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Science and Engineering Indicators 2004
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Chapter 6:
U.S. Technology in the Marketplace
New High-Technology Exporters
International Trends in Industrial R&D
Patented Inventions
Venture Capital and High-Technology Enterprise
Characteristics of Innovative U.S. Firms
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Figure 6-28

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Figure 6-29

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Figure 6-30

Industry, Technology, and the Global Marketplace

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Characteristics of Innovative U.S. Firms

Why Study IT-Based Innovation?
Survey Results

The need for better information about innovative activities at U.S. firms, the innovative process, and the factors that affect innovation led NSF to conduct a new survey in 2001 that systematically examined innovative activities in selected U.S. industries. To accomplish this, and to better understand how IT affects innovation, 4,000 firms were surveyed with the following three goals in mind:

  • To develop nationally representative profiles of corporate IT innovators and users

  • To facilitate analyses of similar national studies conducted by other countries

  • To provide policymakers with data to better understand how industry uses and develops IT in the pursuit of innovation

Data collected from this survey were designed to serve both public and private researchers and provide an important resource for NSF, policymakers, and other stakeholders interested in understanding the multidimensionality of IT-based innovation within U.S. companies. These data are limited in scope and depth but nevertheless provide useful insight into the process and characteristics of IT-based industrial innovation. (See sidebar, "Description of U.S. IT Innovation Survey Sample and Response.")

Why Study IT-Based Innovation? top of page

In the late 1990s, IT was recognized by the U.S. Department of Commerce as an area of growing importance within the U.S. economy (DOC 1998 and DOC/ESA 1999). This growth was evident by the impact of IT on the labor market in the form of rising demand for IT workers and the shortage of trained IT professionals (DOC/ESA 1999, DOC/OTP 1998, and Meares and Sargent 1999). During this time, IT and IT innovation was recognized as a major contributor to the service sector. It was reported that about 80 percent of IT investment was directed to the service sector in both the United States and United Kingdom (Evangelista, Sirilli, and Smith 1998).

IT-based innovation was viewed as both leading to new products and services and revitalizing the way most traditional services were produced and delivered (Evangelista, Sirilli, and Smith 1998). The introduction of IT and IT-based innovations reduced costs in production- and scale-intensive sectors, whereas specialized technology suppliers and science-based sectors used IT to focus on R&D and software development (Evangelista, Sirilli, and Smith 1998). IT was especially important to supplier-dominated industries that relied on technologies developed by other sectors. Furthermore, in a review of U.S. policy on investment in innovation, Branscomb and Keller (1998) found that assumptions about the way companies innovate have not kept pace with structural changes in the high-technology sector of the economy, particularly as they relate to:

  • Sources of technology and funding for innovation

  • Challenges to competitiveness in the global marketplace

  • The nature of relationships between companies, government, and the academic community

  • Decentralization of technology management responsibilities and corporate decisionmaking

  • Managing risk and determining returns on investment in education, research and development, and organizational change

New patterns in private-sector innovation are assumed to reach across companies in the form of increased partnerships, alliances, and other forms of collaboration, although quantitative data are not available to support this assumption (Branscomb and Keller 1998).

Survey Results top of page

For the purposes of the NSF study, innovation was defined as the development of technologically new or significantly improved products or processes. Respondents were instructed to consider innovation IT-based if IT was a significant or critical component in the development of new products or processes. Changes to existing products that were purely aesthetic, involved only minor modifications, or were implemented to accommodate Y2K issues were not considered IT-based innovation.

The survey found that nearly half (48 percent) of responding firms developed an IT-based innovation within the past year or expected to develop one within 12 months. This 48 percent is an estimated national average rate of IT-based innovation for the collection of industries surveyed. Not surprisingly, certain industries reported above-average levels of innovation. For example, IT companies reported higher levels of innovation (72 percent) than non-IT companies (44 percent), and IT computer-related services (84 percent) were the most innovative of the three IT sectors surveyed. The lowest rate of innovation was reported in the non-IT manufacturing sector (figure 6-28 figure and table 6-9 text table).

Process innovation was more prevalent and may be more important for innovative firms than product innovation (appendix tables 6-18 Microsoft Excel icon through 6-21 Microsoft Excel icon). When innovative firms were asked to identify the type of innovation (product or process) developed during the past year that contributed most to company revenue, process innovations outnumbered product innovations by almost 60 percent (figure 6-29 figure). The number of firms that said they expected to have an IT-based process innovation within 12 months outnumbered firms expecting a product innovation by more than 2 to 1 (appendix table 6-21 Microsoft Excel icon). This survey defined product innovation as the development of improved goods or services in which IT was a significant or critical component, and process innovation as the development of an improved operation, or function associated with manufacturing, production, or business services in which IT was a significant or critical component.

