Technological Paths in Small Firms

Unlike large firms, small firms tend to be specialized rather than diversified in their technological competencies and product range. However, as with large firms, it is impossible to make robust generalization about their technological trajectories and innovation strategies. Kurt Hoffman and his colleagues have recently pointed out that relatively little research has been undertaken on innovation in small firms. What research has been done tends to concentrate on the small group of spectacular high tech success (or failures) rather than the much more numerous run of the mill small firms coping (say) with the introduction of IT into their distribution systems.

Table tries to categorize the differences. Until recently attention has been focused on the left hand side of the table — the spectacular and visible successes amongst small innovating firms in particular the superstars that became big. As those of the new technology based firms (NTBFs) that often want to become big. As we have seen earlier in this article recently more systematic surveys of innovative activities and of small firms show two other classes of small firm with less spectacular innovation strategies but of far greater importance to the overall economy. Specialized suppliers of production inputs and firms whose sources of innovation are mainly their suppliers.

Superstars are large firms that have emerged from small beginnings through high rates of growth based on the exploitation of major invention (e.g. instant photography reprography) or a rich technological trajectory (e.g. semiconductors software), enabling small firms to exploit first mover advantages like patent protection and leaning curves. Successful innovators often either accumulated their technological knowledge in large firms before leaving to start their own, or they offered their invention to large firms but were effused (examples: Polariod, Xerox). Few superstars have emerged either in the chemical industry over the past 50 years or – contrary to expectations – out of biotechnology firms over the past 15 years probably because the barriers to entry (in R&D, production or marketing) remain high.

The examples in Table show that many superstars are from the USA although we can find European and Japanese examples. Experience suggests that one of the main challenges facing the management of superstars is their transition from the original innovator and the original innovation to new management and a new line of products. Beyond the period of spectacular growth, the characteristics behind the original success can become sources of core rigidities. Successful innovators are often strong characters who do not necessarily encourage diversity in ideas and approaches within the firm. Successful innovations are often well protected by patents and other first comer advantages which can blunt the drive for improvement and change. These difficulties have beset companies like DEC, Polaroid and Xerox. One of the most successful in maintaining its innovative performance has been Sony. An interesting exercise is to speculate about the future of today’s superstars what will happen to Microsoft after Bill Gates?

New technology based firms (NTBCs) are small firms that have emerged recently from large firms and large laboratories in such fields as electronics, software and biotechnology. They are usually specialized in the supply of a key component, subsystems service or technique to larger firms, who may often be their former employers. Contrary to widespread belief, most of the NTBFs in electronics and software have emerged from corporate or government laboratories involve in development and testing activities. It is only with the advent of biotechnology and, more recently software), that university laboratories have become regular sources of NTBFs thereby strengthening the strong direct links that have always existed between university based research and the pharmaceutical industry. However some observers criticize this trend and fear the privatization of university research in biotechnology will in the long term reduce the rate of scientific progress and innovation and their contribution to economic and social welfare.