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INNOVATION SURVEYS: A PROPOSAL FOR COMPLEMENTARY INDICATORS AT THE FIRM-LEVEL Andrea Moreira Torres Brazilian Institute of Geography and Statistics (IBGE), Brazil [email protected] Carlos Augusto Caldas de Moraes Candido Mendes University, Economics and Management MSc. Program, Brazil [email protected] Maria Fatima Ludovico de Almeida Pontifical Catholic University of Rio de Janeiro, PósMQI, Brazil [email protected] Abstract Academic institutions, governmental agencies, independent organizations, and consulting firms have given continuous and growing attention to the data gathering, analysis, and dissemination of information on the innovative capacity of firms. Increasing the empirical knowledge about the innovative capacity of firms and its determinants can lead to more effective public policies aiming to enhance R&D intensity, innovation performance, and the use of new technologies and business models. In recent years, several studies have attempted to overcome the need to measure innovative capability, highlighting processes, and practices involved in it instead of resources (inputs) or new products or processes (outputs). From this perspective, the objective of this paper is to propose complementary indicators for the existing innovation surveys, focusing on the nature and relevance of innovation management activities at the firm-level rather than estimating R&D and innovation productivity (input versus output). The research methodology encompasses: (i) literature review on measurement of innovation (macro and firm-level); (ii) documentary review covering normative references and existing innovation surveys at national and regional levels; (iii) selection and clustering of innovation indicators at micro-level; (iv) development of a categorized analytical grid and its correspondence to existing indicators used in surveys such as the Community Innovation Survey (CIS); and the Brazilian Innovation Survey (PINTEC); and (v) discussion of main results and formulation of conclusions and recommendations. In addition to providing a rationale that could be a reference for future studies on this subject, we propose five relevant categories of innovation indicators at the firm-level that are not included in the mentioned surveys. Keywords: innovation indicators, innovation surveys, firm-level innovation indicators, organizational innovation. Introduction Measuring innovation management activities at the firm-level is a difficult task in function of the complexity of the processes and the effort needed to define the variables to be measured. Innovation management in firms is a transversal function, having a multi-criteria dimension International Association for Management of Technology IAMOT 2016 Conference Proceedings 1732

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INNOVATION SURVEYS: A PROPOSAL FOR COMPLEMENTARY INDICATORS

AT THE FIRM-LEVEL

Andrea Moreira Torres

Brazilian Institute of Geography and Statistics (IBGE), Brazil

[email protected]

Carlos Augusto Caldas de Moraes

Candido Mendes University, Economics and Management MSc. Program, Brazil

[email protected]

Maria Fatima Ludovico de Almeida

Pontifical Catholic University of Rio de Janeiro, PósMQI, Brazil

[email protected]

Abstract

Academic institutions, governmental agencies, independent organizations, and consulting

firms have given continuous and growing attention to the data gathering, analysis, and

dissemination of information on the innovative capacity of firms. Increasing the empirical

knowledge about the innovative capacity of firms and its determinants can lead to more

effective public policies aiming to enhance R&D intensity, innovation performance, and the

use of new technologies and business models. In recent years, several studies have attempted

to overcome the need to measure innovative capability, highlighting processes, and practices

involved in it instead of resources (inputs) or new products or processes (outputs). From this

perspective, the objective of this paper is to propose complementary indicators for the existing

innovation surveys, focusing on the nature and relevance of innovation management activities

at the firm-level rather than estimating R&D and innovation productivity (input versus output).

The research methodology encompasses: (i) literature review on measurement of innovation

(macro and firm-level); (ii) documentary review covering normative references and existing

innovation surveys at national and regional levels; (iii) selection and clustering of innovation

indicators at micro-level; (iv) development of a categorized analytical grid and its

correspondence to existing indicators used in surveys such as the Community Innovation

Survey (CIS); and the Brazilian Innovation Survey (PINTEC); and (v) discussion of main

results and formulation of conclusions and recommendations. In addition to providing a

rationale that could be a reference for future studies on this subject, we propose five relevant

categories of innovation indicators at the firm-level that are not included in the mentioned

surveys.

Keywords: innovation indicators, innovation surveys, firm-level innovation indicators,

organizational innovation.

Introduction

Measuring innovation management activities at the firm-level is a difficult task in function of

the complexity of the processes and the effort needed to define the variables to be measured.

