The relationship of technological and organizational innovation with firm performance: Opening the black box of dynamic complementarities

Abstract

This paper explores the dynamic nature of complementarities between technological and organizational innovation at firms. Using Spanish panel data of manufacturing firms (PITEC) over the period 2008–2016, it investigates how the formation and ending of the joint adoption of these two core types of innovation is associated with firm performance. We observe clear evidence that some sequential as well as simultaneous strategy switches towards combining technological and organizational novelties are associated with significant performance premia at firms. Our findings point out the crucial role of technological innovation in these complementarities. In the case of giving up the adoption of new elements of the complementarity bundle of innovation types, the critical disadvantage for the firm is related to dropping the adoption of technological innovation. Giving up adoption of new organizational innovation while keeping the adoption of new technological innovation appears to have no negative effect, on average, on firm performance. Our findings suggest significant coordination failures at firms attempting to introduce both core types of innovation in tandem. For many firms, the retention of the joint adoption of technological and organizational innovation over time is a costly and hard-to-maintain choice and not necessarily the one with the highest performance benefits.