Are differing forms of innovation complements or substitutes?

Abstract

Purpose - The purpose of this paper is to provide an empirical analysis of whether differing forms of innovation act as complements or substitutes in Irish firms’ production functions. Design/methodology/approach - The approach adopted by this paper is empirical in nature. Data are obtained for approximately 582 firms from the Irish Community Innovation Survey 2004‐2006. In total, four forms of innovation activity are identified: new to firm product, new to market product, process and organisational innovation. Formal tests for complementarity and substitutability are applied to these types of innovation to assess whether they have a complementary effect on firms’ turnover. Findings - The results suggest that there is a substantial degree of complementarity among different forms of innovation. Out of six possible innovation combinations, three are complementary while none exhibits signs of substitutability. Social implications - From a business perspective, the importance of organisational change to facilitate technological innovation is highlighted, while from a policy perspective the importance of the incentivisation of organisation and process innovation is also highlighted. Originality/value - To date, most research has focused on the impact of various forms of innovation, in isolation, on firms’ productivity. They do not consider whether these forms of innovation may in fact be linked, and that by implementing two or more innovations simultaneously, the combined benefits may be greater than the sum of the parts.

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