The survey identified several characteristics of innovative U.S. companies. Larger companies were more likely to report higher rates of innovation than smaller companies. Using annual revenue as a proxy for size, 63 percent of companies with more than $50 million in sales revenue reported they had developed an IT-based innovation in the past 12 months or expected to do so within the next 12 months, compared with 43 percent of the smallest firms, those with annual company revenues between $2.5 million and $4.9 million.

Innovative firms did not appear to be statistically more likely to export their products than noninnovative firms. Sixteen percent of companies that introduced a new IT-based innovation reported serving foreign customers compared with 14 percent of noninnovative firms.

Innovative companies were asked about various internal and external factors that contributed to their IT-based innovation. Among the internal factors cited, respondents considered acquiring IT and conducting R&D to be the most important. Forty-three percent of innovative firms said acquiring IT made a large contribution to their IT-based innovation, and 41 percent said the same about conducting in-house R&D (figure 6-30 figure).

With respect to the other internal factors posed to respondents, 34 percent of innovators said using proprietary intellectual property made a large contribution to innovation, and 30 percent cited continuing education. Sector differences on this question are worth noting. Conducting R&D was cited as an important contributor to innovation by more IT companies (58 percent) than non-IT companies (37 percent), whereas acquiring IT technology meant more to non-IT companies (44 percent) than to IT companies (39 percent). This suggests that purchasing technology during the innovation process may be an effective substitute for developing technology through internal R&D. These results demonstrate how technology that is developed in one company or industry and acquired by others plays an important role in the acquiring company's innovation process.

External factors appear to have a lesser impact on innovative companies than internal factors. Among the seven factors posed to respondents, purchasing external R&D was the most highly valued, and it garnered this response from only 20 percent of respondents. Federal and state programs were the least valued; only 6 percent of innovative firms identified these programs as having made a large contribution to the firm's IT-based innovation.

The IT innovation survey answered several other questions as well:

  • What did innovators say provided incentive for IT-based innovation? The availability of skilled IT personnel and favorable timeframes for realizing a return on investment were each considered an incentive by 45 percent of firms. R&D-associated costs were seen neither as an incentive nor a deterrent; the same was true for current tax policy, access to capital, and the existence of environmental regulations.

  • What did innovators see as strategically important for their firm's growth? Were their views different from those held by noninnovators? Innovators viewed being the first to market as strategically very important, were more focused on expanding into new geographic regions, and placed a higher importance on conducting R&D than noninnovators. Innovators also viewed forming alliances, partnerships, or joint ventures as a more important business strategy than noninnovators. Innovators were more concerned about retaining skilled IT personnel (47 percent felt it was very important versus 24 percent of noninnovators) and viewed it as strategically very important for their business. Somewhat surprisingly, venture capital was not an overriding concern for innovators and noninnovators. Seventeen percent of innovators saw it as very important compared with 12 percent of noninnovators.

  • How important is IT hardware and software relative to other elements for conducting business? Almost 60 percent of responding firms viewed IT hardware and software as very important for conducting business. Innovators weighted it even more, with nearly 74 percent reporting it as very important to their business.

  • How did firms view the utility of IT goods and services? Firms saw IT goods and services as very important for reducing costs (54 percent of all respondents gave this answer, as did 67 percent of innovators and 43 percent of noninnovators), increasing productivity (64 percent overall, 77 percent of innovators, and 52 percent of noninnovators), and facilitating communication (61 percent overall, 75 percent of innovators, and 49 percent of noninnovators). Firms did not view IT goods and services as very important for attracting investment.

  • How important is R&D to the innovation process? Forty-one percent of innovators said in-house R&D made a large contribution to IT-based innovation, 31 percent said that conducting R&D was a very important part of a growth strategy, and 20 percent said outsourced R&D made a large contribution toward IT-based innovation.

The development of innovation theory and the collection of data go hand in hand. This latest data collection effort by NSF drew on myriad experiences of related innovation surveys conducted in Europe, Asia, and Latin America, but it broke new ground by focusing exclusively on IT-based innovation. By designing the data collection process for a narrower set of innovations and industries, this survey strived to address practitioner concerns about the usefulness of national innovation data while trying to understand the innovation process in specific industries. The focus on IT-based innovation sought to improve the data currently available and to investigate the innovation process in this critical technology area.

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