One size does not fit all: A cross-country comparison of policy instruments used to support firm-level innovation and science
Published: 15 January 2021
Cross-country, comparative analysis provides a powerful tool for policy evaluation, whilst also offering much potential for policy learning and improvement.
Understanding the role of IP protection in UK firms’ growth, productivity and innovation 1998-2016: Patents, trade marks and registered designs reconsidered
Published: 13 January 2021
Based on new intellectual property (IP) protection histories for around 110,000 UK firms from 1995-2018, we examine the contribution of UK registered patents, trade marks and registered designs to growth, productivity and innovation outcomes
Published: 24 September 2020
International evidence suggests productivity growth is most rapid among ‘frontier’ firms, i.e. those in the top decile of the productivity distribution. Other studies have identified the marked difference in sectoral productivity growth in the UK over the last decade. Here, we consider the drivers of productivity growth in SMEs which are ‘behind the frontier’.
Published: 17 June 2020
Abandoned and failed innovations can be regarded as a part of the natural process of experimentation by firms, which can lead to important lessons being learned. Although the literature suggests some benefit from failure or abandoned innovation activities, prior studies using relatively large firm-level datasets to test the nature of this link are often unable to deal explicitly with the time dimension of learning. We contribute to the literature by showing the dynamic and causal nature of the linkage between abandoned innovation and subsequent innovation outcomes at firms. We demonstrate based on balanced panel data of Spanish manufacturing firms from 2008-2016 that innovation failure not only leads to more successful innovation, but that there is an explicit time dimension to this. We demonstrate that firms which have experienced ‘failure’ (as evidenced by abandoned innovation activities) in the past will have stronger positive effects of recent abandoned innovation activities on innovation output. This is a strong test of the ‘learning-from-failure’ hypothesis. In addition, we find evidence that in addition to enabling cumulative learning processes, abandoning innovation may also act as a dynamic corrective mechanism preventing firms carrying weaker innovation portfolios through from one period to the next.
What’s in a name? The impact of Geographical Indications of Origin on producer growth and food heritage
Published: 6 March 2020
Post-Brexit the UK government has committed to the implementation of a new UK system of Protected Food Names (PFNs). These will replace the EU Geographical Indications of Origin (GI) regulations for sales in the UK market. GIs, and potentially PFNs, can have significant benefits. Here, we combine case study and econometric methods to consider GIs’ impact on preserving and strengthening food heritage and producer growth. Our case study analysis suggests that GIs can play an important role in the heritagisation of food products although this depends critically on a range of operational factors
Published: 24 February 2020
In order to observe a patent application at the firm level two conditions need to be met: new products need to be of patentable quality, which depends both on the degree of novelty of innovations and on the total number (portfolio) of innovations; and the benefits of patents need to be higher than the costs of owning them. Analyzing the patent propensity of small and large UK firms using a novel innovation-level survey (the SIPU survey) linked to Community Innovation Survey data we find that when we consider the whole innovation portfolio smaller firms do patent less than larger firms. However, using data on individual innovations, we find that smaller firms are no less likely to patent any specific innovation than larger firms. We argue that size differences in the probability to patent relate primarily to the ‘portfolio effect’, i.e. larger firms generate more innovations than smaller firms and therefore are more likely to create one or more which are patentable. As for the decision to patent a patentable innovation, we find that cost barriers, more than issues of innovation quality or enforceability, deter small firms from patenting specific innovations. Measures to address the costs of patenting for smaller firms – perhaps by considering patents as eligible costs for R&D tax credits – and/or subsidizing SMEs’ participation in IP litigation schemes may both encourage patent use by smaller firms.
Published: 18 February 2020
Improving productivity is critical to increasing economic growth and prosperity in the long-run and a key objective for UK national, regional and local policy. However, a long tail of low productivity businesses and significant spatial variations in productivity characterise the UK economy. This report presents an analysis of the determinants of Small and Medium Sized Enterprise (SME) labour productivity, with a particular focus on how place and productivity interact. The analysis draws on data from the UK Government’s Longitudinal Small Business Survey (LSBS) for the years 2015 to 2017. It employs a multilevel regression analysis to understand determinants in enterprise labour productivity in different localities and regions and effectively account for the contextual environment.
