Journal of High Technology

Management Research 13 (2002) 19 43

Innovating against European rigidities

Institutional environment and dynamic capabilities
Magali A. Delmas*
Bren School, University of California-Santa Barbara, 4670 Physical Sciences North, Santa Barbara,
CA 93106-5131, USA
Accepted 15 October 2001

Abstract
European firms are confronted to the paradox of a strong R&D in many areas but a low level of
innovation. Building on the dynamic capability approach, I propose an institutional approach where
innovation is linked to cultural, organizational, and regulatory factors. These include managers attitude
toward risk and uncertainty, the ability to develop capabilities and access complementary assets, and a
favorable regulatory environment. Using European microdata on how 6860 managers perceive factors
hampering innovation, this paper shows that the risk-averse attitude of European firms and their
difficulty to develop dynamic capabilities may explain the weakness of European innovation.
Institutional factors such as pervasive rigidities and distortions that hamper the functioning of markets,
may also prevent innovative responses. The use of managers perceptions seems particularly well suited
in the context of innovation where choices are taken with limited information. Conclusions drawn from
this perspective call for policies that will take into account the system in which innovation can take
place. D 2002 Elsevier Science Inc. All rights reserved.
Keywords: Innovation; Institutional environment; Europe

1. Introduction
One of the most outstanding features of the present era is the pursuit of an accelerated pace
toward the globalization of exchanges, which is accompanied by deregulation whose main
* Tel.: +1-805-893-7185; fax: +1-805-893-7612.
E-mail address: delmas@bren.ucsb.edu (M.A. Delmas).
1047-8310/02/$ see front matter D 2002 Elsevier Science Inc. All rights reserved.
PII: S 1 0 4 7 - 8 3 1 0 ( 0 1 ) 0 0 0 4 7 - 5

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M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

effects are in most cases still to come (Bouin & OConnor, 1997). Given the new competitive
conditions in the global economy, innovation is a determining factor in the ability of firms
and countries both to adapt themselves to new constraints and take advantage of new
opportunities (Cervantes, 1997).
This question is crucial for Europe, which is confronted with the paradox of a strong R&D
in many respects but a low level of innovation. Although Europe has a strong scientific base
(CEC, 1994), it seems that European firms, as compared to their American and Japanese
counterparts, suffer from a difficulty to transform R&D into commercially viable innovations
and new products (Andreasen, Coriat, den Hertog, & Kaplinsky, 1995; Buigues &
Jacquemin, 1998).1
The dynamic capability approach to strategy (Teece, Pisano, & Schuen, 1997) shows
that successful innovative firms in the global market place have been demonstrating timely
responsiveness to market changes, along with the management capability to effectively
coordinate and redeploy internal and external competencies. Even though the business
firm is clearly the leading player in the development and commercialization of new
product and processes, it is important to understand the institutional environment in which
these activities take place. Innovation systems are rooted within a given set of national
and subnational institutions, and the role of supporting institutions, both private and
public, formal and informal, is of crucial importance (Lundvall, 1998; Mowery, 1998;
Nelson, 1993).
In this paper, I propose an institutional approach to explain innovation. I suggest four
dimensions of the institutional environment that facilitate or hamper innovation. The first
one is cultural and includes the attitude of managers toward risk and uncertainty. The second
one is organizational and refers to the ability of firms to acquire and develop new
knowledge. The third dimension refers to the availability of complementary assets such as
access to sources of finance or cooperation with other firms. The fourth one is the regulatory
environment such as property right regimes and taxes.
Using European microdata on how 6860 managers perceive factors hampering innovation,
this paper shows that the risk-averse attitude of European managers and the perceived
difficulty of European firms to develop dynamic capabilities and acquire new knowledge
explain the weakness of European innovation. Institutional factors, such as pervasive
rigidities and distortions that hamper the functioning of markets, may also play a role in
preventing innovative responses.
Most of the studies on the lack of innovation in Europe focus on the cost of R&D and the
difficulty to finance it (Green Paper on Innovation, 1995). However, successful innovation
requires more than basic research and R&D expenditure. Conclusions drawn from an

1
European companies apparently obtain lower returns than US companies on R&D investment, as measured
in terms of ability to leverage R&D into patents and to leverage patents into products for the global market. The
international diffusion rate of patents generated in Europe is only two-thirds that of the US. Between 1984 and
1993, the European Union lost patent share in all sectors apart from aerospace and transport equipment
(Competitiveness Report, 1996).

