  Resource Cooptation Via Social Contracting: Resource Acquisition Strategies for New Ventures , 1990 .

[11]  F. Rothaermel.  Strategic Management Journal Research Note Incumbent's Advantage through Exploiting Complementary Assets via Interfirm Cooperation , 2022 .

[12]  Curba Morris Lampert,et al.  Entrepreneurship in the large corporation: a longitudinal study of how established firms create breakthrough inventions , 2001 .

[13]  Toby E. Stuart,et al.  Local search and the evolution of technological capabilities , 2007 .

[14]  R. Grant.  Toward a Knowledge-Based Theory of the Firm,” Strategic Management Journal (17), pp. , 1996 .

[15]  Zi-Lin He,et al.  Exploration vs. Exploitation: An Empirical Test of the Ambidexterity Hypothesis , 2004, Organ. Sci..

[16]  Mary J. Benner,et al.  Exploitation, Exploration, and Process Management: The Productivity Dilemma Revisited , 2003 .

[17]  J. Stiglitz,et al.  Credit Rationing in Markets with Imperfect Information , 1981 .

[18]  Stefano Paleari,et al.  The Provision of Finance to Innovation: A Survey Conducted among Italian Technology-based Small Firms , 2000 .

[19]  K. Bizer,et al.  To protect or not to protect? Modes of appropriability in the small enterprise sector , 2013 .

[20]  Christina Fang,et al.  The Economics of Strategic Opportunity , 2003 .

[21]  J. March,et al.  A Behavioral Theory of the Firm , 1964 .

[22]  Anne S. Miner,et al.  Organizational Improvisation and Learning: A Field Study , 2001 .

[23]  Michael Gibbert,et al.  In Praise of Resource Constraints , 2007 .

[24]  David E. Gumpert,et al.  The heart of entrepreneurship , 1985 .

[25]  J. Hair.  Multivariate data analysis , 1972 .

[26]  J E Ware,et al.  Methods for testing data quality, scaling assumptions, and reliability: the IQOLA Project approach. International Quality of Life Assessment. , 1998, Journal of clinical epidemiology.

[27]  M. Debruyne,et al.  Using the weapons you have: the role of resources and competitor orientation as enablers and inhibitors of competitive reaction to new products , 2010 .

[28]  K. Clark,et al.  Innovation: Mapping the winds of creative destruction☆ , 1993 .

[29]  G. O'Connor,et al.  Managing radical innovation: an overview of emergent strategy issues , 2002 .

[30]  M. Hoegl,et al.  Teamwork Quality and the Success of Innovative Projects , 2001 .

[31]  Antonio Capaldo.  Network Structure and Innovation: The Leveraging of a Dual Network as a Distinctive Relational Capability , 2006 .

[32]  J. March.  Exploration and exploitation in organizational learning , 1991, STUDI ORGANIZZATIVI.

[33]  Gregory G. Dess,et al.  Clarifying the Entrepreneurial Orientation Construct and Linking It To Performance , 1996 .

[34]  K. R. Conner,et al.  A Resource-Based Theory of the Firm: Knowledge Versus Opportunism , 1996 .

[35]  G. O'Connor,et al.  The human side of radical innovation , 2004 .

[36]  S. Shane.  Prior Knowledge and the Discovery of Entrepreneurial Opportunities , 2000 .

[37]  S. Thornhill.  Knowledge, innovation and firm performance in high- and low-technology regimes , 2006 .

[38]  Noel P. Greis,et al.  Absorptive capacity and new product development , 2001 .

[39]  Daniel A. Levinthal,et al.  ABSORPTIVE CAPACITY: A NEW PERSPECTIVE ON LEARNING AND INNOVATION , 1990 .

[40]  P. M. Podsakoff,et al.  Self-Reports in Organizational Research: Problems and Prospects , 1986 .

[41]  Alfredo Del Monte,et al.  R&D and the growth of firms: empirical analysis of a panel of Italian firms ☆ , 2003 .

[42]  Wenpin Tsai.  Knowledge Transfer in Intraorganizational Networks: Effects of Network Position and Absorptive Capacity on Business Unit Innovation and Performance , 2001 .

[43]  J. V. Reenen,et al.  The Profitability of Innovating Firms , 1993 .

[44]  Teresa M. Amabile,et al.  Assessing the Work Environment for Creativity , 1996 .

[45]  M. Gibbert,et al.  Constraints as sources of radical innovation? Insights from jet propulsion development , 2009 .