Published: 11 February 2020
Previous studies have suggested there is little correlation between efficiency and growth at firm level. Here, using data from successive waves of the UK innovation Survey we consider two questions. First, do different types of innovation have different effects on efficiency and growth? Secondly, does the source of firms’ R&D finance matter?. Is there a difference between the innovation effects of publicly-supported and wholly-privately-funded R&D?
Published: 6 February 2020
The Longitudinal Small Business Survey (LSBS) allows for more consistent SME analyses for the UK than ever before by tracking the same firms over time. Our research looks at the regional context, as well as firm specific variables, that are associated with labour productivity outcomes for SMEs. The paper considers the role of City-Region characteristics, as defined in terms of labour market, business dynamics, R&D spend and City-Region agglomeration on labour productivity, alongside firm-level associations.
The paper addresses a research gap in our understanding of how City-Region characteristics support the SME community in Britain by seeking to tease out the channels through which the benefits might accrue. Improving our knowledge of these channels could potentially enable more effective support provision from a policy perspective.
Published: 3 October 2019
This paper explores the link between different types of training and innovation outcomes using the Longitudinal Small Business Survey. Much of the evidence on innovation and the link to the capabilities of the workforce is based on evidence from the Community Innovation Surveys and as a result emphasis is on larger businesses and on formal skills acquired in Higher Education Institutions. This paper adds to the literature by focusing on a) micro businesses and b) on- and off-the-job training and manager vs. employee training. The main findings are that: a) there is a positive relationship between training and, in particular product innovation; b) that this relationship is strongest among micro-businesses with 1 to 9 employees; c) that the strength of the effect of on- and off-the-job training is similar; and that d) specific manager training in IT and ‘financial management’ shows relatively strong correlations with product and process innovation. Training leading to formal qualifications is not significantly associated with innovation. Novel – new-to-market – product innovation is also significantly enhanced by leadership training of managers, but not by other forms of training.
Published: 16 September 2019
This paper summarises findings from a pilot study exploring UK SME access to external finance, growth and productivity, addressing three key research questions:
• What are the characteristics of SMEs that determine their funding and discouragement?
• What are the impacts of external finance on SME performance and productivity?
• What are the implications for policy?
Published: 12 September 2019
Current debates around the nature of the innovation process increasingly stress its open character, whereby firms utilise knowledge and expertise from outside organisations. From the perspective of Small and Medium Enterprises (SMEs), open innovation allows the leveraging of additional resources which they would not necessarily be able to develop alone. In the context of open innovation universities are often cited as important sources of external knowledge and key nodes within innovation systems due to their ability to generate and transfer new, cutting edge, knowledge.
Getting the right recipe: collaboration strategies for radical and incremental innovators in services.
Published: 2 September 2019
Successful innovation requires both effective idea generation and commercialization. Here, we investigate the benefits of alternative collaboration strategies across the idea generation and commercialization stages of the innovation process. Does collaboration generate complementarities between stages of the innovation process? Or, as external collaboration is costly and risky, can having too many partners be detrimental for innovation performance?
Published: 15 April 2019
This paper examines the unintended consequences of innovation. We show that innovative activity can have adverse outcomes in the form of increased customer complaints with the potential for reputational and financial damage. Complaints may arise directly from adverse reactions to innovative services or service failures where firms prioritise innovation. Our empirical analysis focuses on legal services in England and Wales. Survey data on innovation by legal service providers is matched with complaints data from the UK Legal Ombudsman. This allows us to identify causal links between innovation activity and subsequent customer complaints. Our analysis reveals that higher levels of innovation activity increase the probability and number of consumer complaints. We identify how firms can reduce the potential for consumer complaints by adopting collaborative innovation strategies and engaging in multi-functional teamworking. Our results have strategic, regulatory and policy implications
Published: 11 April 2019
Public policy related to the performance and growth of existing small firms has focused on improving access to finance and more recently on reducing regulatory burdens. However, there has also been an increasing recognition of the importance of management knowledge, skills and the adoption of best management practices. In this paper we match survey data on management skills and practices in a large group of SMEs with longitudinal data on productivity to examine the causal links between skills and management practices in 2014 and productivity performance in 2017. Our focus is on a group of firms led by a single entrepreneur or owner-manager.
