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Small Organizations May Innovate, But Larger Firms are More Productive?

by Andrew White  |  August 7, 2018  |  Comments Off on Small Organizations May Innovate, But Larger Firms are More Productive?

It so happens that I was reading another article about productivity and this actually suggested that firm size and resulting complexity actually helps drive productivity-inducing change…..

An argument for why larger firms specialize more and so create more productivity-inducing opportunities as a result of increased size and complexity.

“The idea is that as the menu of available technologies expands, raising aggregate productivity (assuming love of variety, as in Romer 1987), individual firms have to cope with increasing complexity of technology.2 SCET then means that while advances in the technological frontier give all firms access to a more productive technology, they do not affect all firms equally. Some firms can use a larger fraction of new technologies than others. As a result, some firms remain close to the frontier and use a production process involving many, highly specialized inputs, while others fall behind the frontier, use a simpler production process, and fall behind in terms of relative productivity.”

Very interesting indeed apropos organizations on the frontier get larger and more successful just as smaller firms, or those not at the frontier, fall further behind.  Couple this to the growing industry concentration of fewer and larger firms, and our situation looks more interesting.  See: The firm size distribution across countries and skill-biased change in entrepreneurial technology.



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Category: productivity  

Andrew White
Research VP
8 years at Gartner
22 years IT industry

Andrew White is a Distinguished Analyst and VP. His roles include Chief of Research and Content Lead for Data and Analytics. His main research focus is data and analytics strategy, platforms, and governance. Read Full Bio

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