[46]  Cornelius Herstatt,et al.  Developing Innovations Based on Analogies: Experience from Design and Engineering Consultants , 2010 .

[47]  S. Jackson,et al.  Top management and innovations in banking: Does the composition of the top team make a difference? , 1989 .

[48]  Jeffrey M. Wooldridge,et al.  Solutions Manual and Supplementary Materials for Econometric Analysis of Cross Section and Panel Data , 2003 .

[49]  D. Shepherd,et al.  Swinging a Double-Edged Sword: The Effect of Slack on Entrepreneurial Management and Growth , 2011 .

[50]  F. Damanpour,et al.  Organizational innovation and performance: The problem of "organizational lag." , 1984 .

[51]  James M. Utterback,et al.  Mastering the Dynamics of Innovation , 1996 .

[52]  T. B. Ward.  Cognition, Creativity, and Entrepreneurship , 2004 .

[53]  Cheng Hsiao,et al.  Analysis of Panel Data , 1987 .

[54]  M. Hitt,et al.  Strategic entrepreneurship: entrepreneurial strategies for wealth creation , 2001 .

[55]  M. Bhave.  A process model of entrepreneurial venture creation , 1994 .

[56]  Jerald Hage,et al.  Patterns of Interactive Learning in a High-tech Region , 2001 .

[57]  Constance E. Helfat,et al.  Evolutionary trajectories in petroleum firm R&D , 1994 .

[58]  Clayton M. Christensen.  The Innovator's Dilemma , 1997 .

[59]  D. Mowery,et al.  Strategic alliances and interfirm knowledge transfer , 1996 .

[60]  Richard Leifer,et al.  Radical Innovation: How Mature Companies Can Outsmart Upstarts , 2000 .

[61]  A. Meyer.  Adapting to environmental jolts. , 1982, Administrative science quarterly.

[62]  Stephen J. Redding,et al.  R&D and absorptive capacity: from theory to data , 2001 .

[63]  G. O'Connor.  Market learning and radical innovation: A cross case comparison of eight radical innovation projects , 1998 .

[64]  Danny Miller,et al.  WHAT HAPPENS AFTER SUCCESS: THE PERILS OF EXCELLENCE* , 1994 .

[65]  Andrew B. Hargadon,et al.  Brainstorming groups in context: Effectiveness in a product design firm , 1996 .

[66]  J. Pearce,et al.  Palace politics: Resource allocation in radically innovative firms , 1990 .

[67]  Andrew B. Hargadon,et al.  Technology brokering and innovation in a product development firm. , 1997 .

[68]  Mohan Subramaniam,et al.  The Influence of Intellectual Capital on the Types of Innovative Capabilities , 2005 .

[69]  Kent D. Miller,et al.  Corporate Risk-Return Relations: Returns Variability Versus Downside Risk , 1996 .

[70]  Jacob Goldenberg,et al.  Special Issue on Design and Development: The Idea Itself and the Circumstances of Its Emergence as Predictors of New Product Success , 2001, Manag. Sci..

[71]  A. Salter,et al.  Open for innovation: the role of openness in explaining innovation performance among U.K. manufacturing firms , 2006 .

[72]  R. Katila,et al.  Where do resources come from? The role of idiosyncratic situations , 2004 .

[73]  M. Woerter,et al.  Firms’ Transfer Strategies with Universities and the Relationship with Firms’ Innovation Performance , 2009 .

[74]  Reinhilde Veugelers,et al.  In Search of Complementarity in Innovation Strategy: Internal R&D and External Knowledge Acquisition , 2006, Manag. Sci..

[75]  John R. Baldwin,et al.  Impediments to advanced technology adoption for Canadian manufacturers , 2001 .

[76]  P. Davidsson.  Continued Entrepreneurship: Ability, Need, and Opportunity as Determinants of Small Firm Growth , 1991 .

[77]  John H. Holland,et al.  Adaptation in Natural and Artificial Systems: An Introductory Analysis with Applications to Biology, Control, and Artificial Intelligence , 1992 .

[78]  E. Johnsen.  Richard M. Cyert & James G. March, A Behavioral Theory of The Firm, Prentice-Hall, Inc., Englewood Cliffs, New Jersey, 1963, 332 s. , 1964 .

[79]  Terry G. Vavra,et al.  Managing through rose-colored glasses , 2006 .