Published: 22 January 2019
Small groups of fast-growth firms make a significant contribution to job creation and economic growth. Yet we know little about their broader impact on the economy. This research investigates how the number of fast-growth firms in a region and industry impacts on growth of other firms. By linking the ONS Business Structure Database (BSD) with additional data at the industrial and regional level over the period 1997-2013, we test different channels of wider effects of fast-growth firms in the manufacturing and professional service sectors.
Fecundity, fertility, survival and growth: high-growth firms in the UK and their contribution to job creation, a demographic perspective.
Published: 22 January 2019
High growth firms (HGFs) have attracted an increasing amount of attention in the last decade as economies begin to emerge from a period of deep recession and policymakers take a renewed interest in firms which generate jobs on a large scale However, despite the attention given to HGFs by policy-makers and researchers, surprisingly little seems to be known about the longer term performance of HGFs and, in particular, about their growth outside the period which led them to be classified as HGFs.
The principal contributions of this paper build on the distinction between high-growth episodes and high-growth firms. The ‘birth’ of an HGF is marked by its first high-growth episode (i.e., defined as a HGF for the first time according to the OECD definition, but the HGF may (indeed is quite likely to) record further high-growth episodes in subsequent years – that is, be defined for a second time as a HGF in a subsequent 3-year period.
Productivity of the UK’s small and medium sized enterprises: insights from the Longitudinal Small Business Survey.
Published: 13 June 2018
Since the 2007-08 Global Financial Crisis (GFC), the UK’s aggregate productivity growth, as measured by output per worker, has deteriorated. This deterioration is not only significant when compared to the UK’s previous experience, but also when compared to the performance of other advanced nations, such as the G7 nations, of which the UK is a member. Improvements in productivity performance are therefore a major economic challenge, especially in the context of ensuring the nation’s long-run wellbeing. Inspired by the UK’s recent productivity experience, in this study we seek to derive productivity insights from the firm-level micro data in the two waves of the UK’s Longitudinal Small Business Survey (LSBS).
Published: 31 May 2018
This report documents analysis from Waves 1 and 2 of the UK Longitudinal Small Business Survey, focused on the subsample of sole-proprietorships and micro-businesses (less than 10 employees), comprising 3,882 businesses. The report is specifically concerned with the impact of business planning, support and advice on performance outcomes. Performance is captured by indicators of innovation propensity, exporting propensity and intensity and turnover per employee (productivity) and in turn innovation and exporting are conceptualised as feeding into productivity performance.
Published: 24 May 2018
This paper investigates the differences between small and medium sized firms (SMEs) that apply for funding and those that are discouraged from applying for funding - so-called discouraged borrowers. The dynamics and determinants of borrower discouragement, together with its impact on the activities of SMEs are also investigated. Data from the Longitudinal Small Business Survey suggests that one in ten SMEs (9.3%) can be classified as being a discouraged borrower or as many as half a million UK SMEs could be discouraged borrowers.
Business support and SME performance: exploratory analysis of the Longitudinal Small Business Survey 2015 and 2016
Published: 16 May 2018
This report presents findings from a study of the relationship between business support and Small and Medium-sized Enterprise (SME) performance. The analysis draws on two waves of data (2015, 2016) from the Longitudinal Small Business Survey (LSBS), a large-scale telephone survey of 15,502 SME employers (e.g. owners and managers).
The survey defines SMEs as businesses with between one and 249 employees, with further sub-group analysis based upon employment size: micro businesses (1-9 employees); small businesses (10-49 employees); and medium-sized businesses (50-249 employees). This report is delivered by the Enterprise Research Centre (ERC).
Published: 16 May 2018
Exporting offers firms the opportunity both to maximise profits from their existing products and services and, through ‘learning-by-exporting’, to identify new innovation opportunities. In this paper, we exploit a unique data source to examine the strategic choices of smaller firms in terms of exporting or non-exporting. We pay particular attention to a substantial group of export-capable firms which state that they have products or services suitable for exporting but have no intention to export.
Published: 12 April 2018
Randomised controlled trials or RCTs have a number of theoretical advantages over more standard econometric evaluation approaches, particularly the avoidance of selection bias. Over the period since 2010 five publicly funded RCT projects and a range of communication trials have been undertaken in the UK designed to test aspects of small business and innovation policy. We briefly describe the trials and identify the operational and tactical issues which arose. Experience from medical trials also suggests the value of replication and synthesis, epitomised in the Cochrane Reviews.
