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Technology Analysis & Strategic

Management
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Hidden innovators: the role of non-R&D

activities
a b c
Andrés Barge-Gil , María Jesús Nieto & Lluís Santamaría
a
Departamento de Fundamentos del Análisis Económico II,
Universidad Complutense de Madrid., Campus de Somosaguas s/n
28223, Madrid, Spain
b
Sección de Organización de Empresas, Universidad Carlos III de
Madrid, C/Madrid, 126-Getafe, 28903, Madrid, Spain
c
Departamento de Economía de la Empresa, Universidad Carlos III
de Madrid, C/Madrid, 126-Getafe, 28903, Madrid, Spain
Published online: 21 Mar 2011.

To cite this article: Andrés Barge-Gil , María Jesús Nieto & Lluís Santamaría (2011) Hidden
innovators: the role of non-R&D activities, Technology Analysis & Strategic Management, 23:4,
415-432, DOI: 10.1080/09537325.2011.558400

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 Technology Analysis & Strategic Management
Vol. 23, No. 4, April 2011, 415–432

Hidden innovators: the role of non-R&D

activities

Andrés Barge-Gila , María Jesús Nietob and Lluís Santamaríac∗

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a Departamentode Fundamentos del Análisis Económico II, Universidad Complutense de Madrid. Campus de
Somosaguas s/n 28223, Madrid, Spain; b Sección de Organización de Empresas, Universidad Carlos III de Madrid,
C/Madrid, 126-Getafe 28903, Madrid, Spain; c Departamento de Economía de la Empresa, Universidad Carlos III de
Madrid, C/Madrid, 126-Getafe 28903. Madrid, Spain

Although R&D has been highlighted as the main source of firm-level innovations, a significant
group of firms develop innovations without performing R&D activities. The primary goal of
this study is to understand the sources of innovation in such firms. To accomplish this goal, we
explore the role played by other, non-R&D activities that can lead to innovation – activities such
as technology forecasting, design, use of advanced manufacturing technologies and training.
Our empirical analysis is based on a representative panel of Spanish manufacturing firms.
The results strongly support the view that non-R&D activities are critical factors in explaining
both product and process innovations attained by any firm, especially in the case of firms
not performing R&D. Academic, managerial, and policy implications are derived from these
results.

Keywords: non-R&D performers; technological forecasting; design; advanced manufactur-

ing technology; training

1. Introduction
The literature related to the economics of innovation and technological change, especially the
empirical literature, has focused largely on research and development (R&D) as the main source
of firm-level innovations (Freeman 1994; Kleinknecht 1996; Hirsch-Kreinsen et al. 2005). As
noted by several authors (Kline and Rosenberg 1986; Nelson and Rosenberg 1993; Love and
Roper 1999; Marsili and Salter 2006), however, it is crucial to understand that not all innovation
activities are related to R&D investments. In fact, asArundel, Bordoy, and Kanerva (2008) show for
a large sample of 15 European countries, a significant group of firms develops innovations without
performing R&D activities. Understanding the innovative behaviour of these firms remains a
challenge for scholars.
One plausible explanation for this gap in the innovation literature is the design of standard
measurements for innovation. Particular attention has been paid to R&D-related variables, with
official surveys of innovation focusing on R&D as the main, indeed almost the only, locus of the
innovation process. This perspective has been strongly influenced by the dominance of the linear

∗ Corresponding author. Email: lsantama@emp.uc3m.es

ISSN 0953-7325 print/ISSN 1465-3990 online

© 2011 Taylor & Francis
DOI: 10.1080/09537325.2011.558400
http://www.informaworld.com
 416 A. Barge-Gil et al.

model of innovation, which emphasises the scientific content of technological knowledge applied
in innovation processes, and focuses accordingly on formal R&D as the main source of innovation
(Salazar and Holbrook 2004; Godin 2006). The great majority of innovations are not based on the
latest scientific or technological knowledge, but on exploiting the existing one (Freeman 1994;
Bender and Laestadius 2005). In fact, they often involve firms that are experimenting internally
with technologies and learning that are not necessarily rooted in formal R&D components, and
are making adaptations to their idiosyncratic situation. The purpose of this paper is to provide an
empirical analysis of the sources of innovation in the firms that we call ‘non-R&D performers’ –
firms that do not undertake any formal internal R&D activities or do not acquire them externally.
Using a large sample of firms, we analyse the role played by other activities such as design, training,
technology forecasting, and the use of advanced machinery that can lead to innovative results.
This analysis is critical from at least three viewpoints: from an academic, managerial and
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innovation policy point of view. From an academic point of view, the R&D and innovation
concepts have too often been amalgamated, although R&D is neither a necessary nor sufficient
condition for innovation. Consequently, it is crucial for academics to analyse other activities
that could complete the picture and assist in the understanding of innovation processes. From a
managerial point of view, the overemphasis on R&D as a source of innovation can discourage
firms from attempting innovation, if R&D is perceived as being an extremely costly and uncertain
process that demands large and specific investments. If the role of activities closer to daily routines
were highlighted as sources of innovation, however, managers may be more likely to enter the
innovation process. From the perspective of innovation policy, the majority of measures to foster
innovation has focused on R&D activities and has therefore been limited to a subset of innovators.
If innovation policy is to be increasingly targeted toward non-R&D activities, a more specific range
of measures and incentives should be designed. Our results can assist in designing such measures
and incentives.
The database used for our empirical analysis is the Spanish Business Strategies Survey (SBSS),
which has been widely used in innovation studies (Cuervo-Cazurra and Un 2007; Huergo 2006;
among others) because of the richness of firm-level information provided. In contrast to standard
innovation databases, which capture only a small portion of potential innovation determinants
(De Jong and Vermeulen 2006), the SBSS involves panel data and does not limit its focus to
innovative firms or to R&D activities. Rather, it offers an extensive picture, demonstrating that
the existence of non-R&D innovators extends far beyond the anecdotal. We attempt to explain
the reasons for the achievement of innovations without R&D by accounting for the performance
of other innovation activities.
The remainder of this paper is organised as follows. In Section 2, we propose several arguments
about the role played by non-R&D activities in the innovation process. We describe the data and
variables in Section 3, and the main results in Section 4. In the final section, we discuss the main
implications of our results and offer concluding remarks.

