Artificial intelligence and radical innovation: an opportunity for all companies?

Artificial intelligence (AI) is often seen as a key technology for future economic growth. However, its concrete effects on the emergence of radical innovations and the associated socio-economic impacts, through increasing divergence between smaller and larger firms, have not yet been systematically researched. This paper addresses this by investigating the extent to which AI-related knowledge influences the emergence of radical innovations and differentiates between SMEs and large firms. Based on a unique dataset of European firms combining firm-level data with patent data, we find a nuanced influence from AI. While AI applications assert a positive influence, AI techniques negatively influence the emergence of radical innovations. Being an SME significantly moderates these effects. Larger firms gain from AI applications, whereas SMEs gain from AI techniques. Therefore, AI knowledge in itself is not a general answer to increase the likelihood of creating radical innovation. Instead, a more differentiated view on AI is needed. Plain English Summary: Possessing knowledge in AI techniques decreases the chance of creating radical knowledge in general, but SMEs benefit from such knowledge. Conversely, knowledge in AI applications is more beneficial for large firms. Artificial intelligence (AI) is often seen as a key technology for future economic growth. However, some firms may have an advantage in utilizing AI knowledge to create radical innovation. This paper investigates the influence of AI-related knowledge in firms on the emergence of radical innovations with a specific focus on the differences between SMEs and large firms. We find that application-related AI knowledge increases the likelihood for radical innovations, while technique-related AI knowledge decreases it. Nevertheless, SMEs have an advantage in utilizing AI techniques to generate radical innovations. Thus, the principal implication of this study is that SMEs should focus on AI techniques, allowing them to capture unseen technological opportunities which cannot be obtained in a formalized R&D process within a large firm. [ABSTRACT FROM AUTHOR]