Rise firm growth through organizational innovation. Has firm age a moderating role?

Objectives: The study aims to analyse the effect of organizational innovation on firm growth and the moderating role of age in this relationship. In detail, it was hypothesized that young firms may be more capable to take advantage from organizational innovation and growth compared to mature firms. Prior Work: Literature remarks the role of age in affecting innovation, while less explored is the role of age in moderating the ways in which companies take advantage from organizational innovation, especially in terms of growth. Scholars argued that a firm’s ability to use its knowledge base to generate innovation is linked with the communication system and the dissemination of knowledge within the organization. Hence, if the firm age rises inflexibility and a rigidity of the communication system, older firms may be less innovative of younger ones. In the relation between firm age with firm growth, young firms are denoted by an up or out dynamic. On one side, young firms are characterized by a high failure rate but, on the other side and conditional on surviving, young firms show higher growth rates as compared to their older counterparts. However, the organizational model used by young firms is precondition for generating new business ideas or products and rising their market position, improving their growth opportunities. Approach: The study empirically investigates the research hypothesis using a panel sample of 4,125 Spanish innovative firms collected from the Technological Innovation Panel (PITEC—Panelde Innovación Tecnológica) for the period 2009 to 2014, for which we jointly have got 20,625 observations. A Generalised Least Squares random-effect model is used, which is allowed for both time-varying and time-invariant variables. The effect of organizational innovation on firm growth has been analysed in term of sales growth, productivity growth and employment growth. Results: The empirical findings show that the innovation activities and outcomes in terms of organizational innovation have a positive effect on firm growth. Nevertheless, our findings highlight that young firms do not seem to have an actual advantage in improving firm growth through organizational innovation. Our results do not remark a fail of young firms in reaching a better firm growth through organizational innovation, but only note that young firms have similar growth path than mature firms when innovation at organizational level is considered. Implications and Value: The study contributes to the literature by providing an additional piece of the puzzle on the relation between growth and organizational innovation. Also, the study suggests that the policy agenda should be better aligned in understanding the peculiarities of endogenous and exogenous elements of innovation and growth of young firms. Furthermore, a better differentiation in the policy aimed to support entrepreneurship is needed, with regard to the different ages of the firms. Additionally, managers need to invest more in organizational innovation, in its basic tangible and intangibles elements, as well as better align their strategic plans toward a more organizational culture of innovation.