2. Beyond formal R&D: other innovation activities

Many authors have argued that R&D is only one among several inputs (Nelson and Rosenberg
1993; Kleinknecht 1996) and that it covers but a small proportion of a firm’s investments in
innovation (Marsili and Salter 2006). In fact, it has been estimated that R&D accounts for only
20% of all technical progress (Denison 1985) and approximately 34% of total innovation-related
expenses in manufacturing activities (Brouwer and Kleinknecht 1997). R&D has been used as
a proxy for a wider range of innovation activities, however, leading to an overestimation of the
 Hidden innovators: the role of non-R&D activities 417

effect of R&D on innovation (Love and Roper 1999). On the contrary, as Love and Roper (1999)
have argued, most economically important innovations come from sources that have, at best,
an indirect link with any formal R&D; do not necessarily require sophisticated technological or
scientific knowledge; or do not require new knowledge (Kline and Rosenberg 1986).
The resources and capabilities required by a firm in order to innovate, then, are not usually
related to the generation of new knowledge, but to the exploitation of existing knowledge (Kline
and Rosenberg 1986; Bender and Laestadius 2005). This exploitation of knowledge calls for a
different set of capabilities, such as the identification of the relevant knowledge, wherever it exists;
the integration of its various components; and their synthesis and adaptation to the peculiarities
of the firm – usually implying a process of transformation and reconfiguration of the knowledge
(Bender and Laestadius 2005). Firms can develop these capabilities through their decisions about
how to perform different activities. For example, the capability to identify relevant knowledge can
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be developed via technological forecasting activities. The capability to synthesise and integrate
external knowledge can be nurtured by performing design activities. The adaptation of external
knowledge can take place through learning by using (Rosenberg 1982), when employing advanced
methods of production. Arguably, formal training of employees can improve their abilities to
enhance all these capabilities. In an attempt to explain how these capabilities may influence
innovation, this study analyses four activities: technology forecasting, design, use of advanced
manufacturing technologies (AMT) and training.

2.1. Technology forecasting

Technology scanning is vital to firm survival (Van Wyk 1997). Although the future cannot be
predicted with certainty, the ability to identify emerging technologies and anticipate future tech-
nological developments and trends are key elements in the management of technology (Preez and
Pistorius 1999).
Technology forecasting is the systematic process of describing the emergence, performance,
features, or impact of a technology at some time in the future. This process could be oriented
toward identifying new technology opportunities, sorting the options, seeking technological lead-
ership in technologies, looking for technology licensing, or knowing more about the technologies
to develop. Technological foresight is also highly regarded as a tool for anticipating future devel-
opment, technological trends and related market opportunities (Stanovnik and Kos 2007). The
discipline of technology forecasting has subsequently developed into a mature and pragmatic field
in which a variety of techniques is used to assess the growth of emerging technologies, as well as
mature technologies and the possible impact of these technologies (Preez and Pistorius 1999).
Thus, technology forecasting has become a vital activity for companies to meet the challenges of
a rapidly changing environment (Reger 2001), and an effective tool for establishing technological
strategies (Mishra, Deshmukh, and Vrat 2005). In fact, it plays an important role in making
strategic decisions and in the ongoing battle in the competitive advantage arena (Lemos and Porto
1998); it can, for instance, help a company to identify the needs of multiple segments and provide
information on how best to respond to them (Zahra 1996). As Carlson (2004) has concluded,
the process of technological foresight starts with (and returns to) overall business strategy; and
this perspective and process allows a firm to develop coherence between short- and longer-term
innovation strategies. In this way, all these activities provide information that can be helpful in
designing business strategies and building a competitive advantage, because well informed firms
can make their technological choices easily and effectively, enhancing their innovation capabilities
and performance.
 418 A. Barge-Gil et al.

2.2. Design
Design covers a wide range of activities, including architectural, fashion, interior, graphic,
industrial and engineering design, and can be implemented in a variety of contexts (Walsh 1996).
In contrast to other activities, such as R&D, marketing, or finance, it does not exist in a clearly
delimited department, but it is pervasive (Nixon 1999). Moreover, there is an enormously wide
variation in what firms mean by design, which has been a barrier to promoting its use (Walsh, Roy,
and Bruce 1988). The basic idea of design is to achieve a fit between two entities: form and context
(Bender and Laestadius 2005). Its point of departure is usually the existence of functional or aes-
thetic problems that must be solved with existing materials and processes (Hansen and Serin 1997).
In so doing, design usually acts as a gatekeeper (Walsh and Roy 1985) or an integrator (Nixon
1999). The designer must incorporate what customers want, what can be more efficiently produced
and what fits better with the firm’s other products, strategy and image (Walsh and Roy 1985).
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The multidimensionality of design makes it a creative process that can be rational, innovative,
or artistic (Laestadius, Pedersen, and Sandven 2005). In fact, designers see their activities as being
divided between creative and operational design, with both being a source of innovation. Creative
design involves the development of new concepts, structures and activities. Operational design
is more common and involves the process of fitting a design to standards, safety rules and other
regulatory conditions (Salter and Gann 2003).
Despite the broad consensus that exists over the link between design and corporate performance
(Nixon 1999; Chiva and Alegre 2009), however, relatively few researchers other than Marsili and
Salter (2006) and, more recently, Dell’Era and Verganti (2009) have examined the impact of
design on innovation performance. Many times an innovation involves developing a new appli-
cation or adapting an existing product to new segments in the market. To take advantage of these
opportunities, firms need to perform design activities that permit them to adapt products to the
specific requirements of clients. Design activities, then, are likely to have a positive impact on
innovation outcomes.

