Companies led by inventors produce better innovations

By emdad Islam & Jason Zein

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.”

We wanted to explore a different aspect of CEOs’ backgrounds—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.

First, we tracked the inventing history of 935 CEOs at publicly listed US high-technology companies, using information from the US. Patent and Trademark Office starting in 1975. 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 in 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 and were in the same industry sector.

We found that inventor-led companies not only were awarded more patents, but these patents were commercially more valuable and scientifically more influential.

We looked deeper into the CEOs’ actual experience. We found that the effect an inventor CEO had on her firm (in terms of patents) was noticeably stronger when she was previously a high-impact inventor.

We also examined the specific types of technologies that inventor CEOs had worked on in the past, to understand whether this had anything to do with how strong their effect was. We found that when the CEO’s previous inventions were more closely aligned with the type of technology her firm produced, then this led to even greater innovation success for a firm.

Inventing experience can provide a CEO with deeper insights into her firm’s technology and how to manage the business around it. Firsthand exposure to the process of innovation may also make inventor CEOs better able to create a culture that fosters creativity and innovation.

Apart from enhancing innovation, inventing experience may also make an inventor CEO a more authentic and convincing spokesman for her firm’s products, helping the firm’s innovation make a greater impact in the industry.

Emdad Islam is an assistant professor at Monash University. Jason Zein is an associate professor at UNSW Business School.


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