Innovation management in firms is a transversal function, having a multi-criteria dimension

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(Chiesa, Coughlan, and Voss, 1996; Crossan and Apaydin, 2010; Doroodian et al., 2014; Boly

et al., 2014).

In recent years, several academic studies have attempted to overcome the challenge to measure

innovative capability at the firm-level, focusing on processes and practices instead of resources

(inputs) or new products or processes (outputs) (Arundel and Hollanders, 2006; Armbruster et

al., 2008; Chiesa et al., 2008; Yam et al., 2004; Guan et al., 2006; Koc and Ceylan, 2007; Wang

et al., 2008; Boly et al., 2014, Doroodian et al., 2014).

In fact, academic institutions, governmental agencies, independent organizations, and

consultancies have given continuous and growing attention to the data gathering, analysis, and

dissemination of information on the innovative capacity of firms. For instance, the

Organization for Economic Co-operation and Development (OECD) analyzes and

disseminates the innovation survey results in 27 member countries of Europe and other

continents. Besides OECD, several institutes such as NESTA (UK), CGEE (Brazil) and

EUROSTAT (European Community) and also consulting firms (e.g. Boston Consulting Group,

McKinsey, and Booz&Co/PWC) have adopted frameworks that focus on processes and

innovation management practices or innovative capacity rather than R&D and innovation

productivity (resources versus creating innovative new products and processes).

According to OECD (2009, p. 3):

“Improving our knowledge of firms’ innovative behavior and its determinants is crucial

for designing effective innovation policies. Data collected through innovation surveys

have been increasingly used to explore a number of questions regarding the determinants,

the effects and some of the characteristics of innovation. Nonetheless, with few

exceptions, almost all such studies have been conducted at the level of individual

countries. Reasons for not exploiting firm-level data at the international level are mainly

legal: access to innovation survey data, as for microdata in general, is restricted by laws

that protect confidentiality and secrecy in all countries. As a consequence, microdata

from different countries cannot be pooled, and because different models and

methodologies are used, the results are usually not comparable across countries”.

This article presents an analytical grid based on previous frameworks suggested in academic

articles and reference documents, such Oslo Manual (OECD, 2005), and some alternative

frameworks reported by government statistical institutes and other organizations, including

consulting firms. We analyze the indicators proposed in these frameworks, in order to verify

how the Brazilian Innovation Survey (PINTEC) collects and disseminates data on innovation

management and what new indicators could complement the existing information concerning

innovation dynamics in Brazilian firms.

Aiming at the identification and evaluation of the practices that decision-makers should deploy

in order to improve their innovative capacity, we propose five relevant categories of innovation

indicators at the firm-level that are not included in the mentioned surveys.

This article is structured as follows: in section 2, a literature review and content analysis of

reference documents are realized in relation to innovation measurement from the perspective

of building the analytical grid based on the multi-dimensional approach by Crossan and

Apaydin (2009). Section 3 explains the methodology used to propose complementary

indicators for the existing innovation surveys, focusing on the nature and relevance of

innovation management activities at the firm-level. Section 4 presents and discuss the main

results. Finally, section 5 exposes the conclusions and implications of the results.

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Theoretical Background for Building the Analytical Grid

The literature review and content analysis of reference documents on innovation measurement

showed two main approaches: the first refers to a macro perspective, which has been adopted

in innovation surveys applied at national or regional level (CIS and PINTEC, for example).

The second focuses on the measurement of innovative capacity at the micro level (firm-level)

and has been practiced by several organizations such as NESTA (UK) and EUROSTAT

(European Community) and also by consulting firms (e.g., BCG, McKinsey, and

Booz&Co/PWC).

As mentioned before, the development of the analytical grid was based on the multi-

dimensional framework of organizational innovation proposed by Crossan and Apaydin

(2009). As shown in Figure 1, the dimensions included in the analytical grid were: innovation

as a process and as an outcome; leadership, managerial levers, and business processes as

determinants. In order to complement the determinants proposed by Crossan and Apaydin

(2009), we include the variable “cooperation and partnership” present in texts by ASTRA

(2007), Armbruster et al. (2009), BCG (2007; 2008; 2009), OECD (2005; 2010), NESTA

(2008; 2009), and PINTEC (Brasil. IBGE, 2012).