Published: 15 February 2018
This paper describes what we know about the effect of top managerial teams (TMT) size and diversity on the performance of new ventures and SMEs. It does so by summarising the results of a thorough literature search of quantitative studies published on this topic between 1990 and 2016 and of a meta-analysis on the relationships reported in these studies.
1990 and 2016 and of a meta-analysis on the relationships reported in these studies.
The search revealed 47 studies and 266 measured relationships between TMT size or diversity and firm performance. These studies employed different samples, econometric techniques, geographical and industry sector focus. Almost 77% of the studies in our sample focus on new ventures, 60% on high-tech firms and 36% on SMEs.
While the meta-analysis reveals many significant and positive effects of team size and diversity, the range of effects varies quite widely depending on context, generating a range of effect sizes from small to large. This inconsistency in results suggests that more replicative studies are required to add to the body of knowledge on team effects on performance.
Published: 8 February 2018
Across all sectors, firms face pressure to serve their customers better by innovating in the delivery of goods and services. Undertaking innovation involves a range of different activities, however, from exploratory knowledge creation or acquisition to commercial exploitation. This may create tensions due to the very different resource and organisational requirements of effective exploration and exploitation. Here, we draw on new survey data for five UK service sectors which separately identifies firms’ exploratory and exploitative activities, to identify those organisational practices which are associated with effective exploration and effective exploitation. Strong contrasts emerge, with more ‘organic’ practices associated with exploration and more ‘mechanistic’ practices better supporting exploration. We find no evidence, however, that those organisational practices associated with effective exploration have any detrimental effect on exploitation, and vice versa. Our results suggest very different organisational strategies for services firms adopting business models which emphasise exploration, exploitation or both.
Published: 4 December 2017
This research note aims to establish an evidence-based understanding about how fast-growth firm definitions differ and what they mean to policy. Employing the UK business population data over 1998-2013, we compare and contrast several popular fast-growth firm definitions based on their coverage in the business population, the contribution to the aggregate economy and their key characteristics, all discussed in context of the conceptual grounds of these definitions. The key message from our finding is that definition matters. Fast-growth definitions in terms of employment and productivity capture rather different sets of firms, indicating potential conflict in goals. It is possible that polices supporting fast-growth of employment may impair productivity growth, and likewise productivity-driving measures may lead to dwindling employment growth. On the whole, employment-based fast-growth firms generate lots of jobs but have mixed productivity records, while productivity-based fast-growth firms have lower job creation records but show productivity superiority.
Published: 7 September 2017
During the last decade High-Growth Firms (HGFs) – sometimes referred to as ’Scale-Ups’ – have increasingly become an established feature of the UK business policy landscape. Indeed, HGFs are mentioned in the government’s recently published policy document ”Building our Industrial Strategy”, and are now considered sufficiently important that the Minister for Small Business has taken on the role of ”Scale-Up Champion”.
Whilst we know something of the characteristics of these firms – about their age, size, sector and location – we know relatively little about the dynamics of the HGF population as it evolves over time. For the most part attention is focused simply on the annual count which, as we shall see, is not an entirely appropriate measure of HGF activity.
Assessing the business performance effects of receiving publicly-funded science, research and innovation grants.
Published: 6 September 2017
UK Research Councils spend around £1.7bn pa on supporting research. Here, we provide the first comprehensive assessment of these research grants on the performance of UK firms. Using data on funding and partnership from Gateway to Research on all funded projects by the UK Research Councils over the 2004 to 2016 period and business performance data from the Business Structures Database we have applied a difference-in-differences propensity score matching technique to evaluate the performance of UK firms who participated in publicly-funded research projects. Our analysis suggests five key conclusions. First, firms who participated in research projects funded by UK research councils grew their turnover and employment 5.8-6.0 per cent faster in the three years after the project, and 22.5-28.0 per cent faster in the six years after the project, than similar firms which did not receive support. Second, the impact of participating in projects is larger for firms in high-tech manufacturing and knowledge intensive services. Third, we find evidence that the impact of participating in projects is larger for small firms and those with lower starting productivity (turnover per employee). Growth impacts on firms in the top quartile of the productivity (turnover per employee) distribution are small. Fourth, support relevant to businesses is provided largely by EPSRC and Innovate UK. Participation in projects funded by both organisation increases both employment and turnover growth in the short and medium terms with only marginal differences in their impact. Fifth, the effects of grants vary depending on the size of the project. Participating in projects involving small and very large grants have smaller growth effects than medium-sized support packages. Our results have implications for the extent and targeting of future Research Council funding.
