Product Inovation, Interactive Learning and Economic Performance: Volume 8

The aim of this book is to contribute to the understanding of product innovation – how it takes place and how it affects the economy. Our analysis of product innovation links it to interactive learning and to the performance of firms. On the basis of unique data sets and detailed case studies we study the interconnections between these three elements from different angles. We believe that the book will prove helpful for managers, employees and policy makers as well as for all those in academia who wants to understand the role of product innovation in the economy.

This chapter is about the production, diffusion and use of knowledge seen in an economic perspective. Fundamental distinctions between tacit and explicit knowledge and between know-how, know-why, know-what and know-who are related to distinctions between public/private and local/global knowledge. It is argued that the idea of the economy as being knowledge based is misleading and that we have moved into a learning economy where interactive learning is a key to economic performance of firms, regions and nations. This is one reason why a narrow economic perspective is insufficient. When it comes to understand industrial dynamics in the learning economy it is necessary to bring in other disciplines than economics in the analysis.

This chapter seeks to explain how societal institutions, which may exist at the national or regional levels, shape the types of organizational learning predominating at the level of the firm. It focuses on education and training systems, and labour markets as key societal institutions shaping the micro-level processes of learning and knowledge creation within and between firms. The chapter argues that tacit knowledge, which is difficult to create and transfer in the absence of social interaction and labour mobility, constitutes a most important source of learning and sustainable competitive advantage in the knowledge economy. It looks at the cases of Japan, the high-technology clusters in the USA and U.K., and Denmark as illustrative examples.

This chapter treats the management’s understanding of the potential of managing interaction between product innovation and learning. The chapter draws its empirical results from interviews with the management, project leaders, and other employees working on product innovations in five manufacturing firms visited three to four times during 2001–2002. It is shown that the managed interaction between innovation and learning is promoted by explicit strategic consideration and most strongly by a knowledge management strategy. Important positive and negative structural conditions are highlighted.

In this chapter it is shown that, in spite of the fundamental importance for economic growth of product innovation, standard economic theory – neo-classical as well as transaction cost approaches to industrial organization – tends to neglect it. It is also shown that moving the focus to product innovation leads to very different conclusions on how alternative institutional set-ups affect economic performance. Institutional set ups assumed to optimise allocation and minimise transaction costs do not support innovation and growth. That is why producer goods where innovation is a regular phenomenon are transacted neither in pure markets nor in hierarchies. The omnipresence of “organized markets” reflects the need for users as well as producers to engage in on-going information exchange and interactive learning in connection with product innovation.

This chapter extracts a broad range of learning situations in connection with product innovation. The data comprise interviews with the management and employees in five Danish manufacturing firms visited during 2000–2001. Among important learning situations and factors promoting learning have been found the firms’ contacts with customers, project leaders’ cross functional coordinating activities, and cooperation with suppliers and knowledge institutions. The restraints upon learning comprise inter alia strategic patterns, tight time planning, old routines and communication difficulties, changing of roles, ad hoc decisions on training and education and some times among employees lack of motivation. Some policy perspectives are outlined.

In relation to firms’ innovative performance this study investigates the importance of human capital for the firm’s absorptive capacity. The estimation of an ordered probit model including 1938 firms from the private manufacturing and non manufacturing sectors shows that the share of highly educated employees, development of a closer relationship with both vertically related actors and knowledge institutions and, application of human resource management (HRM) practices within the firm, not only promote the ability to innovate but also reduce the degree of innovative imitation. Finally, estimations according to size show that development of a closer relationship with a complete network of actors is especially important for firms with less than 50 employees.

A dominant theme in the high performance HRM literature concerns complementarities among individual practices and the positive performance benefits associated with adopting simultaneously a bundle of HRM practices. While there is little consensus over what practices should be included under the “high performance” label, most authors see employee representation and consultation as representing a traditional management approach. Moreover enterprise performance is commonly measured as financial performance and relatively little attention has been given to innovative performance. In contrast to the mainstream view, we argue that employee representation can be highly complementary to the training and incentive devices focused on in the high performance HRM literature. This proposition is empirically tested for the innovative performance of comparable populations of U.K. and French private sector establishments. The chapter constitutes one of the first major comparative empirical investigations of the HRM/innovative performance link.

Using the Employment in Britain dataset (a representative sample of employees in Britain in 1992) we analyse the determinants of learning within organizations at employee level. Questions were asked about the role of learning new skills in the respondent’s job. Various determinants of learning are explored such as human resource management practices, career patterns etc. These results are set within the context of a “competence building system” and related to current debates within the national systems of innovation literature.

This chapter treats new product development in relation to management and organization. The data comprise new product development within four Danish manufacturing firms studied by interviewing the management, product leaders and other employees. The results show how integrated product development procedures have furthered a stronger market orientation. The stage-gate version of integration has fertilized knowledge across functions. The new procedures have made the understanding of cooperation across functions topical and have been followed up by more involvement of the employees. The changes have run into barriers which to a certain extent have been met by organizational changes.

In this chapter it is argued that firms that interact with knowledge institutions increase their potential for exploiting knowledge. This is especially the case if the firms have employees with an academic degree employed. These employees will contribute to absorptive capacity in the traditional sense but also to the formation of social capital. Due to prior basic knowledge and understanding to researchers and scientist, the process of recognizing, assimilating and applying new knowledge from these institutions will become easier and hence increase the likelihood of producing more radical innovations. The estimation of an ordered probit model including 1983 firms from the Danish manufacturing and service industry supports the hypothesis.

This chapter focuses on public research as one possible external source of knowledge available for private companies seeking scientific support in relation to product development projects, and analyses inter-organizational relations between public research institutions and innovative firms including enabling conditions for effective knowledge creation in such public-private interactions. Two case studies of product development projects based on sensor technology are used to illuminate how innovation is carried out in such interactions. The chapter concludes with extracting crucial features for successful public-private collaboration on knowledge creation and innovation.

This chapter focuses upon two types of interaction. One is the interaction between departments within the Danish Trademark and Patent Office (DKPTO). Additionally, the interaction between the DKPTO and firms is analysed. The chapter discusses in what ways an institution like a national patent office is important for product innovation, not just by providing an appropriability system for product innovations in firms, but additionally by improving the long-run capabilities of both firms and the DKPTO itself. The research builds upon interviews in the DKPTO, case stories from firms and of patent granting procedures.

With respect to internal competencies, it is found that no efforts were carried out to create environments for learning between the departments in line with the “learning organizations” described in earlier chapters. However, taking the tasks of the departments into account, the need for such efforts was not obvious. Links to external organizations are not only confined to industrial firms. Many firms, especially the large firms, would not mind if the tasks of the national patent system were moved to the EPO-level. On the other hand, in particular, small, new firms may feel more confident with a national patent office.

This chapter investigates the relationship between product innovation and firm performance. We apply a logistic regression to predict product innovation using a number of explanatory variables of which firm growth is of principal interest. We study the relationship at two different time periods using two comparable questionnaire surveys. These are combined with accounting statistics and labor market data. We find that firms which are experiencing high growth rates also are more likely to have been product innovating. We also find support for the user-producer theorem and that Schumpeter may have been right in his hypotheses concerning firm size and innovative activities.