In recent years, there has been growing interest inco-operative arrangements for innovation. Some com-mentators, such as Teece (1992), have argued that therise of these relationships has overturned our existingunderstanding of the organisation of innovation. In-novation is seen as becoming increasingly distributed,as fewer firms are able to ‘go it alone’ in technolog-ical development. This in turn means the old debatesabout firm-size, market structure and innovation arebecoming outmoded, as the boundaries of the firm arebecoming increasingly ‘fuzzy’.
This paper examines these arguments through ananalysis of the pattern of co-operation arrangementsfor innovation amongst the innovating firms that re-sponded to the UK’s version of the second Europeancommunity innovation survey (CIS-2). The CIS-2was the UK’s first successful wide-scale and officialsurvey of firms’ innovation activities. In this paper,we are concerned with mapping the presence or ab-sence of co-operative arrangements for innovationbetween firms and various types of external partner,and with investigating the features of the firms thatrelate to their participation in such relationships. Un-fortunately, data restrictions mean we are not ableto directly assess how significant these relationshipswere to the innovation activities of the firms, nor how
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successful the co-operations were. Moreover, we canalso only indirectly understand the motives the firmshad in establishing these relationships. On the posi-tive side, however, we are able to extend the analysisbeyond manufacturing to include service firms.
The paper is structured as follows. Section 1 pro-vides an introduction to the data and the headlinefindings from it with respect to co-operation ar-rangements between innovating firms and externalpartners. Section 2 then provides an overview, fromexisting research, of the motivations for entering intoco-operative arrangements for innovation. Section 3discusses the range of factors available from the sur-vey that might be expected to influence engagementin these arrangements, whilst multivariate analyses ofthe data are undertaken in Section 4. Finally, someconclusions are provided.
2. The data and the headline findings
The data-set examined here is the UK response tothe second CIS-2, which was based on the revised ver-sion of the OECD’s Oslo Manual (OECD, 1996). Thesurvey was carried out in 1997 for the UK Govern-ment by the Office for National Statistics (ONS) andaccording to a common European framework.
The survey covered both manufacturing and ser-vices, with similar questionnaires sent to firms inboth sectors. Firms engaged in mining and quarry-ing, construction, recycling, and the water, gas andelectricity utilities were surveyed using the manu-facturing sector questionnaire.1 The unit of analysiswas the ‘enterprise’, which for the UK was definedas ‘the smallest combination of legal units whichhave a certain degree of autonomy within an enter-prise group’ (Craggs and Jones, 1998). Apart fromthe frequent substitution of the word ‘service’ for theword ‘product’, the differences between the serviceand manufacturing questionnaires were confined tothe basic innovation questions and to questions aboutthe resources (i.e. innovation expenditures) devoted
1 As a shorthand, in this paper, ‘manufacturing firms’ are all thefirms that responded to the manufacturing sector questionnaire,whilst ‘service firms’ are all those that answered the service sectorquestionnaire.
to various innovation activities.2 Both questionnairesfocused on ‘technological innovation’,3 althoughinnovation was defined as ‘new to the firm’, ratherthan necessarily ‘new to the market’. Most of the‘innovations’ introduced by the firms were, therefore,imitations of products and services already availablefrom other firms, or internal process innovations.
The survey was postal and voluntary. The samplingexcluded firms with fewer than 10 employees and wasconfined to sections C–K of the 1992 Standard Indus-trial Classification (SIC 92),4 with sampling stratifiedby firm size and by sector. Thus, large firms were
2 The manufacturing questionnaire asked whether the firm hadintroduced, between 1994 and 1996,a technologically new or im-proved product(i.e. product innovation), and whether it had intro-duced, over the same period,a technologically new or improvedprocess(i.e. process innovation). The service questionnaire askedwhether the firm had introduced, between 1994 and 1996, any‘new or significantly improved services or methods to produce ordeliver them’ (i.e. service innovation). A service firm could in-dicate that it introduced only new services, only new methods,or both. Note that ‘manufacturing firms’ were not asked whetherthey had introduced any ‘service innovations’.
3 Manufacturing questionnaire: ‘Technological innovations com-prise implemented technologically new products and processes andsignificant technological improvements in existing products andprocesses. A technological innovation has been implemented if ithas been introduced onto the market (product innovation) or usedwithin a production or delivery process (process innovation). Theproduct or process should be new (or significantly improved) tothe enterprise. It does not have to be new to the relevant market.Technological innovation requires an objective improvement in theperformance of a product or in the way in which it is producedor delivered’.Services questionnaire: ‘Technological innovations comprise im-plemented new or significantly improved services and new or sig-nificantly improved ways of producing or delivering a service. Atechnological innovation has been implemented if it has been in-troduced onto the market (service innovation) or used within aproduction or delivery process (process innovation). The serviceor process should be new (or significantly improved) to the enter-prise. It does not have to be new to the relevant market. The intro-duction of a new or significantly improved service or productionor delivery method can require the use of radically new knowl-edge or a combination of existing technologies or new knowledge.The technologies involved are often embroiled in new or improvedmachinery, equipment or software. The new knowledge involvedcould be the result of research, acquisition or utilisation of specificskills and competencies’.
4 Thus, mining and quarrying were included, as was the wholeof the manufacturing sector and most of the private services sector.Agriculture, fishing and forestry, public administration, defence,education, and health and safety at work were excluded.
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sampled more heavily than small firms, and firmsin the more ‘technologically interesting’ sectors—effectively the ‘high technology sectors’ (Butchart,1987; OECD, 1992)—were also more heavily sam-pled. Consequently, the sampling was biased infavour of large high tech firms, and against smallerlow tech firms. The survey was also biased towardsmanufacturing—possibly reflecting the widespreadassumption that manufacturing is the primary domainof technological innovation (see Craggs and Jones,1998, for further details of the sample).5 Despitethese biases, the survey provides rare evidence oninnovative activities in low technology manufacturingand service firms, including, for our purposes, theextent of co-operation agreements for innovation withexternal partner organisations amongst these firms.Most existing analyses of these arrangements have fo-cused on high technology (manufacturing) activities.
A total of 2342 firms responded to the survey. Ofthese, 1598 (68%) responded to the manufacturingsector questionnaire (a response rate of 41%) and 744(32%) to the service sector questionnaire (a responserate of 36%).6 A non-response analysis was con-ducted by ONS which did not detect any bias betweeninnovators and non-innovators in their response to thesurvey (Craggs and Jones, 1998).
Of the 2342 respondents, 1159 (49.5%) explicitlyclaimed to have introduced an innovation (i.e. a newproduct, process or service), with a further 116 (5%)indicating that whilst they had not successfully inno-vated they had been engaged in unsuccessful or yet tobe completed innovation projects over the 1994–1996period. For the analysis of co-operative arrangementsin this paper, we restrict the analysis to the sampleof 1270 firms that claimed to have been engaged in
5 Only 2045 of the 94,268 (2.2%) service firms with ten ormore employees on the Government’s inter-departmental businessdatabase (IDBD) were sampled, compared with 3925 of the 61,268(6.4%) ‘manufacturing firms’ (SIC 92 sections C, D, E and F) with10 or more employees on the dataset. Amongst ‘manufacturingproper’ (Section D), 3647 of the 47,862 (7.6%) possible firmswere sampled.
6 The response rate varied somewhat by firm size — being high-est (at 49%) amongst manufacturing firms with 50–99 employees,and lowest (at 24%) amongst manufacturing firms with 5000 ormore employees. Amongst services, the response rate also tendedto decline with firm size, being highest (at 47%) amongst firmswith 20–49 employees, and lowest (at 30%) amongst those with1000–4999 employees.
innovation activities and which provided details onwhether or not they had co-operative arrangements forinnovation with external partners.7 The analysis is re-stricted to those engaged in innovation activities ratherthan embracing all of the responding firms because thequestion about engaging in co-operative agreementswas only relevant to the firms that recognised them-selves as innovating. That question asked:
Did your enterprise have any co-operation arrange-ments on technological innovation activities withother enterprises or institutions between 1994 and1996?
