Innovation and Business Performance: a Literature Review

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INNOVATION AND BUSINESS PERFORMANCE: A LITERATURE REVIEW

Commissioned by GO-ER

Andy Neely Jasper Hii The Judge Institute of Management Studies University of Cambridge 15 th Jan 1998

CONTENTS

EXECUTIVE SUMMARY 1 INTRODUCTION 2 INNOVATION 2.1 Why innovate? 2.2 Innovation and competitiveness 2.3 Barriers to innovation 2.4 Summary 3 INNOVATION MANAGEMENT 3.1 What is innovation? 3.1.1 Diffusion of innovation 3.2 Models of innovation 3.2.1 First generation: technology-push 3.2.2 Second generation: market-pull 3.2.3 Third generation: coupling model 3.2.4 Fourth generation: integrated model 3.2.5 Fifth generation: systems integration and networking 3.3 Levels of analysis 3.3.1 Firm-level 3.3.2 Regional-level 3.3.3 National-level 3.4 The constructs ‘innovativeness’ and ‘innovative capacity’ 3.4.1 What is innovativeness? 3.4.1.1 Individual-level innovativeness 3.4.1.2 Firm-level innovativeness 3.4.2 What is innovative capacity? 3.5 Summary

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CONTENTS

4 INNOVATION AND PERFORMANCE 4.1 The link between innovation and business performance 4.1.1 Innovation transforms internal capabilities of firm 4.1.2 Innovation is necessary but not sufficient for business performance 4.2 Empirical evidence showing the link 4.2.1 Firm-level 4.2.2 Regional-level 4.3 Measurement of innovative activities 4.3.1 Common measures 4.3.2 Difficulty of measuring innovative activities 4.3.3 Innovation performance measurement framework 4.3.4 Importance of measuring innovative activities 4.4 Means of mapping innovation 4.4.1 Patent analysis 4.4.2 Innovation surveys 4.4.2.1 Object approach 4.4.2.2 Subject approach 4.4.2.3 Recent developments 4.5 Summary 5 CONCLUSIONS 5.1 Summary of review 5.2 Potential research avenues REFERENCES

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EXECUTIVE SUMMARY

Innovation has been cited as one of the key factors that affects competitiveness. Yet despite widespread agreement about its benefits, innovation is still poorly understood. Definitions are confused and the link between innovation and business performance remains to be proven.

This literature review reports the first stage of an extensive study into the relationships between innovativeness, business performance and innovative capacity of firms. The aim of this review is to set out the context for a research project into these topics, by summarising the studies that have been completed to date.

The report consists of four main sections. In the first the question “why innovate” is tackled, as the generic benefits of and barriers to innovation are identified. In the second section the question “what is innovation” is answered, as the constructs: (i) innovation, (ii) innovativeness and (iii) capacity to innovate are explored and the five models of innovation process are presented. In the third section the question “what is the link between innovation and performance” is addressed, as studies of innovation at the firm, regional and national levels are reviewed. The fourth section concludes the report by identifying areas requiring further research and proposes a forward programme designed to support the formation of an innovation policy for the Eastern Region.

The main findings of this review are:

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Section 1 INNOVATION: • • • In the emerging knowledge economy, the ability to innovate at the firm, regional and national level dictates the wealth generation capacity of an economy. Within UK, there is a growing concern that firms are lagging behind the best-in-class in terms of innovation. There remains limited understanding as to what actions can be taken at the regional level to facilitate innovation, although some barriers such as costs of innovation, lack of information and shortage of support/infrastructure have been identified.

Section 2 INNOVATION MANAGEMENT: • • • • • • The three dimensions of innovation are product, process...
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