Why don’t plants innovate? Findings from the Survey of Innovation 2005

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by Susan Schaan and Frances Anderson

The 2005 Survey of Innovation asked non-innovative manufacturing plants why they did not innovate; that is, why they did not introduce a new or significantly improved product or process to the market during the three-year reference period 2002 to 2004. Lack of market demand was the main response. An examination of respondents’ other specified reasons shows that some non-innovators may actually be innovative although they do not perceive themselves to be. Innovative and non-innovative plants perceive success factors, such as developing and seeking new markets, in significantly different ways. Non-innovative plants are not expected to be innovative in the near future.

About this article
Context
Findings
About the authors

About this article

The sample unit for the Survey of Innovation 2005 was the ‘statistical establishment,’ for which the questionnaire substituted ‘plant.’ The more familiar latter term is also used in this article.

In the charts, each estimate is graphically illustrated as a horizontal bar. The confidence interval,¹ a horizontal line extending through the end of each bar, shows that the estimate lies within the indicated range of values 95% of the time. Individual estimates with confidence intervals that overlap are not statistically significantly different from each other; those with confidence intervals that do not overlap are statistically significantly different from each other.

More information about the Survey of Innovation is available here.

Preliminary results from the 2005 Survey of Innovation are now available. Please contact susan.schaan@statcan.gc.ca for more information

Context

Based on the Oslo Manual guidelines,² the Survey of Innovation 2005 defines an ‘innovative’ plant as one that has introduced a new or significantly improved good or service to the market, or a new or significantly improved process, including a new or significantly improved way of delivering goods or services; a ‘non-innovative’ plant has made no such introductions. Only innovations occurring during the three-year survey reference period, 2002 to 2004, were considered in this analysis.

Findings

Lack of market demand is the main reason why plants did not innovate

One-third (35.0%) of manufacturing plants did not innovate from 2002 to 2004. These non-innovators were asked to indicate the reasons why they did not innovate during that period.

Not unexpectedly, lack of market demand was the main reason why plants did not innovate, with half (51.7%) of the non-innovative plants citing this reason (Chart 1). The three other principal reasons, each reported by about one-quarter of non-innovative plants, were lack of funds, having carried out innovations prior to 2002 to 2004, and lack of trained staff.

Could some non-innovators actually be innovative?

An examination of the one in five (19.9%) non-innovative plants that specified a reason other than the four main ones for not innovating found that some non-innovators might actually be innovators. Some specified that they did not innovate because they were creating custom products according to customer specifications or orders. Others indicated that they operated as subcontractors in accordance with customer specifications and, as a result, were not innovative. The issue of customization is an interesting one. In the Oslo Manual, plants that are engaged in custom production and make items according to a customer’s orders are not considered as product innovators unless the items have significantly different attributes from products that the plant has previously made. Given the focus of the plant’s activities on custom work, it could be that innovations in the process, rather than the product, have been overlooked. It is also possible that these plants attributed the innovation to the client or customer who provided the specifications rather than to themselves for having produced it.

A number of plants specifying a reason other than the four main ones for non-innovation indicated that they did not engage in innovation activities at their location but that these activities were carried out in other plants that were part of the larger firm or at the level of the firm itself. This reflects the influence of the sampling strategy on survey responses. The sample unit was the plant and not the firm, and so innovation activities outside the plant would not be taken into account. This is clearly a case where innovation is occurring in the larger firm but is not being captured because of the sampling strategy.

Some plants indicated that they were in ’traditional’ industries where technology and operations had changed very little. It would appear that a number of plants that identified themselves as non-innovators might be innovators that do not recognize their own innovations. An emerging literature is looking at the issue of user innovation where the innovation occurring in plants is being carried out by users of technologies and is not limited to technology manufacturers. Capture of this innovation activity is not always recognized in traditional innovation surveys. Also at issue is incremental change, often seen in these traditional industries, as opposed to the “new or significantly improved” changes included in traditional innovation surveys.

Do perceptions of success factors for innovative and non-innovative plants differ?

Plants were asked to indicate the importance of factors for their success. Of the six market- and product-related success factors offered, satisfying existing clients was rated as highly important by most innovative and non-innovative plants alike (Chart 2). However, for the remaining factors, there was a significant difference between innovators and non-innovators.

Developing new domestic and export markets and seeking new markets were more likely to be success factors of high importance for innovative plants than for non-innovators. This suggests that non-innovators perceive their markets to be stable and, therefore, do not view market expansion as highly important to their success the way innovators do.

Innovators are more likely than non-innovators to indicate that developing niche or specialized markets is a highly important success factor. Further, innovators are more likely to perceive that developing custom-designed products is a highly important success factor. This is an interesting finding as it suggests how important a role innovation plays in allowing specialization and customization of products for plant success and competitiveness in the marketplace. This is consistent with the observed trend in Canada of the transition from traditional manufacturing activities to manufacturing with a higher value-added component. Innovation would appear to play an important role in a plant’s capability of making this transition.

Will non-innovators be innovative in the future?

Survey data suggest that non-innovators are not likely to be innovative in the near future as they showed little indication of having carried out innovation activities during the reference period. Only small percentages of non-innovators engaged in activities to develop innovations that were still ongoing at the end of 2004 (13.4%) or were abandoned during the survey reference period (6.5%).

About the authors

Susan Schaan and Frances Anderson are with the Science, Innovation and Electronic Information Division (SIEID) at Statistics Canada. For more information about this article, please contact sieidinfo@statcan.gc.ca.

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Notes

1.  Organisation for Economic Co-operation and Development and Eurostat, 1997, Oslo Manual, 2^nd edition: Proposed Guidelines for Collecting and Interpreting Innovation Data, Paris. These guidelines were adopted for the Survey of Innovation 2005.

2. As the sample drawn for the Survey of Innovation 2005 was only one of many possible samples that could have been drawn using probability sampling methods, a sampling error can be attributed to each estimate. Standard errors combined with imputation rates have been used to provide a guide as to the reliability of percent estimates. The System for Estimating Variance due to Non-response and Imputation program (SEVANI) was used to complete these calculations. For the Survey of Innovation 2005, a 95% confidence interval was used in the probability sample scheme.