It’s intuitive to believe that innovation is beneficial to the economic wellbeing of a country, but gauging just how much is not always easy to achieve. A new study attempts to rectify that by providing a clear link between firm level data and the performance of that firm.
The researchers focus specifically on small and medium enterprises (SMEs) to try and fill a clear gap in our understanding. An appreciation of the inventiveness of a firm was done via a mix of UK administrative microdata, media and website content to allow for a combination of patents, trademarks and self-reported innovation surveys to form the crux of any innovation outputs from firms. This data is then compared with cross-sector data from UK SMEs to try and provide a complete and robust picture of firm performance.
A machine learning method was used to capture data from company websites and media content to allow models to be created of certain key events, such as new product launches, joint ventures or acquisitions. This is then cross referenced with patent citations, trademarks and UK Innovation Survey data to try and gauge the quality and outcome of each event.
Boosting productivity
The data suggests that there is a clear link between product launches and revenue productivity, with the most successful launches, which were gauged by the volume of news coverage they secured, clearly linked to the success of the firm. Not only do firms that have at least one product launch see a boost to revenue productivity of 17%, each extra launch after that adds a further 22% to revenue productivity.
While it might be instinctive to suggest that much of this growth could be achieved by smaller, younger firms, the data actually suggests that it’s medium-sized firms who are getting the best return from innovation. Indeed, smaller firms seem to have a negative effect if anything.
It’s tempting to think that innovation is a purely additive process that can only ever yield positive outcomes, but the study suggests that this is very far from the case. While there are undoubtedly issues with the methodology, not least in conflating media coverage with a successful product launch, it is nonetheless a reminder that innovation is no guarantee of financial returns.
