Innovation and business performance - a provisional multi-regional analysis

Innovation and Business Performance: A Provisional
Multi-Regional Analysis

1. Introduction

Innovation is now widely understood as an evolutionary process, strongly conditioned
by a firm's institutional, locational and market context (Nelson and Winter, 1982). An
innovation event (e.g. the introduction of a new product or process), however,
represents the end of a process of knowledge sourcing, co-ordination and codification
by a firm or partnership. It also represents the beginning of a process of value added
generation which, subject to market conditions, may result in an improvement in the
performance of the innovating business and also perhaps - through spillovers-
improvements in the performance of co-related or co-located firms. Following recent
studies by Crepon et al., (1998), Loof and Heshmati (2000, 2001), and Love and
Roper (2001), this paper provides a preliminary examination of the causal links in this
process of knowledge sourcing, co-ordination and exploitation and their relationship
to enhanced business performance.

The paper represents the first analysis of a large-scale multi-regional dataset covering
three UK regions, Ireland and two German regions and focuses on three main research
issues:

(a) How do firms assemble the bundle of knowledge necessary for innovation? What
roles do in-house R&D, supply-chain collaboration and non-supply-chain
collaboration play in firms' knowledge sourcing activities? How are these
activities inter-related?

(b) How do the characteristics of the enterprise, including its own knowledge and
managerial resources, shape organisations' ability to acquire and co-ordinate the
knowledge necessary for innovation?

(c) How do the characteristics of the enterprise and its operating environment
influence the organisations' ability to appropriate economic value from its
knowledge base and innovation activity?

The focus of the paper is therefore on the knowledge production function and the way
in which the effectiveness of knowledge co-ordination is influenced by firms’
managerial and organisational capabilities (Griliches, 1992; Love and Roper, 1999).
The final link in the causal process relates to knowledge exploitation i.e. how
enterprises’ business performance is influenced by the co-ordination of knowledge
inputs and the innovations which result from the process of knowledge production
(Geroski and Machin, 1992; Geroski et al., 1993). More broadly, the research takes
account of the process of technological change embodied in literatures on regional
and national innovation systems, in which knowledge sourcing, co-ordination and
exploitation activities of firms may be influenced importantly by cultural norms,
markets and the presence of co-located firms and other organisations (e.g.
universities, government research laboratories). The approach adopted is therefore
integrative, drawing on aspects of the management, economics and industrial
organisation literatures relating to innovation, capabilities, and technological change.

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