Executive Summary
Much evidence exists regarding the strategies, practices & characteristics that make firms successful. Previous microeconometric research within the New Zealand Ministry of Economic Development (MED) has examined the practices of New Zealand firms, focussing on those behaviours that have the strongest impact on firm performance (Fabling & Grimes, forthcoming). While traditional science & technology indicators (STIs) were found to be good signals of firm success, so too were activities underlying "non-technological" innovation, such as investments in market development or organisational improvement. At the economy-wide level, STIs generally provide a mixed message on the innovative capacity of New Zealand businesses.
In 2006, Statistics New Zealand produced aggregate measures of product, process, organisational & marketing innovation (following the guidelines of the recently-revised Oslo manual). Uniquely, this innovation data has been collected in conjunction with a broader set of qualitative measures of general business practices. Further, for a sub-sample of almost 1300 respondents, consistently measured business practice data is also available from 2001.
We use this dataset to investigate how broader innovation measurement changes our understanding of what an innovative New Zealand firm looks like. We compare and contrast different innovation measures within the 2005 Business Operations Survey cross-section and then, using panel data, we ask how innovation activities and general management practices relate to future innovation outcomes.
Using the BOS 2005 cross-section, we find that innovation outcomes are associated with inward direct investment and is more likely to be associated with product and operational process innovation than organisational management. Subsidiary firms are significantly less likely to be innovative, perhaps explained by a division of responsibilities within the business group.
Because of issues of causality and the importance of considering lags between practices and outcomes, we consider the impact of business practices in 2001 to innovation outcomes in 2005 by linking the Business Practices Survey and Business Operations Surveys. Few innovation activities are found to be significantly linked to positive innovation outcomes four years on. Conducting in-house R&D and engagement with universities are positively associated with future innovation, whereas in the cross-sectional analysis they were not. These results are consistent with concerns that the returns to R&D accrue with a lag and may be missed with contemporaneous analyses. An initial endowment of management practices in 2001 is good for innovations in 2005. The results suggest that good management practices provide an additional effect on future innovation outcome, over an above any effect on other inputs to innovation.
We conclude by briefly outlining the longer term work programme planned around this dataset. Driving the agenda is a desire to improve our understanding of firm practices and performance and, thus, to foster better policy design and implementation.
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