The Gap Between Large and Small Companies Is Growing. Why?

The idea that traditional large companies can’t innovate, and that smaller digital companies will render many of them extinct, is everywhere. But is this disruption is accelerating with the momentum of digital revolution? Researchers wanted to see whether large established corporations are being increasingly displaced by new technologies, or whether they’re actually leveraging digital and other new technologies to innovate and grow. Contrary to the popular notion, they find waning evidence for the idea that large companies do not innovate and that their business will soon be disrupted by small firms. large companies are thriving, investing in innovation and intangible assets at an increasing pace, while the investment and growth opportunity set of small companies is shrinking, with their nimbleness and grit is increasingly under pressure.

Research and news headlines are replete with the idea that traditional large companies can’t innovate, and that smaller digital companies will render many larger ones extinct. While we’ve seen numerous startups of the last thirty years not only disrupt businesses but become the megacorporations of today, we wondered whether this disruption is accelerating with the momentum of digital revolution. In particular, we wanted to see whether large established corporations are being increasingly displaced by new technologies, or whether they’re actually leveraging digital and other new technologies to innovate and grow.

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Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth College’s Tuck School of Business, a Dartmouth-wide chair and the highest distinction awarded to Dartmouth faculty, a Faculty Partner in the Silicon Valley incubator Mach49, and a Senior Advisor at the strategy consulting firm Acropolis Advisors. He is a New York Times and Wall Street Journal bestselling author. His latest book is Fusion Strategy: How Real-Time Data and AI Will Power the Industrial Future. His Harvard Business Review articles “Engineering Reverse Innovations” and “Stop the Innovation Wars” won McKinsey Awards for best article published in HBR. His HBR articles “How GE Is Disrupting Itself” and “The CEO’s Role in Business Model Reinvention” are HBR all-time top-50 bestsellers. Follow him on LinkedIn.

Baruch Lev is the Philip Bardes Professor of Accounting and Finance, Stern School of Business, New York University. He has written six books, including his recent The End of Accounting and The Path Forward for Investors and Managers (2016), and published over 100 research studies on investment and economic analysis.

Anup Srivastava holds Canada Research Chair in Accounting, Decision Making, and Capital Markets and is a full professor at Haskayne School of Business, University of Calgary. In a series of HBR articles, he examines the management implications of digital disruption. He specializes in the valuation and financial reporting challenges of digital companies. Follow Anup on LinkedIn.

Luminita Enache is an associate professor at Haskayne School of Business, University of Calgary. She investigates financial disclosures of new-economy firms. Follow Luminita on LinkedIn.