Knowledge, openness, innovation and growth in UK business services

We explore the causal links between service firms’ knowledge investments, their innovation outputs and business growth based on a bespoke survey of around 1100 UK service businesses. We combine the activity based approach of the innovation value chain with firms’ external links at each stage of the innovation process. This introduces the notion of ‘encoding’ relationships through which learning improves the effectiveness of firms’ innovation processes. Our econometric results emphasise the importance of openness in the initial, exploratory phase of the innovation process and the significance of team-working in later stages of the process. In-house design capacity is strongly linked to innovation performance. Business growth is related directly to both the extent of firms’ service innovation as well as the diversity of innovation reflecting marketing, strategic and business process change. Links to customers are important in the exploratory stage of the innovation process, but encoding linkages with suppliers and public sector agencies are more important in developing innovation outputs. Acknowledgements The data on which this paper was based was collected as part of the UK Innovation Index project sponsored by the National Endowment for Science, Technology and the Arts (NESTA). We are grateful for their support. Professor John Bryson and Dr Chantal Hales (University of Birmingham) were also part of the original project team.