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International Handbook on Innovation
Edited by Larisa V. Shavinina
© 2003 Elsevier Science Ltd. All rights reserved

Determinants of Technological Innovation:

Current Research Trends and Future
Prospects
Vangelis Souitaris
Management School, Imperial College, U.K.

Abstract: This chapter is a review of several methodologies, which have been used to identify the
distinctive characteristics of innovative firms (determinants of technological innovation). Some of
the problems affecting this research field are the diverse nature and non-standardised definition
and measurement of innovation itself, non-standardised measurements of the determinants,
interrelated variables, different characteristics of firms targeted and finally different economic
regions where the surveys take place. The chapter presents a portfolio model, which synthesises
previous research results and may be used for country or industry specific studies.

Keywords: Innovation; Technological innovation; Determinants of technological innovation;

Portfolio model.

Introduction The factors that affect a firm’s innovation1 rate are

The evidence from the literature strongly supports the
view that technological innovation is a major influence
on industrial competitiveness and national develop-
ment (Tidd, 2001; Zaltman et al., 1973). Some firms
are more technologically innovative than others, and
the factors affecting their ability to innovate are
important to management scholars, practising manag-
ers, consultants, and technology policy-makers.
The author adopted the OECD definitions of tech-
nology and technological innovation. Technology can
be interpreted broadly as the whole complex of
knowledge, skills, routines, competence, equipment
and engineering practice which are necessary to
produce a product or service. A new product requires a
change in this underlying technology. Technological
innovation occurs when a new or changed product is
introduced to the market, or when a new or changed
process is used in commercial production. The innova-
tion process is the combination of activities—such as
design, research, market investigation, tooling up and
management—which are necessary to develop an
innovative product or production process (OECD,
1992).
called ‘determinants of innovation’. They derive from a
wide range of aspects of the company such as internal
and external communications, managerial beliefs, the
financial situation, size, structure, quality of personnel,
R&D effort, technical capabilities and market condi-
tions (Souitaris, 1999).
This chapter examines the methodologies and tools
researchers have used in order to identify the determi-
nants of technological innovation, within organisations.
The results of a large number of studies are sum-
marised and a framework is extracted. Afterwards,
some current research trends are presented. Finally a
view of what should be done in the future is proposed,
in order to expand upon our current knowledge.
On the Methodology of Studies on Determinants of
Innovation
From as early as the late 1950s, much literature has
been published on the determinants of technological
innovation. To illustrate the amount of academic
research in this area, Rogers (1983) refers to 3,085
1
Wherever the word ‘innovation’ is used in the text, it always
refers to technological innovation.

