| Why
Study IT-Based Innovation?
Survey Results
The need for better information about innovative activities at
U.S. firms, the innovative process, and the factors that affect
innovation led NSF to conduct a new survey in 2001 that systematically
examined innovative activities in selected U.S. industries. To accomplish
this, and to better understand how IT affects innovation, 4,000
firms were surveyed with the following three goals in mind:
- To develop nationally representative profiles of corporate IT
innovators and users
- To facilitate analyses of similar national studies conducted
by other countries
- To provide policymakers with data to better understand how
industry uses and develops IT in the pursuit of innovation
Data collected from this survey were designed to serve both public
and private researchers and provide an important resource for NSF,
policymakers, and other stakeholders interested in understanding
the multidimensionality of IT-based innovation within U.S. companies.
These data are limited in scope and depth but nevertheless provide
useful insight into the process and characteristics of IT-based
industrial innovation. (See sidebar, "Description
of U.S. IT Innovation Survey Sample and Response.")
Why Study IT-Based Innovation? 
In the late 1990s, IT was recognized by the U.S. Department of
Commerce as an area of growing importance within the U.S. economy
(DOC 1998 and DOC/ESA
1999). This growth was evident by the impact of IT on the labor
market in the form of rising demand for IT workers and the shortage
of trained IT professionals (DOC/ESA
1999, DOC/OTP 1998, and Meares
and Sargent 1999). During this time, IT and IT innovation was
recognized as a major contributor to the service sector. It was
reported that about 80 percent of IT investment was directed to
the service sector in both the United States and United Kingdom
(Evangelista, Sirilli, and Smith
1998).
IT-based innovation was viewed as both leading to new products
and services and revitalizing the way most traditional services
were produced and delivered (Evangelista,
Sirilli, and Smith 1998). The introduction of IT and IT-based
innovations reduced costs in production- and scale-intensive sectors,
whereas specialized technology suppliers and science-based sectors
used IT to focus on R&D and software development (Evangelista,
Sirilli, and Smith 1998). IT was especially important to supplier-dominated
industries that relied on technologies developed by other sectors.
Furthermore, in a review of U.S. policy on investment in innovation,
Branscomb and Keller (1998)
found that assumptions about the way companies innovate have not
kept pace with structural changes in the high-technology sector
of the economy, particularly as they relate to:
- Sources of technology and funding for innovation
- Challenges to competitiveness in the global marketplace
- The nature of relationships between companies, government,
and the academic community
- Decentralization of technology management responsibilities
and corporate decisionmaking
- Managing risk and determining returns on investment in education,
research and development, and organizational change
New patterns in private-sector innovation are assumed to reach
across companies in the form of increased partnerships, alliances,
and other forms of collaboration, although quantitative data are
not available to support this assumption (Branscomb
and Keller 1998).
Survey Results
For the purposes of the NSF study, innovation was defined as the
development of technologically new or significantly improved products
or processes. Respondents were instructed to consider innovation
IT-based if IT was a significant or critical component in the development
of new products or processes. Changes to existing products that
were purely aesthetic, involved only minor modifications, or were
implemented to accommodate Y2K issues were not considered IT-based
innovation.
The survey found that nearly half (48 percent) of responding firms
developed an IT-based innovation within the past year or expected
to develop one within 12 months. This 48 percent is an estimated
national average rate of IT-based innovation for the collection
of industries surveyed. Not surprisingly, certain industries reported
above-average levels of innovation. For example, IT companies reported
higher levels of innovation (72 percent) than non-IT companies (44
percent), and IT computer-related services (84 percent) were the
most innovative of the three IT sectors surveyed. The lowest rate
of innovation was reported in the non-IT manufacturing sector (figure
6-28 
and table 6-9  ).
Process innovation was more prevalent and may be more important
for innovative firms than product innovation (appendix
tables 6-18 
through 6-21
).
When innovative firms were asked to identify the type of innovation
(product or process) developed during the past year that contributed
most to company revenue, process innovations outnumbered product
innovations by almost 60 percent (figure
6-29 ).
The number of firms that said they expected to have an IT-based
process innovation within 12 months outnumbered firms expecting
a product innovation by more than 2 to 1 (appendix
table 6-21 ).
This survey defined product innovation as the development
of improved goods or services in which IT was a significant or critical
component, and process innovation as the development of an
improved operation, or function associated with manufacturing, production,
or business services in which IT was a significant or critical component.