[80]  Giuseppe Scellato.  Patents, firm size and financial constraints: an empirical analysis for a panel of Italian manufacturing firms. , 2006 .

[81]  Kristina Dahlin,et al.  When is an Invention Really Radical? Defining and Measuring Technological Radicalness , 2005 .

[82]  S. Sarasvathy.  Causation and Effectuation: Toward a Theoretical Shift from Economic Inevitability to Entrepreneurial Contingency , 2001 .

[83]  R. Germain.  The role of context and structure in radical and incremental logistics innovation adoption , 1996 .

[84]  Pino G. Audia,et al.  Past Success and Creativity over Time: A Study of Inventors in the Hard Disk Drive Industry , 2007, Manag. Sci..

[85]  Alex Coad,et al.  Innovation and firm growth in high-tech sectors: A quantile regression approach , 2008 .

[86]  Spyros Arvanitis,et al.  EXPLAINING INNOVATIVE ACTIVITY IN SERVICE INDUSTRIES: MICRO DATA EVIDENCE FOR SWITZERLAND , 2008 .

[87]  Kathleen M. Eisenhardt,et al.  The Seller's Side of the Story: Acquisition as Courtship and Governance as Syndicate in Entrepreneurial Firms , 2004 .

[88]  B. Kogut,et al.  Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology , 1992 .

[89]  I. Nonaka,et al.  How Japanese Companies Create the Dynamics of Innovation , 1995 .

[90]  H. Howard,et al.  Special Issue: Corporate Entrepreneurship || A Paradigm of Entrepreneurship: Entrepreneurial Management , 1990 .

[91]  Martin Kenney,et al.  Towards a new theory of innovation management: A case study comparing Canon, Inc. and Apple Computer, Inc. , 1991 .

[92]  Michael A. Hitt,et al.  Corporate Entrepreneurship and Cross-Functional Fertilization: Activation, Process and Disintegration of a New Product Design Team , 1999 .

[93]  Laura B. Cardinal.  Technological Innovation in the Pharmaceutical Industry: The Use of Organizational Control in Managing Research and Development , 2001 .

[94]  César Camisón-Zornoza,et al.  A Meta-analysis of Innovation and Organizational Size , 2004 .

[95]  Massimo Riccaboni,et al.  Innovation and corporate growth in the evolution of the drug industry , 2001 .

[96]  Franco Malerba,et al.  Persistence of innovative activities, sectoral patterns of innovation and international technological specialization , 1997 .

[97]  David Mazursky,et al.  Financial constraints in innovation projects: When is less more? , 2008 .

[98]  Rodney C. Shrader.  Collaboration and Performance in Foreign Markets: The Case of Young High-Technology Manufacturing Firms , 2001 .

[99]  Andrew Hargadon,et al.  When Innovations Meet Institutions: Edison and the Design of the Electric Light , 2001 .

[100]  Jasjit Singh.  Distributed R&D, Cross-Regional Knowledge Integration and Quality of Innovative Output , 2006 .

[101]  M. Gordon,et al.  PUBLICATION RECORDS AND TENURE DECISIONS IN THE FIELD OF STRATEGIC MANAGEMENT , 1996 .

[102]  Heinz Hollenstein,et al.  Innovation modes in the Swiss service sector: a cluster analysis based on firm-level data , 2003 .

[103]  O. Sorenson,et al.  Science as a Map in Technological Search , 2000 .

[104]  J. West,et al.  Open innovation : researching a new paradigm , 2008 .

[105]  Dominique Tourigny,et al.  Impediments to innovation faced by Canadian manufacturing firms , 2004 .

[106]  H. Stevenson,et al.  PRESERVING ENTREPRENEURSHIP AS COMPANIES GROW , 1986 .

[107]  Stephen J. Redding,et al.  R&D and Absorptive Capacity: Theory and Empirical Evidence* , 2003 .

[108]  R. Grant,et al.  Environments: Organizational Capability as Knowledge Integration , 2022 .

[109]  Jitendra V. Singh.  Performance, Slack, and Risk Taking in Organizational Decision Making , 1986 .

[110]  Robert A. Burgelman.  Intraorganizational Ecology of Strategy Making and Organizational Adaptation: Theory and Field Research , 1991 .

[111]  Kim B. Clark,et al.  Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of , 1990 .

[112]  Clayton M. Christensen,et al.  CUSTOMER POWER, STRATEGIC INVESTMENT, AND THE FAILURE OF LEADING FIRMS , 1996 .