514
 Chapter 7
publications about the diffusion of innovation, of
which 2,297 are empirical research reports. He also
adds that the number of publications was almost eight
times more in 1983 than in 1962 (Rogers, 1983,
p. xv).
In order to present better the objectives and the
methodology of these studies, we can use the following
categorisations:
(1) Categorisation according to the approach.
(a) Studies researching at the project level, look-
ing for the determinants of success or failure of
innovative projects.
The main characteristic of these studies is that
the sample comprises new technological pro-
jects. The objective is to correlate the success
rate of the projects to a number of predefined
possible determinants. This kind of research is
known as the ‘innovation or decision design’
(Downs & Mohr, 1976) or the ‘object
approach’ (Archibugi et al., 1994). Examples
of the object approach are the following
research works: Rubenstein et al. (1976),
Rothwell (1977, 1992), Maidique & Zinger
(1984) and Cooper (1979, 1999, 2002).
(b) Studies researching at the firm level, looking
for the determinants of the firms’ ability to
innovate.
The unit of analysis in these studies is the firm,
and this kind of research is known as the
‘multiple innovation research’ (Downs &
Mohr, 1976) or the ‘subject approach’ (Archi-
bugi et al., 1994). There are two possibilities in
this approach: the variables can determine
either the firm’s rate of innovation, or its
ability to succeed and to benefit from its
innovative technology. The interest in the rate
Author: of innovation as a depended variable stems
Sense?
from the implicit hypothesis that firms intro-
ducing innovation regularly are more likely to
sustain a large number of successful innovative
products and processes (even if some of the
projects fail). Examples of the subjective
approach are the following research works:
Mohr (1969), Miller (1983), Ettlie et al.
(1984), Khan & Manopichetwattana (1989a)
and Hajihoseini & de la Mare (1995).
(2) Categorisation according to the number of tested
determinants of innovation.
(a) Studies testing a large set of factors. These
studies try to identify important determinants
of innovation, testing integrated models with a
wide range of variables. They usually have the
intention, using regression equations with the
determinants as independent variables, of pre-
Determinants of Technological Innovation
dicting the highest possible proportion of the
variation of the dependent variable (innovation
rate). Examples of research works of this kind
are: Duchesneau et al. (1979), Miller & Friesen
(1984), and Swan & Newell (1994).
(b) Studies that test one or a few specific factors
like, for example, participation in professional
associations, or formalisation of structure.
Usually those studies use more sophisticated
and detailed measures of the variable(s),
intended to identify a possible correlation
between the tested variable(s) and the depend-
ent variable (innovation). However, they are
only able to explain a portion of the variance in
the rate of innovation. Examples of research
works of this kind are: Mansfield (1963) on
size and structure, Sapolsky (1967), and Hage
& Dewar (1973) also on structure, Kets de
Vries (1977) on personality of the entrepre-
neur, Tushman & Scandel (1981) on
technology gatekeepers, Miller et al. (1982) on
top executive locus of control, Chon & Turin
(1984) on structure and decision-making pro-
cedures, Newell & Swan (1995) and Swan &
Newell (1995) on membership in professional
associations (for detailed lists of studies see
Chiesa et al. (1996) and Brown & Eisenhardt
(1995)).
The Problem of the Inconsistency of the Results
To date, the research carried out has been unable to
conclude on the relevant variables or their exact impact
on innovation. Although similar variables have been
tested by different researchers, the results have shown
differing degrees of impact on innovation. Most often,
from the tested set of determinants, different ones were
found to be significantly correlated to the innovation
rate in each empirical survey. In some cases there was
even disagreement as to whether a factor actually
correlated positively or negatively to the rate of
innovation (Downs & Mohr, 1976; Wolfe, 1994). For
example, firm size is a highly disputed variable (Khan,
1990). The instability of the determinants from case to
case frustrates integrated theory-building efforts.
(Downs & Mohr, 1976; Tidd, 2001; Wolfe, 1994).
Duchesneau et al. (1979) demonstrated this incon-
sistency of results, duplicating a large number of
previous studies. They deliberately used the same
measures of determinants, but the sample was from one
specific industrial sector (footwear industry). Their
results were different from the original studies, mainly
concerning the relative extent to which different
variables correlate to innovation.2
2
We should mention here Damanpour’s (1991) objection to
the various assertions about instability of results. His view is
based on a meta-analysis of previous results and is worth
reading.
515
Vangelis Souitaris
Having reviewed a large number of studies, the
author has identified a number of possible reasons for
the inconsistency of these results (Souitaris, 1999).
Determinants of innovation, and in particular their
degree of correlation to the rate of technological
innovation, are dependent upon the following factors:
(1) Nature, definition and measurement of innovation
itself.
The important determinants can be differentiated
by the nature of innovation, for example high-cost
vs. low-cost innovation, simple vs. complicated
innovation and incremental vs. radical innovation
(e.g. Dewar & Dutton, 1986; Tornatzky & Klein,
1982). Determinants of high-cost innovation
appear very different to those of low-cost innova-
tion. Downs & Mohr (1976) found that a wealth of
resources would predict the former very differently
to the latter. Etlie et al. (1984) found that, while
‘incremental’ innovation may be enhanced by a
decentralised structure, ‘radical’ innovation
requires a more centralised structure with partic-
ular emphasis on decision-making and a higher
level of support and involvement from top man-
agement.
More recenty innovation typologies are pro-
duced by Clark & Wheelwright (1992) (research or
advanced development; breakthrough develop-
ment; platform or generational; derivative or
incremental) and Christensen (1997) (‘sustaining’
innovation vs. ‘disruptive’ innovation).
An additional problem is the lack of a standard
definition of technological innovation (Garcia &
Calantone, 2002). What is included in, or excluded
from, the definition of technological innovation is
an important issue which needs to be addressed.
Should aesthetic improvements in the matters of
style, design or re-packaging be included as
technological innovation? What degree of change
is required for a product or process to be
considered as technological innovation? There is a
difficulty in interpreting the terms used in defini-
tions such as ‘significant’ or ‘considerable’ (Smith,
1988 outlines the variations in the definition of
innovation). In addition, should the definition
distinguish between product and process innova-
tions or between the development of completely
new products and the incremental modification of
existing products in a systematic way? The differ-
ent definitions and interpretations of technological
innovation have led to variations in the identified
determinants—hence the ongoing research interest
into this subject (for good and current discussions
of this problem see Garcia & Calantone, 2002;
Souitaris, 1999; Tidd, 2001).
Also, there is no standard measurement of
technological innovation. There are two levels of
innovation measurement referred to in literature
516
Part VII
(Duchesneau et al., 1979). Firstly, at the micro-
level—where the adoption of a number of industry