Figure 1: Determinants and dimensions of innovation at the firm-level

Source: Based on Crossan and Apaydim (2009).

In order to verify the adherence of the existing frameworks to the Crossan and Apaydin (2009)

proposal, a matrix of frameworks was developed for further examination of their distribution

according to the innovation dimensions and determinants that are shown in Figure 1. Due to

space limitations, it will not be possible to include here the resulting matrix. However, this

edited matrix can be found in the Master’s thesis that is the basis for this paper (Torres, 2015).

Methodology

This research can be considered descriptive and its development comprised three main phases:

(i) conceptual; (ii) applied; and (iii) conclusive.

The conceptual phase encompassed literature review on the measurement of innovation (macro

and firm-level) and a documentary review covering normative references and existing

innovation surveys at the national and regional levels. The literature survey covered a number

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of sources for peer-reviewed scientific articles, such as Web of Science; Scopus; and Science

Direct; and also the Internet, using the search engine Google Scholar.

The applied phase was developed according to the following steps: (i) selection and clustering

of innovation indicators at micro-level; (ii) development of a categorized analytical grid and

its correspondence to existing indicators used in national and regional innovation surveys, and

also innovative capabilities assessment tools developed by consulting firms and other

institutions such as NESTA (UK) and CGEE (Brazil); and (iii) proposition of five relevant

categories of innovation indicators at the firm-level that are not included in the existing national

or regional innovation surveys.

Finally, the conclusive phase was dedicated to the formulation of conclusions and

recommendations.

Results and Discussion

In addition to providing a rationale that could be a reference for future studies on this subject,

we propose five relevant categories of innovation indicators at the firm-level that are not

included in the existing national or regional innovation surveys.

The results here presented refer to the analysis and classification of indicators from PINTEC

2011 (Brasil. IBGE, 2012), from CIS 2010 (European Commission, 2010), and from other

documents referred to in section 2, and includes suggestions for complementary indicators to

be considered for national and regional surveys (when applicable). Again, due to space

limitations, it will not be possible to include the resulting tables. These edited tables can be

found in the Master’s Thesis that is the basis for this paper (Torres, 2015).

Salazar and Holbrook (2004) criticize the focus given by the national and regional innovation

surveys that use the Oslo Manual (OECD, 2005) as a reference, concerning the characterization

as non-innovators those firms that were developing new products and processes, but that had

not brought them to the market as innovation. These authors mention the Bogota Manual as an

alternative reference, which characterizes firms as (i) innovators; (ii) potential innovators; and

(iii) non-innovators.

Suggestion directed at answering the criticism by Salazar and Holbrook (2004) is the inclusion

in the innovation surveys of the option “in development, with introduction planned for [year of

the introduction]” in Questions 10 and 11 of the questionnaire. This way, “potential innovators”

firms in products/services could be accounted for.

Concerning the first category – process or product innovation - we propose the following

indicators at firm-level to complement existing national and regional innovation surveys:

Concerning the first category - product innovation - we propose the following indicators at

firm-level to complement existing national and regional innovation surveys:

(i) Quantity of firms that are carrying out innovation activities with estimated introduction

date in up to 1, 3 and 5 years, according to CNAE 2.0 (National Classification for

Economic Activities) which is equivalent to the international NACE);

(ii) Quantity of firms that are carrying out innovation activities and have introduced

innovations in the period considered in the survey, according to CNAE 2.0 (National

Classification for Economic Activities) or according to firm size;

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(iii) Quantity of firms that are carrying out innovation activities but have not introduced

innovations in the period considered in the survey, according to CNAE 2.0 (National

Classification for Economic Activities) or according to firm size.

In the CIS 2010 questionnaire, that follows the Oslo Manual (OECD, 2005), the questions about

organizational innovation are positioned apart from the marketing innovation questions. Also,

going beyond the questions in PINTEC 2011, CIS 2010 evaluates the degree of importance (from

high to no relevance) that the introduced organizational innovations had for each one of the listed

firm objectives. These objectives are:

(i) Reduce the response time to fulfill the needs of consumers or suppliers;

(ii) Improve the ability to develop new products and processes;

(iii) Improve the quality of the firm products and services;

(iv) Reduce the cost per unit of production;

(v) Improve the communication or sharing of information, within the firm or with other firms

and institutions.

