The Innovation Value Chain

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The Innovation Value Chain   Stephen Roper, Jun
Du and Jim Love Economics and Strategy
Group Aston Business School Supported by ESRC
under award RES-000-22-0729
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The Innovation Value Chain

• The recursive process through which firms
• source the knowledge they need to undertake
  innovation
• transform this knowledge into new products and
  processes
• exploit their innovations to generate added
  value and growth
• We estimate this process using a large sample of
  Irish manufacturing plants.

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Innovation Value Chain
The Innovation Value Chain
Public policy

• Knowledge Sourcing
• Internal RD
• Forward links
• Backward links
• Horizontal links
• Public K links

• Knowledge Exploitation
• (Firm Performance)
• Value added
• Sales growth
• Empl. growth

• Knowledge Transformation
• (Innovation Outputs)
• Product innovation
• Process innovation

Market Position, Absorptive Capacity and
Resource Base Factors
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Previous Research
Crépon, B., Duguet, E., and J. Mairesse (1998)
Research, Innovation and Productivity An
econometric analysis at the firm level,
Economics of Innovation and New Technology, 7,
115-158. Lööf, H. and A. Heshmati (2002),
Knowledge capital and performance heterogeneity
A firm level innovation study, International
Journal of Production Economics, 76, 61-85.

• Mainly concerned with issues of estimation
  procedure
• Only RD as knowledge input
• Very limited set of moderating variables

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Data

• Irish Innovation Panel (IIP)
• Provides information on the innovation,
  technology adoption, networking and performance
  of manufacturing plants throughout Ireland and
  Northern Ireland over the period 1991-2002
• 4 waves, 3600 observations (i.e. 4x900) 1991-02
• Each survey covers the innovation activities of
  manufacturing plants with 10 or more employees
  over a three year period
• Average survey response rate of 34.5 per cent
• Present study uses 2nd, 3rd and 4th waves

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Descriptive Statistics
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Model Estimation
3-equation recursive system
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Knowledge Sourcing Equation
j,k1,5
if
otherwise

KS 0/1 indicators for each of 5 knowledge
sources RI Resource indicators (employment, age,
k-intensity, part of group etc) ACAP Absorptive
capacity (workforce qualification, formal RD
dept in plant) GOVT Support for innovation,
capital spend, training etc (0/1 indicators) MKT
market environment (NI plant, strength of
regulatory requirements)
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Knowledge Transformation Equation

• Iit - Product innovation (0/1 indicator and of
  new products in sales)
• - Process innovation (0/1 indicator)
• Estimated using probit or tobit as appropriate
• Estimation issue
• Sample selection bias arising from
• self-selection among innovators
• bias in the sample of firms

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Knowledge Exploitation Equation

• BPERF Labour productivity sales growth
  employment growth
• X broadly resource indicators and absorptive
  capacity as before
• Estimation Issues
• heterogeneity in performance outcomes
• potential endogeneity of the innovation output
  measures

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Links between firms knowledge sourcing
activities
Note The figures in the chart are marginal
probabilities estimated in knowledge sourcing
equations
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The Innovation Value Chain 1
-0.302
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The Innovation Value Chain 2
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Key Findings

• Knowledge Inputs
• The Innovation value chain shows the direct and
  indirect effect of knowledge inputs e.g.
• Internal RD and backward linkages have positive
  direct effects on product and process innovation,
  as well as positive complementary effects on
  other k-sourcing activity
• Effect of public RD is indirect strongly
  positive complementary effect on other k-sourcing
  activity, but no direct effect on innovation (in
  this time period).

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Key Findings (contd.)

• Role of Human Resources (Absorptive capacity)
• Influences value chain in three ways (all
  positive)
• enables internal RD
• contributes positively to product and process
  innovation
• direct positive effect on productivity and
  growth
• The Innovation Value Chain allows these three
  influences to be separately identified

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Tentative Policy Implications

• The role of public RD as a long-term knowledge
  generator massive increase in research capacity
  in Ireland and Northern Ireland since 2000.
• Emphasises important indirect and complementary
  role of external knowledge linkages in promoting
  innovation - possible link to public policy
  intervention (c.f. recent work on Scottish
  Innovation System)
• - much of innovation policy emphasises the
  knowledge transformation part of the chain

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