specific innovations is measured—innovations are
selected as being representative, by a group of
industrial experts or by the researchers reading
industry specific magazines. Second, there is the
aggregated level where the rate of innovation of a
firm is measured in various ways such as the
number of new products and processes, the
percentage of sales due to new products or the
number of patents filed. Whatever decision is taken
on the measurement of innovation to be used in a
particular study can influence the results on the
innovation determinants.
(2) Measurement of the determinants of innovation.
In the literature, there are two types of determi-
nants of innovation. The first type includes
variables measuring facts such as the size of the
firm, number of graduates, size of innovation
budget, etc. The above are straightforward and
easy-to-measure variables, with highly reliable
measurements. They are also easily transferable
over different studies. For instance, the number (or
the logarithm) of personnel is a generally standar-
dised measure of a firm’s size (see, for example,
Kimberly & Evanisko, 1981).
The second type of variables includes percep-
tions and attitudes of the respondents (such as
perceptions of the intensity of competition or
attitudes towards risk-taking), as well as general
and usually subjective concepts (like centralisation
of power,3 complexity of knowledge4 and aware-
ness of strategy). Many of those variables are then
broken down into a number of items and are
measured using scales (see section ‘The Portfolio
Model of Starting Variables’ for references on
individual constructs and measures).
This second type of variables is no less impor-
tant a predictor of innovation performance than the
hard measures of the first type. However, the
definitions of the soft variables are subjective and
depend upon the author’s perception. There are no
consistent definitions and measures of concepts as
general as the ‘scanning of the environment’ or
‘environmental heterogeneity’ (Miller & Friesen,
1984), or ‘formalisation’5 and ‘centralisation’
(Hage & Aiken, 1970). The concepts may be
similar but the way in which they are actually
broken down into variables and measured using
scales differs. The different definitions and
3
Degree to which power and control in a system are
concentrated in the hands of relatively few individuals.
4
Degree to which an organisations’ members possess a
relatively high level of knowledge and expertise.
5
Degree to which an organisation emphasises following rules
and procedures in the role performance of its members.
Chapter 7
measurement of determinants referring to similar
concepts makes the comparison of results more
difficult.
For example, it is difficult to compare a general
variable called “scanning of the environment”
(Miller, 1983)—which is measured using a large
number of scale items including many forms of
communication with the external environment—
with specialised variables like “the number of
contacts made each year with representatives of
machinery suppliers” and “the number of trade
journals read or scanned by innovation decision
makers” (Webster, 1970). In both cases the varia-
bles refer to the same concept of collecting
information but they are not directly comparable,
due to the different scope of the definitions.
Another problem for someone trying to compare
previous results is that not all studies define the
measurements of each variable clearly. Many
of them (especially journal papers) give just
lists of determinants, underestimating the impor-
tance of their actual measurement (for example, in
the seminal work of Miller (1983), the measure-
ment of the variables is not clear).
In addition to this, it is worth mentioning that
most of the variables are interrelated, and this
creates problems in the interpretation of the results.
For instance, size is probably a surrogate measure
of several dimensions that lead to innovation such
as total resources, slack resources and organisa-
tional structure (Rogers, 1983). These relationships
between variables and their effect on the final
results are not easy to understand clearly due to the
complexity of the issue.
(3) Effect of different stages of innovation process on
innovation rate.
Inconsistent results and low correlations of organi-
sational structure variables with innovation can
also be caused by some of the variables being
related to innovation in one direction during
initiation of innovation, and in the opposite
direction during implementation of innovation. It
has been argued that low centralisation, high
complexity and low formalisation can facilitate
initiation in the innovation process and that the
same structural characteristics can also hinder the
implementation of an innovation within an organi-
sation (Sapolsky, 1967; Zaltman et al., 1973).
(4) Different kind of firms used as sample.
Miller (1983), Khan & Manopichetwattana
(1989b) and Damanpour (1991), among others,
found that different types of firms show different
determinants of technological innovation. For
example, Rothwell, (1974, 1977) showed that the
factors associated with innovation were signifi-
cantly different, or at least showed a different order
Determinants of Technological Innovation
of importance, in different industrial sectors. For
example, within the chemical industry, technical
factors were most important, while in the scientific
instruments industry, market factors dominated
(Rothwell, 1974). Mohr (1969) has also referred to
a moderating effect of the size of the firm on the
relative importance of its determinants of innova-
tion. For example, top management characteristics
and attitudes were found to be more important
innovation determinants for small firms, due to the
more active involvement of top managers in the
innovation process (also see Carrier, 1994;
Lefebvre et al., 1997).
These and similar findings indicated that studies
which only look at the industry as a whole cannot
be generalised. They cannot be directly compared
to studies, which deal only with one industrial
sector, or one particular type of organisation (e.g.
multinational). The fact that different results are
achieved, according to the type of firm, illustrates
the problem involved in trying to achieve a unified
theory of determinants of innovation, which can be
applied to all situations.
(5) Different geographical regions in which the
empirical surveys take place.
Much of the available literature in this area is
biased towards investigating determinants of inno-
vation in the U.S. or other industrialised Western
countries. Often the importance of the region in the
interpretation of the results is overlooked (Boyaci-
giller & Adler, 1991; Drazin & Schoonhoven,
1996).
White (1988) and Souitaris (1999), among
others, indicated that the characteristics of innova-
tive firms are strongly influenced by economic
development and the management culture in the
region.
In conclusion, the fact that there seemed to be no
unified theory concerning the determinants of
innovation has reduced the amount of published
studies and the effort devoted to the subject after
the late 1970s. Rogers (1983) argued that after
several hundred studies of organisational innova-
tiveness were completed in the 1950s, 1960s and
1970s, this approach to innovation in organisations
became passé. However, the problem was not
resolved, and the crucial question of what the
determinants of innovation are still remains open.
The Portfolio Model of Starting Variables
Forrest (1991) and Tidd et al. (1997), among others,
argued that there is no one best way of managing the
innovation process as it depends on firm specific
circumstances. Nelson & Winter (1977) introduced the
concept of ‘routines’, which are particular ways of
behaviour which emerge as a result of repeated
experiments and experience around what appears to be
517
Vangelis Souitaris Part VII

