The interrelationship between R&D, Innovation and Productivity: Evidence for micro-enterprises

Published: 14 July 2020

In light of concerns about persistently weak productivity levels in UK firms, this study focuses on the relationship between investment in R&D and innovation activity and how this relates to business growth and productivity. The context for our investigation is micro-enterprises, i.e. employing up to 9 employees. These enterprises dominate the business landscape and in Northern Ireland account for almost 20 per cent of the workforce while also playing an important development role in the economy.
Drawing on survey data of nearly 10,000 micro-enterprises in 3 countries: the UK, Ireland and the US, our analysis emphasises the importance of R&D – an investment activity that is often considered not suitable for small enterprises - in supporting the relationship between innovation and productivity.
Some of our main findings include:
• Despite resource and capability constraints within micro-enterprises, that curtail their ability to undertake R&D, we find that investing in R&D has a strong and positive effect on enhancing the contribution of innovation to productivity and turnover growth. This result is consistent throughout all of our estimations, even though the actual effect might be varied across different types of industry.
• In order to explain the importance of R&D investment, we also estimate the innovation function with two innovation outcomes: product and process innovation. Our results indicate that investing in R&D activity is important not only for product/service innovation, but also for process innovation.
• R&D investment undertaken inside the enterprise is positively associated with both product innovation and process innovation, however R&D acquired externally has no significant relationship with product innovation but is positively related to process innovation.
• In line with previous studies, we identify a significantly lower level of productivity for Northern Ireland micro-enterprises.

Productivity in the ICT sector in Northern Ireland: A Pilot Study

Published: 14 July 2020

The Department for the Economy (DfE) commissioned Queen’s Management School (QMS) to undertake a pilot research project to measure productivity levels in the Northern Ireland Information and Communication Technology (ICT) sector. The aim of the project was to assess the viability of utilising micro-business data to measure and track productivity in priority sectors. As a priority sector for the Department for the Economy, this pilot study seeks to use the Northern Ireland Annual Business Inquiry (ABI) to investigate productivity in the ICT sector, analysing levels by type and size of firm. The aim is to delve beneath the aggregate level to understand the distribution of productivity across the sector and identify whether productivity levels are correlated with other business activities. The research will help to provide a deeper understanding of productivity drivers in this specific sector and identify areas for potential intervention.

Pathways to efficiency, pathways to growth: Evidence from the UK Innovation Survey

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?

Associated Themes

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  Innovation
• 
  Productivity and performance

Pathways to efficiency, pathways to growth: Evidence from the UK Innovation Survey. Research Paper No. 83

Published: 11 February 2020

Previous studies have suggested there is little correlation between efficiency – measured by sales per employee - and growth at firm level. Here, using data from successive waves of the UK innovation survey we consider two questions.
- Do different types of innovation have different effects on efficiency and growth?
- We consider whether the source of firms’ R&D finance matters.
Together our results suggest the importance of aligning innovation investments with broader corporate and policy objectives and the potential value of policy support for process innovation to achieve positive growth and efficiency outcomes.

Associated Themes

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  Innovation
• 
  Productivity and performance

Understanding micro-businesses in Northern Ireland

Published: 12 November 2018

Drawing on new survey data this report provides a profile of micro-businesses with 1-9 employees in Northern Ireland in comparison to UK regional, Irish and US benchmarks. The report provides the first evidence on levels of business ambition, resilience and digital adoption for this group of firms. The Micro-business Britain Survey covered 6,200 firms in the UK - 495 in Northern Ireland – 1,500 companies in Ireland and 2,000 in the US.

Associated Themes

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  Business Growth
• 
  Management and Leadership
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  Productivity and performance

NI Local Growth Dashboard

Published: 12 November 2018

The Northern Ireland Local Growth Dashboard has been developed by Queen's University and the Enterprise Research Centro ( ERC ) and provides comparative statistics to the Local Enterprise Partnership ( LEP). Growth Dashboard first launched in June 2014 and Its purpose is to present a set of growth metrics for start-ups and existing Local firms across a range of sub-national geographies in NI with a specific focus on each of the 11 Local Government District ( District Council) areas. Alongside these metrics it includes contextual data for each, including comparisons to the wider UK geographies.

