Complementarities in the sourcing, use and exploitation of managerial and technological innovations

ABSTRACT

This paper is primarily concerned with how managerial and technological innovations interact, and their relationship with firm performance. Parallels between managerial innovations and investments in intangibles are highlighted. Using an existing data set relating to 1497 UK enterprises in 2009 with an emphasis upon the service sector, it is shown that firms both source and use managerial and technological innovations and different types thereof simultaneously, suggesting widespread complementarities. Factor analysis is used to generate combined indicators of firms’ overall efforts in both sourcing and using different innovations and enables their allocation to clusters. The most active sourcing and using clusters are the smallest, whilst the least active are the largest. Firm characteristics differ across both sourcing and using clusters in expected ways. Further, (i) there is a positive relationship between corporate performance and the intensity of both sourcing and using innovations, and (ii) firms undertaking technological (managerial) innovation experience greater improvement in sales growth if they also undertake managerial (technological) innovation. The findings indicate that reliance upon either managerial or technological indicators of innovation alone could be misleading in terms of both measuring the extent of innovation and the impacts of different types of innovation upon firm performance.

KEYWORDS:

• Managerial innovation
• technological innovation
• innovation stages
• intangibles
• complementarities
• firm performance

JEL Classification:

• O3

Acknowledgements

The authors would wish to particularly thank two anonymous referees for their rigorous and critical review of earlier drafts of this paper in responding to which, the authors consider, that a number of improvements have resulted.

Disclosure statement

No potential conflict of interest was reported by the author(s).).

Notes

1 The approach pursued here exploring interrelationships between managerial and technological innovations and impacts upon firm performance, differs from, although aligns with, a significant literature that argues that the success of (or return to) technological innovations is at least partly attributable to ‘good’ management practice (e.g. Bartoloni and Baussola 2015; Anon-Higon et al. 2017; Nemlioglu and Mallick 2017; Sadun and Van Reenen 2005; Bartz-Zuccala, Mohnen, and Schweiger 2018).

2 One might note however that Ruigrok et al. (1999) using international data is a good early example of the use of a quantitative survey-based methodology in the management field.

3 The papers isolate a number of different management practices (18 in Bloom and Van Reenen 2010) encompassing monitoring, targets, and incentives, which represent best practice in the sense that a firm that has adopted the practice will, on average, increase their productivity. We consider these practices to be managerial innovations although they are not so labelled by the original authors.

4 This is a welcome move away from the traditional reliance on R&D and patent indicators as proxies for, or measures of, innovative activity, which approach ignores the complexity and the multifaceted nature of the innovation process (Hall, Lotti, and Mairesse 2009; Haskel and Pesole 2009)

5 For example, in Bloom and Van Reenen (2007), they talk instead of whether ‘whether the management measure was proxying for better technology in the firm'.

6 Bloom and Van Reenen (2007) also report upon the use of data on individual management practices but this impacted only marginally upon their results re management and performance.

7 It has been suggested to us that digitisation during the period since the survey could affect the current relevance of any findings based on this data. We have no evidence of that. Digitisation or computerisation is a process that has been going on for nearly 70 years, and, although the embodiment of those advances and the nature of the ‘best’ management techniques may have changed alongside the digital changes, we have no reason to accept an argument that says that the relationship between managerial and technological innovations has been fundamentally altered over the last decade. There is an additional argument (Nambisan et al. 2019; OECD 2018a) that there is a batch of new digital technologies encompassing AI, e-data, big data, machine learning and the internet of things) that will in the near future lead to a disruption of business and/or changed social and business models. We do not wish to argue against that but we consider that there will still be links (perhaps different links) between managerial or organisational and technological innovations in the future.

8 A further source of data on the uptake of management practices in British production and services industries is the Management and Expectations Survey (MES) carried out in 2017 by the Office for National Statistics (ONS) and developed as a follow up of the 2016 pilot Management Practice Survey (MPS). The MES questionnaire covers a broader and slightly modified set of questions than the MPS and the UKIS and it was designed to align to the Management and Organisational Practice Survey (MOPS) conducted by the US Census Bureau. Despite being one of the few surveys on the adoption of management practices it contains limited information on non-management innovations and general company characteristics. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/articles/experimentaldataonthemanagementpracticesofmanufacturingbusinessesingreatbritain/2018-04-06

9 Detailed results are available from the corresponding author upon request.

10 A by-product of applying the Arora and Gambardella (1990) approach is some indication of which firm characteristics are likely to be associated with greater sourcing of each of the different types of innovations, however very few of the coefficient estimates were found to be statistically significant.

11 Full details are available from the corresponding author upon request.

12 The Arora and Gambardella (1990) approach also indicates that employment, membership of a group, export orientation, and to some degree a more highly qualified workforce (except for new strategies and new management techniques) all impact positively and significantly on each of the indicators of the use of innovations.

13 Unfortunately, we do not have data that would enable us to separate out family owned firms as do Bloom and Van Reenen (2010).

Additional information

Funding

This work was supported by National Endowment for Science Technology and the Arts.