good practice. Different firms use different routines
with various degrees of success. There are general
recipes from which general suggestions for effective
routines can be derived, but they must be customised to
particular organisations and related to particular tech-
nologies and products (Tidd et al., 1997).
It is difficult to produce a universally applicable
model of the determinants of technological innovation.
Differences in the industrial sectors and geographical
regions all have an effect, which is very hard to
quantify or exclude. Taking this into account, the
author has developed a working ‘portfolio model’ of
potential determining variables (Souitaris, 1999, 2002).
The full list of determinants in the model is not always
applicable—there are different sets of important deter-
minants, depending upon certain environmental
dimensions that underlie the analysis (such as eco-
nomic development and managerial culture). The
study’s model is intended to be a starting point for
empirical research, in order to explore the con-
tingencies.
The routines associated with innovation are exten-
sive, and their strength of association is specific to
particular conditions for reasons explored in the
previous section. However, collectively the determi-
nants of innovation tend to cluster around key themes
(Tidd et al., 1997) presented in Table 1. The table
demonstrates a comparative presentation of models in
the literature that attempt to integrate the determinants
of innovation. Common classes of factors appear
throughout the different models focusing on ‘context’
(external environment and firm’s profile), ‘strategy’,
‘scanning external information’ and ‘organisational
structure’.
Innovation textbooks (such as Ettlie, 2000; Tidd et
al., 2001; Trott, 1998) and papers with practical
orientation (Bessant, 2002; Cooper, 1999, 2002) advise
students and practitioners drawing from this generally
acceptable body of knowledge. However, despite the
apparent similarity of integrative models of determi-
nants of innovation at the aggregated level, there is
more variety when it comes to operationalisation and
empirical testing. The literature includes a large
number of individual indicators falling into the above
general variable categories;6 The variables in our
portfolio model were categorised in four classes, in line
with the integrative models of determinants of innova-
tion reviewed previously (see Table 1 and Fig. 1).
The presentation of the portfolio model which
follows covers two types of sources: (1) conceptual
works that introduced the general themes and proposed
their relationship with firm innovation; and (2) studies
(mainly empirical) that associated innovation rate with
specific indicators, within the general themes.
(1) Contextual Variables.
Organisations are viewed by several theoretical
perspectives as adaptive systems, and this suggests
that contextual variables may have a causal
influence on strategy and structure. Examples of
such theoretical perspectives are the contingency
6
Chiesa et al. (1996) and Souitaris (1999) offered detailed
literature-based frameworks of operational indicators.

