FACILITATORS OF ORGANIZATIONAL INNOVATION - THE ROLE OF LIFE-CYCLE STAGE

One of the most serious challenges facing an entrepreneurial company, particularly a high-technology firm, is knowing how to manage innovati on as the organization evolves. Macro-level facilitators/inhibitors of innovation-i.e., organizational and environmental conditions of a fir m that promote or restrain innovation such as the structure of an orga nization, its incentive system, resources provided by its environment, or its ways of analyzing firm-external information-and their relation ship to the innovativeness of the firm are considered in this study. T wo basic arguments have been put forward previously as to why the inno vativeness of an organization may change as it evolves. First, it has been suggested that facilitators of innovation change over time and so will firm innovativeness. That is, the relationship between the facil itator and innovation stays unchanged but the facilitator itself is tr ansformed, causing changes in firm innovativeness as it develops. For instance, it has been suggested that mature firms become less innovati ve because their structure becomes overly formalized to perform other functions more efficiently, which then stifles innovative processes. S econd, other researchers have proposed that the relationship between a facilitator and innovation changes as firms evolve; for instance a fo rmal structure may support innovation in a younger firm because it all ows the entrepreneur to focus her energy, whereas it may suppress inno vation later since it inhibits an innovator's interaction with other e nvironments. The results of our analysis, using data from 326 U.S. fir ms in different stages of their development and involved in many kinds of high-tech industries, support the second theory. However, the resu lts for the relationships of the individual facilitators to innovation were not always as expected. We found that formally structured young firms were less innovative than informal ones and that in older organi zations, formalization had no negative impact on innovation. This find ing possibly can be explained with micro-level facilitators of innovat ion: younger firms may have more entrepreneurial personnel whose abili ty for innovation is more inhibited through a formal structure than th e more ''seasoned'' employees in older, larger firms. However, this fi nding implies that the concern for formal structures, with respect to firm innovativeness does not necessarily apply as typically assumed. O f similar significance was our finding with respect to the relationshi p between financial incentives and innovation. It has been suggested t hat younger rather than older firms use incentives such as equity to e ncourage an innovative environment. Results of this research, however, show that innovation is associated with stock incentives especially i n older firms. This may be an indication for older firms to use differ entiated incentives that reflect the individual's contribution to the firm to retain innovative personnel, whereas start-ups might rely on t he excitement of working in a new venture as an incentive for innovati ve behavior. More in line with expectations were the results for how f irms process external information. Environmental scanning and data ana lysis were positively associated with innovation, and this more so in older firms, presumably because they have become more remote from deve lopments outside the organization. This result confirms the notion tha t much innovation by a firm is initiated externally. However, the resu lts also indicate that the conditions of the environment itself are of lesser importance to firm innovativeness than the firm's active pursu it of information from its environment. An often discussed implication of these findings is that the boundaries of a firm must be permeable, at least from the outside in, and systematic information gathering fr om customers, competition, research institutions, etc, may be necessar y to the success of a firm that depends on its product development. Th is seems especially important for older firms. As expected, the centra lization of power in an organization also affected innovation. Central ization correlated positively with innovation in new ventures and nega tively in older firms. This indicates the importance of the entreprene ur and strong leader in a start-up. It also suggests, though, that as the firm matures, this person has to give up some of her control and m ay have to relinquish the job at the head of the organization to someo ne else. Finally, there are some more general implications of this wor k to managers involved with organizational innovation. First, reliance on past experience may be detrimental to future performance. Whereas a firm evolves through different stages, means that have facilitated i nnovation earlier may be detrimental to it now or tomorrow, and vice v ersa. Second, copping successful strategies for innovation from other firms may not necessarily work-not because their implementation was wo rse but because the conditions of the other firm, for instance its evo lutionary stage or its micro-level facilitators, were different. Resea rchers who study innovation should consider including life-cycle stage as a potential moderating variable. Factors that facilitate innovatio n at some point during an organization's evolution actually hinder it in another. Also, factors that were unimportant to innovation at the i nception of a firm may facilitate it in later stages. This study suppo rts the conclusion that the consideration of contingency factors, such as life-cycle stage, may enhance the development of a theory of organ izational innovation.