[113]  Marcus M. Keupp,et al.  The competitive advantage of early and rapidly internationalising SMEs in the biotechnology industry: A knowledge-based view , 2007 .

[114]  Joseph L. C. Cheng,et al.  Organizational Slack and Response to Environmental Shifts: The Impact of Resource Allocation Patterns , 1997 .

[115]  Fabrice Galia,et al.  Complementarities between obstacles to innovation: evidence from France , 2004 .

[116]  Alex Miller,et al.  ASSESSING PORTER'S (1980) MODEL IN TERMS OF ITS GENERALIZABILITY, ACCURACY AND SIMPLICITY , 1993 .

[117]  Scott B. MacKenzie,et al.  Common method biases in behavioral research: a critical review of the literature and recommended remedies. , 2003, The Journal of applied psychology.

[118]  Lee Fleming,et al.  Special Issue on Design and Development: Recombinant Uncertainty in Technological Search , 2001, Manag. Sci..

[119]  M. Tushman,et al.  On the Organizational Determinants of Technological Change: Towards a Sociology of Technological Evolution , 1992 .

[120]  Gary J. Castrogiovanni,et al.  Environmental Munihcence; A Theoretical Assessment , 1991 .

[121]  Perceptions of Resource Criticality in Times of Resource Scarcity: The Case of University Departments , 1986 .

[122]  Gregory G. Dess,et al.  Porter's (1980) Generic Strategies as Determinants of Strategic Group Membership and Organizational Performance , 1984 .

[123]  R. Edwards,et al.  How Smaller Born-Global Firms Use Networks and Alliances to Overcome Constraints to Rapid Internationalization , 2006 .

[124]  Kathleen M. Eisenhardt,et al.  Integrating Knowledge in Groups: How Formal Interventions Enable Flexibility , 2002, Organ. Sci..

[125]  Nola Hewitt-Dundas.  Resource and Capability Constraints to Innovation in Small and Large Plants , 2006 .

[126]  David A. Nadler,et al.  Organizing for Innovation , 1986 .

[127]  S. Arvanitis,et al.  From Knowledge to Added Value: A Comparative, Panel-Data Analysis of the Innovation Value Chain in Irish and Swiss Manufacturing Firms , 2009 .

[128]  John K. Debenham.  Knowledge constraints , 1995, IEA/AIE '95.

[129]  L. Gundry,et al.  The Ambitious Entrepreneur: High Growth Strategies of Women-Owned Enterprises , 2001 .

[130]  A. L. Wilson,et al.  Organizational context, climate and innovativeness: adoption of imaging technology , 2002 .

[131]  K. Eisenhardt,et al.  Speeding Products to Market: Waiting Time to First Product Introduction in New Firms. , 1990 .

[132]  Per Davidsson,et al.  Entrepreneurship — And after? A study of growth willingness in small firms , 1989 .

[133]  Robert A. Burgelman.  Corporate Entrepreneurship and Strategic Management: Insights from a Process Study , 1983 .

[134]  Douglas Holtz-Eakin,et al.  Sticking it Out: Entrepreneurial Survival and Liquidity Constraints , 1993, Journal of Political Economy.

[135]  Mark A. Mone,et al.  Organizational Decline and Innovation: A Contingency Framework , 1998 .

[136]  Donna J. Kelley,et al.  Radical innovation: triggering initiation of opportunity recognition and evaluation , 2001 .

[137]  Scott Shane,et al.  When Does Lack of Resources Make New Firms Innovative , 2005 .

[138]  Gary P. Pisano,et al.  Learning-before-doing in the development of new process technology , 1996 .

[139]  Paul R. Carlile,et al.  Transferring, Translating, and Transforming: An Integrative Framework for Managing Knowledge Across Boundaries , 2004, Organ. Sci..

[140]  G. Duysters,et al.  The technological origins of radical inventions , 2010 .

[141]  Darren W. Dahl,et al.  Designing the Solution: The Impact of Constraints on Consumers' Creativity , 2005 .

[142]  S. Floyd,et al.  Knowledge Creation and Social Networks in Corporate Entrepreneurship: The Renewal of Organizational Capability , 1999 .

[143]  James G. March,et al.  A primer on decision making : how decisions happen , 1994 .

[144]  G. Ahuja.  The duality of collaboration : Inducements and opportunities in the formation of interfirm linkages , 2000 .