2.3. Use of advanced manufacturing technologies (AMT)

AMT refers to a family of manufacturing process technologies in which the common element is the
use of computers to store and manipulate data (Sohal et al. 2006). Because the implementation of
AMT involves a major investment and a high degree of uncertainty (Naik and Chakravarty 1992),
it has been considered as one of the lengthiest, most expensive and most complex tasks a firm can
undertake (Meredith 1987). There is, however, a wide range of intangible and strategic benefits
that could arise through the successful implementation of AMT (Naik and Chakravarty 1992).
The benefits gained as a consequence of this process should be approached from a multidimen-
sional perspective (Kotha and Swamidass 2000) because they usually come from several areas. As
it makes better use of labour, equipment and materials, AMT is a mechanism that allows financial
savings and improvements in product quality and reliability. In addition, and strategically more
important, it provides gains in flexibility that allow a firm to cope better with environmental uncer-
tainty and change that affect their products or volume of production (Naik and Chakravarty 1992;
Hofmann and Orr 2005). As a consequence, gains in market share, reduced prices, more rapid
product innovation, improved company image and, ultimately, gains in growth and profitability
have all been ascribed to the use of AMT (Swamidass and Nair 2004).
AMT is a double-edged sword (Zammuto and O’Connor 1992), however, because its utilisation
involves technical, economic and organisational problems (Boer, Hill, and Krabbendam 1990).
 Hidden innovators: the role of non-R&D activities 419

In fact, the debate over the real benefits of AMT continues (Swink and Nair 2007). The key point,
it has been argued, is that a skilled use of AMT is not easy to attain (Swamidass and Nair 2004),
and depends upon several contingencies (Swamidass and Kotha 1998). It triggers many changes
and success depends upon the ability of a firm to assimilate them and upon changing practices
in order to afford a better fit with the AMT (Pandza, Polajnar, and Buchmeister 2005). The role
of organisational design and culture and its alignment between a firm’s strategic plan and its
manufacturing strategy have been highlighted as major factors conducive to success (Zammuto
and O’Connor 1992; Boyer 1999).
The innovation-related econometric literature, however, typically focuses on the adoption
of AMT (Arvanitis and Hollenstein 2001; Giunta and Trivieri 2007), without examining the
importance of AMT for subsequent innovations. Only the recent work by Raymond, Croteau,
and Bergeron (2009) show how the use of AMT influences product innovations in small- and
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medium-sized enterprises (SMEs).

AMT utilisation elicits an interactive learning process that helps to develop the learning and
distinctive competences of a firm (Pandza, Polajnar, and Buchmeister 2005; Sohal et al. 2006).
Thus many innovations are developed during the process of adapting technology that was pur-
chased in the market, with the aim of making it function adequately in a new environment (Hansen
and Serin 1997). This process is closely related to the ‘learning by using’ mode of innovation
comprehensively described through case studies (Rosenberg 1982). We expect, then, to find a
positive influence of using AMT upon innovation results.

2.4. Training
If we account for the fact that employees’ skills have been found to be a significant factor in
innovation (Leiponen 2005), the role of training activities are also inextricably linked to the
development of innovation capabilities. Training is a key activity in updating staff knowledge,
thereby increasing the human capital of the firm and its absorptive capacity (Cohen and Levinthal
1990). It creates the human skills that, taken together, are the repository in which the tacit knowl-
edge of an organisation resides (Johnson, Baldwin, and Diverty 1996, 113). Because much of the
technological and market knowledge that underpins innovation is often tacit and idiosyncratic
(Utterback and Afuah 2000), a commitment to the development of human capital through train-
ing programmes is likely to be critical to successful innovation (Freel 2005). In fact, workforce
training may be expected to foster process improvements and may lead to product innovations,
depending on the type, amount and quality of the relevant training (Laursen and Foss 2003).
Along these lines, we have statistical evidence of the importance of human capital for innovation
in a wide range of industries and countries (Mohnen and Röller 2001). Regarding studies at the
firm level, we have recent empirical evidence about the impact of ongoing training on innovation
outputs. To this effect, Walsworth and Verma (2007) show that training appears to have a positive
impact on both product and process innovation. Beugelsdijk (2008) indicates the importance of
training for generating incremental innovations. Amara et al. (2008) found that variables related
to learning by training have a relevant impact on the degree of novelty of innovation. Finally,
Rammer, Czarnitzki, and Spielkamp (2009) show the relevance of applying human resources
management tools (training among them) to facilitate innovation processes.
Knowledge of the clients – of product features and the technology – largely depends on a firm’s
employees. Thus, employee training develops innovation capabilities that are not necessarily
based on R&D. We expect, then, to find a positive relationship between training and innovation
results.
 420 A. Barge-Gil et al.

3. Methodology
3.1. Sample and data
The database used for our empirical analysis is SBSS: an annual firm-level panel of data compiled
by the Spanish Ministry of Industry and the Public Enterprise Foundation, which has been used
by many other researchers to study innovation.1 The SBSS contains a wide and interesting set of
variables related to Spanish firms operating in all manufacturing industries within the classification
NACE-Rev. 1.
As mentioned, the SBSS is not specifically designed to analyse technological activities. It does
not restrict its focus to innovative firms or to a firm’s R&D activities, but offers a more complete
picture of the firm’s behaviour. These features allow us to go far beyond formal R&D activities,
to consider the role of other innovation activities and some characteristics of product and factor
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markets as determinants of innovation. The SBSS offers other advantages over standard databases,
which typically have a high percentage of firms that perform R&D activities and could give rise
to biased results (Cassiman and Veugelers 2002). The fact that the SBSS does not suffer from this
sample bias makes it particularly suitable for comparing the innovation determinants of R&D and
non-R&D performers.
The sample is representative of the population of Spanish manufacturing firms with between
10 and 200 employees, which are selected through a random stratified sample according to firm
size and industry classification. In addition, firms with more than 200 employees are surveyed on
a census base (Huergo 2006). Our empirical analysis is based on a balanced sample of firms with
information available for the period 1998–2002. Our final sample contains 6500 observations
from 1300 firms that have remained in the survey during the entire five-year period.

