A Power-Learning Perspective of Innovation-Intensive Firms’ Performance

Abstract

This paper investigates why innovation growth does not always have a positive effect on firm performance in innovation-intensive environments (IIEs). Adopting a power-learning perspective, we hypothesize that firms that succeed in fast-paced environments are those using both soft power and learning levers to address uncertainty. Soft power refers to subtle methods that IIE firms use to reduce uncertainty for others: create the illusion of power and exploit others’ tendencies by imprinting their innovations recognizable markers others can relate to. We explore how the interplay of soft power and learning drives the inverse U-shape relationship between firms’ innovation growth and market performance and why higher innovation pace has a negative impact on performance. We further identify CEOs’ regulatory focus as driving firms’ motivation to pursue power-learning tactics. The analysis of a panel of IIE firms supports our framework. We conclude that while perspectives involving competency, efficiency, or learning on their own may be useful frameworks in explaining firm performance in stable markets, a perspective focused on a combination of soft power and learning levers is better fitted to explain firms’ performance in environments plagued by extreme uncertainty. Our main contribution is to the study of performance in innovation-intensive markets.