The innovation value chain

TLDR

Innovation events mark the end of knowledge sourcing and transformation and the beginning of exploitation that can improve business performance. The authors define this recursive process of knowledge sourcing, transformation, and exploitation as the innovation value chain. They model the innovation value chain for a large group of manufacturing firms in Ireland and Northern Ireland, highlighting the drivers of innovation, productivity, and firm growth. The analysis shows that horizontal, forward, backward, public, and internal knowledge sourcing are complementary and positively contribute to product and process innovation, with public sources having only indirect effects; product innovation boosts short‑term labor productivity, and overall modelling demonstrates that skills, capital investment, and other resources drive the translation of knowledge into business value.

Abstract

Innovation events - the introduction of new products or processes - represent the end of a process of knowledge sourcing and transformation. They also represent the beginning of a process of exploitation which may result in an improvement in the performance of the innovating business. This recursive process of knowledge sourcing, transformation and exploitation we call the innovation value chain. Modelling the innovation value chain for a large group of manufacturing firms in Ireland and Northern Ireland highlights the drivers of innovation, productivity and firm growth. In terms of knowledge sourcing, we find strong complementarity between horizontal, forwards, backwards, public and internal knowledge sourcing activities. Each of these forms of knowledge sourcing also makes a positive contribution to innovation in both products and processes although public knowledge sources have only an indirect effect on innovation outputs. In the exploitation phase, innovation in both products and processes contribute positively to company growth, with product innovation having a short-term ‘disruption’ effect on labour productivity. Modelling the complete innovation value chain highlights the structure and complexity of the process of translating knowledge into business value and emphasises the role of skills, capital investment and firms’ other resources in the value creation process.