Firms may lose edge of innovation after going public

Firms may lose edge of innovation after going public

InnovationLondon:(IANS) When companies go public, they actually innovate more — but their innovations are far more conservative and less ground-breaking than before, new research has found.

“Going public is a mixed bag for firms when it comes to innovation. After an initial public offering, firms tend to introduce a larger number of innovations and a larger variety of each innovation–think different flavours, or different package sizes,” said one of the study authors Simone Wies from Goethe University Frankfurt, Germany.

“But at the same time, the innovations they do make are usually not the kind of breakthrough innovations that take the company in new directions and into new markets,” Wies noted.

The authors analysed a sample of over 40,000 new product introductions by 207 consumer package good (CPG) firms undergoing an initial public offering (IPO) or stock market launch between 1980 and 2011.

They counted each firm’s total new products introduced in a given year.

They then counted the number of new products that could be considered breakthroughs: products that targeted a new market and/or offered a substantially new consumer benefit through product positioning, merchandising, packaging, formulation, or technology.

The authors found that companies pay a price in going public: having to answer to stockholders, who generally are more interested in the short run than the long run, and having now to file cumbersome disclosure reports, companies often find that there is less room for risky and potentially revolutionary innovations.

The findings appeared in the Journal of Marketing Research.