Large companies innovate more

Stil in The HBR List: Breakthrough Ideas for 2007 an article reporting on a systematic study of innovation in relation with the size of an organization, here a city:

We did indeed find that cities manifest power-law scaling similar to the economy-of-scale relationships observed in biology: a doubling of population requires less than a doubling of certain resources. The material infrastructure that is analogous to biological transport networks—gas stations, lengths of electrical cable, miles of road surface—consistently exhibits sublinear scaling with population.

However, to our surprise, a new scaling phenomenon appeared when we examined quantities that are essentially social in nature and have no simple analogue in biology—those associated with innovation and wealth creation. They include patent activity, number of supercreative people, wages, and GDP. For such quantities the exponent (the analogue of 3/4 in metabolic rate) exceeds 1, clustering around a common value of 1.2. Thus, a doubling of population is accompanied by more than a doubling of creative and economic output. We call this phenomenon “superlinear” scaling: by almost any measure, the larger a city’s population, the greater the innovation and wealth creation per person.

This is interesting because it seems to challenge the widespread idea that large companies are not as innovative as small ones. But there's a snag. The study is about cities, not firms, and cities are far more self-organizing and adaptive than large companies, which tend to be far more bureaucratic as a side-effect of pyramid-shaped org charts. But still, the result of the study is encouraging. There is no reason why a large organization should be intrinsically less innovative than a smaller one, and quite the opposite in reality. But it probably needs in that case to be organized as a complex adaptive system, and not like the Red Army.