The survey identified several characteristics of innovative U.S.
companies. Larger companies were more likely to report higher rates
of innovation than smaller companies. Using annual revenue as a
proxy for size, 63 percent of companies with more than $50 million
in sales revenue reported they had developed an IT-based innovation
in the past 12 months or expected to do so within the next 12 months,
compared with 43 percent of the smallest firms, those with annual
company revenues between $2.5 million and $4.9 million.
Innovative firms did not appear to be statistically more likely
to export their products than noninnovative firms. Sixteen percent
of companies that introduced a new IT-based innovation reported
serving foreign customers compared with 14 percent of noninnovative
firms.
Innovative companies were asked about various internal and external
factors that contributed to their IT-based innovation. Among the
internal factors cited, respondents considered acquiring IT and
conducting R&D to be the most important. Forty-three percent
of innovative firms said acquiring IT made a large contribution
to their IT-based innovation, and 41 percent said the same about
conducting in-house R&D (figure
6-30 ).
With respect to the other internal factors posed to respondents,
34 percent of innovators said using proprietary intellectual property
made a large contribution to innovation, and 30 percent cited continuing
education. Sector differences on this question are worth noting.
Conducting R&D was cited as an important contributor to innovation
by more IT companies (58 percent) than non-IT companies (37 percent),
whereas acquiring IT technology meant more to non-IT companies (44
percent) than to IT companies (39 percent). This suggests that purchasing
technology during the innovation process may be an effective substitute
for developing technology through internal R&D. These results
demonstrate how technology that is developed in one company or industry
and acquired by others plays an important role in the acquiring
company's innovation process.
External factors appear to have a lesser impact on innovative companies
than internal factors. Among the seven factors posed to respondents,
purchasing external R&D was the most highly valued, and it garnered
this response from only 20 percent of respondents. Federal and state
programs were the least valued; only 6 percent of innovative firms
identified these programs as having made a large contribution to
the firm's IT-based innovation.
The IT innovation survey answered several other questions as well:
- What did innovators say provided incentive for IT-based innovation?
The availability of skilled IT personnel and favorable timeframes
for realizing a return on investment were each considered an incentive
by 45 percent of firms. R&D-associated costs were seen neither
as an incentive nor a deterrent; the same was true for current
tax policy, access to capital, and the existence of environmental
regulations.
- What did innovators see as strategically important for their
firm's growth? Were their views different from those held by noninnovators?
Innovators viewed being the first to market as strategically
very important, were more focused on expanding into new geographic
regions, and placed a higher importance on conducting R&D
than noninnovators. Innovators also viewed forming alliances,
partnerships, or joint ventures as a more important business strategy
than noninnovators. Innovators were more concerned about retaining
skilled IT personnel (47 percent felt it was very important versus
24 percent of noninnovators) and viewed it as strategically very
important for their business. Somewhat surprisingly, venture capital
was not an overriding concern for innovators and noninnovators.
Seventeen percent of innovators saw it as very important compared
with 12 percent of noninnovators.
- How important is IT hardware and software relative to other
elements for conducting business? Almost 60 percent of responding
firms viewed IT hardware and software as very important for conducting
business. Innovators weighted it even more, with nearly 74 percent
reporting it as very important to their business.
- How did firms view the utility of IT goods and services?
Firms saw IT goods and services as very important for reducing
costs (54 percent of all respondents gave this answer, as did
67 percent of innovators and 43 percent of noninnovators), increasing
productivity (64 percent overall, 77 percent of innovators, and
52 percent of noninnovators), and facilitating communication (61
percent overall, 75 percent of innovators, and 49 percent of noninnovators).
Firms did not view IT goods and services as very important for
attracting investment.
- How important is R&D to the innovation process? Forty-one
percent of innovators said in-house R&D made a large contribution
to IT-based innovation, 31 percent said that conducting R&D
was a very important part of a growth strategy, and 20 percent
said outsourced R&D made a large contribution toward IT-based
innovation.
The development of innovation theory and the collection of data
go hand in hand. This latest data collection effort by NSF drew
on myriad experiences of related innovation surveys conducted in
Europe, Asia, and Latin America, but it broke new ground by focusing
exclusively on IT-based innovation. By designing the data collection
process for a narrower set of innovations and industries, this survey
strived to address practitioner concerns about the usefulness of
national innovation data while trying to understand the innovation
process in specific industries. The focus on IT-based innovation
sought to improve the data currently available and to investigate
the innovation process in this critical technology area.
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