When Being Large is not an Advantage: How Innovation Impacts the Sustainability of Firm Performance in Natural Resource Industries

SEVIL, A.; CRUZ, A.; REYES, T.; VASSOLO, R. S.

Sustainability

MDPI

Año: 2022

2071-1050

This paper provides an in-depth study of how incremental innovation, a ubiquitous fac-tor, affects the sustainability of performance of small and large-sized firms differently. Specifically, this work examines the sustainability of firm growth in natural resource industries. In these indus-tries, innovation is mainly based on processes in the form of incremental changes, and the adop-tion of innovations has significant sunk costs. We argue that, before incremental process innova-tion, firm performance is directly proportional to firm size. However, in the presence of incremen-tal innovation events, firm performance is inversely proportional to firm size since smaller firms pose higher strategic flexibility and can adopt innovations faster. Our empirical findings highlight the relevance of incremental innovation as an inflection point of firm performance, creating a competitive opportunity window for small firms and a sustainability threat for large firms.