Technology Complexity and Firm Performance: The Moderating Effect of Design Innovation

Abstract

In today’s highly competitive markets, firms can no longer ensure competitive advantage through the development of highly complex technologies or differentiation based solely on technological and functional factors. Simultaneously, there is growing recognition that design and aesthetic factors can contribute to firms’ competitive advantage and profitability. Hence, this study examines the effects of design innovation, captured by formal design registration, on firms’ financial performance. We investigated the relationship between technology complexity, design innovation, and firm performance to unveil design innovation’s role in exploiting complex technologies. Our main hypothesis is that design innovation positively moderates the negative effect that technology complexity yields on firm performance. We used a unique dataset that aggregates all patent data published by US-headquartered publicly-traded firms to the parent company level. We combined this with firms’ financial information and design patent data from the Computat and PATSTAT databases based on their matching firm identifier. Focusing on 1,765 US firms from 1980 to 2015, we calculated firm-level technology complexity based on the structural diversity of technologies. The results confirmed our hypotheses. This study contributes to firms’ resource-based view by recognizing design as a strategic resource that firms can utilize to gain a competitive advantage and by discovering design innovation’s role in generating economic profits.