3.2. Definition of variables

3.2.1. Dependent variables
The dependent variables are related to a firm’s innovation performance during a specific period.
We used two separate measures of innovation output: product innovation and process innovation.
Product innovation is assumed to have occurred when a firm declares that it has introduced
completely new products, products with important modifications, or products with new functions
resulting from innovation. We assume process innovation to have occurred when a firm indicates
that it has introduced some significant modification in the production process. Product innovation
and process innovation are dichotomous variables that take a value of 1 when the innovation has
occurred; otherwise its value is 0.

3.2.2. Independent variables

The main goal of this paper is to understand the role of innovation activities other than formal
R&D. We have therefore considered four potential inputs to the innovation processes of firms:

(1) Forecasting: a dichotomous variable that takes a value of 1 if the firm has performed and/or
contracted an assessment of the prospects for technical change.
(2) Design: a dichotomous variable that takes a value of 1 if the firm has performed and/or
contracted design activities.
(3) Use of AMT : a dichotomous variable that takes a value of 1 if the firm has used automatic
machines, robots or computer aided design/computer aided manufacturing (CAD/CAM).
 Hidden innovators: the role of non-R&D activities 421

(4) Training: a dichotomous variable that takes a value of 1 if the firm has performed and/or
contracted training activities.

To avoid problems of simultaneity with the innovation outputs generated, all these innovation
activities were lagged by one period.
We have analysed their effect in the context of non-R&D performers. Yet these activities could
also be conducive to innovation when firms perform R&D. We have also analysed their effect in
the context of firms that make or buy R&D activities. To capture the innovation process of the
latter group of firms, we have included a measure of the R&D intensity (R&D expenses compared
to total sales) as an independent variable.2 This variable was also lagged by one period.
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3.2.3. Control variables

In addition to these determinants of innovation, environmental factors are extremely important
for understanding the relationship between technological choices and innovation outputs. Indeed,
researchers (Cohen 1995; Kamien and Schwartz 1982) have noted that demand and market con-
ditions are critical factors in explaining innovation performance. To measure these conditions, we
employed several variables related to product and factor market characteristics.
One of the market characteristics we analysed was the concentration of competitors (Competi-
tors’concentration), which determines the dynamism of the market in which the firm is operating
and consequently, the greater or lesser need to undertake innovation activities (Schumpeter 1942).
Competitors’ concentration is measured as the percentage of the market controlled by the four
largest competitors (Kumar and Saqib 1996). In addition, we have included product and fac-
tor market characteristics by considering client and supplier pressures (Cuervo-Cazurra and Un
2007). Client pressure is measured through concentration of clients, and is calculated as the per-
centage of sales made to the firm’s three largest clients. Supplier pressure is measured through
concentration of suppliers, and is calculated as the percentage of total purchases from the three
main suppliers. Following Huergo (2006), we also included a variable to measure the growth of
market demand. Expansion is a dichotomous variable that takes a value of 1 when the firm stated
that its main market was expanding; otherwise its value is 0.
Finally, we included controls for firm-specific characteristics – size and age – as well as the
sector of activity. A classical control such as Size is measured as the natural logarithm of the
number of employees. Age – age of the firm since its founding – is a variable commonly used in
empirical studies of innovation to measure firm experience and learning (Kumar and Saqib 1996).
Eighteen industry dummies were used to capture the effect on innovation of sector charac-
teristics related to life cycles and technological regimes. A firm’s activity classification is an
aggregation of the two-digit manufacturing industries’ classification in the NACE-Rev. 1 (for
similar classifications, see Huergo 2006). Year dummies are also included in the models.
Table 1 contains the descriptive statistics and correlations of the independent and control vari-
ables used in this study (with the exception of the sector and year dummies). In addition, we show
collinearity diagnostics of these variables. In particular, we have conducted the analysis of the
variance inflation factor (VIF), the determinant of the correlation matrix and the condition number.
Individual VIF values greater than 10 would indicate a collinearity problem (Neter, Wasserman,
and Kutner 1989). Furthermore, according to Belsley, Kuh, and Welsch (1980), other evidence
of collinearity are (i) average VIF greater than 6; (ii) determinant of the correlation matrix being
small (close to zero); and (iii) condition number with a value of 30 or more. As can be observed
in Table 1, there is no evidence of collinearity problems, even after all these diagnostics.
 422 A. Barge-Gil et al.
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Table 1. Descriptive statistics, correlations and collinearity diagnostics of the independent and control variables

Mean SD 1 2 3 4 5 6 7 8 9 10 VIF

1 Use of AMT 0.628 0.483 1.19

2 Training 0.409 0.492 0.22 1.28
3 Design 0.289 0.452 0.19 0.19 1.16
4 Forecasting 0.382 0.487 0.22 0.28 0.27 1.29
5 R&D Intensity 0.007 0.023 0.13 0.13 0.18 0.23 1.10
6 Size 4.251 1.498 0.36 0.43 0.28 0.40 0.22 1.69
7 Age 25.205 20.935 0.11 0.22 0.15 0.13 0.11 0.35 1.19
8 Client pressure 41.572 28.309 0.02 −0.01 −0.10 −0.06 0.01 −0.05 −0.15 1.08
9 Supplier pressure 45.617 24.042 −0.11 −0.13 −0.16 −0.14 −0.11 −0.23 −0.13 0.20 1.11
10 Expansion 0.314 0.464 0.09 0.07 0.05 0.05 0.02 0.07 −0.02 −0.03 −0.04 1.02
11 Competitors’ concentration 16.798 26.232 0.03 0.10 0.06 0.10 0.06 0.16 0.12 −0.11 −0.02 0.04 1.05
Mean VIF 1.20
Condition number 8.57
Determinant of correlation matrix 0.33