Table 1. A comparison of ‘integrated’ models of determinants of innovation.

Miller & Khan & R. Miller Rothwell Tidd, Bessant & Souitaris This Portfolio
Friesen Manopichet- & Blais (1992) Pavitt (1997) (1999)
(1984) wattana (1992)
(1989)

Environment Competitive Context Economic Context

environment variables

Firm’s profile
Corporate
conditions
Decision- Strategy Strategy Strategy* Strategic Strategy
making variables
Entrepreneurial
attitudes

Functions Process Implementation

mechanisms

Information- External External External

processing communications communications communications
Tactical
variables
Structure Structure Structure Organisational Internal Organisational
context capabilities context

* Contextual variables included in the ‘strategy’ theme.

518
Chapter 7 Determinants of Technological Innovation

Figure 1. The portfolio model of determinants of innovation.

Source: Souitaris (2002a).
519
Vangelis Souitaris
theory (Burns & Stalker, 1961; Donaldson, 1996),
institutional theory (Parsons, 1966), resource
dependence (Aldrich, 1979; Barney, 2001), pop-
ulation ecology (Hannan & Freeman, 1977), and
industrial economics (Freeman, 1982). The lit-
erature also includes interesting discussions on the
impact of environmental variables (Miller & Blais,
1992). There are those who consider the impact of
the environment on the firm’s strategy and behav-
iour to be highly important (Weber, 1947), and
others who claim that it is the organisations which
select and even structure their environment (Miller,
1989). For an excellent review and critique of all
the above main theories in the ‘environmental
school’ of the management literature see Min-
tzberg et al. (1998).
The current study has used two types of
contextual variables in the portfolio model:
(a) Firm’s profile: Literature in this area connects
innovation with factors such as the age of the
firm (Nejad, 1997), growth rate (Smith, 1974),
profitability (Mansfield, 1971) and earnings
from exports (Calvert et al., 1996);
(b) Competitive Environment: Evidence in the
literature points to the fact that the high rate of
change of customer needs and intense com-
petition are closely associated with a high
innovation rate (Khan & Manopichetwattana,
1989a; Miller & Friesen, 1984).
(2) Strategy-Related Variables.
A firm’s strategy can be viewed as a network of
decisions, which need to be made in order to
position the firm within its environment and to
create the organisational structure and processes.
Since the 1960s, when the idea of corporate
strategy was first noted, there has been much
debate between the two main schools of thought:
the ‘rationalist’ school (Ansoff, 1965) and the
‘incrementalist’ school (Mintzberg, 1987). Porter
(1980) explicitly linked technology to ‘five forces’
(3) External Communications.
which drive competition within the industry (bar-
gaining power of suppliers, threat of new entrants,
bargaining power of buyers, threat of substitutes
and intensity of rivalry). Porter’s ‘rationalist’
approach suggests that managers need to analyse
the external environment and, based on this
analysis, they must define a course of action.
However, the ‘incrementalists’ Teece & Pisano
(1994) suggested a different approach to corporate
strategy, that of ‘dynamic capabilities’ underlining
the importance of dynamic change and corporate
learning.
Cooper (1984) was one of the first of the
empirical scholars to identify an association
between corporate strategy and innovation per-
formance of firms (see also Cooper’s chapter in
520
Part VII
this volume). Our model incorporates four subsets
of strategy-related indicators:
(a) Innovation budget. Literature showed that
where there is a budget for innovation and in
particular when this budget is consistent over
time, the rate of innovation will be increased
(Khan, 1990; Twiss, 1992);
(b) Business strategy. In firms with a well-defined
business strategy, including plans for new
technology, the rate of innovation was found to
be higher (Rothwell, 1992; Swan & Newell,
1995). Moreover, those firms, which had a
strategy with a long-term horizon and could
communicate it to their employees, showed a
higher rate of innovation (Khan & Man-
opichetwattana, 1989a);
(c) Management attitude. Literature also indicates
that top managers of the more innovative
companies have an internal ‘locus of control’.
They consider that the performance of their
firm depends on manageable practices rather
than the influence of external environmental
factors which they cannot control. (Miller et
al., 1982). In addition, the top managers of the
most innovative firms appear to have less fear
of risk-taking (Khan & Manopichetwattana,
1989b) and recognise that in a shorter-than-
expected time scale, the new technology costs
can be recovered (Eurostat, 1996). Finally,
these managers consider that there is a ‘per-
formance gap’ between how the firm currently
performs and how it could perform in an ideal
situation (Duchesneau et al., 1979);
(d) CEO’s profile. This particularly relates to the
age and status of the CEO—i.e. whether he/she
is also the owner or an appointed executive.
The literature implies that a younger CEO who
is also the owner will be more receptive to
innovation (Khan & Manopichetwattana,
1989b).
Another positive influence on the rate of innova-
tion identified in the literature is the acquisition
and scanning of information (Tidd et al., 1997).
Therefore, three subsets of innovation-related com-
munications variables have been incorporated in
the model.
The first subset comprises the factors related to
communication with the firms’ stakeholders. These
are:
(a) Customers: personal meetings (Chiesa et al.,
1996; Maidique & Zinger, 1984; Rochford &
Rudelius, 1992), panel discussions (Chiesa et
al., 1996), postal or telephone feedback
(Chiesa et al., 1996), or quantitative market
Chapter 7
research for a broader customer profile (Khan
& Manopichetwattana, 1989b);
(b) Suppliers of machinery and equipment: (Duch-
esneau et al., 1979; Rothwell, 1992).
The second subset incorporates the factors related
to the collection and scanning of information
which can be from sources such as public agencies
(Carrara & Duhamel, 1995) or other firms (Alter &
Hage, 1993; Bidault & Fiscer 1994; Trott, 2003).
The membership of professional associations,
(Swan & Newell, 1995), subscription to scientific
and trade journals (Khan & Manopichetwattana,
1989b), attendance at trade fairs (Duchesneau et
al., 1979), access to and use of the Internet, and use
of electronic patent and research databases to
search for new technology are other ways of
collecting information on innovation, albeit less
direct. A ‘technology gatekeeper’—i.e. someone
whose role is specifically to search for information
on new technology—is another determining varia-
ble according to some literature (Allen, 1986;
Rothwell, 1992). Finally, simply by monitoring
one’s competitor’s activities, a great deal of useful
and critical information can be discovered (Chiesa
et al., 1996).
The third subset refers to the co-operation of the
firm with third parties such as universities and
research institutions (Bonaccorsi & Piccaluga,
1994; Lopez-Martinez et al., 1994); public and
private consultants (Bessant & Rush, 1995; Pilog-
ret, 1993); other firms in the form of joint ventures
(Alter & Hage, 1993; Rothwell, 1992; Swan &
Newell, 1995) or licensing (Lowe & Crawford,
1984); and financial institutions as a source of
venture capital (EUROSTAT, 1996). The absorp-
tion of public technology funds, where they are
available, can be another determinant of innova-
tion. (Smith & Vidvey. 1992).
(4) Variables Related to the ‘Organisational Context’.
Bureaucracy theory (Weber, 1947), classical man-
agement (Gulick & Ulrick, 1938) and
organisational sociology (Blay & Schoenherr,
1971) all emphasise the dominant influence of the
structural attributes of an organisation on its
behaviour. However, this appears to work both
ways—while predefined structural factors may
either hinder or encourage innovation, yet others
insist that structure can be modified as a function
of strategy to enhance the innovative potential of
firms (Miller & Blais, 1992).
The organisational competencies incorporated in
the portfolio model are classified into six subsets
and are all based on the empirical literature:
(a) Technical competencies. Both the intensity of
R&D (Ducheneau et al., 1979; Ettlie et al.,
