Firm heterogeneity and innovation strategy decision

Abstract

Research on innovation strategy, which focuses on what type of innovation that firms decide to implement, has primarily focused on dichotomic (yes or no) options and is mostly based on the determinants of technological (product and process) innovations. This paper extends the study of innovation strategy to nontechnological innovations (organizational and marketing) and opens an understudied form of innovation strategy encompassing all possible combinations of innovative alternatives for the firm. We argue that implementing an innovation strategy must encompass all possible combinations that allow firms to create and capture value. We test our propositions with data from 5,876 firms from the 2015-2016 panel from the Chilean Innovation Survey. We use a multinomial logit model to describe how a firm’s characteristics affect the choice of an innovation strategy. Furthermore, we address the potential existence of endogeneity in innovation studies when research and development (R&D) is used as an explanatory variable. The results show that different firms’s characteristics have heterogeneous effects on firm innovation strategy. Additionally, once corrected for endogeneity, the results show that the variables measuring firm size and group membership are no longer significant in determining different innovation strategies. We discuss the theoretical and practical implications of our findings and relate them to current research on innovation strategy.