Note: SD = standard deviation; VIF = variance inflation factor; AMT = advanced manufacturing technologies.
 Hidden innovators: the role of non-R&D activities 423

3.3. A preliminary descriptive analysis

Table 2 outlines the innovation outcomes and activities beyond R&D. In particular, it offers an
overview of the innovation behaviour of non-R&D performers compared with firms that perform
R&D activities in-house and/or contract them. We define a firm as a non-R&D performer if it
neither makes nor buys R&D activities in either the current or previous year.
A preliminary consideration of the results indicates that a higher percentage of firms achieving
innovation results are R&D performers as compared with non-R&D performers. This finding
holds true for the two measures of innovation output: product and process innovations. In the
case of product innovations, 10.18% of non-R&D performers and 36.61% of R&D performers
achieved innovations; in the case of process innovations, the figures were 22.33% for non-R&D
performers and 45.31% for R&D performers. Nevertheless, as mentioned in the Introduction,
the percentage of non-R&D performers among the firms achieving innovation results is by no
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means irrelevant. Of 1603 firms achieving product innovations, 299 (18.7%) did not perform
R&D activities. In the case of process innovations, 656 of 2270 firms (28.9%) were non-R&D
performers.3 The question is, then: How did they achieve these results?
Examining the figures related to non-R&D innovation activities, we observe differences
between R&D performers compared with non-R&D performers. It seems clear that R&D per-
formers are more likely to engage in these activities than non-R&D performers are. By splitting
the two sub-samples into two additional groups, we can delve more deeply into our data (Table 3).
Indeed, when we divide each sub-sample into innovative and non-innovative firms, we can
begin to understand why non-R&D performers achieve innovation results. Within this group,
innovative firms more frequently make use of innovation activities than non-innovative firms do.
A critical question is whether or not these activities are seen to exert a different and significant

Table 2. Innovative behaviour of non-R&D performers vs R&D performers

Total sample Non-R&D performers R&D performers

(n = 6500) (n = 2938) (n = 3562)

Innovation outputs
Product Innovation 1603 (24.66%) 299 (10.18%) 1304 (36.61%)
Process Innovation 2270 (34.92%) 656 (22.33%) 1614 (45.31%)
Innovation activities beyond R&D
Forecasting 2485 (38.23%) 569 (19.37%) 1916 (53.79%)
Design 1884 (28.98%) 454 (15.45%) 1430 (40.15%)
Use of AMT 4082 (62.8%) 1467 (49.93%) 2615 (73.41%)
Training 2663 (40.97%) 735 (25.02%) 1878 (52.72%)

Table 3. Activities beyond R&D for innovative firms vs non-innovative firms

Non-R&D performers (n = 2938) R&D performers (n = 3562)

Innovative (%) Non-innovative (%) Innovative (%) Non-innovative (%)

Forecasting 33.82 13.78 67.34 34.73

Design 23.93 12.18 49.90 26.42
Use of AMT 64.47 44.31 81.61 61.89
Training 31.77 23.27 59.52 44.71
 424 A. Barge-Gil et al.

impact in the innovation process when we control for several factors. In order to provide a robust
explanation for these differences, we performed an econometric analysis.

4. Empirical results
We investigated the determinants of both product and process innovations for non-R&D per-
formers. We also analysed whether or not these determinants lead to innovation among R&D
performers. Given the binary character of the dependent variable, probit models were speci-
fied. To address concerns of unobserved heterogeneity, a random-effects panel probit model was
employed. Our decision to use a random-effects model instead of a fixed-effects model was based
on the following: (i) Our sample was drawn from a large population; in this setting, it might be
more appropriate to view individual specific constant terms as randomly distributed across cross-
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sectional units (Greene 2000, 567); (ii) Estimates computed using fixed-effects model can be
biased for panels over short periods. This is not a problem with random-effects models (Heckman
1981; Hsiao 1986). Given that all the firm–year observations in our sample were present for only
5 years, random-effects was the preferred approach; (iii) Fixed-effects models cannot include
time-independent covariates. This limitation means excluding some of the control variables (like,
for example, the sectoral variables) that are crucial for understanding the innovation behaviour of
firms. Our analysis would be severely limited without these variables.

4.1. Determinants of product innovation for non-R&D performers

The models displayed in Table 4 examine the impact of various innovation activities on product
innovation. The reported coefficients are the estimated marginal effects from our probit models
and are computed at the means of the independent variables. Each coefficient demonstrates the
increase in the probability of a firm’s innovating as a function of an increase in each of the inde-
pendent variables, while every other independent variable is being held constant. The estimations
were performed for the two sub-samples: non-R&D performers (Model A) and R&D performers
(Models B1 and B2). In addition to innovation activities, we controlled for firm specificities and
market characteristics for each estimation.
This analysis makes it possible to understand the importance of activities other than R&D for the
achievement of innovation outputs. Controlling for firm specificities and market characteristics,
we observe that the activities of technology forecasting (Forecasting), design (Design), and the
use of advanced manufacturing technology (Use of AMT ) stand out as critical factors in the
generation of product innovations in firms that do not perform R&D activities. In addition, we
find that design and forecasting activities are key factors in the innovation process for the R&D
performers. Although formal in-house or contracted R&D activities occupy centre stage in their
innovation processes, the other innovation activities appear to be a significant complementary
factor.4
Several findings emerge regarding market characteristics. Pressure from a firm’s main clients
(Client pressure) clearly hinders the generation of product innovations in both types of firms.
Pressure from main suppliers (Supplier pressure) also exerts a negative impact among R&D
performers. These results can be interpreted as a sign of rigidity in the innovation capacity of
firms that are highly dependent on a small number of clients or suppliers. In the case of the R&D
performers, pressure from main competitors (Competitors’concentration) exerts a positive impact
on their innovation results.
 Hidden innovators: the role of non-R&D activities 425