A definition of ‘innovation co-operation’ was alsoprovided:
Innovation co-operation means active participationin joint R&D and other technological innovationprojects with other organisations. It does not nec-essarily imply that both partners derive immediatecommercial benefits from the venture. Pure con-tracting out work, where there is no active partici-pation is not regarded as co-operation.
For those answering yes to this question, the surveythen asked about the type(s) of partner(s) with whichthey had co-operative arrangements, and the locationof those partners.8 Unfortunately, the survey did notask about the number of these linkages, how success-ful the co-operations had been, nor (directly) about themotivations for establishing the linkages. This placesrestrictions on the possible analysis. Consequently, weare essentially concerned with mapping the presenceor absence of co-operative arrangements for innova-tion between the innovating firms and external part-ners, both in general and of various types. This said,despite the considerable attention paid to co-operativeinnovation activities (including strategic alliances) re-markably few papers exist which assess this activ-ity across a broad range of firms by size, sector andother characteristics (for exceptions, see Keinknechtand Reijnen, 1992; Fritsch and Lukas, 2001).
7 Five firms that engaged in innovation activities did not providefull answers to the co-operation question.
8 That is, whether they were local, national, in the EuropeanUnion, North America, Japan or elsewhere. Space restrictions meanwe do not analyse the location of external partners in this paper.
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2.1. The headline findings on the extent ofco-operative arrangements for innovation
Of the 1275 firms identified as innovating, nearlyhalf (575, 45%) claimed to have some form ofco-operative arrangement for innovation. Of these,29 only had co-operative arrangements with otherparts of their enterprise groups, but 541 (42%) hadco-operative arrangements for innovation with exter-nal partners. Suppliers and customers were the mostwidely engaged co-operation partners, but significantproportions also engaged competitors, consultants,universities and other organisations as partners inthese arrangements (Table 1).
The above analysis is based simply on the responseto the survey, which, as mentioned, was biased to-wards larger firms operating in the more ‘technolog-ically interesting sectors’. If the survey is adjustedto represent the population of innovating firms inthe UK, then, according to Craggs and Jones (1998),less than a fifth had co-operative arrangements forinnovation with other organisations. This proportionis higher amongst manufacturers (25%) than amongstservice firms (15%), and also higher amongst largeenterprises (52%) than amongst SMEs (19%). Thissuggests co-operative arrangements for innovationare far from the norm amongst innovating firms.However, as large firms are more likely to have thesearrangements than small firms, the economic sig-nificance of these relationships may be greater thanthat suggested by the proportion of innovating firmswith them. Secondly, these links may be associated
Table 1Innovating firms with co-operation arrangements for innovation
Type of partner N Amongst theinnovating firms(%)
Any external partner 541 42Suppliers 283 22Customers or clients 298 23Competitors 188 15Universities 207 16Consultants (N = 195) and private
research institutes (N = 51)206 16
Others (government institutes andresearch associations and researchand technology organisations)
206 16
with the development more significant, higher levelinnovations (Tether, 1998), so again the proportionof innovating firms with these arrangements mayunderstate their significance.
For simplicity, and because we believe it is doubt-ful that the firms which responded to the survey arerepresentative of all other firms in their patterns of in-novative activity when matched only by size and sec-tor, the remainder of this paper analyses the UK CIS-2data as a simple sample. No attempt has been madeto adjust the response to make it ‘representative’ ofbusinesses in the UK.
3. An overview of research on co-operativearrangements for innovation
Co-operative arrangements for innovation, includ-ing strategic technological alliances, became thefocus of considerable theoretical and empirical at-tention during the 1980s and 1990s, and many ana-lysts assume these arrangements represent new waysof organising (technological) innovation. However,Dodgson (1994; see also Freeman, 1991) points outthat formal collaborative arrangements for innovationhave a long history. Moreover, studies of innovationhave long recognised innovation is to some extent aninteractive and, thus, distributed process (e.g. Carterand Williams, 1957; Cooper, 1980; Rothwell, 1977;Von Hippel, 1976, 1988; Lundvall, 1992). It was,nevertheless, only from the mid-1980s that consid-erable attention was paid to ‘distributed forms ofinnovation’, including strategic technology alliances(e.g. Doz and Hamel, 1997), collaborative arrange-ments for R&D (e.g. Fusfeld and Haklisch, 1985;Brockhoff et al., 1991), and innovation networks(Freeman, 1991; Beimans, 1992). As mentioned inthe introduction, Teece (1992) argues the growingnumber of these co-operations and alliances meanthe standard relationships between, for example, firmsize and innovation, are becoming outmoded, becausethe boundaries of the firm are becoming increasinglyfuzzy.
A variety of reasons are given in the literature forthe apparent growth in innovation and technology al-liances, but, at a basic level, firms enter into col-laborative arrangements for innovation because theydo not have internally all of the necessary resources
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(including knowledge) and/or because they wish toreduce the risks associated with innovation (includ-ing the risk of technological spillovers). Not only mayboth of these motives be present at once, but theymay be inter-related. For example, working with cus-tomers increases the likelihood that other customerswill also accept the innovation. Consequently, firmsthat collaborate for innovation with their customersare, concomitantly, reducing their ignorance of cus-tomer needs, increasing users’ confidence in their of-ferings and, thereby, reducing the risk associated withbringing an innovation to market.
However, the motivations for engaging in co-operative arrangements for innovation can be com-plex, and we cannot provide a thorough review ofthe literature here. Instead we begin with some notesfrom the literature concerning the benefits of enteringinto co-operative arrangements for innovation withdifferent types of organisation. The aim of this sectionis simply to highlight some of the main motivationsfor these arrangements with different types of partner.After this, Section 3 discusses the range of factors(which the CIS-2 provides information on) that mayhave some influence on whether or not firms enteredinto these arrangements, both in general and withdifferent types of partner.
3.1. Co-operations for innovation within thesupply-chain
The importance of lead customers in helping todefine innovations and, therefore, reduce the riskassociated with their market introduction, has beenrecognised since at least the 1970s (Von Hippel, 1976,1988; Rothwell, 1977; Gardiner and Rothwell, 1985;Quinn, 1985; Kline and Rosenberg, 1986). Shaw(1994) summarises the advantages of working closelywith customers (or users) as:
1. Providing complementary knowledge, possibly in-cluding the users’ technical know-how.
2. Helping to find the right balance between perfor-mance and price. This can also be important forstandard setting.
3. Providing an understanding of user behaviour thatcan be important for refinements to the innovation.
4. And enhancing the chances that the innovation willbe accepted and adopted by other firms within the
same user community. This is particularly signifi-cant if the user is respected within its community,and if the supplier is relatively unknown. It is alsolikely to be particularly important when the inno-vation is more radical, rather than a minor incre-mental change.
It follows from the above that co-operating withcustomers in the development of innovations is likelyto be most common when the innovation under devel-opment is more novel or complex, or when the marketfor the innovation is poorly defined.
Co-operative relations with suppliers share many ofthe features of relations with customers (due to theirbeing in the same vertical relationship), but, beyondthese, relationships with suppliers have been widelyexamined in the context of ‘make or buy’ decisionsand the inadequacies of the transaction costs frame-work to deal fully with these in the context of techno-logical knowledge and innovation, where knowledgeor information is usually incomplete.9 ‘Make or buy’decisions are also influenced by strategic implicationsin the sense of balancing (and resolving the conflictbetween) short-term efficiencies against the long termcompetitive position of the firm. Tidd et al. (1997) con-tend that, overall, strategic considerations (includingjoint learning and trust) rather than transaction costs(and cost-minimisation) are more significant in termsof whether and how the firm accesses external tech-nology.
