Disruptive and Sustaining Innovation: Do They Matter for Technical Efficiency in a Firm’s Production Technology?

Abstract

This study explores the influence of disruptive and sustaining innovation on the technical efficiency of Norwegian firms and its implications for production efficiency. It employs stochastic frontier analysis with unbalanced panel data from manufacturing (7,056 observations) and service firms (6,066 observations). The results show that the individual effects of sustaining and disruptive innovation improve technical efficiency in firms’ production technologies with a superior effect from sustaining innovation. Additionally, it reveals that while hybridisation can be more beneficial for technical efficiency in manufacturing firms, service firms benefit more from sustaining innovation. In summary, it highlights that disruptive and sustaining innovation can optimize firms’ technical efficiency, and the specific effects vary by industry. Furthermore, the results indicate that manufacturing firms may respond to disruption effectively through hybridisation. Thus, the study contributes to the literature on innovation and business performance studies and provides valuable insights for business managers on strategic innovation management with production efficiency implications.