Data Sheet available at : http://www.enterpriseresearch.ac.uk/wp-content/uploads/2018/11/NI-Dashboard-Statistics_final-for-upload.xlsx

Associated Themes

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  Business Growth

Accessibility, utility and learning effects in university-business collaboration. Research Paper No 57.

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.

Associated Themes

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  Innovation

Accessibility, utility and learning effects in university-business collaboration.

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.

Associated Themes

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  Innovation

Does learning from prior collaboration help firms to overcome the “two worlds” paradox in university-business collaboration? Research Paper No 55

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. Further down the pipeline, collaborating with universities increases the probability of a firm making new-to-the-market innovations (as opposed to new-to-the-firm innovation) by 21-24 per cent regardless of firm size. The commercial benefits of collaborative, new-to-the-market innovation are concentrated in medium and larger firms with no significant effect for small companies. There is the potential for policy intervention both to increase levels of small business-university collaboration and assist smaller firms to maximise the commercial benefits of collaborative, new-to-the-market innovations.

Associated Themes

• 
  Innovation

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.

Associated Themes

• 
  Innovation

Market failures in open innovation: implications and policy responses. Research Paper No 49

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.

Associated Themes

• 
  Innovation

Market failures in open innovation: implications and policy responses.

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.

Associated Themes

• 
  Innovation

The legacy of public subsidies for innovation: input, output and behavioural additionality effects. Research Paper No 21

Published: 26 February 2016

In many countries significant amounts of public funding are devoted to supporting private firms’ R&D and innovation projects through subsidies or grants, loans, and other instruments such as loan guarantees or R&D tax credits. Our interest here is in exploring the mechanisms through which these positive effects occur and in evaluating the legacy effects of public subsidies for private innovation.

Associated Themes

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  Innovation

The marketization of higher education: A causal analysis of innovation in UK universities . Research Paper No 39

Published: 25 February 2016

Higher education is increasingly a marketised service sharing many characteristics with other professional services such as legal, medical or financial services. With marketization comes competition, and the need for HEIs to develop and maintain attractive undergraduate programmes to attract and retain strong faculty and fee-paying students. Here, we consider the drivers of programme innovation – the introduction of new programmes – and the withdrawal of existing programmes in UK universities. Using panel data for all UK universities provided by UCAS we identify significant resource, internationalisation and business engagement effects. Financial stringency encourages both programme innovation and withdrawal. More extensive international market engagement and research collaboration with business have similar effects increasing programme innovation. The results have both strategic and systemic implications.

Associated Themes

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  Innovation

Investigating Schumpeter’s creative army: what drives new-to-the-market innovation in micro-enterprises? Research paper 36

Published: 28 September 2015

Schumpeterian arguments related to creative destruction place small, entrepreneurial firms at the centre of the innovation process. The exclusion of micro-enterprises (with less than 10 employees) from most innovation surveys means, however, that we know relatively little about innovation among this group of firms. Here, using new survey data on a thousand micro-enterprises we explore the determinants of new-to-the-market innovation, the basis for the Schumpeterian creative destruction (CD) process. Our results provide strong support for the interactive nature of micro-enterprise innovation and suggest the potential value of developing a model of interactive creative destruction (ICD). Our results also suggest that family-owned firms are more likely to introduce new-to-the-market innovations and therefore play an important role in the ICD process. In organisational terms, our analysis emphasises the range of technical and co-ordination capabilities required by micro-enterprises to innovate successfully. Policy implications relate to promoting awareness among micro-firms of the support available for innovation to reduce the impact of financial and risk constraints.

Associated Themes

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  Innovation

Profiling UK university spin-outs. Research Paper No 35

Published: 23 July 2015

This report presents the results of a comprehensive survey of UK university spin-out businesses.
In an effort to enhance our understanding of this sector, a database of 1044 active USOs was compiled from individual university records and internet searches, and matched to a published list of UK university spin-outs.Telephone interviews were conducted with USOs and a final sample of 350 was achieved. Non-response bias was tested for and weights were constructed to ensure that the findings were representative of the UK population of USOs.

Associated Themes

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  Entrepreneurship
• 
  Innovation