Interest in co-operative arrangements for innovationwith suppliers grew out of the success, especially dur-ing the 1980s, of Japanese automobile and electronicsfirms. The success of these firms has been attributed totheir close supplier relations (amongst other factors),with suppliers being closely involved in the innovationprocess (Sako, 1994; Liker et al., 1996; Bidault et al.,
9 In relation to transaction costs, ‘make or buy’ decisions arebased on how dependent the principal is on the component ormachinery supplied, and how widely available this component ormachine is ‘on the market’. If supply is uncertain, or subjectto opportunistic behaviour, the theory suggests the principal willtend to produce the component or machine in house. In the ab-sence of the danger of opportunistic behaviour, Sako argues: ‘Thelogic of the value-added chain (Porter, 1980) ultimately implieskeeping processes which create high value added in house andsub-contracting out all operations with low value-added’ (Sako,1994, p. 272). In this paper, we are concerned with relationshipsbetween firms that extend beyond pure outsourcing.
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1998). In the West, and especially in the US and UK,the recent tendency of large firms to ‘downsize’ andfocus on their core competencies has also encouragedgreater collaborative activity with suppliers (as well aspure outsourcing). Within this context, co-operationsfor innovation with (long term and trusted) supplierstend to complement internal R&D efforts rather thana substitute for them.
3.2. Co-operations for innovation beyond thesupply-chain
Customers and supplies apart, firms can engage inco-operative arrangements for innovation with severalother types of partner. These include competitors,universities, consultants, research institutes, researchand technology organisations, and other associa-tions. Without doubt, co-operations with competitorsraise the greatest suspicions, because of the poten-tial for anti-competitive behaviour. But motivationsfor alliances with competitors need not be (directly)anti-competitive, and can be complex (Fusfeld andHaklisch, 1985; Hamel et al., 1989). Below we givesome examples of motivations that are not simplyanti-competitive, nor simply associated with costsaving.
• Collaborations may relate to standard setting,whereby firms agree to introduce products or ser-vices based on a jointly developed, common stan-dard. This can be about establishing the basis ofcompetition, and these agreements are particularlyimportant where new products or services are rel-atively easily copied, but costly to develop, i.e.where there is a first mover disadvantage. Rapidcopying of innovations is thought to be a commonproblem in services. Standard sharing can also beaimed at encouraging the market, which can bereluctant to take up a new technology when thereis only one provider; it also encourages suppliersof peripheral products and services to support theinnovation. Agreeing on common standards is astrategy frequently used by newer and smaller firmsseeking to challenge a dominant incumbent.
• Firms frequently do not compete across the wholerange of their activities; they may be competitors insome product or service markets, but not in others.Through the competitive process, however, partially
competing firms build an understanding of eachother’s strengths and weaknesses. They may findareas where their strengths are complimentary forthe development of a new range of products or ser-vices. As these strengths reflect competencies thatcan be difficult, time-consuming and costly to de-velop, it makes sense to collaborate rather than seekto replicate the other firms’ strengths, especially inthe face of other competitors, or consortiums, thathave all the required competencies, or where thecollaboration is aimed at developing high risk in-novations. This said, firms frequently seek to col-laborate with competitors to learn more about theirrivals’ competencies (Hamel et al., 1989).
• Thirdly, competitors collaborate when they facecommon problems, and especially where theseproblems are seen as being outside the realmsof competition and/or when by collaboratingthey can influence the nature of the regulatoryenvironment—an example would be dealing withregulations and regulatory change with respect topollution controls.
Universities and government research institutes areimportant contributors to the supply of new scien-tific and technological knowledge (Lundvall, 1992;Nelson, 1993), but in recent years UK universities (andgovernment research institutes) have been under con-siderable pressure to move closer to industry, as gov-ernments have sought to encourage these institutionsto undertake more industrially relevant research, in or-der to assist the competitiveness of UK industry.
Combined with the significance of research to theprestige of universities and individual researchers,pressure on funding has encouraged academia intogreater collaboration with industry, and a shift fromtraditional scientific knowledge generation (Gibbonset al., 1994—Mode 1 knowledge) to knowledgeproduction based on problem solving (Mode 2 knowl-edge). As a consequence, higher education institu-tions have increased both their level and their shareof R&D conducted in the UK (Howells and Nedeva,2001).10 Meanwhile, within UK industry business
10 Howells and Nedeva (2001) point out that in 1997 highereducation research and development (HERD) accounted for almost20% of gross UK expenditure on R&D, up from 14% in 1981,and, adjusted for inflation, HERD almost tripled between 1981and 1997.
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funded civilian R&D has remained flat and evendeclined in recent years.11 As research grows in-creasingly expensive, industry has looked to leverageexternal knowledge, including that in academia andgovernment research institutes, to access to specialisttechnical support (including experts and specialistequipment) and to complement internal R&D, notleast in providing a window on emerging technolo-gies (Tidd et al., 1997). Universities are seen asespecially useful for basic and long-term strategic re-search, particularly in pre-competitive technologies;the sorts of research that many firms regard as ex-cessively expensive to undertake alone, using onlytheir own resources. When coupled with the availablefunding opportunities, including those from the Eu-ropean Commission, co-operation arrangements withacademia are increasingly seen as an inexpensive andlow risk source of specialist knowledge.
Yet universities (and other public sector research in-stitutes) are often seen as slow to act and unresponsiveto industry needs. Private sector consultancies and re-search institutes are alternative sources of informationand knowledge for innovation. These can provide fun-damental scientific or technological knowledge, butmore commonly provide applied knowledge, specialistskills and information. During the 1980s and 1990s thenumber of consultancies grew dramatically in the UK,particularly as firms looked to downsize and outsourcespecialist activities (e.g. information systems designand implementation). The advantages of working withconsultants rather than relying wholly on internal ca-pabilities was also increasingly appreciated, and notjust for cost saving. For example, Bruce and Morris(1998) argue in relation to design consultants that in-ternal designers, though familiar with the company’sapproach and products, often become complacent andfail to provide innovative ideas. External design con-sultants provide fresh ideas and, while this can beachieved on a one-off basis, on-going collaborationswith consultant designers tend to be more effective as
11 Recorded business funded civilian R&D amongst UK firmsdeclined in real terms between 1993 and 1997. However, there maybe an increasing problem of undercounting, as services expand andmanufacturing contracts, as what constitutes R&D in services isless clear. Moreover, the R&D undertaken by the growing share ofsmall firms in the economy is also more likely to go unrecorded,as this is often undertaken on an occasional or informal basis,rather than in distinct R&D departments.
this provides more opportunity to build valuable con-textual knowledge about the firm and its products.
More generally, Bessant and Rush (1995) argueco-operating with consultants can provide a varietyof inputs to the innovation process, in roles that gobeyond the traditional provision of expertise. Theseinclude: experience sharing, whereby consultants actlike bees in cross-pollinating ideas between firms;playing a diagnostic role in helping firms to articulateand define their particular needs for innovation; andacting as ‘marriage brokers’, pairing companies withneeds and solutions.
4. The variables for the multivariate analysis
Having provided an overview of the general mo-tivations for co-operation agreements with externalpartners, we now introduce the various characteris-tics of the innovating firms (that the UK CIS-2 en-quired about), and consider how these might relate tothe propensities of firms to enter into co-operative ar-rangements for innovation.
4.1. Using co-operations to reduce difficultieswith the innovation process
We mentioned earlier that, at a basic level, firmsenter into collaborative arrangements for innovationbecause they do not have internally all of the neces-sary resources (including knowledge) and/or becausethey wish to reduce the risk associated with innova-tion. To an extent we can identify the firms that lackedinternal resources and/or considered the risk or costof innovation to be excessive by the answers givento the question on whether they experienced difficul-ties with their innovation projects between 1994 and1996. Experiencing difficulties meant at least someof the firm’s innovation projects were seriously de-layed, terminated after being started and/or not evenstarted. The firms experiencing difficulties were thenasked what factor(s) were responsible. Amongst thesewere the economic or financial risk of innovation, theavailability and cost of finance for innovation, organ-isational rigidities or inadequacies (including a lackof skilled technical and/or managerial personnel), dif-ficulties with regulations or standards, customers’ re-sponsiveness to innovation, and a lack of information,
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on technologies and/or markets. Collaborations maybe used to reduce any of these. By including in theregressions variables identifying firms hampered forthese reasons we are assuming the collaborationsmay have been entered into to reduce them (andthe collaborations were not themselves the source ofdifficulty).
