Innovation, industry and firm age: are there new knowledge production functions?

In this paper we investigate how the knowledge production function is at work in different industrial sectors comparing mature and young companies in Italy. We estimate a two-step model using community innovation survey data. We provide evidence that young firms are particularly effective in translating R&D into product innovation in 'entrepreneurial sectors' (especially in services where it is likely that capital requirements and experience are negligible), while mature companies turn out to be more effective in translating technological acquisitions (TAs) into process innovation in 'routinized sectors' (especially in low-tech manufacturing industries where the main strategy is cost reduction).

The sources of process innovation in user firms

Marcellus Bogers

Previous research has shown that innovation can have various sources and different forms. Innovation can thus be developed by different types of organizations or individuals for several reasons, and it can be related to product or process technologies. One particular stream of research has explored the role of users as a source of innovation. Examples of user innovations can be found in a variety of fields and settings such as mountain biking, snowboarding, open source software, scientific instruments, oil refining, semiconductor manufacturing, and even the World Wide Web. What these innovations have in common is that they were all initially developed by people or organizations that wanted to solve a specific need and benefited from using their innovation rather than selling it. A particular type of user innovator is a "user firm" which develops new or improved production technology for its own internal use. Such process innovation is characterized by determinants and outcomes, which are fundamentally different from for example product innovation. In particular, process innovation may be driven by learning-by-doing, which is a form of problem-solving or experimentation that takes place on the production floor rather than in research and development (R&D). However, the exact drivers and consequences of process innovation in general and learning-by-doing in particular are not yet fully explored. Therefore, the objective of this thesis is to increase the understanding of the antecedents and impact of process innovation in user firms by exploring the role of non-R&D activities and learning-by-doing. This thesis consists of four parts. Each of them addresses a specific aspect related to the sources of process innovation in user firms. The first paper particularly argues that process innovation relies on different learning mechanisms than product innovation. Using data from the Swiss Innovation Survey of the Swiss Institute of Business Cycle Research (KOF) at ETH Zürich, the paper shows which are the external and internal knowledge sources (related to R&D, manufacturing and marketing) that lead to innovation. The second paper further investigates R&D and non-R&D activities as sources of innovation and develops two measures to quantify the magnitude of non-R&D innovation. The results show that a substantial part of the firms develop innovations without R&D and that non-R&D process innovation has a very large impact on the overall cost reductions in the Swiss economy. In order to better understand the sources and attributes of process innovation in user firms, a questionnaire was conducted in a sample of Swiss manufacturing firms. Based on the results, the third paper shows the pervasiveness of major and especially minor process innovation. It also explores the sources of process innovation within the firms and identifies the practices related to the accounting, protection, appropriation, and monitoring of process innovation, which are often of an informal nature. The fourth paper investigates in more detail how such practices drive learning-by-doing and process innovation. The findings firstly show which complementary systems of practices are implemented in user firms to promote the innovative contribution of production floor workers and secondly how these practices drive learning-by-doing for either major or minor process innovation.

EPFL2009

The link between innovation and finance

Cristiano Zazzara

This thesis comprises three essays on the relationship between innovation and finance. Although previous research has acknowledged the multi-faceted nature of innovation, this thesis unpacks its constituent elements, compares alternative drivers of innovation — focusing on the role of financial variables —, and explores when each of these drivers is important relative to the others. Evidence is based on survey data on Italian manufacturing firms over the years 1995-2003. The main contribution of this dissertation is to show how innovation at the firm level varies across different dimensions, documenting several robust empirical regularities, which must be accounted for. The first essay explores the determinants of various characteristics on the propensity to innovate in the Italian manufacturing sector. First, we concentrate on firms characteristics, and include in the study age of firm, size of firm, export shares of revenues and group membership. Second, we examine industry characteristics, such as type of industry in terms of technology level and market concentration. We also test the impact of characteristics of the firm's geographical area, including an indicator of financial development for the firm region. We finally extend our model including financial variables at the firm level in order to evaluate the association between profitability & risk and innovation. The second essay further examines the determinants of innovation, focusing on why firms develop product innovations rather than process innovation, or product and process innovations simultaneously. Empirical studies have highlighted the different impact of product and process innovation on various factors (such as, for example, international competitiveness, the level of employment and the types of skills used, and on the profit rate of firms). However, little is known from either a theoretical or an empirical point of view about the determinants of these different types of innovation. The third essay examines the question of whether access to credit is empirically more difficult for innovative firms than for those undertaking traditional investment projects. The idea that market financing of innovative projects is likely to encounter severe obstacles is not new. Indeed, it dates back at least to Schumpeter's defence of monopoly power since it not only guarantees that innovative firms can internalise the benefits of their innovations, but also provides funding for future innovative projects. Testing this proposition requires information on the innovative content of a given firm and on the limits to borrowing it encounters. Using the above mentioned survey data, we are able to identify credit constrained firms and use this information to make inferences on bank's lending strategies towards firms whose investment projects differ according to expected return and riskiness.

EPFL2008

Innovation persistence and employment dynamics

Gabriele Pellegrino

This paper examines the effect of persistence in product and process innovations on the employment dynamics of a representative sample of Spanish manufacturing firms observed over more than 20 years. We build a conceptual framework that links innovation, its persistence, and different trajectories of employment growth. This framework suggests that firms might show different responses in terms of their employment growth and its persistence depending on the degree of persistence in their product and process innovations. We construct a synthetic indicator of innovation persistence at the firm-level and link this indicator to different employment trajectories. We find that persistence in product innovation affects both employment growth and the sustain ability of job creation over time significantly, whilst persistence in process innovation does not play any relevant role. Also, the positive effect of persistence in product innovation is particularly strong for SMEs. The evidence we provide supports the notion that product innovation is more effective in spurring sustained employment growth when carried out systematically.