[145]  R. Duane Ireland,et al.  Integrating entrepreneurship and strategic management actions to create firm wealth , 2001 .

[146]  G. Hamel.  Leading the Revolution , 2000 .

[147]  Daniel F. Jennings,et al.  Guest Editorial: Entrepreneurship and the Acquisition of Dynamic Organizational Capabilities , 1999 .

[148]  Erwin Danneels.  The dynamics of product innovation and firm competences , 2002 .

[149]  Laurent Donzé.  L'imputation des données manquantes, la technique de l'imputation multiple, les conséquences sur l'analyse des données: l'enquête 1999 KOF/ETHZ sur l'innovation , 2001 .

[150]  Robert A. Burgelman.  A Process Model of Internal Corporate Venturing in the Diversified Major Firm , 1983 .

[151]  David M. Drukker,et al.  Testing for Serial Correlation in Linear Panel-data Models , 2003 .

[152]  Wesley M. Cohen,et al.  What's Experience Got to Do With It? Sources of Cost Reduction in a Large Specialty Chemicals Producer , 2000 .

[153]  Faïz Gallouj,et al.  Innovation in services , 1997 .

[154]  Karel Cool,et al.  Asset stock accumulation and sustainability of competitive advantage , 1989 .

[155]  C. Hill,et al.  The Performance of Incumbent firms in the Face of Radical Technological Innovation , 2003 .

[156]  M. Tushman,et al.  Resource recombinations in the firm: knowledge structures and the potential for schumpeterian innovation , 1998 .

[157]  M. Hoegl,et al.  Knowledge Creation in New Product Development Projects , 2006 .

[158]  Hayagreeva Rao,et al.  Overcoming Resource Constraints on Product Innovation by Recruiting Talent From Rivals: A Study of the Mutual Fund Industry, 1986–1994 , 2002 .

[159]  M. Peneder.  Technological regimes and the variety of innovation behaviour: Creating integrated taxonomies of firms and sectors , 2010 .

[160]  Frederique Savignac,et al.  The Impact of Financial Constraints on Innovation: What Can Be Learned from a Direct Measure? , 2007 .

[161]  Carolyn Y. Woo,et al.  Survival of the Fittest? Entrepreneurial Human Capital and the Persistence of Underperforming Firms , 1997 .

[162]  W. Powell,et al.  Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology. , 1996 .

[163]  Edwin A. Locke,et al.  Effects of Group Goals and Time Pressure on Group Efficacy, Information-Seeking Strategy, and Performance , 2000 .

[164]  R. Katila,et al.  SOMETHING OLD, SOMETHING NEW: A LONGITUDINAL STUDY OF SEARCH BEHAVIOR AND NEW PRODUCT INTRODUCTION , 2002 .

[165]  Stata Press,et al.  Stata Longitudinal-Data/Panel-Data Reference Manual: Release 11 , 2009 .

[166]  Robert W. Veryzer.  Discontinuous innovation and the new product development process , 1998 .

[167]  W. Mitchell,et al.  SURVIVAL OF BUSINESSES USING COLLABORATIVE RELATIONSHIPS TO COMMERCIALIZE COMPLEX GOODS , 1996 .

[168]  Hanna Hottenrott,et al.  R&D investment and financing constraints of small and medium-sized firms , 2008 .

[169]  Peter G. Klein.  Opportunity Discovery, Entrepreneurial Action, and Economic Organization , 2008 .

[170]  H. Stevenson,et al.  A Paradigm of Entrepreneurship: Entrepreneurial Management * , 1990 .

[171]  C. Brush,et al.  The Corporate Venture Champion: A Resource-Based Approach to Role and Process , 1999 .

[172]  Lynne P. Cooper,et al.  Knowledge Reuse for Innovation , 2004, Manag. Sci..

[173]  S. Shane,et al.  The Promise of Entrepreneurship as a Field of Research , 2000 .

[174]  T. Baker,et al.  Creating Something from Nothing: Resource Construction through Entrepreneurial Bricolage , 2005 .

[175]  G. O'Connor,et al.  Building a Radical Innovation Competency , 2005 .

[176]  M. Savona,et al.  The perception of obstacles to innovation. Foreign multinationals and domestic firms in Italy , 2009 .

[177]  Philippe Aghion,et al.  Opening the black box of innovation , 1994 .

[178]  Marco S. Giarratana.  The birth of a new industry: entry by start-ups and the drivers of firm growth: The case of encryption software , 2004 .