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

21

institutional perspective on innovation call for policies that will take into account the system
in which innovation can take place. New technologies will not be fully reflected in
productivity growth until societal constraints are removed allowing companies to undergo
thorough reorganization (Pavitt, 1998).
In Section 2 of this paper, I develop an institutional approach to innovation. Section 3
exposes the data and empirical methods. The measures of factors hampering innovation are
discussed and the Community Innovation Survey (CIS) is described. Sections 4 and 5 of the
paper present the empirical results and a concluding discussion of their implication.

2. An institutional approach to innovation

The dynamic capability approach to strategy emphasizes the key role of strategic
management in appropriately adapting, integrating, and reconfiguring internal and external
organizational skills, resources, and functional competencies toward changing the environment (Langlois & Robertson, 1995; Teece et al., 1997). However, firms are embedded in a
larger institutional environment, and the behavior of each is governed by regulative, normative, and cognitive aspects (Scott, 1995). I suggest that specific attention should be given
to the institutional context, which can facilitate or hinder firms dynamic capabilities and
innovative strategies.
There is a flourishing literature on national innovation systems, which stresses that the
flows of technology and information among people, enterprises, and institutions are key to
the innovative process. Innovation and technology development are the result of a complex
set of relationships among actors in the system, which includes enterprises, universities, and
government research institutes (Dosi, Freemand, Nelson, Silverberg, & Soete, 1988;
Lundvall, 1992; Mowery, 1998; Mowery & Oxley, 1995; Nelson, 1993). My approach adds
to this research by pointing out how the cultural, organizational, and regulatory aspects of the
institutional environment impact innovative behaviors.
Here, the institutional context is analyzed at the regional level (in this case, the European
level) instead of the national level. The European Union (EU) integration has a history of more
than 40 years. It has led to the development of a number of simultaneous or lagging
convergences processes, creating a postnational layer of activities for national firms and
governments. European integration is a process towards a coherent institutional setup for
production, trade, and innovation within Europe (Gregersen & Johnson, 1997). There is a
market tending towards unification, regulated by well-defined competition and trade policy
rules with emerging (research, innovation, and regional development) structural policy
institutions (Soete & Weel, 1999).
2.1. Attitude toward risk and uncertainty
First, innovation is a quest into the unknown. It involves taking risks, searching, probing,
and reprobing of technological as well as market opportunities (Kunkel, 1997; Santomero &
Trester, 1998). Second, innovation is about the introduction of novelty by breaking with

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M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

established routines and by overcoming a wide range of social and cultural barriers
(Hargadon, 1998; Tushman & Reilly, 1996).
These elements not only require an entrepreneurial attitude as portrayed by Schumpeter
(1936) with energy of action and will, but also adaptive organizations, which challenge their
current paradigms. The swift-moving environment in which they function makes it critical
that the old fit be consciously disturbed (Chakravarthy, 1982). Organizations can close
themselves to changes in the market and business environment and to new sources of
technology. Individuals in organizations can fall into the trap of adopting a citadel mentality.
Closed systems may be able to hone existing routines but will lose the capacity to engage in
new routines (Nelson & Winter, 1982).
There is also a value in responding rapidity to new demands. In an era of shortened product
life cycles, a competitive advantage is directly linked to how quickly new products can be
developed (Malueg & Tsutsui, 1997). Certain innovative responses are required when timeto-marker is critical, when the rate of technological change is rapid, and when the nature of
future competition and markets is difficult to determine.
In conclusion, firms must be able to process by trial and errors, to challenge their way of
working, and to respond rapidly to changes in the environment. This requires firms to adopt a
dynamic and entrepreneurial attitude. On the contrary, closed systems with a culture averse to
risk taking will not lead to innovation. The predicted effect of a risk-averse attitude of the firm
can be formalized as follows:
Hypothesis 1: The more the risk-averse attitude toward change, the less the innovation output.
2.2. Ability to acquire new knowledge
Innovation is linked to organizational learning, that is the way firms generate, absorb, and
transmit knowledge (David, 1997; Freeman, 1991; Kogut & Zander, 1992; Pisano, 1994;
Rosenberg, 1976; Sanchez & Mahoney, 1996). Knowledge constitutes input into the learning
process, that is, knowledge transfer in many cases is a means to generate new learning and
among others an agents existing knowledge stock (Foray & Lundvall, 1996).
Cohen and Levinthal have argued that the ability of a firm to recognize the value of new
external information, to assimilate it, and to apply it to commercial ends is critical to the
firms innovative capabilities (Cohen & Levinthal, 1990). This capability, called a firms
absorptive capacity, is largely a function of the firms level of prior related knowledge. The
absorptive capacity is based on employees skills as well as firm organizational design,
which influences the quantity and quality of information exchanged, the level at which
decisions are made, and how organization members monitor the external environment. This
level of knowledge can be embedded in the employees. Alternatively managers can recruit
scientists and engineers to keep a firm adequately up-to-date with scientific knowledge.
Knowledgeable employees will be able to survey what knowledge is available in the world,
detect new developments, and judge what is worthwhile acquiring and learning. Therefore,
if there is a lack of knowledgeable employees within the firm or in the environment of the

