Innovation and business performance - a provisional multi-regional analysis



Indicators of plants' resource base were generally only weakly defined in the
performance models. The variables divided, however, into those having uniformly
positive or negative effects on margins and growth and those having differential
effects on each dimension of performance. Among the more significant uniform
effects were workforce quality and having an R&D department in the plant, both of
which contributed positively to both profit margins and sales and employment growth.
Differential effects were noted, however, for quality orientation which had a positive
effect on growth and a negative effect on margins and group R&D and employment
(plant size) which were associated with positive effects on margins but negative
growth effects.

5. Summary and Discussion

The focus of the initial analysis outlined here has been the process of knowledge
sourcing, combination and exploitation which takes place as firms collaborate,
innovate and market new products. Our analysis has highlighted the potential
importance of both in house R&D activity and supply chain and non-supply chain
collaboration as knowledge sourcing strategies for innovation. Moreover, the
estimation suggests the strong complementarity between - at least - supply chain and
non-supply chain innovation collaboration. Other determinants of plants' knowledge
sourcing strategies are more difficult to identify with our initial analysis suggesting a
complex of regional, resource based and market position factors.

In terms of the innovation production function, our analysis suggests the potentially
important role of both R&D and external knowledge sourcing as inputs. The
efficiency with which these inputs are then combined to produce innovations depends
on both the market situation of the enterprise and its internal capabilities. We find
little evidence, however, of any learning effects with no clear relationship evident
between plant vintage and innovation outputs. Resource indicators such as workforce
quality and the presence of an in-house R&D department, however, do prove
important as does the presence within the enterprise of integrated IT usage and a
strong quality orientation.

The final stage in the causal chain examined here is the link between innovation
success and business performance, measured by profitability and business growth.
Here our results are most satisfying in terms of business growth with strong positive
links evident to innovation success. A statistically weaker and negative relationship is
identified between profit margins and innovation success. This pattern of differential
profitability and growth effects is reflected in other market position and resource
indicators and is found in other studies of the determinants of business performance
(e.g. Roper, 2000). One clear strategic implication is that the value of investing in
innovation (or other internal capabilities) depends strongly on the strategic aspirations
of the business. On the basis of our results in particular innovation represents a valid
investment only if a business is seeking to grow rather than increase its profit
margins.

The analysis reported here represents a somewhat cursory 'first-cut' through the multi-
regional database. The results reported must therefore be treated with some caution.
Future analyses will seek to broaden the range of innovation and business

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