According to ISI (2008), the outcomes from organizational innovation are difficult to define and

measure, and could potentially be added to those listed in the corresponding organizational

innovation section of the CIS 2010, as follows:

(i) Increase in productivity;

(ii) Improvement in the professional life ‘balance’;

(iii) The increase in work autonomy/personnel motivation/satisfaction.

CIS 2010 also includes a question related to the degree of importance that marketing innovations

had for each of the listed objectives:

(i) Increase or maintain market share;

(ii) Introduce products to new groups of customers;

(iii) Introduce products to new geographic markets.

Pereira and Romero (2012) compared the approaches used in existing CIS surveys to measure

organizational innovation and identified four main implications:

(i) Organizational innovation lifecycle: it is not sufficient to question about the introduction of

organizational innovation over a very limited period (in general, in the last three years)

because it is vital to determine the proportion of firms that implemented organizational

innovations.

(ii) Complexity of the organizational innovation: they stress that it is important not only to

question about organizational innovation in general, but it is necessary to include specific

questions about the different types of organizational innovation, as these different

organizational innovations have distinct effects on the performance indicators;

(iii) Quality of the organizational innovation;

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(iv) The level of utilization of the organizational innovations: to identify the degree in which

organizational innovations have been implemented in the business processes, as it is not

enough to the only question about the effective use of the organizational innovations.

Focusing on the second category – organizational and marketing innovation - we propose the

following indicators at the firm-level to complement existing national and regional innovation

surveys:

(i) Quantity of organizational innovations that have been implemented by firms in the last three, five and ten years, on average, by firm size;

(ii) Quantity of marketing innovations that have been implemented by firms in the last three years, on average, by firm size;

(iii) Quantity of firms that have implemented organizational innovation activities in the last

three, five and ten years, on average, by organizational innovation activity;

(iv) Quantity of firms that have implemented marketing innovation activities in the last three,

five and ten years, on average, by marketing innovation activity;

(v) Quantity of firms that have implemented organizational innovation activities and product

innovation activities, by sector or by firm size;

(vi) Quantity of firms that have implemented organizational innovation activities and process

innovation activities, by sector or by firm size;

(vii) Quantity of firms that have implemented marketing innovation activities and product

innovation activities, by sector or by firm size;

(viii) Quantity of firms that have implemented marketing innovation activities and

process innovation activities, by sector or by firm size;

(ix) Most important objectives of the firms that have implemented organizational innovation

activities;

(x) Most important objectives of the firms that have implemented marketing innovation

activities.

The indicator “innovation is one of the strategic priorities of the firm” is discussed in the research

reports developed by the consulting companies Boston Consulting Group (BCG, 2007; 2008; 2009)

and McKinsey (2009). In BCG’s surveys, the company asks the position occupied by innovation

among the firm’s strategic priorities and also analyzes the information and states if these firms

consider, or not, innovation among the three or ten first priorities. Following this, BCG

complements the analysis with information on expenditures, return, and satisfaction resulting from

the innovation implemented.

Particularly, in the McKinsey (2010) research, there is a question about the importance of

innovation as a growth strategy that asks the firm to select the priority that better describes its

option.

Regarding the third category – innovation as a strategic priority - we propose the following

indicators at firm-level to complement existing national and regional innovation surveys:

(i) Quantity of firms that have positioned innovation as the first strategic priority; or

among the first three strategic priorities; or, among the first ten strategic priorities, by

sector or firm size;

(ii) Among the firms that have positioned innovation as the first, the third or the tenth first

strategic priorities, the quantity of firms that indicated that they have strategic priorities

well defined or aligned with the firms’ strategy

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(iii) Percentage of firms that are satisfied with the level of expenditures related to

innovation, and that have positioned innovation among the first three or ten strategic

priorities; Percentage of firms that are satisfied with the level of financial return

related to innovation, and that have positioned innovation among the first three or ten

strategic priorities.

The Alliance for Science & Technology Research in America – Astra (2007) emphasizes that

the measurement of innovative activities in firms is crucial to understanding what really

characterizes the leadership position in innovation of the leading firms. To BCG (2007b), most

firms use a small number of metrics that could translate into imprecise information, lost

expenditures and even low return from the investment in innovation.

