Aging, Obsolescence, and Organizational Innovation

Article excerpt

This paper investigates the relationship between organizational aging and innovation processes to illuminate the dynamics of high-technology industries, as well to resolve debates in organizational theory about the effects of aging on organizational functioning. We test hypotheses based on two seemingly contradictory consequences of aging for organizational innovation: that aging is associated with increases in firms' rates of innovation and that the difficulties of keeping pace with incessant external developments causes firms' innovative outputs to become obsolete relative to the most current environmental demands. These seemingly contradictory outcomes are intimately related and reflect inherent tradeoffs in organizational learning and innovation processes. Multiple longitudinal analyses of the relationship between firm age and patenting behavior in the semiconductor and biotechnology industries lend support to these arguments. [*]

In an increasingly knowledge-based economy, pinpointing the factors that shape the ability of organizations to produce influential ideas and innovations is a central issue for organizational studies. Among all organizational outputs, innovation is fundamental not only because of its direct impact on the viability of firms but also because of its profound effects on the paths of social and economic change. In this paper, we focus on a ubiquitous organizational process, aging, and examine its multifaceted influence on organizational innovation. In so doing, we address an important unresolved issue in organizational theory, namely, the nature of the relationship between aging and organizational behavior (Hannan, 1998).

Evidence of how aging affects innovation should produce evidence relevant to competing theories of how age alters the internal features of organizations. Organizational ecologists have devoted the most sustained attention to the consequences of aging for organizational outcomes but have failed to reach consensus as to whether aging has negative or positive effects on organizational functioning (Hannan, 1998). While recent evidence suggests that there is a liability of aging (see Barnett, 1990; Barron, West, and Hannan, 1994; Ranger-Moore, 1997), there remains considerable empirical uncertainty about this relationship (Hannan et al., 1998). Moreover, there are debates in the ecology literature surrounding the mechanisms that underlie the observed effects of age on life chances (Barron, West, and Hannan, 1994; Hannan, 1998). Competing theories about the effects of aging on organizational survival reduce to contrasting claims about the effects of aging on internal organizational processes and on organization-env ironment fit, respectively, but the outcomes typically studied by ecologists--survival and growth--do not readily lend themselves to tests of these different mechanisms (but see Ranger-Moore, 1997). By studying the relationship between age and organizational innovation, we can shed light on some of the competing mechanisms posited in ecological theories and contribute scarce empirical evidence to the debate over the behavioral changes associated with organizational aging.

Evidence clarifying the relationship between organizational aging and innovation also promises to improve our understanding of the organizational dynamics of high-technology markets and, in particular, the dynamics of technological leadership. At one extreme, aging may have uniformly positive consequences for innovative activity: on the foundation of accumulated experience, older firms may innovate more frequently, and their innovations may have greater significance than those of younger enterprises. In this scenario, technological change paradoxically may be associated with organizational stability, as incumbent organizations come to dominate the technological frontier, and their preeminence only increases with their tenure. At the other extreme, a consistently negative relationship between aging and innovation would imply that firms are increasingly unable to generate new or important innovations as they age. …