Of particular interest is the behaviour of the firmsthat claimed to have encountered difficulties withcustomers’ responsiveness to innovation, for this dif-ficulty suggests the firm may have been striving tointroduce higher level innovations. If this is the case,we might expect the firms that experienced difficul-ties with customers’ responsiveness to innovation tobe more likely to co-operate with customers, andperhaps other external partners.
4.2. Engagement in R&D and co-operativearrangements for innovation
The second factor we consider is engagement inR&D. Given the explicit mention of R&D in the defi-nition of ‘innovation co-operation’ we can expect con-duct of R&D to impact positively on entering intothese arrangements. Past research has also found thatfirms that undertake R&D are more rather than lesslikely to enter into these arrangements (with suppliers,customers and other organisations—e.g. Fritsch andLukas, 2001). One of the reasons for this is that firmsconduct R&D partly in order to raise their absorptivecapacity, that is their ability to learn effectively fromtheir environment and from the work of others (Cohenand Levinthal, 1989, 1990).
We can, however, go beyond simply identifying thefirms that conducted R&D and those that did not; wecan also differentiate between various levels of R&Dby intensity. First, there are those that conducted R&Donly on an occasional basis, as opposed to those thatundertook R&D continuously, whilst amongst the lat-ter we can identify firms that undertook R&D at partic-ularly high intensity, i.e. those that spent over £ 2500per employee on internal R&D activities in 1996.12
If the greater intensity of R&D activities relates to thedevelopment of more complex or novel (i.e. higherlevel) innovations, which are more likely to require
12 Unfortunately, the question which provides this data asked onlyabout this single year.
close interactions between the innovator, its suppliers,customers and possibly other innovation partners, thenwe would expect that not only will the conduct of R&Dimpact positively on participation in co-operative ar-rangements for innovation, but the propensity to en-gage in these will also increase with the intensity ofR&D activities.
4.3. The type of innovation being developed
In relation to the ‘level’ of innovation, we can as-sess whether the type of innovation introduced hadan impact on the firms’ participation in co-operativearrangements for innovation. All of the firms exam-ined here were ‘innovators’ in the sense that they hadintroduced (or were developing) between 1994 and1996, new products or processes (in the case of man-ufacturers) or services, including new methods to pro-duce/deliver services (amongst services). Beyond this,however, firms could declare that they had introducedan innovation that was not only new to the firm, butalso ‘new to the market’.13
A problem with this variable is the direction of cau-sation. ‘New to the market’ innovations might be anoutcome, not a cause, of collaborations. We consider,however, that the introduction of ‘new to the market’innovations is not accidental, but reflects the strate-gic intent (Hamel and Prahalad, 1989) to innovate ata higher level. This intent is likely to be related toseeking collaborations with external partners, not leastbecause ‘new to the market’ innovations are likely torequire greater inputs and/or greater novelty of inputs,and involve greater market uncertainty. These expec-tations are supported by recent empirical research byFritsch and Lukas (2001), who found that amongst aset of innovating German firms those that engaged inhigher levels of product innovation were more likelyto have co-operative arrangements for innovation (es-pecially with their customers).
Meanwhile, firms that introduced only pro-cess innovations,14 which implies a cost orien-tation, might be less likely to have co-operative
13 The question asked: ‘between 1994 and 1996, did yourenterprise introduce technologically new or improved products(‘services’ in the services survey) new to your enterprise and newto your enterprise’s market’.14 In services—‘new methods to produce/deliver services’.
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arrangements for innovation, apart, perhaps from withsuppliers.15
4.4. Investments in externally developed technologies
Apart from the intensity of R&D activities, wecan also examine whether the intensity of firms’investments in externally developed technologies im-pacted upon their propensities to collaborate. Here,expenditures on externally developed technologies(directly linked to innovation) includes expenditureson acquired machinery, equipment and other tech-nologies (including software), and acquired R&Dservices, although the latter normally accounts foronly a very small proportion of the total. As such, wemight expect high levels of technological acquisitionto be associated with collaborations, especially withsuppliers, but also with consultants and others. Suchcollaborations may simply be related to reducing therisks associated with acquiring externally developedtechnologies, but high levels of expenditure may alsosignal the acquisition of bespoke rather than standardtechnologies. Firms are more likely to collaborate(especially with suppliers) for the development ofnon-standard technologies, because of the greater in-formation flow and risk associated with these develop-ments.
4.5. Other background characteristics—firm size,age, sector, and ownership
The variables discussed above are behavioural orexperiential in the sense that they relate directly tothe innovation related activities and experiences of thefirms. We now consider the background characteris-tics of the firms; these are not directly related to inno-vation, but firm size and sector of activity are classicvariables of innovation studies, having been found bynumerous studies to relate to the nature and pattern ofinnovative activity (Cohen, 1995). Although the grow-ing number co-operative arrangements and strategicalliances for innovation may be breaking down thestandard relationships (Teece, 1992), it would be re-
15 Fritsch and Lukas (2001) found that firms that emphasised acost reduction orientation to their innovation activities were morelikely to co-operate with suppliers, but not with other types ofpartner.
miss not to consider these background factors in ouranalysis.
On the one hand, new and small firms might have thegreater need for co-operative agreements, because ingeneral they have fewer internal resources. But whilstlarge firms have greater internal resources, they arealso likely to engage in a wider range of activities,including some that might benefit from co-operation.Firm size itself therefore gives little guidance as towhether or not firms might engage in co-operative ar-rangements for innovation. Rather, it is because firmsize proxies for (market) power that it is likely to in-fluence the pattern of such arrangements—particularlyas not all of these ‘co-operative arrangements’ willbe entered into freely by all parties (Dussauge et al.,1992). Especially with suppliers, large firms are oftenin a position where they can, should they wish to, (vir-tually) compel the participation of suppliers in jointinnovation projects. Although there are many occur-rences in which suppliers (of all sizes) enter into thesearrangements entirely willingly, some small firms tryto avoid these arrangements for fear of losing theirautonomy, particularly to dominant customers, and ingeneral smaller firms tend to have less influence overtheir suppliers. On this basis we would expect engage-ment in co-operative arrangements for innovation withsuppliers to increase with firm size.
The influence of size on co-operations with otherpartner types is less obvious. However, concerningcustomers, both small and large firms often seekco-operations with customers (to learn more abouttheir needs, etc.), but, in the reverse of the relationswith suppliers, there are cases in which (small) firmsare (virtually) forced by large or powerful customersto co-operate in innovation projects. Yet customersmay prefer to work closely with larger firms, es-pecially if one or a few relationships substitute fornumerous relationships with smaller firms. Other fac-tors, such as the greater prestige and influence thatcan arise through co-operating with a large renownedfirm may also play a role, and these factors arealso likely to influence the pattern of co-operationsamongst competitors. However, whilst we would ex-pect the propensity to collaborate with customers andcompetitors to increase with size, we also expect therelationship with size to be weaker than that for sup-pliers. Co-operations with universities, consultanciesand other research organisations are likely to increase
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with size partly because larger firms have greater re-sources with which to engage in collaborations, butalso because they tend to have greater awareness of thecapabilities of these research orientated organisations.
Ownership may disturb the size relationships out-lined above. Firms that belong to wider companygroups are, on the one hand, able to draw on re-sources from within their wider groups and might,therefore, not need to seek as many resources ex-ternally, but on the other hand these ‘group firms’are able to draw on at least some of the power, se-curity and prestige of their wider groups in seekingpartners for innovation. Group firms may also be bet-ter informed of the capabilities of potential partnersdue to knowledge pooling and the activities of othermembers of their group. These reasons suggests that,controlling for size, ‘group firms’ are more likely tohave co-operative arrangements for innovation withexternal partners than are independent firms.
