NPR Story
3:07 am
Thu April 17, 2014

Does Business Innovation Depend On A CEO's Age?

Originally published on Thu April 17, 2014 5:41 am

Transcript

DAVID GREENE, HOST:

One of the keys to success for a company or even a country is the ability to innovate, to create new ideas and products that change how people work, live and behave. And there's now new research suggesting that innovation could depend on the age of the people in charge. Of course innovation is just one measure of success. NPR's social science correspondent Shankar Vedantam has returned to join us. Shankar, good morning to you.

SHANKAR VEDANTAM, BYLINE: Hi, David.

GREENE: So what's this new research about?

VEDANTAM: Well, there's been a lot of work looking at the role that liberty plays in fostering innovation, David, but it's mostly looked at differences at the state or national level. If you live in a country where you can choose where you work and what you do, you're more likely to see innovation than in a country that's more dictatorial, and that's not a surprising finding.

Recently I came by some work by Daron Acemoglu at MIT, and along with his co-authors, Ufuk Acigit and Murat Alp Celik, they looked at innovation at the level of individual firms and individual companies. And they looked at one specific measure of innovation, which is the number of patents that are owned by companies, and they found an interesting pattern, not just in which companies had the most patents, but which companies had the most important patents, the ones that led to really big breakthroughs.

Here's Acemoglu.

DARON ACEMOGLU: Beyond the total number of patents, there is a very skewed distribution of the highly cited patents. So you'll have some companies that have a very large number of patents, but very few of them are big blockbusters. And then, you'll have other companies that have a few patents, but several of them are blockbusters.

GREENE: Okay. So Shankar, if I understand this right, the way to measure whether a patent is important, it's a breakthrough as to see how many times it's actually cited, maybe the discovery of a new class of drug so that a lot of people cite in the pharmaceutical industry and then some companies have these blockbusters even if other companies might have a lot more less significant patents.

VEDANTAM: That's exactly right. Everyone who builds on your idea needs to mention it, needs to cite it. So by counting the number of citations, you get a measure of which innovations are actually key.

GREENE: So can something predict which firms are going to have, you know, a lot of these big important patents?

VEDANTAM: That's exactly the question that Acemoglu and his colleagues were trying to answer. They looked at hundreds of American companies and what they found was that the age of the managers at those companies was strongly linked to the likelihood of having these breakthrough innovations. The younger the CEO, the larger the number of these disruptive innovations.

And this held true even when companies changed CEOs. When you brought in younger blood, you were more likely to see these game-changing innovations.

GREENE: So Shankar, based on what we're talking about here, I mean it feels like the conclusion you're almost reaching is that companies should just go out and fire their CEOs in they're too old.

VEDANTAM: I think there is this ageist conclusion that you can draw, David, but quite explicitly that is not what Acemoglu and his colleagues are actually saying.

GREENE: Okay.

VEDANTAM: For some companies, you are actually in a very disruptive industry and you actually depend on making a lot of innovations. And for those companies this might be relevant. If you're working in an industry that's highly established, it might be a big mistake to throw out your experienced managers and bring in a 25-year-old who says I'm going to blow up everything.

I asked Acemoglu why this difference seems to emerge and he says it could have something to do with the culture at companies. Companies with a very hierarchical structure are less likely to appoint young leaders, and so age might actually be a proxy for the culture at the companies. He also said it may be that young managers might think differently about existing products and technologies at a company.

ACEMOGLU: If you're an old manager, that's your baby. You're going to be very cautious in sacrificing that baby. But if you are a young manager, you come without that vested interest, without that baggage, so you're going to be much more radical in thinking about saying let's ax this brand, let's forget about this technology. Let's make a switch to this new way of doing things.

GREENE: The important lesson here, switching to a new way of doing things, is not always the goal of a company and not always the way to succeed.

VEDANTAM: That's right, David, but it is worth pointing out that innovation really is a powerful driver of growth in general. Acemoglu and his colleagues compare companies across countries and they also find the same pattern holds, that for a country to produce a lot of innovation, the youthfulness of managers at the companies in those countries seems to make a big difference.

GREENE: Shankar, thanks, as always.

VEDANTAM: Thank you, David.

GREENE: That's Shankar Vedantam who regularly joins us to talk about social science research. You can follow him on Twitter @HiddenBrain. You can follow this program @MorningEdition. You can follow us @NPRGreene and @KellyMcEvers. This is NPR News. Transcript provided by NPR, Copyright NPR.