Research Highlights

Why Are Workers at Some Companies More Innovative Than Others?

— November 2, 2020
Luis Cabral and Deepak Hegde

What’s in the “secret sauce” of innovation: a company’s capabilities, or the inventors themselves? Researchers at NYU Stern School of Business and Erasmus University used a 37-year panel of U.S. patenting activity encompassing the inventions of over 700,000 inventors at 2,500 publicly listed U.S. corporations to answer this question and determine whether the contribution of firms or inventors leads to more innovative activity.

While firm-specific capabilities (corporate culture, organization processes, incentive schemes, etc.) matter, inventors’ human capital is 5-10 times more important.

What’s in the “secret sauce” of innovation: a company’s capabilities, or the inventors themselves? Researchers at NYU Stern School of Business and Erasmus University used a 37-year panel of U.S. patenting activity encompassing the inventions of over 700,000 inventors at 2,500 publicly listed U.S. corporations to answer this question and determine whether the contribution of firms or inventors leads to more innovative activity.

In the paper, “Are Inventors or Firms the Engines of Innovation?,” NYU Stern Professors Luís Cabral and Deepak Hegde along with co-authors Ajay Bhaskarabhatia and Thomas Peeters (Erasmus University) examined patenting activity data to assess the importance of human capital and organization capabilities in explaining inventor productivity, finding that one significantly outweighed the other.

Key takeaways include:
  • While firm-specific capabilities (corporate culture, organization processes, incentive schemes, etc.) matter, inventors’ human capital is 5-10 times more important.
  • Highly talented inventors are attracted to join companies that employ other talented inventors.
  • Relative to strategies based on attracting and retaining top talent, innovation strategies based on strong firm-specific capabilities are rare and unlikely to endure.
The co-authors not only shed light on key factors of innovation, but also discuss the implications of their findings for managers and theories of competitive advantage. "Although overall human capital appears more important than firm capabilities in explaining variance in inventor productivity, firms can improve their innovation output by investing in capabilities. Our results leave open the question of whether firms can improve their overall innovation performance through a strategy that builds firm capabilities or focuses on hiring and retaining top inventors. The answer to the question is likely to depend on the relative costs of innovation inputs."

This research is forthcoming in Management Science.