Our analysis is subject to a number of caveats. First, data limitations mean that we measure economic impacts using turnover and employment data rather than value added per worker or hour worked. Secondly, at this point we only consider the direct impacts on firms. Spillovers or multiplier effects may significantly enlarge these effects; displacement may reduce them. Both will be considered in a future study. Thirdly, data linking and the timing of some grant awards in recent years mean we are able to consider growth effects for only around two-thirds of firms which participated in publicly funded science and innovation projects.
Published: 13 July 2017
This article uses the first wave of Longitudinal Small Business Survey (SBS, 2015), and investigates the role of owner-management structure in affecting the growth behaviours of small- and medium-sized enterprises (SMEs) in the UK. Specifically, the study compares the growth propensities among family firms managed by the family member(s) only, family firms managed by externally sourced manager(s), and non-family-owned small firms. Based on the change-in-amount perspective (Penrose, 1951), growth is measured using three different indicators, including growth in employment size, growth in turnover, and growth in sales.
Published: 12 July 2017
It is widely known that solo self-employed entrepreneurs enjoy non-pecuniary benefits from their employment status and earn less compared to those employed. They have greater ‘freedom and autonomy’ in running their business and as such they pursue their intrinsic commercial ambitions relying on their experience, abilities and exploiting the available opportunities from their external environment. In this paper we argue that solo self-employed entrepreneurs’ growth ambitions shape their future innovation strategy. We develop a theoretical framework and empirically analyse the relationship and the determinants of innovation and growth intentions using a large sample of UK self-employed entrepreneurs. In doing so we extend the theory of planned behaviour to incorporate the role of entrepreneurs’ past experience in innovation and growth in shaping their corresponding future intentions. Our empirical results suggest that past innovation performance and achieved growth rates shape future entrepreneurial intentions and ambitions through an adaptive learning process given the level of entrepreneurial capabilities and external environment opportunities.
Rural business aspirations, obstacles and support: an analysis of the Longitudinal Small Business Survey 2015.
Published: 22 March 2017
A rural-urban analysis of the UK’s Governments Longitudinal Small Business Survey (LSBS) responses for 2015 has been undertaken to understand spatial variations in performance and uptake of external support services. The analysis is based on 15,500 survey responses from across the UK and uses official rural-urban classifications. Approximately 28 per cent of survey responses to the LSBS are classified as rural. Within the rural context, conclusions relating to growth have previously been hampered by difficulties in separating out whether rural location has a distinctive effect or whether spatial variations in business performance reflects differences in size, sector and age of business. Therefore this analysis used Propensity Score Matching (PSM) to control for these and other profile variables, allowing for an assessment of rural effects on business performance.
Published: 7 March 2017
UK government reports have emphasised the potential role of universities in driving localised economic development. There may be a utility-accessibility trade-off, however, between the accessibility of local university knowledge and its ‘fit’ with the specific needs of local firms. Here, using data from UK Innovation Surveys (UKIS) covering the period 2004 to 2012, we examine this trade-off and how it differs for firms of different sizes. Our analysis suggests four main empirical results. First, we find support for the predicted inverted-U shape relationship between the distance between collaborators and the innovation benefits. Second, we find evidence, in accord with the utility/accessibility trade-off, that local university collaboration benefits only small and medium firms. Third, we find that learning effects from previous collaborations with customers, suppliers etc. increase the probability of collaborative activity. Fourth, we find strong evidence of the persistence of university collaborations. Our results re-affirm the evidence from other studies of the value of university collaboration and suggest the value of policy action to address market failures which arise in the formation of university-small business collaborations.
Does learning from prior collaboration help firms to overcome the “two worlds” paradox in university-business collaboration?