Table 4. Marginal effects from probit analysis: determinants of product innovation

Non-R&D performers R&D performers

Model A Model B1 Model B2

Innovation activities
R&D Intensity 1.5439∗∗∗ (2.75)
Forecasting 0.0137∗∗ (2.41) 0.1214∗∗∗ (3.17) 0.1103∗∗∗ (2.84)
Design 0.0126∗∗ (2.21) 0.1383∗∗∗ (3.41) 0.1357∗∗∗ (3.34)
Use of AMT 0.0149∗∗∗ (2.76) 0.0284 (0.56) 0.0291 (0.55)
Training 0.0052 (1.03) −0.0008 (−0.02) −0.0008 (−0.02)
Firm specificities
Size 0.0011 (0.65) 0.0352∗ (1.81) 0.0351∗ (1.81)
−0.0001 (−0.76) −0.0008 (−0.73) −0.0008 (−0.77)
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Age
Market characteristics
Client pressure −0.0002∗∗ (−2.29) −0.0018∗∗ (−2.21) −0.0019∗∗ (−2.27)
Supplier pressure 0.00001 (−0.14) −0.0039∗∗∗ (−3.92) −0.0039∗∗∗ (−3.86)
Expansion 0.0043 (1.03) 0.0071 (0.19) 0.0073 (0.20)
Competitors’ concentration 0.0001 (1.25) 0.0016∗∗ (2.03) 0.0016∗∗ (2.05)
Wald test of full model: χ 2 79.74∗∗∗ 103.33∗∗∗ 108.07∗∗∗
Log pseudo-likelihood −583.09 −1019.74 −1016.21

Notes: ∗ p < 0.10; ∗∗ p < 0.05; ∗∗∗ p < 0.01.

Estimated marginal effects from probit analyses (computed at the mean values of the independent variables) are shown.
T -values are in parentheses. Wald test and log pseudo-likelihood from probit models are reported. All regressions include
17 industry dummies. Year dummies are also included.

4.2. Determinants of process innovation for non-R&D performers

Table 5 shows the impact of different innovation activities on process innovation. The reported
coefficients are also the estimated marginal effects from our probit models. As in the previous
analysis, the estimations were performed for the two sub-samples: non-R&D performers (Model
C) and R&D performers (Models D1 and D2). Accordingly, we controlled for the same factors
as in the previous estimations.
This estimation sheds more light on the relevance of these other non-R&D activities. We observe
that the activities of technology forecasting (Forecasting), design (Design), use of advanced
machinery (Use of AMT ) and training (Training) are significant factors in explaining process
innovations among non-R&D performers. For R&D performers, forecasting, design and the use
of advanced machinery are critical activities. R&D intensity, however, is not significant for R&D
performers.
For firm specificities, the effect of firm size (Size) on R&D performers is highly significant and
positive. Age of the firm (Age) has a significant and negative impact only on the achievement of
process innovations in non-R&D performers, which may relate to the growth of organisational
inertia over time.
As regards market characteristics, pressures from clients and suppliers are not critical factors in
explaining process innovations. Yet the growth of demand (Expansion) exerts a highly significant
and positive effect on the achievement of process innovations in both types of firms. In the case
of non-R&D performers, pressure from main competitors (Competitors’ concentration) exerts a
positive impact on the achievement of process innovations.
 426 A. Barge-Gil et al.

Table 5. Marginal effects from probit analysis: determinants of process innovation

Non-R&D performers R&D performers

Model A Model B1 Model B2

Innovation activities
R&D Intensity 0.4076 (0.69)
Forecasting 0.0652∗∗∗ (2.78) 0.1824∗∗∗ (4.84) 0.1797∗∗∗ (4.73)
Design 0.1557∗∗∗ (4.38) 0.0743∗ (1.85) 0.0735∗ (1.83)
Use of AMT 0.0569∗∗∗ (2.84) 0.1437∗∗∗ (2.90) 0.1435∗∗∗ (2.89)
Training 0.0406∗ (1.79) 0.0137 (0.34) 0.0137 (0.34)
Firm specificities
Size 0.1005 (1.07) 0.0889∗∗∗ (4.67) 0.0889∗∗∗ (4.67)
−0.0016∗∗∗ (−2.65) −0.0009 (−0.95) −0.0009 (−0.96)
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Age
Market characteristics
Client pressure 0.0003 (1.06) −0.0002 (−0.20) −0.0002 (−0.22)
Supplier pressure 0.0001 (0.20) −0.0006 (−0.60) −0.0005 (−0.57)
Expansion 0.0613∗∗∗ (2.80) 0.1676∗∗∗ (4.63) 0.1677∗∗∗ (4.64)
Competitors’ concentration 0.0007∗ (1.83) −0.0004 (−0.57) −0.0004 (−0.58)
Wald test of full model: χ 2 138.27∗∗∗ 130.16∗∗∗ 130.44∗∗∗
Log pseudo-likelihood −1002.46 −1043.10 −1042.87

Notes: ∗ p < 0.10; ∗∗ p < 0.05; ∗∗∗ p < 0.01.

Estimated marginal effects from probit analyses (computed at the mean values of the independent variables) are shown.
T -values are in parentheses. Wald test and log pseudo-likelihood from probit models are reported. All regressions include
17 industry dummies. Year dummies are also included.