We can also divide ‘group firms’ between those thatare part of domestically owned groups and those thatare foreign owned. Foreign owned firms tend to beamongst the most dynamic in the economy and, withthe globalisation of markets, these firms may seek tocollaborate, especially with domestic customers, in or-der to adapt their global products to local markets(Dussauge et al., 1992). They also tend to be partic-ularly prestigious firms with which various types ofinnovation partner are eager to work. We anticipate,therefore, that (after controlling for firm size and otherfactors) ‘group firms’ will in general be more likelyto have co-operative arrangements for innovation thanindependent firms, but amongst group firms those thatare foreign owned are expected to be the most likely tohave these arrangements, especially with customers.
Finally, sectors, which are a first proxy for techno-logical opportunity. Sectors with high technologicalopportunity are associated with high technology ac-tivities, and firms in higher technology activities canbe expected to be more frequent innovators than thosein the low technology activities. But it is less clearthat amongst innovators and once other factors aretaken into account (such as the conduct and intensityof R&D), that firms in higher technology activitieswill be more likely to have co-operative arrangementsfor innovation. We include sectors in the analysis byusing a simple sectoral classification based on ‘tech-nological intensity’. This divided firms into those in
high, medium and low technology manufacturing sec-tors, and those in high and low technology services,all according to the definitions provided by Butchart(1987) and the OECD (1992). An additional ‘sector’—‘utilities, etc.’ is also included for the electricity, waterand gas utilities, mining, construction and recyclingfirms that responded to the (manufacturing version ofthe) survey.
5. The multivariate analysis
For the multivariate analysis, the variables for whichare summarised in Table 2, we began with a logis-tic regression identifying the firms amongst the wholesample of respondents which engaged in innovationactivities (as defined in Section 1). This regression in-cludes only the background characteristics of the firms(i.e. size, age, ownership and sector of activity) as theexplanatory variables (Table 3). It shows that, as ex-pected, the propensity to engage in innovation activi-ties increased with enterprise size, but also varied withsector of activity, and with ownership. For a givensize, firms active in high technology manufacturingwere the most likely to engage in innovation, followedby those in medium technology manufacturing. Hightechnology service firms were only marginally morelikely to be innovators than were low technology man-ufacturers (i.e. those in the base sector) of the samesize, whilst those in low technology service activitiesand the ‘utilities, etc.’ firms were significantly lesslikely to have engaged in innovation activities. Firmsnewly established between 1994 and 1996 were morelikely to be innovators, which is understandable giventhe definition of innovation is new to the firm, not newto the market or industry. Finally, ownership had aninfluence. For a given size, firms that were part of awider company group were more likely to engage ininnovation than single entity, independent firms, whilstthose that were part of foreign owned groups werethe most likely to engage in innovation. This greaterpropensity of group firms to innovate is understand-able as these may draw on the resources of their widergroups, and may have introduced new products, pro-cesses or services that were developed elsewhere intheir company groups.
Having identified the innovators, we now investigateparticipation in co-operative arrangements for inno-
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Table 2Description of the variables included in the logistic regressionsa
Variable name Description
D NewFirm Dummy—firms established between 1994 and 1996 (N = 128)Ln(Employment94) Natural log of the firms employment in 1994 (set to 0 for new firms)D UK-group Dummy—firms that were part of a wider, UK owned, group (N = 753)D Foreign Dummy—firms that were foreign owned (N = 239)D Utilities Dummy—firms in the ‘utilities, etc.’ sector (N = 53)D HT-Manufacturing Dummy—firms in high technology manufacturing sectors (N = 215)D MT-Manufacturing Dummy—firms in medium technology manufacturing sectors (N = 297)D HT-Services Dummy—firms in high technology service sectors (N = 122)D LT-Services Dummy—firms in low technology service sectors (N = 229)D RD Dummy—firms that conducted R&D at least on an occasional basis (N = 921)D RD-Continuous Dummy—firms that conducted R&D on a continuous basis (N = 591)D RD-ContHighInt Dummy—firms that conducted R&D on a continuous basis and that spent over £ 2500 per
employee on internal R&D activities in 1996 (N = 181)D Ext-IE Med/High Dummy—firms that spent at least £ 500 per employee in 1996 on the purchase for
innovation of externally provided technologies and services (N = 698)D Ext-IE High Dummy – as DExt-IE Med/High, but for firms that spent £ 2500+ per employee (N = 318)D I-Market-Novel Dummy—firms that introduced ‘new to the market’ innovations (N = 548)D I-Process-Only Dummy—firms that only introduced process innovations (N = 199)D H-Market-Info Dummy—firms hampered by a lack of information on markets (N = 119)D H-Customer-Resp Dummy—firms hampered by customers responsiveness to innovation (N = 207)D H-MktInf-and-CustR 1 if DH-Market-Info =1 and DH-Customer-Resp= 1 (N = 52)D H-MktInf-/-CustR 1 if D H-Market-Info = 1 or D H-Customer-Resp= 1 (N = 222)D H-Tech-Info Dummy—firms hampered by a lack of information on technology (N = 117)D H-Internal Dummy—firms hampered by organisational rigidities and/or by a lack of qualified
personnel within the firm (N = 348)D H-Regulations Dummy—firms hampered by regulations or standards (N = 66)D H-Risk/Cost-Only Dummy—firms hampered by perceived economic risk &/or cost of innovation but not by
the availability and/or cost of finance for innovation (N = 126)D H-Finance-Only Dummy—firms hampered by availability and/or cost of finance for innovation but not by
the perceived economic risk and/or cost of innovation (N = 116)D H-Risk-and-Finance Dummy—firms hampered by both the perceived economic risk and/or cost of innovation
and by the availability and/or cost of finance for innovation (N = 154)a N: number of firms amongst the 1275 engaged in innovation activities with the described characteristic.
vation amongst the firms engaged in innovation activ-ities. Our primary concern is whether or not firms en-gaged in these arrangements. To this extent it does notmatter which type of organisation(s) they co-operatedwith. However, by assessing the co-operations withparticular types of partner organisation we are likely togain a better understanding of the motivations for theserelationships than if we only look at co-operations ingeneral. We began, therefore, with the estimation of ageneral model for co-operations with any partner, butalso estimated models for co-operations with each ofsix different types of partner (i.e. suppliers, customers,competitors, universities, consultants and ‘others’—i.e. government institutes, research and technology or-ganisations and research associations—thus, ‘others’
is admittedly a rather miscellaneous grouping). Withthe exception of the customers model, which incorpo-rated a minor variation (detailed below), we estimatedthe same model for both co-operations in general andfor co-operations with each of the particular types ofpartner. In each case we began by estimating the FullModel, from which we then gradually eliminated theinsignificant factors and those that did not contributeto the overall strength of the model, to provide the Re-duced Model. Table 3 provides the Full and Reducedmodels for engaging in co-operation arrangementsin general, whilst Table 4 provides these models forengaging in co-operations with each of the six typesof partner. Below we discuss the findings of the gen-eral model, but also how the findings for the specific
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Table 3Logistic regressions identifying innovators and, amongst innovators, those with co-operation arrangements for innovation
Variable name Identifying innovators Co-operations Model 1 Co-operations Co-operationsModel 2 (M2) M2, reduced
a Variable removed in the model reduction process.b Not included in the model.∗ Identifies significance at 10%.∗∗ Identifies significance at 5%.∗∗∗ Identifies significance at 1%.
models differed from this. We begin by discussingthe behavioural–experiential factors—i.e. those thatreflected the innovation related activities and experi-ences of the firms, after which we shall discuss thebackground factors of size, age, ownership and sectorof activity.
