External Linkages, R&D and Innovation Performance in US Business Services

Abstract

This paper examines the innovation performance of 206 US business services firms. Results suggest that external linkages, particularly with customers, suppliers and strategic alliances, significantly enhance innovation performance in terms of the introduction of new services. A highly qualified workforce increases the probability of service and organizational innovation, and increases the extent of a firm's innovation, but unqualified employees also play an important role. Contrasting with some earlier research on services, the presence of formal and informal R&D significantly increases the extent of new‐to‐market and new‐to‐firm innovation.

Keywords:

• Innovation
• external linkages
• R&D
• US business services

Acknowledgements

This paper was written while Jim Love was an academic visitor at CIBAM, Judge Business School and Visiting Fellow of Wolfson College, Cambridge. The authors are grateful for the constructive comments of Stephen Roper and four anonymous referees.

Notes

1. Source: OECD in Figures (2005 edn).

2. Although the overall response rate was disappointingly low, responses were received from 24 of the 32 four‐digit groupings in SIC 73. No responses were received from: (7313) radio, television and publishers' advertising representatives, (7334) photocopying and duplicating services, (7335) commercial photography, (7338) secretarial and court reporting services, (7377) computer rental and leasing, (7378) computer maintenance and repair, (7383) news syndicates, (7384) photofinishing laboratories. These eight categories represent only 2.94 per cent of the Dunn & Bradstreet database for SIC 73.

3. The questions asked here were: “Have you introduced any significant new or improved organizational practices (changes in work practices), that did not include technology, at this business since 2000?”; and “Have you introduced any significant new or improved technological driven developments at this business since 2000? (e.g. real‐time sales monitoring, e‐commerce, etc.).”

4. R&D intensity, measured both by expenditure per sales and proportion of total employment, was also used as an alternative to the R&D dummies, but proved insignificant in all regressions.

5. Part of the reason for the lack of effect of R&D on organizational or technologically based innovation may lie in the definition of R&D. For example, Djellal et al. (2003) argue that R&D should be more widely defined to take account of, inter alia, the hybrid and composite nature of R&D projects in services.

6. Tests of sectoral effects within SIC 73 were also carried out using sub‐2‐digit SIC dummies. These always proved insignificant.

7. It is possible, as pointed out by an anonymous referee, that the link between innovation and skill levels may run from innovation to skills, for instance, innovation in services leads to the substitution of skilled for unskilled labour. However, one would therefore expect the coefficient sign on the proportion of unskilled labour to be negative rather than positive.