Here is an excerpt from an article written by Emdad Islam and Jason Zein for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
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What makes a company innovative? In the words of Steve Jobs: “It’s not about money. It’s about the people you have, how you’re led and how much you get it.” Several studies attest to the truth behind Jobs’ assertion, showing that leaders play a key role in determining a firm’s innovation success. For instance, overconfident CEOs, CEOs with sensation seeking personalities, and those with general managerial experience have all been shown to make their company more innovative.
We wanted to explore a different aspect of a CEO’s background – whether they’ve innovated themselves — and see whether it leads to greater company innovation. In a recent study, published in the Journal of Financial Economics, we focused on inventor CEOs. We found that companies led by inventors do produce more and better innovation.
Why study inventor CEOs? We were interested in the idea of “learning by doing,” the idea that certain skills and insights can only be acquired through first-hand experience. Many studies have found this to be true in areas like investing, where, for example, venture capitalists who have founded a start-up themselves outperform those who haven’t, and where investment analysts with actual hands-on business experience more accurately forecast future stock prices. We investigated whether a CEO’s first-hand experience “doing” innovation made them better equipped to foster successful innovation at their firms.
First, we tracked the inventing history of 935 CEOs at publicly-listed U.S. high-technology companies, using information from the U.S. Patent and Trademark Office starting from 1975. When we found that a CEO was a named inventor on at least one patent, we designated them as an “Inventor CEO.” About one in five companies in our our study were found to have an Inventor CEO. Some of these CEOs had invented early on in their career, while others continued to invent during their tenure as CEO. A few examples of some legendary Inventor CEOs who are in our data include Lawrence Ellison, Bill Gates, and Steve Jobs.
Then, we compared the patented technologies (in terms of volume and impact) of firms with Inventor CEOs and firms not led by inventors, over a 17-year period starting at 1992. We made sure the firms we were comparing had similar levels of investment in research and development, were at a similar stage in their life cycle (similar size and age), and were in the same industry sector.
We found that inventor-led companies were not only awarded more patents, but these patents were commercially more valuable and scientifically more influential than patents awarded to non-inventor-led firms. Importantly, the innovations associated with these patents were also more likely to be radical in nature, resulting in the introduction of more breakthrough products, compared with similar peer firms.
To attribute this innovation success more directly to the presence of Inventor CEOs, we looked deeper into the CEOs’ actual experience. Some CEOs appeared to only have limited inventing experience, whereas others had a more recognized history of being high-impact inventors. We found that the effect an Inventor CEO had on their firm (in terms of patents) was noticeably stronger when they were previously a high-impact inventor.
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Here is a direct link to the complete article.
Emdad Islam is an Assistant Professor at the Department of Banking and Finance at Monash University, Melbourne, Australia. His research interests include corporate innovation, corporate social responsibility, corporate governance and corporate finance.
Jason Zein is an Associate Professor of Finance at UNSW Business School, Sydney, Australia. His main research interests are corporate ownership, control and governance of firms around the world, venture capital, private equity and the financing of innovation.