5.1. Co-operations and the behavioural–experientialfactors
Engagement in R&D had a clear and consis-tently positive effect on whether or not a firm hadco-operative arrangements for innovation. Quite
simply, those that engaged in R&D were more likelyhave co-operative arrangements for innovation thanthose that did not undertake R&D. This was true ingeneral and for co-operations with each of the sixdifferent types of partner. Moreover, the intensityof R&D also had an impact, such that firms thatundertook R&D on a continuous basis were morelikely to have co-operation arrangements than thosethat only engaged in R&D occasionally, whilst thosethat spent most (per employee) on internal R&Dwere the most likely to have these arrangements.For co-operations with each individual types of part-ner the intensity of R&D also impacted positively
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Table 4Logistic regressions for co-operation agreements with particular partner types
Variable name With suppliers With customers With competitors
a Variable removed in the model reduction process.b Not included in the Model.∗ Identifies significance at 10%∗∗ Identifies significance at 5%.∗∗∗ Identifies significance at 1%.
on these arrangements, although in slightly differentways.16
Secondly, firms that spent highly (per employee andin 1996) on acquired technologies and services weremore likely to have co-operation arrangements, both ingeneral and with each of the individual types of partnerexcept universities, than firms that spent little or noth-ing on acquired technologies in 1996. This is under-standable, assuming the co-operations related directlyto at least some of the technologies acquired. The factthat this factor had greatest influence on co-operationswith suppliers suggests this was the case. Those firmsthat spent at least £ 500 per employee on acquiredtechnologies in 1996 were significantly more likelyto have co-operative arrangement with suppliers thanthose that spent less than £ 500, whilst those that spent
16 Firms that undertook R&D continuously were more likelyto have co-operations with customers, competitors, consultantsand others, than those that undertook R&D occasionally, but thepropensity to collaborate with these partners was not higher stillamongst those that spent especially highly on R&D. By contrast,for co-operations with suppliers and universities the division ap-peared between those that spent especially highly on R&D andothers that undertook R&D, rather than on whether R&D wasundertaken on a continuous or an occasional basis.
over £ 2500 were even more likely to have these ar-rangements. This is also understandable, especially ifthis high spending is associated with the acquisitionof customised, bespoke, or more complex technolo-gies, for which co-operations are likely to increase theinformation flow and reduce the risk associated withthese developments.
Suppliers apart, those firms that spent highly oninnovation were also more likely to have co-operationarrangements with customers, competitors, consul-tants and ‘others’. Consultants and ‘others’ may besources of acquired technologies or services, but cus-tomers and competitors are unlikely to be. However,co-operations with customers and competitors mayalso relate to reducing the risk associated with highcost innovation, for when firms are investing heavilyin new technologies they will want reduce the chancethey are making the wrong bets, and co-operationswith customers and competitors are one way ofachieving this. The finding that firms that investheavily in acquired technologies are not more likelyco-operate with universities suggests universities arenot a significant source these technologies, nor influ-ential in helping firms place bets with respect to highcost acquired technologies.
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The type of innovation introduced by the firms im-pacted on their propensity to engage in co-operativearrangements for innovation. In particular, those thatclaimed to have introduced ‘new to the market’ inno-vations were more likely to have these arrangementsthan were the firms that claimed only ‘new to the firm’innovations (i.e. imitations of products or services al-ready available on the market). This is understandable,as more radical innovation requires greater informa-tion exchange, particularly between the innovator,its customers and suppliers. It is notable, therefore,that particularly with these partner types the firmsthat introduced ‘new to the market innovations’ weremore likely to have co-operations than were otherfirms. There was also weaker evidence that ‘new tothe market innovators’ were more likely to co-operatewith their competitors. This may reflect the sharing ofresources to achieve higher-level innovations and/orto the combining of market presence to push for-ward more novel innovations. It is notable, though,that co-operations with consultants, universities and‘others’ were not more common amongst those thatintroduced ‘new to the market innovations’, suggest-ing co-operations with these partners tended not tobe related directly to the introduction of higher-levelinnovations. Also notable is that those firms that onlyintroduced process innovations were not significantlyless likely to have co-operative agreements for in-novation. In the specific cases of co-operations withcustomers and suppliers, however, the signs on thisvariable were negative, which was also weakly sig-nificant in the Reduced Model for co-operations withsuppliers.
Next, we consider the factors hampering innovation.One factor in particular stands out; firms that statedthey had encountered difficulties with customers’ re-sponsiveness to innovation were more likely to haveengaged in co-operation arrangements for innovationthan those that did not identify this as a problem.If co-operations were used as a means by which tobetter understand customers’ requirements and ob-jections to innovations, we would expect this factorto be significant in the model relating specifically toco-operations with customers. And indeed this wasthe case. However, we also found that firms that com-plained of a lack of market knowledge were also (andunderstandably) more likely to have these arrange-ments with customers, although this factor did not
significantly influence the pattern of co-operations ingeneral. Indeed, the firms that claimed they had diffi-culties either because of a lack of market knowledgeor because of customers’ responsiveness to innovationwere more likely to have these arrangements with cus-tomers, but those firms that identified both of thesefactors as causing difficulties were even more likely tohave co-operative arrangements with customers. Theslightly different specification used for the model forco-operations with customers was introduced to high-light this finding.17
Customers apart, the models also indicate that firmsthat encountered difficulties with customers’ respon-siveness to innovation were more likely to co-operatewith their suppliers and competitors.18 These patternsof co-operation suggest these arrangements relate tothe introduction of higher-level (i.e. more radical orcomplex) innovations, because customer resistance tosuch innovation tends to be greater. Firms frequentlyjoin forces with competitors and suppliers to intro-duce such innovations, firstly, because such innovationmay require greater resources than the firm has alone,secondly, because collaborating helps spread the costand risk of such innovation and, thirdly, in the caseof competitors, because the existence of at least twosuppliers can encourage customers of the merits of theinnovation.
Apart from problems with customers’ responsive-ness to innovation the only other difficulties that wererelated to firms engaging in co-operative arrangementsfor innovation were a combination of the economicsand financing of innovation. Here, the economics ofinnovation includes the perceived economic risk ofinnovation and/or the direct cost of innovating, whilstthe financing of innovation relates to either or boththe availability and cost of finance for innovation.Firms that complained of both of these were morelikely to engage in co-operations than were otherfirms that did not highlight these factors.19 This find-ing is not interpreted easily. It may reflect difficultiesencountered by firms seeking to develop higher-level
17 We also tried this specification with the other models, butfound it did not improve on the original.18 There was weaker evidence that they were also more likely to
co-operate with universities.19 To a lesser extent firms that only complained of the economics
of innovation were also more likely to enter into co-operativearrangement for innovation than were otherwise similar firms.
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innovations, or some types of innovation that aredifficult to appropriate, but it may also relate to par-ticularly risk averse and/or reluctant innovators. Yetit is difficult to see why these risk averse or reluctantinnovators would be attractive partners for innova-tion, and it is notable that the firms that complainedof difficulties with both the economics and financingof innovation were significantly more likely to en-gage in co-operative arrangements with all six of theindividual types of partner. If these firms were onlymore likely to co-operate with suppliers we mightinfer this behaviour was an attempt to shift the costand risk of innovation down the supply chain, but thefact that all six partner types were more likely to beengaged by these firms suggests these difficulties andco-operations may be associated with higher-levelinnovations (or with particular types of innovation),rather than with greater risk aversion and/or costsaving.
None of the other difficulties with innovationwere in general associated with firms participat-ing in co-operative arrangements for innovation,although a few were associated with collaborationswith particular partner types. We have already dis-cussed the influence of a lack of market knowledgeon co-operations with customers, but this also hada positive influence on co-operations with competi-tors, whilst a lack of information on technologies hadan influence on co-operations with suppliers (and aweak influence on co-operations with universities).A lack of information on technologies might havebeen expected to increase the propensity of firmsto co-operate, particularly with suppliers. However,we find the firms that complained of this were less,not more, likely to have these arrangements. Thisunexpected result perhaps suggests a ‘needing toknow what you need to know’ argument, which re-lates to absorptive capacity (Cohen and Levinthal,1989, 1990). Thus, the firms that did not know whattechnological knowledge they required (especiallyfrom suppliers) were less likely to co-operate withsuppliers than those that knew what they needed toknow.20
20 Other than this there was weak evidence that those experienc-ing difficulties with regulations or standards were more likely toco-operate with suppliers.