In BGC (2007), BGC (2008) and BCG (2009) reports, the so-called Cash Curve is presented

as one of the ways to think about what is needed, or not, to be measured by firms. The Cash

Curve highlights four factors that affect the success of innovation and the firms’ ability to

generate economic returns. BCG (2007) suggests that the ideal number of metrics, across all

elements in the innovation pipeline, could be between eight to twelve metrics. On the other

hand, in the McKinsey (2008) report, the respondents use, on average, eight metrics.

Based on BCG and McKinsey assessment tools, we propose the following indicators associated

with the use of innovation metrics by the firms – the fourth category - to complement existing

national and regional innovation surveys:

(i) Average quantity of innovation metrics used by the total of firms, or by type of

innovation (product, process, organizational, marketing, product and marketing, process

and organizational, etc.);

(ii) Ranking of the innovation metrics most used by the total of firms, or by type of

innovation (product, process, organizational, marketing, product and marketing, process

and organizational, etc.);

(iii) Firms’ satisfaction with the metrics they have used, by firm size or by the number of

metrics used.

According to Astra (2007), all countries that aim to be at the forefront of the technology are

debating how the so-called brain drain, and are increasingly trying to measure the outflow and

inflow of talented people, be it for education, work, startups, or as permanent residents in the

country. This “brain circulation" may reflect the relative attractiveness of the national

innovation systems and also other considerations, such as lifestyle, quality of life, immigration

laws, freedom to associate, etc.

In the OECD (2010) report, the authors state that mobility, particularly, the international

mobility, of qualified human resources plays a relevant role in innovation, contributing to the

creation and diffusion of knowledge, in particular, tacit knowledge, that is more effective when

shared in a common social and geographic context.

The NESTA report presents some indicators based on the professional skills that can also be

useful for verifying the country situation as related to the supply/demand in the workforce,

such as proportion of the population with a tertiary degree; percentage of highly qualified

people in the market; human resources in S&T; intensity of R&D in industries, adaptability of

the workforce; employees with ICT expertise; availability and use of training; among others

(NESTA, 2009).

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The CIS 2010 questionnaire requires information on: (i) the origin of talented people in the various

areas; (ii) if they are from the firm itself; and (iii) if they come from external sources (consultants,

freelancers, independent firms, or from other parts of the organization). It also asks about the use,

in the teams, of some methods that could stimulate new ideas and creativity (European

Commission, 2010).

Regarding the fifth category – supply/demand/migration of talent - we propose the following

indicators at the firm-level to complement existing national and regional innovation surveys:

(i) Quantity of people (total and foreigners) allocated to innovative activities, by level of

qualification according to the size of the firm;

(ii) Quantity of people hired to work in innovative activities, from local or foreign sources, by

the level of qualification according to the size of the firm.

Final Remarks

This study is aligned with the international research carried out in the field of firm innovation

activities or innovative capacity assessment, which is looking for success conditions within

innovation process management at the firm-level (Arundel and Hollanders, 2006; Armbruster

et al., 2008; Chiesa et al., 2008; Yam et al., 2004; Guan et al., 2006; Koc and Ceylan, 2007;

Wang et al., 2008; Boly et al., 2014). From this perspective, we selected and classified the

existing indicators currently used in national or regional innovation surveys (such as CIS and

the Brazilian Innovation Survey - PINTEC) according to the main categories of an analytical

grid developed for this purpose. A focused approach on the nature and the relevance of

innovation management activities rather than on estimating action productivity (input versus

output) was employed. As the main results of this article, we provide a framework for

innovation measurement at the firm-level and propose a set of alternative innovation indicators

to complement data collection in the existing national or regional innovation surveys.

Essentially, the conclusion of this research is that certain classes of innovation indicators (at

firm-level) need to be more detailed, or do not even exist in national innovation surveys, in

general, and in particular, in the Brazilian Innovation Survey - PINTEC.

Finally, we suggest that the resulting framework of this study can be used as a supplement to

PINTEC or a new research at the national level to be carried out jointly with the Brazilian

Statistical Office (IBGE), the federal organism responsible for developing and publishing

PINTEC. It was also found that the inclusion of the new indicators, presented in this article,

within the current PINTEC questionnaire could increase the complexity of the instrument and

the average time spent on filling out the questionnaire.

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