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.
Bibliographical noteNOTICE: this is the author’s version of a work that was accepted for publication in Research policy. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Love, JH, Roper, S & Bryson, JR 2011, 'Openness, knowledge, innovation and growth in UK business services' Research policy, vol. 40, no. 10 (2011) DOI http://dx.doi.org/10.1016/j.respol.2011.05.016
- open innovation
- innovation value chain
- encoding linkages