Understanding the Impact of Business Analytics on Innovation

Advances in Business Analytics in the era of Big Data have provided unprecedented opportunities for organizations to innovate. With insights gained from Business Analytics, companies are able to develop new or improved products/services. However, few studies have investigated the mechanism through which Business Analytics contributes to a firm's innovation success. This research aims to address this gap by theoretically and empirically investigating the relationship between Business Analytics and innovation. To achieve this aim, absorptive capacity theory is used as a theoretical lens to inform the development of a research model. Absorptive capacity theory refers to a firm’s ability to recognize the value of new, external information, assimilate it and apply it to commercial ends. The research model covers the use of Business Analytics, environmental scanning, data-driven culture, innovation (new product newness and meaningfulness), and competitive advantage. The research model is tested through a questionnaire survey of 218 UK businesses. The results suggest that Business Analytics directly improves environmental scanning which in turn helps to enhance a company's innovation. Business Analytics also directly enhances data-driven culture that in turn impacts on environmental scanning. Data-driven culture plays another important role by moderating the effect of environmental scanning on new product meaningfulness. The findings demonstrate the positive impact of business analytics on innovation and the pivotal roles of environmental scanning and data-driven culture. Organizations wishing to realize the potential of Business Analytics thus need changes in both their external and internal focus.