Determinants of Technological Innovation
1984) and the intensity of quality control
(Rothwell, 1992; Zairi, 1996) are associated
with innovation;
(b) Market competencies. Cooper (1984) and
Maidique & Zinger (1984) and Veryzer (2003)
associated an effective marketing programme
and a broad distribution system with innova-
tion.
(c) Education of personnel. In firms which had a
higher number of educated and technically
qualified staff, there appeared to be a more
responsive attitude to innovation (Carter &
Williams, 1957; Nejad, 1997). Miller & Frie-
sen (1984) suggested that ‘technocrats’ came
up with more than average innovative ideas.
(d) Breadth of experience of personnel. The
broader the base of employees within a firm
who had managerial responsibilities, the
higher the rate of adoption of innovations
(Becker & Stafford, 1967). Organisations in
which the staff have more varied backgrounds,
for example working experience in other
companies and/or abroad will generally have a
more positive attitude towards innovation
(Carroll, 1967). Such employees can often
suggest and implement ideas for innovation.
(e) Training. Hage & Aiken (1970) and Dewar &
Dutton (1986) associated innovation with
‘knowledge depth’, measured by the level of
professional training. On-the-job training has
also been linked to the rate of innovation by
more recent authors (Nejad, 1997; Swan &
Newell, 1995)—this training refers to both
professional training for engineers and manag-
ers and technical training offered to the
production employees.
(f) Internal ‘process’ variables. Innovative com-
panies are less formalised than non-innovative
ones (Cohn & Turin, 1984). The business
innovative performance can be also enhanced
by introducing thinking (or ‘slack’) time for
engineers and management (EUROSTAT,
1994) and by using cross-functional inter-
disciplinary teams (Clark & Fujimoto, 1991;
Cooper, 1990; Hise et al., 1990).
Another critical factor influencing innovation is the
existence of a ‘project champion’ (Cooper, 1979;
Hauschildt, 2003; Rothwell, 1992). The ‘project
champion’ is an individual who dedicates herself
to an innovation project and will give a personal
commitment to fulfilling that project (Scon, 1973).
Burns & Stalker (1961), Rogers & Shoemaker
(1971) and Rothwell (1992), have identified an
association between internal communication and
technological innovation. Finally, authors such as
Felberg & DeMarco (1992), Twiss (1992) and
Chiesa et al. (1996) made a case that a firm’s
521
Vangelis Souitaris
innovation potential can be enhanced by allowing
employees to generate their own new ideas, by
encouraging the circulation and communication of
such ideas, and by offering incentives of some
form to the employees.
It is worth stressing again that the model of this
study was not intended to be exhaustive. The
factors that can be related to innovation are
numerous and possibly change over time as
management practice is a dynamic process.
More Recent Issues and Considerations
Measuring Innovation—Using Portfolios of Indicators
One of the major problems facing innovation research
is the absence of common ground or definition. The
most commonly used indicators at the ‘aggregated
level’ are technology-based ones, including capital
expenditure, expenditure on research and development
and patent activity (OECD, 1982; Tidd et al., 1996) and
these have been used for the longest time. The
strengths and weaknesses of technological indicators
have long been recognised (see Pavitt & Patel, 1988;
Smith, 1992). Although the definitions of these indica-
tors are relatively consistent and data are collected on
a routine basis, it can be argued that they measure
innovation input (effort towards innovation) rather than
innovation output (actual results from the innovation
effort).
More recently, there has been a tendency for those
undertaking innovation surveys to use innovation
output or ‘market’ indicators, such as the number of
new products and new processes adopted during a
specific time period (for good reviews of innovation
surveys see Archibugi et al., 1994 and Smith, 1992).
These ‘innovation-count’ indicators have the drawback
that products and processes are not directly comparable
across different industries. Neither can they account for
the economic significance of the innovations (Smith,
1992).
As a response to these disadvantages, some research-
ers have used ‘impact’ indicators, which attempt to
collect data on the proportion of sales directly related
to new products over a particular time period (see for
example Meyer-Krahmer, 1984). These indicators
show the rate at which a firm changes its product lines
and vary across different industries and probably over
time. However, impact indicators are good measures of
both technological newness and economic significance
(Smith, 1992).
Empirical literature seems to have suffered from
inconsistent results over the years because of the
difficulty in capturing the complexity of innovation
with a simple, accurate measure (Duchesneau et al.,
1979). Saviotti & Metcalfe (1984) and Tidd (2001)
suggested that multi-indicators of innovation can offer
a more complete picture of innovation performance,
since the issue could be investigated from several
522
Part VII
different points of view and the problem of incomplete-
ness of each one of the individual measures could be
minimised. Hence, I propose a portfolio of seven
widely used innovation indicators:
(1) Number of incrementally innovative products
introduced in the past 3 years;
(2) Number of radically innovative products intro-
duced in the past 3 years;
(3) Number of innovative manufacturing processes
introduced in the past 3 years;
(4) Percentage of current sales due to incrementally
innovative products introduced in the past 3 years;
(5) Percentage of current sales due to radically innova-
tive products introduced in the past 3 years;
(6) Expenditure for innovation in the past 3 years over
current sales. This includes R&D expenditure as
well as a wide set of other expenditures related to
innovation, such as the acquisition of technology
and know-how, tooling up, industrial engineering,
industrial design, production start-up, training
linked to innovation activities and marketing of
new products;
(7) Number of patents acquired in the past 3 years.
Three types of indicators are used in the above
portfolio:
(1) ‘Input’ measures (variables 6 and 7) indicating the
effort made towards innovation;
(2) ‘output’ measures (variables 1, 2 and 3) capturing
the rate of implementation of innovation; and
(3) ‘impact’ measures (variables 4 and 5) indicating
the impact of the company’s innovative products.
Each type of measure is in itself incomplete (see
Hansen, 1992; Smith, 1992; Souitaris, 1999), but
collectively they can be used to measure innovation
activity. They have now been accepted by the OECD as
standardised tools for future innovation surveys
(OECD, 1992). One of the limitations of this indicator-
portfolio model is its inability to capture innovation
failure and therefore to reveal the project success vs.
failure ratio (Smith, 1989). This is a limitation which
has to be acknowledged, because the level of analysis
is the firm as a whole and not the individual project.
Two more ‘composite’ indicators that future readers
might want to consult before selecting their innovation
measures are presented by Hollenstein (1996) and
Coombs et al. (1996).
Narrowing the Scope—Taxonomies of Firms with
Similar Determinants of Innovation
As a response to the inconsistency of the innovation
determinants, the contingency school of thought
emerged (see Burns & Stalker, 1961; Downs & Mohr,
1976; Tidd et al., 1997, 2001), suggesting that there is
no universal ‘best’ way to manage innovation as the
Chapter 7
phenomenon is context-specific. In order to make the
results more meaningful and comparable, Wolfe (1994)
urged future researchers to define clearly the contextual
settings of their surveys (i.e. the stage of the innovation
process, the innovation attributes and the organisational
context).
Many researchers have realised that innovation
determinants can vary in different contexts and have
narrowed down the scope of their work. Some have
decided to concentrate on a narrow range of firms—by
selecting similar firm size (for example small and
medium-sized enterprises) or firms of the same indus-
try. For instance, Khan & Manopichetwattana (1989a)
and Rothwell (1978) focused only on small firms
