Why Less Knowledge Can Lead to More Learning: Innovation Processes in Small vs. Large Firms

Abstract

Abstract Numerous studies have explored the influence of firm size on the processes of technological innovation. Despite financial constraints and a limited knowledge base, small firms may possess a superior ability to innovate. In contrast, large firms often encounter systemic problems in transforming their extensive knowledge base to stimulate new innovations, despite the advantages of large research and development budgets, economies of scale and scope in production, and established links to customers. This chapter examines the nature of small firm advantages in building knowledge assets and organizational competence. Contrary to the assumption in economic reasoning that a large knowledge base is always an advantage, the limited knowledge base possessed by small entrepreneurial firms may be one of their key advantages. This advantage may be particularly significant when considered in the context of four other factors that are commonly observed in small firms: product development processes that more readily accommodate change and uncertainty; problem-solving heuristics that facilitate creative recombination of knowledge; close network ties between individuals that support transfers of non-codified knowledge; an internal organizational climate conducive to innovation.