Innovation and Business Performance

This paper examines the effects of different types, and combinations, of innovation activity on business performance. The aim is to help inform policy to support innovation by trying to identify businesses interventions that are likely to have the most effective outcomes and stimulate further opportunities for business growth.

This research is an analysis of the UK Innovation Survey 2015 based on Office for National Statistics (ONS) microdata from the Secure Research Service. The analysis compares turnover, employment and productivity levels and growth outcomes for different types of innovation activity and those of non-innovation active businesses.

Generally, the results show that businesses engaging in some type of innovation have higher average turnover than non-innovation active businesses achieving an ‘innovation premium’ which suggests that innovation can help businesses reach higher scale. Innovation active businesses also tend to have higher productivity levels than non-innovation active businesses. Product and process innovators (combined with at least one other innovation activity) tended to have the highest turnover and productivity levels in all business size bands. They also tended to have higher growth rates. Where organisational-only innovators had higher growth rates, this tended to be from a lower initial turnover or productivity level. The best performance was in businesses with product or process innovation combined with other innovations such as marketing and/or organisational innovation or investment activities. A relatively small proportion of businesses were exporters, however, they had stronger performance than non-exporters in terms of innovation activity and business performance outcomes.

Business benefits can be achieved from innovation, especially product and process innovation, but there may be a need to encourage businesses to have more strategic and systematic innovation processes to ensure they capitalise from their innovation. It may be appropriate to promote more product and process activity, however, when these are implemented it is important that businesses ensure they have the right organisational structure, workforce skills and marketing strategies to support their implementation. This is especially true for smaller businesses, given their potential failure to capitalise on innovations, and may potentially lead to faster growth in this group of businesses.