5. Discussion, implications, and conclusions

Some recent works point out how certain non-R&D capabilities may be useful for achieving
innovation outcomes (Bender and Laestadius 2005; Hirsch-Kreinsen 2008), which has led some
authors to suggest the emergence of a knowledge paradigm related to innovation without research
(Hall, Lotti, and Mairesse 2009). This paper attempts to shed light on some of these non-R&D
sources of innovation. More precisely, we have explored the role of technology forecasting, design,
use of advanced manufacturing technology, and training, and have found that all these activities
are critical in explaining the innovation results of non-R&D performers. In addition, activities
other than R&D can positively influence the innovation process of R&D performers.
The capability to identify pertinent knowledge has been shown to be relevant for explain-
ing innovation results. Indeed, our results confirm that technological forecasting is an important
part of innovation strategy for both R&D and non-R&D performers, and thus enhances innova-
tion performance. Analyses of emerging technologies, anticipated technological trends and their
implications for market opportunities become crucial in this age of constantly changing markets,
rapid technological innovation and shrinking product life cycles. A firm can survive only if it
continuously upgrades its technologies through systematic forecast and consequent implementa-
tion. In this sense, firms must stay abreast of the latest advancements in science and technology
and maintain vigilance over the ever-changing technical environment. To this end, Jørgensen
and Jørgensen (2009) have recently highlighted the relevance of technology foresight in order
to understand future paths of development within different areas of high technology (i.e. nano-,
bio-, and information- and communication-technologies).
 Hidden innovators: the role of non-R&D activities 427

Although no technique can eliminate the uncertainties inherent in any consideration of the
future, a structured approach to anticipating the technological future can be a valuable support
to technical decision making. In order to accomplish this goal, however, it is necessary to move
beyond forecasting, to assess not only the technological component, but also the market applica-
tions – and specifically, the technology–market interaction. Furthermore, Rongping et al. (2008)
pointed out that each country has its own specific expectations of technology foresight as a result
of differences in political and economic environments and levels of technological development.
For these reasons, it is critical to study different ways of technological forecasting and their impact,
not only with current data but also in different countries and industries.
Design is a highly relevant variable for explaining product innovations in both groups of firms.
Product design is a way of competing through product differentiation, and applies to both R&D
performers and non-R&D performers. In addition, we find that design is relevant for explaining
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process innovation. Design activities are influential in making production processes more flexible
and efficient and, because they are close to the daily routines of work, they are more accessible to
firms than R&D activities are. Thus, design is an important activity for integrating and synthesising
different pieces of knowledge – whether on material and production methods, or functions and user
needs. Our results coincide with recent empirical evidence that indicates the importance of design
in explaining firm performance (Chiva and Alegre 2009) and producing radical (design-driven)
innovations (Dell’Era and Verganti 2009).
The use of AMT is key to explaining subsequent process innovation. Utilising these types of
manufacturing technologies helps firms to gain flexibility in the production process, to reduce
production costs and to make better staff allocation decisions, opening a path to subsequent
process innovations. In terms of product innovation, we found that the use of AMT has a positive
effect for non-R&D performers. This result is coherent with that recently obtained by Raymond,
Croteau, and Bergeron (2009), who show the importance of the use of AMT in obtaining product
innovations in the context of SMEs. We emphasise the perception that the use of AMT improves
a firm’s ability to cope with uncertainty and changes in the environment by increasing product
variety and developing new products more quickly.
The use of AMT can be interpreted as an example of how flows of knowledge from R&D
intensive sectors have a significant impact on the innovation outcomes of non-R&D performers.
In general, the acquisition and use of technologies from other sectors represents a technological
opportunity for non-R&D firms; it is one method of adopting new technological and scientific
advancements that are embedded in the equipment. These technological opportunities would be
related more to research and development for R&D performers. The use of technologies from other
sectors may also be related to the learning by using mode of innovation (Rosenberg 1982; Jensen
et al. 2007). For example, firms exploit the full potential of AMT technologies as they use them,
gradually discovering new applications and uses. Along these lines, Bayo-Moriones, Billon, and
Lera-Lopez (2008) have showed that use of AMT positively influences innovative work practices
and upskilling. As such, the progressive use of these technologies permits a process of learning
by using that helps firms obtain subsequent innovations. This process provides a good example of
how important it is for firms to be able to adapt external knowledge – embodied in the machinery
– to their own requirements in order to fully exploit it (Bender and Laestadius 2005). Of course,
these implications go far beyond the technologies analysed in this study, as the acquisition and use
of other technologies from R&D intensive sectors is likely to have a positive impact on innovation
results.
From our empirical results, we observe that training positively affects process innovation for
non-R&D performers. Training is a key activity in updating staff knowledge, thereby increasing
 428 A. Barge-Gil et al.

