Is innovation failure just a dead end?

Abstract

This paper explores whether failures in innovation projects at the firm level contribute to strengthening firms’ innovative activities and the odds of future innovation. Building on the literature on NK fitness landscapes, our paper focuses on technological complexity as a key factor that influences the response to innovation failures, guiding whether to discontinue the current path or, alternatively, to leverage the failure as a foundation for future innovation success. We then test the hypothesis derived from our model using a panel data set constituted by ten waves of the Community Innovation Survey held in the Netherlands from 1996 to 2014. Our findings show the fundamental relevance of the different forms of learning that are available to the firm. In particular, we highlight the positive role of learning after a previous innovation project has been abandoned. Previous failure in innovating produces some forms of learning inside the firms, and this learning positively contributes to subsequent successful innovation. Moreover, by differentiating between radical and incremental innovation, and between complex and less-complex innovation landscapes, we highlight the role of incremental innovation over the whole spectrum of landscape complexity, while the role of radical innovation appears to be more limited to less turbulent technological landscapes.