The Evolutionary Nature of Breakthrough Innovation: An Empirical Investigation of Firm Search Strategies

Abstract

Breakthrough innovation has been an important topic of study for generations of scholars. Previous research in this domain has focused on exploring the way breakthroughs emerge from cumulative combination and recombination of prior technologies and knowledge components across vast numbers of firms and inventors. However, far less understood are the internal firm-level processes that give rise to breakthrough inventions. How do firms search for and select technologies with which to innovate? Could the trajectory of this search process itself play a role in influencing the likelihood that a developed invention will be a breakthrough? We ask these questions in our research. Our analysis examines three decades of innovation histories of over two and a half thousand firms. Longitudinal firm-level data and a novel measure of search (technological focal proximity) enable us to characterize corporate activity at a detailed level and to examine search strategies that led to breakthrough innovations as well as those that did not. Contrary to the established consensus that breakthroughs are associated with explorative search and less impactful inventions emerge through exploitation, our firm-centric approach reveals that breakthroughs develop from a search process that evolves in phases and involves both exploration (initially) and exploitation (subsequently). In the early phases, firms that successfully develop breakthrough inventions explore unfamiliar terrain. However, as the process unfolds, they progressively shift their search strategies to exploitation of accumulated knowledge. Our findings call into question the strong dichotomy between exploration and exploitation that has played such a prominent role in theories about the origins of breakthrough innovation.