Published: 23 February 2017
There is now substantial evidence on the positive contribution universities can make to helping firms’ innovation. Building university-business collaborations, however, confronts the ‘two-worlds’ paradox, and the difference in institutional logics and priorities between businesses and universities. Here, we consider whether firms’ experience from prior collaboration can generate learning which can help to overcome the two-world’s paradox and improve their ability to generate new-to-the-market innovations in collaboration with universities. Based on panel data for UK companies, we find evidence of significant learning effects in the commercialisation pipeline for new-to-the market innovation. Firms working with, say, customers in one period are significantly more likely to collaborate with universities in subsequent periods.
The relationship between middle market firms’ access to finance and internationalization intentions.
Published: 22 February 2017
This article examines the relationship between middle market firms’ access to finance and their exporting intentions. We hypothesise that this relationship is positive but moderated by a firm’s age. We test our hypotheses using a novel dataset of middle market firms across four large EU economies. Our analysis demonstrates that the relationship between middle market firms’ access to finance and their exporting intentions is different for younger and older firms. When younger firms have ready access to finance they are less likely to enter new geographic markets, while when older firms have ready access to finance they are actually more likely to enter new geographic markets.
Assessing the characteristics, determinants and spatial variations of internationalised new ventures in the UK.
Published: 16 February 2017
This study focuses on internationalised new ventures, here defined as firms that have been trading for 5 years or fewer and which have already engaged in selling their goods and/or services abroad. The report presents analysis of data from the Longitudinal Small Business Survey that: 1) examines differences between internationalised and non-internationalised new ventures, 2) assesses the factors which determine whether a new firm is likely to engage in export activity early in its lifetime; and 3) maps the geographic distribution of these internationalised new ventures across the UK.
The effectiveness of regional, national and EU support for innovation in the UK and Spain. Research Paper No 52
Published: 9 January 2017
Innovation policy aims to stimulate innovation and hence firm-level productivity and growth. Here, we use data from the national innovation panel surveys in the UK and Spain over the 2004 to 2012 period to explore the effectiveness of regional, national and EU innovation support in promoting the extent of innovation activity, its novelty, and market success. Allowing for potential selection effects, our results suggest that regionalised support is most influential in increasing the probability of undertaking both process and organisational innovations. For both the UK and Spain, national innovation support is associated with a higher probability of product or service innovation, and the degree of novelty of product or service innovations. In terms of innovation success (sales) we see a rather different pattern in the UK and Spain. In the UK only regionalised support is associated with increased innovative sales. In Spain, innovative sales are influenced by both regional, national and EU support measures. Our results suggest that moves towards more centralised innovation policy in the UK since 2012 may reinforce a focus on leading edge, novel product and service innovation while placing less emphasis on broadly based process and organizational innovation.
Exploring the success and barriers to SME access to finance and its potential role in achieving growth.
Published: 14 December 2016
Exploring the success and barriers to SME access to finance and its potential role in achieving growth
What are the potential growth impacts of external finance on UK SMEs? Who seeks it, who gets it, and who is discouraged? Drawing on analysis of the 2015 UK Longitudinal Small Business Survey of 15,502 SMEs and interviews with six senior staff from Oxford Innovation who provide finance support to high growth firms, we provide robust contemporary evidence and key policy implications.
Published: 8 December 2016
Persistence in exporting matters, because firms with continuous exposure to export markets derive greater benefit from exporting than do sporadic exporters. Conceptually, however, export persistence is poorly understood, and is typically explained by sunk costs leading to high export exit costs.
Published: 6 December 2016
This paper analyses the characteristics and activities of firms that use crowdfunding, using data from the Longitudinal Small Business Survey (LSBS). Our aim is to better understand the role that crowdfunding plays in the business lending market, and potential implications for policymakers
Published: 2 November 2016
Open innovation provides significant advantages for individual firms and may generate wider social benefits. Positive externalities related to knowledge sharing may result from openness itself, and enhanced levels of innovation may lead to otherwise unachieved innovation spillovers. A number of studies have suggested, however, that average levels of OI activity remain well below the level which maximises innovation outputs. Here, we identify four market failures which arise in the process of OI partnership formation and which may be limiting firms OI engagement. Information failures occur which mean firms are unaware of the benefits of OI, lack information on the capabilities of partners and their trustworthiness. Appropriability issues may also mean that levels of OI remain below the social optimum. We develop policy responses to each market failure linked to the development of an OI intermediary and develop a related logic model.