5.2. Co-operations and the backgroundcharacteristics of the firms
Having examined the behavioural–experiential fac-tors and their influence on participation in co-operativearrangements for innovation, we now turn to the in-fluence of the background characteristics of the firms,including their size, age, ownership and sector ofactivity. Overall, and as expected, the propensity toengage in co-operative arrangements for innovationincreased with enterprise size. Furthermore, this pos-itive relationship with size existed for collaborationswith each of the individual partner types, although theinfluence of size on these collaborations varied widely.Enterprise size was most influential in co-operationswith suppliers, universities and ‘others’. With sup-pliers this may well reflect the power of larger firmsover their supply-chains, such that they can virtuallycompel participation in joint innovation projects. Withuniversities and ‘others’ it perhaps reflects the greaterresources of larger firms, which makes them attractiveto these organisations, but also to the greater aware-ness of larger firms as to the services available fromuniversities and ‘other’ institutes. The relationshipwas weaker for co-operations with competitors andconsultants, but was especially weak for co-operationswith customers. Apart from reflecting the benefit toall sizes of enterprises of working with customers, thismay be partially because, in the reverse of relationswith suppliers, small firms are often compelled towork with large customers in joint innovation projects.
Meanwhile, newly established firms were not ingeneral more or less likely to have these agreements,although they were more likely to co-operate with‘others’, with weaker evidence that they were alsomore likely to co-operate with universities. Specula-tion suggests at least two motivations. Firstly, a sig-nificant share of these collaborating new firms may bespin-outs from universities or research institutes, andas such are likely to maintain links with their ‘parent’at least for the first few years. Secondly, universitiesand ‘others’ are more open, and cheaper, sources ofexpertise than consultants, which would make themattractive to cash strapped new firms, which have astrong incentive to seek out such expertise.
Regarding ownership, group firms were more likelyto have co-operation arrangements for innovation thanwere independent firms, and foreign owned firms were
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the most likely to have these arrangements. This maybe because group firms tend to have more informationabout potential collaboration partners, but also becausethey tend to be better resourced and more prestigiouspartners with which to collaborate. In particular,group firms were more likely to have co-operationarrangements with customers, universities and con-sultants, with foreign owned firms in particular beingmore likely to have co-operation arrangements withcustomers. This finding concerning foreign firms andcustomers supports the view that foreign firms formco-operative arrangements with domestic customers inorder to learn more about the requirements of the localmarket. Interestingly, group firms, whether foreign ornot, were not significantly more likely to have thesearrangements with suppliers, competitors or ‘others’.
Finally, we consider the broad sectors of activitythe firms were engaged in. We employed a simplesectoral classification based on technological inten-sity (or opportunity) and divided between manufac-turers and service enterprises, with a final residualcategory for utilities, construction and recyclingcompanies ‘utilities, etc.’. Overall, and before thebehavioural–experiential variables were taken intoaccount, the propensity to have co-operative arrange-ments for innovation increased with the technologicalintensity of the sectors in which the firms were active,with especially large differences being found betweenthe two service groupings (see Model 1 in Table 3). Af-ter the incorporation of the behavioural–experientialvariables (Model 2 in Table 3) the coefficients on thedummies for high and medium technology manufac-turing activities, and that for low technology serviceactivities, ceased to be significant, showing that thedifferent innovation behaviours and experiences ratherthan sectors of activity accounted for most of thedifferences in co-operation behaviour. However, hightechnology service firms and the ‘utilities, etc.’ firmsremained more likely to have these arrangementseven after the behavioural–experiential variables weretaken into account.
The finding for ‘utilities, etc.’ firms was not antici-pated, although overall these firms are less likely to beinnovators and previous research has found that utilityfirms—and particularly energy firms—are more likelythan firms generally to co-operate for R&D (Fusfeldand Haklisch, 1985; Brower and Kleinknecht, 1992).Beyond this, the privatisation of UK utilities firms in
the 1990s may have led them to change their behaviourwith respect to innovation, becoming less self-reliantand instead sourcing knowledge from a wide array ofother firms and organisations. However, in this analy-sis this is a small and somewhat miscellaneous groupof firms, so the significance of these findings shouldbe seen in that context.
The finding that high technology service firms aremore likely than other firms to co-operate for inno-vation is in keeping with the existing literature onknowledge-intensive and technology based services.These firms are known to often engage in collabo-rative innovation projects (Miles, 1996; den Hertogand Bilderbeek, 2000; Sundbo and Gallouj, 2000),especially with customers with which they developcustomer specific technologies. Reflecting this, it isparticularly notable that these firms were more likelythan others (with otherwise similar characteristics) tohave co-operative arrangements for innovation withtheir customers.
High and medium technology manufacturers werealso more likely to have co-operations with customers,as well as with universities and, for high technologymanufacturers, with consultants. These findings sug-gest greater interaction between these innovators, theircustomers, universities and consultants, perhaps be-cause they are engaged in less defined or faster mov-ing technologies and markets (as opposed to the moresettled technologies and markets of the low technol-ogy manufactures, which were the base category forthe regressions).
However, the most marked differences between sec-tors were found between services and manufacturers,and between high and low technology services. Asmentioned earlier, high technology services were morelikely than otherwise similar firms to co-operate withcustomers, but they were also much more likely thanmanufacturers to co-operate with competitors, consul-tants and ‘others’. However, they were less likely toco-operate with universities. Meanwhile, low technol-ogy services were not more likely than manufacturersto co-operate with customers, but were more likelyto co-operate with competitors and consultants; theywere also significantly less likely to have these agree-ments with universities and, surprisingly, suppliers.The finding regarding suppliers perhaps suggests theselow technology service firms, which are known to beheavy users of acquired technologies, were acquiring
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standard rather than customised or bespoke technolo-gies for their innovation activities. The finding that allservices are less likely to collaborate with universitieswas unexpected, but may indicate that universitiesare geared towards industry (and industrial problems)rather than services (and service problems). Thegreater collaboration with consultants and competitorsmay indicate something about the nature of innovationin services—particularly the supposed low appropri-ability of service innovations, which would encouragecollaborations with competitors. Consultants, mean-while, may be drawn upon for expertise, as well as forfresh insights, experience sharing and problem solving(Bessant and Rush, 1995; Bruce and Morris, 1998).
6. Concluding discussion
We began this paper with the observation that somecommentators now argue innovation is no longer theprovince of individual firms, but is a matter of collec-tive action, with firms acting together with suppliers,customers, competitors, consultants and/or univer-sities in co-operative arrangements for innovation.However, in direct contrast, recent empirical evi-dence suggests such collaborations are far from thenorm. Craggs and Jones (1998) report that less thana fifth of the innovating firms in the UK had thesearrangements, and the CIS-2 studies for other coun-tries show the UK is not unusual, but around averagein the proportion of innovators with these arrange-ments (European Commission, 2001; Tether et al.,2001). The purpose of this paper was, therefore, todig deeper into the UK CIS-2 data to investigate thepatterns of co-operation arrangements for innovationamongst the innovators identified by the survey.
The analysis found that co-operative arrangementsfor innovation were more common amongst firms thatintroduced innovations that were not only new to thefirm, but also new to the market, and found that boththe conduct and intensity of R&D activities tended toincrease the likelihood that a firm had co-operativearrangements for innovation with external partners. Ifwe consider that R&D is associated with the devel-opment of higher-level innovations (i.e. more noveland/or more complex innovations), this suggestsco-operations are associated with higher-level innova-tions. If we consider that greater customer resistance
to innovation also tends to be associated with moreradical innovations, and that higher levels of innova-tion also tend to be associated with higher levels ofinvestment in externally developed technologies andservices (suggesting investments in bespoke or cus-tomised rather than standard technologies), then thereis further evidence that co-operations are associatedwith higher level innovations.