and Duchesneau et al. (1979) on the footwear indus-
try.
Some authors proposed taxonomies of firms with
different determinants of technological innovation. The
first taxonomy was proposed by Burns & Stalker
(1961). They distinguished between ‘mechanistic’ and
‘organic’ organisations. Mechanistic organisations
have a lower complexity, higher formalisation and
centralisation, and lower internal and external commu-
nication than organic organisations. In the 1980s,
Miller & Friesen (1984) identified two types of firm
configurations7 with different innovation determinants.
These were ‘conservative’ firms with positive and
significant correlation of innovation with information-
processing, decision-making and structural variables,
and ‘entrepreneurial’ firms with negative correlation of
innovation with information-processing, decision-
making and structural integration variables. The struc-
ture of the firm took a back seat while the goals and
strategies of the company were viewed as the more
important driver for innovation. Khan & Mano-
pichetwattana (1989b) developed five clusters of small
firms with different strategy, structure and managerial
attitudes. Each of these was shown to have its own
specific factors determining innovation.
These taxonomies (for good discussions on innova-
tion taxonomies see Souitaris (2002a) and Tidd (2001)
had an unquestionable and novel value in the innova-
tion management literature, accepting that the
characteristics of highly innovative firms are specific to
particular conditions and trying to identify clusters of
firms with common important determinants of innova-
tion. However, the proposed classifications were
weighted towards perceptual criteria (such as the risk-
taking, proactiveness, entrepreneurial strength and
belief in luck) rather than the factual measures such as
size, industrial sector and common innovation type,
hence the ongoing requirement for development of
7
Readers that would like to know more about the configura-
tion school in strategic management (supporting the idea of
taxonomies), should refer to Miller (1986 and 1996) and Dess
et al. (1993).
Determinants of Technological Innovation
more precise and factual taxonomies. These could help
to clarify conflicting research results on determinants
of innovation (see section ‘The Problem of the
Inconsistency of the Results’).
The author of this chapter tested the applicability of
Pavitt’s (1984) taxonomy (which derived from the
economic school of thought) as an effective factual
classification that could benefit the management lit-
erature searching for the determinants of innovation.
Pavitt suggested that industrial sectors differ greatly in
the sources of technology they adopt, the users of the
technology they develop, and the methods used by
successful innovators to appropriate the benefits of
their activities. He produced a simple and practical
classification with four categories of firms:
(1) ‘Supplier-dominated firms’. These firms are usu-
ally small, they do not place much emphasis on
R&D, and they have lower engineering capabil-
ities. They take the majority of their innovative
ideas from firms, which supply them with equip-
ment or materials;
(2) ‘Large-scale producers’. These firms tend to be
much bigger and instigate their own process
technologies. They concentrate their resources in
this area, and usually diversify vertically into
technological equipment, which is related to their
own technology. As a result they contribute to a
large extent to innovation in all sectors of their
activity;
(3) ‘Specialised suppliers’. These firms tend to be
smaller, perhaps mechanical or instrumental engi-
neering firms. They also produce a high proportion
of their own process technologies but focus more
of their innovative activities on new products for
use in other sectors. There is little diversification of
technology and a relatively small contribution to
innovations produced in their principal sector of
activity. Their end users and other firms outside the
sector make a more significant contribution;
(4) ‘Science-based firms’. These companies are usu-
ally firms in the chemical, pharmaceutical and
electrical and electronic engineering sectors,
whose main source of technology is internal R&D.
They produce a relatively high proportion of their
own process technology and of product innova-
tions used in other sectors of the industry. Usually
large, most of their technological diversification
is within the corporation, and they produce a
relatively high proportion of all the innovations
made in their principal sector of activity.
Pavitt’s taxonomy was selected for the test because it
produced firm classes with a similar size, industrial
sector and innovation type (three important moderators
causing result instability in the management literature).
The author expected that a simultaneous ‘control’ of all
the three moderators would reduce the variation of the
523
 Vangelis Souitaris
innovation determinants within classes and increase the
variation across classes.
An empirical test in a sample of 105 Greek
companies showed that firms in different trajectories
(categories of firms) of Pavitt’s taxonomy showed
differences in the rate of technological innovation (for
Author: the detailed results of the study, see Souitaris (2002a));
Sense? more importantly, ‘scale intensive’ ones; most
importantly, different management-related determi-
nants proved to be significantly associated with
innovation for each category of firms. Innovation for
‘supplier-dominated’ firms was related to the com-
petitive environment, acquisition of information,
technology strategy, risk attitude and internal co-
ordination. For ‘scale-intensive’ firms the important
determinants were related to the ability to raise funding
as well as the education and experience of personnel.
For ‘specialised suppliers’ innovation was associated
with high growth rate and exporting, as well as training
and incentives offered to the employees to contribute
towards innovation. ‘Science-based’ firms depended
upon technology-related variables, education and
experience of personnel, growth in profitability and
panel discussions with lead customers.
Using Pavitt’s taxonomy management scholars can
simplify the problem of multi-dimensional moderation.
Size, industrial sector and type of innovation are
combined into a single dimension: the ‘technological
trajectory’.
On the basis of my own research described above, I
propose a ‘two-step’ methodology to identifying the
distinguishing characteristics of innovative firms:
(1) A classification of firms according to ‘industrial-
level’ moderators. Pavitt’s taxonomy has a high
practical value at this level. It conveniently aggre-
gates ‘industrial-level’ factors, producing four
sectoral firm classes, rather than a long list of
sectors;
(2) Identification of a set of management-related
determinants of innovation specific to each sectoral
class. In practice, this method offers the opportu-
nity to customise innovation questionnaires and
measure the right ‘type’ of variables according to
the firm’s class.
The International Dimension
Most of the empirical research on the determinants of
innovation has been carried out in industrialised
developed countries. Recently, there has also been
some interest in the particular conditions in Asian
Newly Industrialised Countries (NICs) (see Hobday,
1995; Kim et al., 1993), in developing countries such
as Iran (Nejad, 1997) and in transition economies in
Eastern Europe (Inzelt, 2003). Several authors sug-
gested that using the findings of innovation studies in
technologically advanced countries to explain the
innovative behaviour in countries with a less developed
524
Part VII
technological base is likely to be inappropriate (Drazin
& Schoonhover, 1996; Mishra et al., 1996; Nejad,
1997; Souitaris, 1999).
A number of research paradigms have attempted to
explain the international differences in technological
development and innovation at a conceptual level. Neo-
classical economic theorists have placed emphasis on
the importance of a local supply of skills, specific local
demands, openness of communication, pressure from
competition and market structure (Nabseth & Ray,
1974; Porter, 1990). The ‘national innovation systems’
paradigm underlined the important role of deliberate
intangible investment in technological learning activ-
ities (involving institutions such as other firms,
