Liu, Rebecca and Siepel, Josh (2015) Do resource constraints trigger or hamper innovation? : a longitudinal study of UK high-tech firms. In: 22ND INNOVATION & PRODUCT DEVELOPMENT MANAGEMENT CONFERENCE, 2015-06-14 - 2015-06-16.
Abstract
This paper explores whether firms resource constraints trigger or hamper innovation using a ten-year longitudinal study. It contributes to the longstanding theoretical debate between the resource-based and entrepreneurship views of the firm. Scholars from the resource-based perspective argue that resource constraints increase delays and unpredictable results, which thereby to impede innovation. Entrepreneurship research however suggests that organizations avoid experimentation if resources are available, and that resource scarcity therefore stimulates managers to adopt entrepreneurial practices that foster innovation. This points to our imperfect understanding on the issue.This paper contributes to both theoretical advance and managerial practice. First, to correct the bias from a disproportionate amount of interest to financial barriers, we provide a more balanced and integrated view by considering other important resource constraints. Second, to observe the difference of two types of innovation, we augment the literature by studying the effects of resource constraints on both incremental and radical innovativeness and on firms’ performance of sales and R&D growth. Finally, the issue of resource constraints is an inevitable challenge, and the findings of the paper provide some guidance to managers and innovators who are struggling with the lack of resources on one hand and with the pressure of innovation and competitiveness on the other hand. This paper is unique in presenting a long-term, longitudinal analysis of the impact of resource constraints on innovation, both radical and incremental. It presents a ten-year longitudinal study following 362 firms through the life cycle. We use panel analysis techniques to observe the impact of resource constraints on subsequent innovative performance. A research framework is derived from the literature review. We examine the knowledge shortfalls of: management; market; sales; production; R&D and finance. This analysis is based upon a unique, longitudinal panel dataset of 241 UK and German firms in six technology-based sectors over ten years. The dataset draws upon performance data as well as the results of detailed managerial surveys that were carried out in the UK and Germany. This, combined with information provided by interviewees about the firms’ characteristics upon founding, provides a unique and rich longitudinal perspective on factors contributing to the long-run performance of these firms. This study is based on two surveys that were carried out in 1997 and again in 2003. Using these databases, all firms with at least three employees in 1997 that were operating in one or more high-tech sectors and having been founded as legally independent companies between 1987 and 1996 were selected; the mean year of founding was 1991. Our approach to the problem involves initial use of panel logit models to predict the likelihood of a firm engaging in incremental or radical innovation. Our model is specified in a manner that we consider the lagged effect of the resource constraints in t0 on propensity for innovation in period t1. Our other controls listed above all are used for period t1. Given challenges in interpreting logit models we present the results in the form of marginal effects. Following from this analysis we then use panel OLS models to explore the impact of these constraints on subsequent innovation and growth performance. Does the lack of knowledge hamper or trigger innovation? The answer is rather mixed. While our study indicates that the lack of knowledge may not hamper innovation development for both incremental and radical, it suggests that the lack of knowledge does matter when considering sales growth and R&D growth.For radical innovation, our study suggests that the lack of management knowledge may trigger sales growth. Un-surprized, the lack of R&D knowledge triggers R&D growth of firms. This may be explained in two ways. First, the lack of R&D knowledge leads firm to increase R&D investment. Furthermore, the nature of radical innovation may also lead the innovative firms to discard prior R&D knowledge in order to build up new R&D knowledge. Finally, our study echoes the extant literature that the lack of financial knowledge hampers the R&D growth.For incremental innovation, our study once again stresses the significant impact of the lack of financial knowledge on innovation and suggests that the shortfall of financial knowledge hampers sales growth. It further suggests that the lack of market knowledge hampers R&D growth. This result also suggests that market knowledge is critical for firms in deciding their R&D investment. Finally, our study suggests that the lack of production knowledge triggers R&D growth. Managers tend to increase R&D investment when they need production knowledge.Through a ten-year longitudinal study, our study contributes to the existing literature by advancing the understanding of the association between resources constraints and innovation. Building on the theories of human capital, entrepreneurship and RBV, we shed light about the impact of knowledge shortfalls on both radical and incremental innovation. Finally, our study helps to explain the disputes of whether resource constraints hamper or trigger innovation. The study also has implications for executives and managers. It demonstrates that managers can harness the entrepreneurship practices by minimizing their interference for radical innovativeness. Managers and innovators hare encouraged to update their market knowledge that serves an important indicator for R&D investment. Furthermore, as suggested by many researchers, financial knowledge is always important in operating and managing innovation for both sales and R&D growth. Indeed, innovative firms face problems and more innovative firms have more problems. The issue of resources constrains is not only critical but also difficult to deal with. We hope our paper inspires researchers to conduct further research in the future.