Aging, Obsolescence and Organizational Innovation

• • The order of authorship on this paper is random and contributions were equal. We would like to thank Ron Burt, Jim March and Mike Tushman for many helpful suggestions. Olav Sorenson provided particularly extensive comments on this paper. We would like to acknowledge the financial support of the University of Chicago, Graduate School of Business and a grant from the Kauffman Center for Entrepreneurial Leadership. Clarifying the relationship between organizational aging and innovation processes is an important step in understanding the dynamics of high-technology industries, as well as for resolving debates in organizational theory about the effects of aging on organizational functioning. We argue that aging has two seemingly contradictory consequences for organizational innovation. First, we believe that aging is associated with increases in firms' rates of innovation. Simultaneously, however, we argue 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 trade-offs 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. Introduction 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 an 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 clarifying the relationship between organizational aging and innovation promises to improve our understanding of the organizational dynamics of high-technology markets, and in particular the dynamics of technological leadership. For instance, consider the possibility that aging has uniformly positive consequences for innovative activity: on the foundation of accumulated experience, older firms innovate more frequently, and their innovations 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. 1 Now consider the …