universities and governments and the links among
them). Innovation systems theorists also stressed the
national incentive structures of temporary monopoly
profit from innovation and the firm-specific competen-
cies (Lundvall, 1998; Patel & Pavitt, 1994). The
neo-contingency school of thought put forward the
case for the way in which the diffusion and utilisation
of innovation in different countries could be affected
by systematic differences in business strategies, organi-
sational forms and specific social processes, all of
which are mutually dependent (Slappendel, 1996;
Sorge, 1991). The neo-institutional theorists placed
more importance on the prevailing national institu-
tional frameworks and networks (e.g. professional
associations). These could create standards of best
practice which would encourage some technologies to
be diffused more widely than others (Di Maggio &
Powell, 1983; Swan et al., 1999).
In spite of all the research into the national
differences in the patterns of technological innovation,
there is a need for more empirical research in order to
fully understand the complexity of the issue (Moenaert
et al., 1994; Patel & Pavitt, 1994; Swan et al., 1999).
Moenaert et al. (1994) proposed an operational frame-
work for future empirical research, which combines the
elements of most of the conceptual paradigms. Accord-
ing to Moenaert et al. the innovation process in
different countries depends upon four ‘socio-eco-
nomic’ dimensions: technological heritage,
administrative heritage, market structure and regional
entrepreneurship with additional influence of the
national ‘cultural context’.
I have attempted to use this framework in order to
empirically identify the determinants of innovation in
Greece (an example of a European newly industrialised
nation with a less developed technological base).8 The
‘Greek studies’ (Souitaris, 2001a, 2001b, 2002b) are
8
The average GDP per person is $11,739 per annum, which
indicates a medium-level development compared for instance
to $23,478 per annum for a large Western European country
like the U.K. and $1,352 per annum for a developing country
like Iran (Economist, 1998).
Chapter 7
based on a sample of 105 manufacturing companies in
Greece, and the results are briefly summarised below.
Major-importance ‘organisational competencies’
determining innovation were found to be the intensity
of R&D, strength in marketing, proportion of uni-
versity graduates and engineers in the staff, proportion
of staff with managerial responsibility, proportion of
professional staff with previous experience in another
company and incentives offered to the employees to
contribute to innovation (Souitaris, 2002b). Regarding
‘strategic variables’ important determinants of innova-
tion included incorporation of technology plans in the
business strategy, managerial attitude towards risk,
perceived intensity of competition and rate of change
of customer needs and finally status of the CEO
(owner-CEOs were associated with a higher innovation
rate than appointed CEOs). In general, top-manage-
ment characteristics proved to be more important
‘strategic’ determinants of innovation for the Greek
firms than corporate practices (Souitaris, 2001b).
Regarding ‘external communications’ the empirical
results supported two hypotheses for industrialising
countries (proposed by Souitaris, 2001a): (1) searching
for product-specific information is more important for
innovation than scanning more general market and
technological information; (2) the co-operation with
partnering organisations (such as investing firms and
joint venture partners) is more important for innovation
than the co-operation with assisting organisations (such
as universities, consultants or government agencies)
(Souitaris, 2001a).
A common observation which emerged from the
‘Greek studies’ is that the ‘major importance’ determi-
nants were generally scarce in the country’s context.
For example, the Greek national culture is generally
risk-averse (Hofstede, 1991), but the attitude towards
risk was a highly important variable (Souitaris, 2001b).
In Greece there is a low indigenous production and
supply of technology (Giannitsis & Mavri, 1993), but
the R&D intensity and the incorporation of technology
planning into the business strategy were important
predictors of a high innovation rate (Souitaris, 2001b,
2002b). The Greek market has a traditionally low level
of competition because of protectionism measures, but
the perception of intense competition and demanding
customers was strongly associated with a high innova-
tion rate (Souitaris, 2001b). Despite the fact that
Greece suffers from an outdated educational system
which does not consider the needs of the industry
(Tsipouri, 1991), education-related variables proved
important determinants of innovation (Souitaris,
2002).
The findings of the Greek studies put forward the
hypothesis that the most important determinants of
innovation in newly industrialised countries are those
which are generally absent in the country-specific
institutional market and social context. In other words,
the most innovative companies are those which can
Determinants of Technological Innovation
overcome the traditional rigidities of the context of
their countries and incorporate rare attitudes and
practices for the local business environment. This
hypothesis requires further testing in innovation
research.
Where are We Going from Now?
As time passes by and management styles evolve, new
determining variables appear, and the relative impor-
tance of the old ones changes. Hence, it is recom-
mended that holistic empirical surveys be carried out
periodically, to act as yardsticks of our current
knowledge. Qualitative methodologies such as obser-
vation and case studies would be useful from time to
time in order to explore the perceptions of practising
managers, to capture emerging determinants and to
identify new lines of thinking for further quantitative
research.
The fact that the results show different patterns
depending on the region and/or the sectoral class,
should be accepted and lived with. Hence, instead of
devoting time and resources to the search for a unified
theory of innovation, we can use portfolio models such
as that presented in this chapter as a starting point and
then identify the determining variables with the highest
predictive power for the particular context. Using the
set of important determinants as a base, auditing
systems can then be developed putting the research
results into practice.
In my view, the most fruitful direction for further
research would be to untangle the ‘black box’ of the
contingency theory. Contingency theory has been
accused of having rather abstract and vague dimen-
sions of the environment (Mintzberg et al., 1998). We
need to map what determinants work under what exact
environmental circumstances. Despite the fact that this
is a highly complex problem due to the number of
intervening variables, I propose work in two direc-
tions.
(1) Empirical research on the important determinants
of innovation in countries and regions with differ-
ent managerial cultures and stages of economic
development. International surveys carried out
under exactly the same conditions (same industries
and same measurements for innovation and its
determinants) would be particularly useful;
(2) Empirical research in order to confirm and estab-
lish the use of taxonomies, such as Pavitt’s
‘technological trajectories’. The creation of taxon-
omies of firms is encouraged in theory
development, as it allows large amounts of com-
plex information to be collapsed into more
convenient categories, which are easier to compre-
hend (Carper & Snizek, 1980).
We always have to keep in mind that research on the
determinants of innovation can have immediate usable
and practical outcomes. The results of these studies
525
Vangelis Souitaris
will be valuable for: (1) company managers and
consultants who want to identify the keys to high rate
of innovation and (2) public policy-makers, who can
see the impact of general ‘infrastructure’ variables like
education, training, venture capital and information on
the company’s innovation potential.
Acknowledgments
The author would like to thank Dr. R. F. de la Mare for
his contribution to these ideas and particularly Deborah
Salmon for her valuable language-related editing of the
text.
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