What makes firms innovative?

: Combining multivariate and analytics perspective

By

Dr.Deepa Ray
ABSTRACT

Innovation is said to be the key to being competitive in todays times. Previous research in this
area has pointed to many factors that influence an organization's ability to be innovative. For
example, traditional research has found organizational structure, hierarchy, culture,
professionalism etc. as some of the factors that are strongly linked to organizational
innovativeness (Damanpour, 1991; Kim, 1980; Kimberly & Evanisko, 1981). Recently, articles
in this area have stressed on the importance of management innovation as a key determinant to
any organization's success at innovation (Volberda, Van Den Bosch, & Heij, 2013). However, the
area of organizational innovativeness is still rich for research. Meanwhile, the emergence of
analytics has led to its use in various fields from traditional marketing analytics, portfolio
management to other applied areas such as human resources, supply chain and healthcare (Sun &
Reddy, 2013) etc. The purpose of this research study was to determine which factors do an
efficient job of distinguishing between innovative and non-innovative firms. Also, could
analytics be used as a tool to predict organizations that will be innovative versus those that will
not?

In the first step, this study used multiple discriminant analysis to determine which factors were
crucial in determining if an organization was innovative or not. Organizational innovativeness,
for simplicity sake, was limited to a yes/no answer. Innovation for the purpose of the study was
defined as yes for any organization that had filed for patents or introduced a new product in the
market and no for the others. In the second step, this study use analytics to gain insights on
various factors that help organizations become more innovative.This was done by building a
classification model to predict organizational innovativeness. Some of the factors from the first
level of analysis were used as input to the classification model. Among the notable ones were
competition faced, hierarchical structure, age of the organization, female managers in the
organization etc. The source of the data of analysis was the European Bank for Reconstruction
and Development (EBRD) - World Banks Management, Organization and Innovation (MOI)
survey and primarily comprised of manufacturing firms.

Results of the study showed that the innovative firms did significantly differ from non-
innovative firms on level of competition faced, hierarchical levels in the organization, age of the
organization, managerial expertise as well as certain other facets of organizational culture. Such
a study could help understand how various organizational characteristics such as work culture,
spending on research and development, hierarchical levels, competition faced etc determine an
organizations ability to innovate. Results also have major implications for practitioners and
researchers alike. For practitioners, it gives a clue into factors that need to be addressed if an
organization has to become innovative. Given the current competitive nature of business, the
need to be innovative has become imperative. For researchers, it opens up a whole new plethora
of areas that can be conquered using both traditional multivariate methods as well as advanced
analytics.

This study was an attempt to combine traditional multivariate method such as multiple
discriminant analysis along with analytical models such as classification models to better
understand the area of organizational innovation.

Key References:

Damanpour, F. (1991). Organizational Innovation: A meta-analysis of effectos of determinants

and moderators. Academy of Management Journal, 34(3), 555590. doi:10.2307/256406

Kim, L. (1980). Organizational innovation and structure. Journal of Business Research, 8(2),

225245. doi:10.1016/0148-2963(80)90012-0

Kimberly, J. R., & Evanisko, M. J. (1981). Organizational Innovation: The Influence of

Individual, Organizational, and Contextual Factors on Hospital Adoption of

Technological and Administrative Innovations. Academy of Management Journal, 24(4),

689713. doi:10.2307/256170

Sun, J., & Reddy, C. K. (2013). Big data analytics for healthcare. In Proceedings of the 19th

ACM SIGKDD international conference on Knowledge discovery and data mining (pp.

15251525). New York, NY, USA: ACM. doi:10.1145/2487575.2506178

Volberda, H. W., Van Den Bosch, F. A. J., & Heij, C. V. (2013). Management Innovation:

Management as Fertile Ground for Innovation. European Management Review, 10(1), 1

15. doi:10.1111/emre.12007