the range of innovative capabilities of the firm. In a recent review about innovation management
tools, Hidalgo and Albors (2008) highlight a similar idea when discussing the role of training
schemes in fostering innovation. In non-R&D-intensive environments, ongoing training is espe-
cially important, because daily work requires hybrid qualifications that are not usually offered by
the market (Schmierl and Köhler 2005). Training, however, may seem less relevant than expected,
at least partly because we could not capture the degree and type of training, which has been found
to be significant in other studies (Laursen and Foss 2003; Amara et al. 2008; Rammer, Czarnitzki,
and Spielkamp 2009).
Demand and market conditions have been found to be very important for explaining innovation
for both non-R&D and R&D performers. Access to a variety of clients is highly important for
product innovation. This is very much in line with the position of evolutionary economists. As a
firm’s knowledge base and technological capabilities are by definition limited, this finding may be
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interpreted as evidence that limiting a firm’s outlook affects the penetration of technologies and
innovation behaviour (Smith 2000). Performing in an expansion market helps to obtain process
innovations. Because financial availability is higher in these markets, firms are able to tackle
processes of internal changes. Lastly, market concentration has different effects: it affects product
innovation for R&D performers, but process innovation for non-R&D performers (both positively).
The first result fits well with the traditional view of market power providing incentives to innovate
through better appropriability of returns, while the second could be an indicator of greater financial
capacity to tackle process innovation.
Taken together, our results point to the importance of a firm’s non-R&D activities in explaining
the attainment of both product and process innovations. This is not to deny the crucial role played
by R&D in innovation, of course. Yet we want to highlight the fact that R&D, albeit an important
factor, is not a firm’s only source of innovation. Our analysis supports this view in two ways:
by demonstrating (1) that many firms innovate without undertaking either internal or contracted
R&D activities, but by undertaking other innovation-related activities; and (2) that these non-R&D
activities can assist in explaining the innovation results of firms that do perform R&D. Thus, R&D
is neither a necessary nor a sufficient condition to innovate. In contrast to these results, previous
literature has tended to overemphasise R&D activities as the main (and almost the only) source
of innovation (Love and Roper 1999). We would argue that both conceptual and practical issues
can explain this behaviour. The linear view of innovation remains in the minds of many scholars,
managers and policymakers. Furthermore, available statistics (which have their origin in the linear
vision) focus primarily on R&D-performing firms and on R&D indicators of inputs.
These results could be significant from several points of view. For academics, it can be useful
to know more about innovation in a broader sense. As noted by Nelson (2000), it is important
to understand that not all of a firm’s innovation activities are conducted in R&D laboratories
or are counted as R&D. Innovation occurs more often than one would assume – on the basis
of academic papers – in firms that do not perform R&D. This paper can be considered as an
exploratory step in increasing our knowledge about the sources of innovation of these firms.
In addition, some of these sources can assist in explaining the innovation performance of firms
performing R&D.
Furthermore, managers interested in fostering the innovation performance of their firms should
know that there are more relevant decisions than whether or not to undertake R&D. They can take
other actions that are likely to yield favourable results. This is especially important information
for managers of firms that would have great difficulty in performing R&D activities. If R&D is
considered to be the only source of innovation, a ‘discouragement effect’ could result, excluding
many firms from the innovation arena.
 Hidden innovators: the role of non-R&D activities 429

In addition, given that innovation policy tools are biased towards R&D activities and R&D
performers (Nauwelaers and Wintjes 2002; Mowery 2003; Barge-Gil and Modrego 2008), pol-
icymakers are neglecting a crucial group of firms and activities leading to innovation. One of
the main problems that a policymaker must face is how to increase the number of innovative
firms. One possible answer is through the creation of new technology-based firms, but another
complementary strategy is to foster innovation in a larger portion of the existing productive base.
Toward this end, it seems that a more effective policy would be the promotion of the realisation
of innovation-related activities that are closer to the daily work routine of firms – activities such
as design, training, forecasting, or the use of advanced manufacturing technology.
This work is not free from limitations. It would be desirable to have more complete information
on the measures of innovation results and non-R&D activities. In particular, quantitative measures
of the financial cost of each activity might have been a better way of capturing the potential effects
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of training, design, forecasting and AMT use on innovation. Similarly, greater specificity could be
incorporated into activities like training or design, distinguishing them by type. Future studies may
extend the instrumentalisation of these activities, as well as innovation outputs, using other sources
of information. The analysis of complementarities among the various innovation activities could
offer a more comprehensive picture of the innovation processes of firms and serve as a fruitful
avenue for future research. Lastly, we want to acknowledge the possible limitation imposed by
the time period our data base consists of (1998–2002). In any case, the coherence with the results
of recent studies which individually analyse the role of the non-R&D activities presented in this
paper reinforces our confidence in the findings obtained. Furthermore, the fact that there are
very few studies which analyse the innovative process of non-R&D performers makes this paper
something novel and valuable, and we hope it will serve to motivate scholars to further explore
this research topic. With more recent data and, as we recognise, more refined measures, they could
advance this line of research in depth and scope.

Acknowledgements
We thank the Editor and the two anonymous reviewers for their valuable insights and helpful comments on previous
versions of this paper. This study has been partially supported by financial aid from the Spanish Ministry of Education
and Science, with the Projects ECO2008-01513 and SEJ2007-67582.

Notes
1. The following web link shows papers published using the SBSS survey: http://www.funep.es/esee/esee_articulos.asp.
2. Results without R&D intensity will also be provided.
3. A rough estimation of these figures in the whole population of Spanish manufacturing firms, according to the sampling
criteria of the SBSS, suggest that approximately 36% of product innovators and 50% of process innovators are
non-R&D performers.
4. In fact, additional regressions (available from the authors upon request) show that the R&D intensity coefficient
increases from 4.10 to 5.77 (with p value < 0.01 in both cases) when non-R&D activities are excluded. This result
is consistent with Love and Roper’s (1999) statement that the R&D effect has been overestimated in the absence of
other innovation activities.

Notes on contributors
Andrés Barge Gil is Assistant Professor in the Department of Economic Analysis II (Quantitative Economics) at Univer-
sidad Complutense de Madrid. His fields of interest are the determinants of innovation, the impact evaluation of support
organisations and innovation policy. His works have been published in Research Policy, Environment and Planning C:
Government and Policy and Research Evaluation, among other journals.
 430 A. Barge-Gil et al.

María Jesús Nieto is an Associate Professor at the Business Management Division, University Carlos III of Madrid
(Spain), where she teaches a wide variety of subjects in the area of strategic management. Her current research interests and
publications include areas of innovation management, information technologies, strategic alliances and internationalisation
strategy. Her works have been published in the Journal of International Business Studies, Research Policy, Journal of
Small Business Management and Technovation, among other journals.

Lluís Santamaria is an Assistant Professor at the Department of Business Administration at University Carlos III of
Madrid (Spain), where he teaches financial and management accounting to undergraduates, and organisation structure
and corporate governance to Master’s students. His research interests include management of innovation, technological
cooperation and comparative institutional analysis. His works have been published in Research Policy, R&D Management,
Journal of Small Business Management and Technovation, among other journals.

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