Knowledge spillovers and entrepreneurship
Knowledge Spillover Theory: Why Smart Employees Leave Big Companies
Big companies spend billions on R&D, yet startups often commercialize the most disruptive innovations. Why?
Knowledge Spillover Theory (Acs et al., 2009) argues that productive innovation doesn't just come from R&D spending; it comes from the leakage of ideas. Knowledge is inherently "leaky," moving through networks and via stakeholder mobility.
The Knowledge Filter
The core of the theory is the concept of the Knowledge Filter.
Incumbent firms create massive amounts of new knowledge. However, they are often inefficient at exploiting it. They filter out ideas that don't fit their current strategy or profit models. This unused knowledge "spills over" into the economy.
[Image of knowledge spillover theory diagram]Why Incumbents Waste Knowledge
Why would a company invent something and then not use it? Agarwal et al. (2010) identify several reasons why incumbents leave money on the table:
- Cannibalization: The innovation threatens the margins of their existing products (e.g., Kodak burying digital photography).
- Cognitive Blindness: Management deems the innovation "counter to the firm's interest."
- Bureaucracy: The idea gets stuck in middle management.
When an incumbent fails to use this knowledge, it creates an opportunity. Frustrated employees (intrapreneurs) leave the firm to start a new venture (spinout) that will use the knowledge.
Mechanisms of Leakage: How Ideas Travel
Spillovers are the raw material of entrepreneurship. They travel through:
- Employee Mobility: This is the most significant source. When an employee quits, they take their expertise, understanding of emerging markets, and technical know-how with them.
- Informal Networks: Knowledge flows over coffee, at conferences, and through social bonds between engineers at different firms.
The Empire Strikes Back: Suppressing Spillovers
While spillovers drive the broader economy, individual firms hate them. Organizations take aggressive steps to "plug the leaks" and suppress the flow of knowledge:
- Non-Compete Contracts: Prohibiting employees from working for competitors or starting their own business for a set period. (Note: These are banned in innovation clusters like California).
- Golden Handcuffs: Offering bonuses or stock options that only vest if the employee stays, effectively bribing them not to use their knowledge elsewhere.
- Intellectual Property (IP): Using patents not just to use an invention, but to block others from building on it.
Video: Knowledge Spillovers and Growth
References
Acs, Z. J., Braunerhjelm, P., Audretsch, D. B., & Carlsson, B. (2009). The knowledge spillover theory of entrepreneurship. Small Business Economics, 32(1), 15-30.
Agarwal, R., Audretsch, D., & Sarkar, M. B. (2010). Knowledge spillovers and strategic entrepreneurship. Strategic Entrepreneurship Journal, 4(4), 271-283.
Audretsch, D. B., & Lehmann, E. E. (2005). Does the knowledge spillover theory of entrepreneurship hold for regions? Research Policy, 34(8), 1191-1202.
