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Younger management teams associated with more creative innovations

by Lindsay Jolivet Mar 3 / 14
Companies with the youngest management teams tend to be more open to the creative and sometimes risky ideas that lead to innovation, according to a new working paper published the National Bureau of Economic Research.

Companies with younger managers tend to develop more creative innovations, new research has found. Photo: iStock

The paper, co-written by Senior Fellow Daron Acemoglu (MIT), argues that leaders, companies and societies willing to accept unconventional ideas that disrupt the status quo will ultimately blaze the trail toward innovation. The researchers found that firms with younger CEOs and management teams were responsible for more creative and influential innovations in their fields. This was also true if the company itself was younger.

“Younger managers are better to deal with this frontier knowledge,” says Acemoglu, a member of the Institutions, Organizations and Growth program. “But also some firms are much better, because of their corporate culture or their characteristics, to be at this frontier, and they tend to be the ones that hire those younger managers.”

Acemoglu and his colleagues measure the quantity and quality of innovations at different firms in the paper, citing pioneering examples such as Amazon’s patent for its online ordering system, which changed the face of online business. They delve into what the corporate culture, organizational structure and employees of an innovative firm look like.

While the study might seem like a simple lesson for companies — hire younger managers — Acemoglu says the reality is more complex. Some companies aren’t structured to propel young, shining stars upward and let them shake up the company from the top.

“For them, it would probably not be a fruitful activity to change their management team and get the youngest whippersnapper in order to be innovative when the rest of the organization is just not geared up for it,” Acemoglu says.

However, he says companies looking for an edge on innovative new ideas they’re already developing should think closely about whether their management is up to speed on new technology and willing to take the necessary risks to get ahead.

In addition, Acemoglu says that firms with an organizational structure that stifles creativity could have superstar innovators hiding in their ranks who simply can’t rise up in the restrictive environments where they work.

“Imagine how many Steve Jobses and Edisons and Eli Whitneys are hiding in China, and they’re not going to be able to come out unless institutional structures and general corporate and state policies are more conducive to that sort of behaviour,” he says.

He says the evidence also translates to areas outside of the business world.

“Societies being more open to these sorts of radical ideas, being less averse to uncertainty, being more able to go beyond collectivist straight jackets, and also being able to promote younger people to be top position in the corporate world — perhaps even beyond — is also associated with country-level innovation,” Acemoglu says.

Ultimately, he says that a society’s openness, or resistance, to the brisk pace of innovation has weighty economic consequences.

“In a fast-changing, globalized, technologically cutting-edge world, I think cocooning yourself into existing structures, existing technologies and not striving for that openness to new ideas and new practices is going to have a major economic cost in terms of economic growth, in terms of forgoing the most important new technologies of the future.”