Openness, knowledge, innovation and growth in UK business services

Published Date
Research Policy
December 2011, Vol.40(10):1438–1452, doi:10.1016/j.respol.2011.05.016

• Author 

• James H. Love ^a,,
• Stephen Roper ^b,
• John R. Bryson ^c,

• aBirmingham Business School, University of Birmingham, Birmingham, B15 2TT, United Kingdom
• bCentre for Small and Medium Sized Enterprises, Warwick Business School, University of Warwick, Coventry, CV4 7AL, United Kingdom
• cSchool of Geography, Earth and Environmental Sciences, University of Birmingham, Birmingham, B15 2TT, United Kingdom

Received 14 May 2010. Revised 13 May 2011. Accepted 19 May 2011. Available online 16 June 2011.

Abstract

We explore the causal links between service firms’ knowledge investments, their innovation outputs and business growth based on a bespoke survey of around 1100 UK service businesses. We combine the activity based approach of the innovation value chain with firms’ external links at each stage of the innovation process. This introduces the concept of ‘encoding’ relationships through which learning improves the effectiveness of firms’ innovation processes. Our econometric results emphasise the importance of external openness in the initial, exploratory phase of the innovation process and the significance of internal openness (e.g. team working) in later stages of the process. In-house design capacity is strongly linked to a firm's ability to absorb external knowledge for innovation. Links to customers are important in the exploratory stage of the innovation process, but encoding linkages with private and public research organisations are more important in developing innovation outputs. Business growth is related directly to both the extent of firms’ service innovation as well as the diversity of innovation, reflecting marketing, strategic and business process change.

Highlights

► We explore the causal links between knowledge investment, innovation outputs and business growth based in UK service businesses. ► This introduces the concept of ‘encoding’ relationships through which learning improves the effectiveness of firms’ innovation processes. ► External openness is important in the exploratory phase of the innovation process and internal openness (e.g. team working) in later stages of the process. ► Business growth is related directly to both the extent of firms’ service innovation as well as the diversity of their innovation.

Keywords

Open innovation

Services

Innovation value chain

Encoding linkages

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• ⁎ 
  Corresponding author.

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