To illustrate this in a simple way, we identifiedfrom the general model of co-operations the principalfeatures which differentiated firms with, from firmswithout these arrangements. These features were thefollowing:
• The firm introduced at least one innovation that wasnot only new to the firm, but also new to its market.
• The firm engaged in R&D (at least on an occasionalbasis).
• The firm engaged in R&D on a continuous basis.• The firm engaged in R&D on a continuous basis
and at a high intensity, spending over £ 2500 peremployee on internal R&D activities in 1996.
• The firm spent relatively highly on externally de-veloped technologies and services for innovation—spending at least £ 500 per employee on these in1996.
• The firm complained that difficulties with customers’responsiveness to innovation imposed difficultieson its innovation projects.
• The firm complained that its innovation activitieswere hampered by both the economics and financingof innovation. Here, economics is the perceived riskand/or direct cost of innovation, whilst financing isthe availability and/or cost of finance for innovation.
Each of these features is individually associatedwith the development of higher level innovations, andthe more of these features a firm had the greater isthe association with higher level innovation. All ofthe responding firms could have between none andall seven of these features. Table 5 shows how thepropensity to have co-operative arrangements for in-novation varied with the presence of these features.Only 8% (11 of 136) of the innovating firms that hadnone of these characteristics had co-operative arrange-ments for innovation with external partners, comparedwith 75% (125 of 166) of the firms that had at leastfive of these characteristics (and all of the 12 firmswith all the seven features). The table also shows how
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Table 5Proportion of firms with co-operation agreements by the number of characteristics associated with co-operations
Percentage of firms co-operating by number of characteristicsa (%)
None 1 or 2 3 or 4 5, 6 or 7
All innovators 8 30 54 75Utilities, etc. 10 57 80 100High technology manufacturers 17 33 52 69Medium technology manufacturers 5 27 55 79Low technology manufacturers 5 30 46 71High technology services 0 37 68 74Low technology services 11 24 54 100Independent firms 4 18 40 60Firms that are part of a UK owned group 8 32 56 77Foreign owned firms 17 41 62 82Small firms (0–49 employees in 1994) 3 18 44 57Medium firms (50–249 employees in 1994) 11 35 48 77Large firms (250+ employees in 1994) 13 36 62 85
a The count of the following characteristics: (1) engaging in R&D; (2) engaging in R&D continuously; (3) engaging in R&D continuouslyand spending at least £ 2500 per employee on R&D in 1996; (4) introduction of a ‘new to the market innovation’; (5) spending atleast £ 500 per employee in 1996 on acquired technologies and services; (6) claiming innovation activities were hampered by customers’responsiveness to innovation; (7) claiming innovation activities were hampered by both the economic risk and/or cost of innovation andby the availability or cost of finance for innovation.
the propensity to have co-operative arrangements forinnovation increased with the increasing number ofthese behavioural–experiential characteristics withineach ‘sector’ and within each group of firms by own-ership and size.
This suggests that the firms that were developinghigher level (i.e. more radical or complex) innovationswere more likely to have co-operative arrangementsfor innovation with external partners. This reflects thereasons given in the existing literature on these ar-rangements, which suggests that it is the growing com-plexity of technologies, in conjunction with increasingspeed to market and the globalisation of markets, thatare the underlying reasons for the growing number ofthese relationships. Teece (1986, p. 293), for instance,notes: ‘It is well recognised that the variety of assetsand competencies which need to be accessed (forinnovation) is likely to be quite large, even for mod-estly complex technologies. To produce a personalcomputer, for instance, a company needs access toexpertise in semiconductor technologies, display tech-nology, disk drive technology, networking technology,keyboard technology and several others. No companycan keep pace in all of these areas by itself’. Accordingto this ‘complexity thesis’, collaborations are particu-
larly common when the technologies being developedare new or rapidly evolving, complex and/or expensiveto develop, and when the market is poorly defined.Collaborations are engaged in to reduce the uncer-tainties inherent in the innovation process, but alsoto expand the market. As the technology/market ma-tures, uncertainty declines and collaborative activitybetween firms tends to recede, giving way to transac-tions based on conventional market relations (Koenigand Thiétart, 1990; Saxenian, 1991; Tidd et al., 1997).
Thus, if an objective (i.e. innovation based) per-spective is taken (Archibugi, 1988), particularly onethat weighs the innovations by their significance, thenour analysis suggests co-operations are considerablymore common when firms are developing higherlevel innovations. Strictly speaking we can only statethat the firms that had the features associated withhigh-level innovation (i.e. the seven factors identi-fied above) were considerably more likely to haveco-operative arrangements for innovation with exter-nal partners. We cannot conclude the co-operativearrangements were directly related to the introduc-tion of ‘new to their market’ or other higher-levelinnovation activity. It does seem reasonable, however,to assume that there is a link between co-operations
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and these higher levels of innovation activity. Ar-guably it is these firms developing this sort of highlevel innovation that commentators have had in mindwhen discussing innovation as a collaborative activ-ity. Consequently, if we consider only the proportionof innovating firms that had these arrangements weare in danger of underestimating the importance ofthis phenomenon.
But engaging in higher levels of innovation activityis relatively uncommon; the characteristics related byour analysis to engaging in co-operative arrangementsfor innovation are (thought to be) much less commonin the general population of firms than in the sampleof respondents to the UK CIS-2 (because the samplingand response were biased towards larger firms operat-ing in the more ‘technologically interesting’ sectors).For example, Craggs and Jones (1998) report that, ad-justed to the population, the CIS-2 suggests about halfof UK firms with 10 or more employees were innova-tors, but only 9% (i.e. less than a fifth of innovators)introduced ‘new to the market’ innovations. This com-pares with 43% of the innovators in the data-set whenexamined as a simple sample. Similarly, when adjustedto the population of firms the proportion of innovatorsengaged in R&D is considerably smaller than that indata-set as a simple sample. In other words, most firmsin the economy have few of the characteristics we haveassociated with developing higher level innovations;characteristics that in turn have been found to relate toengaging in co-operative arrangements for innovation.Consequently, from a subjective (i.e. firm-based) per-spective (Archibugi, 1988), co-operative arrangementsfor innovation are far from the norm, and most firmsstill develop their (essentially imitative) new products,processes and services without (formal) co-operativearrangements with other firms or other organisations.
In summary, our analysis suggests the extent ofco-operative arrangements for innovation depends onthe type of firms being considered and what is meantby innovation. Clearly, it would be interesting to knowwhether similar patterns to those found here arise inother countries, and similar studies would be possiblefor other European countries using their CIS-2 data.Although there may be some peculiarities, especiallyin the pattern of collaborations with particular typesof partner (e.g. with universities or consultants) thereis no reason to suppose that overall the pattern ofcollaboration found here will be peculiar to the UK.
It is notable, for example, that our results are similarto those of Fritsch and Lukas (2001) who examinedinnovation co-operations using a similar dataset forGermany.
Especially if the findings are replicated by otherstudies from across Europe, the findings of this pa-per suggest some changes should be incorporated intofuture versions of the community innovation survey.As co-operations appear to be associated with higherlevels of innovation it would be useful to know moreabout these arrangements, and especially how signifi-cant they are for the firms’ innovation activities, suchas whether or not they are indeed related directly tofirms’ more radical innovations. Another issue thatdeserves further attention is whether (and why) thepatterns of collaboration differ between services andmanufacturing, and between high and low technologyservices, or whether (and why) these results are pecu-liar to the UK.
Acknowledgements
I would like to thank the UK Government’s Depart-ment of Trade and Industry (DTI), and in particular Dr.Ray Lambert, for access to the UK CIS-2 data whichis examined in this paper. I am also grateful to RodCoombs and two anonymous referees for comments onprevious versions. Responsibility for the interpretationof the data, and any remaining errors, is solely mine.
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