Innovation and business performance - a provisional multi-regional analysis



market or resource based factors are more important in determining the efficiency
with which plants' innovation inputs are translated into innovation outputs.

Of the knowledge sourcing activities supply chain collaboration proves most
important to innovation success, although both R&D intensity and non-supply chain
collaboration have a positive effect. This result is perhaps surprising - especially in
terms of the impact of R&D on innovation success, however, other variables designed
to reflect the organisation of R&D inputs rather than the scale of plants' R&D inputs
do prove important. In terms of market position, we find little evidence of any
'learning' effect linked to plant vintage but it is clear that exporting plants are likely to
be more successful innovators (Table 5). Plants producing smaller batches also tend to
be more 'successful' innovators as do those identifying risk as an important barrier to
their innovation activities.

A range of indicators of plants' resource base also prove important in determining
innovation success. Workforce quality, for example, proves important, with the
proportion of the workforce with no qualifications having a negative impact on
innovation success. Likewise, the proportion of graduates in the workforce proves
positive, albeit insignificant. The presence of an R&D department in the enterprise,
and relevant R&D elsewhere in the group, also prove positive for innovation success
as does the presence within the enterprise of integrated IT usage and a strong quality
orientation (see Annex 1). Resource barriers prove less significant, although the
(negative) sign pattern expected in terms of a lack of technical information and
attitudinal barriers are as expected. More surprising is the positive impact on
innovation success of a lack of cash for innovation. This reflects the link identified
earlier between successful innovation and the realisation of the riskiness of the
activity. One possibility is simply that a realistic appreciation of the risks and
investment costs of innovation is an important element in shaping successful
innovation activity.

4.3 Business Performance

We consider here three indicators of business performance derived from the multi-
regional database: gross profit margin (% of turnover), sales growth over the previous
three years and employment growth over the same period. Table 6 gives OLS
estimates of equation (6) for each of the three indicators. As before variables are left
in these initial estimates if in one of the three equations they had a t-statistic greater
than unity. The main interest in these regressions focuses on the strength of the
innovation success indicator in the models and the relative impact of the market
position and resource indicators on business performance.

The innovation success measure is positive and significant in the models for sales and
employment growth but has a negative and insignificant effect on profit margins. In
other words, while we can identify a positive 'growth' effect from innovation we are
able to identify no significant 'profitability' effect. Some similar differences are also
evident between the effects of market position on business growth and profitability.
Business age, for example, was positively linked to profitability but had a strong
negative association with both sales and employment growth (Table 6). Exporting
also had a strong positive association with increased profit margins but no significant
effect in either growth equation.

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