Innovation: Assessing the variables influencing business process and product innovation

Abstract

Innovation has become a must for companies to improve their organizational resilience, to increase their financial performance and to respond to external challenges. Based on the object being innovated, innovation can be classified in two types: product innovation and business process innovation. A product innovation can trigger the need for a business procees innovation, resulting in the two types being intertwined in practice. Since innovation triggers economic growth, both companies and countries are looking into generating more innovation by policies, activities and funding. To evaluate whether their endeavours are reaching their targeted goals, they need to measure innovation. Organisation for Economic Co-operation and Development (OECD)/Eurostat are providing a standardized approach to evaluate innovation across organizations and countries, enabling not only measurement, but also comparative analysis between entities. This approach includes a standardized questionnaire, which is applied in more than 80 countries, and is continuously improved based on the feedback obtained. The results obtained by applying this questionnaire, which were published by OECD, represent the data used in this research. By using a quantitative methodology, this study explores the variables that influence business process innovation and product innovation. The hypotheses are multifold and have been tested using statistical methods. Firstly, the study analyses whether the research and development (R&D) expenditures influence both business process innovation (H1) and product innovation (H2). Hypotheses H1 and H2 are invalidated by statistical means. Secondly, the research assesses whether the share of persons employed in innovation-active firms, in total employment in 2020, has an influence on both business process innovation (H3) and product innovation (H4). Both hypotheses (H3, H4) are validated statistically, showing a positive influence between the analysed variables. Thirdly, the study proves whether the turnover of the firms is influenced by product innovation (H5) and by business process innovation (H6). Hypotheses H5 and H6 are validated statistically. The conclusions of this research expand the existing scientific knowledge in innovation, by revealing the relationships between business process innovation, product innovation, R&D expenditure, share of employees and turnover of the firms. It also provides recommendations for managers aiming to increase innovation and turnover.