The "Yin" and "Yang" of innovation: essays on the impact of innovation on firm performance

Li, Xu (2015) The "Yin" and "Yang" of innovation: essays on the impact of innovation on firm performance. Doctoral thesis, University of London: London Business School.

Abstract

In this dissertation, I study the performance impact of product innovation. Integrating insights from both the firm's and the customer's perspectives, I intend to advance the conceptual clarity on when innovation is beneficial and when it is less useful, or even detrimental, to firm performance. In Chapter 1, I study how engaging in new product development may significantly dampen a firm's financial performance in an environment undergoing substantial institutional change. I argue that in such a context, institutional change leads to ambiguity and unpredictable shifts in a firm's performance landscape. Because the development of a novel product takes a long time, the profitable market position often will have shifted by the time the new product emerges from the pipeline, causing the innovating firm to underperform financially on average, but with higher variance. Chapter 2 investigates the theoretical puzzle of when a "hybrid" innovation, an innovation that recombines features from distinct technologies, may effectively overcome the illegitimacy discount and benefit an innovating firm. I propose that this depends critically on the confusion customers experience over the hybrid's technological deviations, which could be effectively attenuated by firms through targeting customers of higher technological expertise, or adopting conventional product labels for the hybrids. Finally, in Chapter 3, I ask why certain firms within a technological domain, despite the presence of a dominant design, are more likely to differentiate by introducing hybrid innovations than others. Taking a historical imprinting perspective, I argue that a severe historical event (e.g., war) may alter the institutional logics held by firms that once constrained them from engaging in distant search during innovation. The new logics imprinted upon firms by such an event may persist within firms for generations and subsequently impact their likelihood of engaging in hybrid innovation. The proposed theories in my dissertation received strong and robust empirical supports using data from the Traditional Chinese medicine industry and the Western medicine industry in China during the 1990s.