Neglected innovators

R&D is not the only method of innovating. Other methods include technology adoption, incremental changes, imitation, and combining existing knowledge in new ways. With the possible exception of technology adoption, all of these methods require creative effort on the part of the firm’s employees and consequently will develop the firm’s in-house innovative capabilities. These capabilities are likely to lead to productivity improvements, improved competitiveness, and to new or improved products and processes that could have wider impacts on the economy. For these reasons, the activities of firms that innovate without performing R&D are of interest to policy.

The report on “Neglected indicators” uses a new data set to explore innovation activities that are not based on R&D. These activities can be used by both innovative firms that perform R&D and by innovative firms that do not perform R&D. The data are from the Innobarometer (IB) 2007 survey, which was partly designed to delve further into innovative activities that are not based on R&D – to look more closely at how ‘neglected innovators’ innovate.

The IB survey is based on a quota survey for all 27 EU member states. Results are available for 4,395 innovative firms, covering innovative activities over 2005 and 2006. Of these, 52.5% innovate without performing R&D (non-R&D innovators), 40.0% perform R&D in-house, and 7.5% contract out R&D to other firms or organizations. The share of non-R&D innovators is similar to the 50% share observed for the third European Community Innovation Survey (CIS) for the three year period of 1998 to 2000.

Compared to firms that perform R&D in-house, a higher percentage of non-R&D innovators have less than 50 employees, are active in low technology service sectors, and are located in European countries with below average innovative performance. However, non-R&D innovators are found in all size categories, countries, and sectors. For example, 10% of non-R&D innovators have over 250 employees and one-third are located in the leading innovative countries of Germany and Scandinavia.

Non-R&D innovators, compared to R&D performers, are more likely to focus on process innovation and to source ideas from within the firm from production engineers and design staff. The higher prevalence of process innovation among non-R&D performers suggests that there are more options for developing process innovations without performing R&D. Non-R&D innovators spend less on innovation than R&D performers. This holds after controlling for the effect of firm size.

For product and process innovations, there is no statistically significant difference between non-R&D innovators and in-house R&D performers in the percentage of firms that report technology adoption with little or no modification in-house or who report modifying products or processes obtained from external sources. In all cases, approximately one-third of non-R&D innovators and firms that perform R&D use these two methods.

The main difference is in the percentage of innovative firms that develop products, processes, or organizational methods in-house or in collaboration with other external sources. Twice as many firms that perform R&D in-house collaborate on product or process innovations compared to non-R&D innovators (44% versus 22% for product innovations). However, non-R&D innovators are relatively more dependent than R&D performing firms on the diffusion of knowledge from other firms, particularly through knowledge embodied in acquired products and processes.
An important method of innovating without performing R&D (used equally by non-R&D and R&D performing innovative firms) is to customize or modify products and processes obtained from other firms. The information sources used by both groups for this type of innovative activity are similar, except that a higher percentage of R&D performers draw on the use of external experts such as consultants or universities.

In general, non-R&D innovators have lower innovative capabilities (i.e. abilities to develop more novel innovations) than R&D performing firms, with fewer non-R&D innovators capable of developing innovations in-house and a smaller percent reporting training or skill upgrading linked to innovation. However, a striking result is that these differences are minor: 71% of non-R&D innovators report developing either product or process innovations in-house (compared to 91% of R&D performers), 54% of staff time on innovation is for developing product and process innovations in-house (compared to 63% for R&D performers) and 70% report training or skills upgrading for innovation (compared to 79% of R&D performers).

The results show that a majority of non-R&D innovators invest in creative innovative activities. Many of these firms should therefore be able to benefit from policy support for their innovative activities. However, policy appears to fail this group of ‘neglected’ innovators. Only 33% of non-R&D innovators report using at least one of six types of innovation support programmes, that do not require R&D compared to 47% of R&D performers. These differences hold after controlling for the innovative capabilities of non-R&D and R&D innovators. In particular, firms that innovate primarily through customizing or modifying products or processes are significantly less likely than firms that develop innovations in-house to apply for or use innovation support programmes.