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

23

firm such as in universities, the firm will lack absorptive capacity and will have more difficulties to innovate.
The ability to acquire knowledge is not only linked to the firms absorptive capacity but
also to the existing flow of knowledge surrounding firms. For example, external information
on technological innovations or market opportunities difficult to reach maybe even for
knowledgeable employees because of deficient information technologies. The relationship
between the ability to acquire knowledge and innovation can be formalized as follows:
Hypothesis 2: The less the ability to acquire knowledge, the less the innovation output.
2.3. Access to complementary assets
Innovative activity is often the result of dynamic relations between participants rather than
the simple transfer of information or technology (Mastenbroek, 1996). The systemic
characteristics of new technologies have significant implications for the organization of
firms. The more systemic a technology, the closer the cooperation between firms needed to
share and transfer it. Feedback loops between the different players are very important in the
innovation process (Teece, 1996).
Furthermore, linkages to other technologies, to complementary assets and to users must be
established if innovation is to be successful. As firms might lack competence in a number of
technological fields, cooperation with other enterprises creates the necessary complementary
technology unit, enabling these companies to capitalize on economies of scope through joint
efforts (Delmas, 1999; Hagedoorn, 1993; Kogut, 1988; Powell, 1990).
To be successful, innovation requires access to complementary assets such as for example
financing or distribution (Teece, 1986). Collaborative arrangements between firms may be
utilized to access complementary assets supplied by the respective parents. Moreover,
innovation also depends on links between firms and other type of agents such as research
laboratories, industry unions, or public agencies (Ham and Mowery, 1998).
In conclusion, innovation requires that firms develop, adapt, integrate, and reconfigure
internal as well as external organizational skills and resources to match the requirement of a
changing environment. An environment, which hampers the creation of linkages and obstructs
access to complementary assets, should therefore impede the innovation process. The
predicted effect of the difficulty to access complementary competencies on innovation can
be formalized as follows:
Hypothesis 3: The more difficult the access to complementary assets, the less the
innovation output.
2.4. A favorable regulatory environment for innovation
The institutional environmentcomprising the rules of the gamecan influence in
several ways the propensity of firms to innovate (North, 1990). It can be a source not only
of uncertainty but also of rigidities hampering organizational change.

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M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

2.4.1. Regulation, risk, and uncertainty

Regulation can put constraints on industrial organization, on the market in which they can
develop, and on the way firms can interact with partners. For example, regulations can
obstruct the innovation process if its timing does not fit the business cycle. In some fastmoving areas (notably ICT), it is becoming clear that traditional regulation (through its
consensus-finding mechanisms, the need for an extensive public comment period, etc.) is
imposing excessive time constraints. Where product-cycle periods are short, with radical new
developments appearing almost monthly, regulation that takes typically 3 years (often longer)
will be of limited effect in the market.
Obviously, the most documented literature on the link between institutional regulation and
innovation is the literature dedicated to the economics of intellectual property rights and
especially to the economics of the patent and copyright system. Under many legal systems,
the ownership rights associated with technological know-how are often ambiguous, do not
always permit rewards that match contribution, vary in the degree of exclusion they permit
(often according to the innate patentability of copyrightability of the object or subject matter),
and are temporary. Teece (1986), Besen and Raskind (1991), Bessy and Brousseau (1998),
Chang (1995), and Scotchmer (1991) point out the fundamental dilemma between diffusion
and invention. On the one hand, a strong patent protection incites to innovate. On the other
hand, a weak one favors a rapid and wide spread of inventions (that are collective goods).
Most studies therefore point out that licensing may allow firms to reach simultaneously the
two goals and that compulsory licensing is sometimes required to oblige innovators to spread
their inventions. Optimal property rights regimes are therefore identified in various technological and industrial configurations.
2.4.2. Skills, labor mobility, and innovation
The upgrading of skills throughout the working life is required to improve initial skills and
to keep pace with change. The extent to which national learning systems generate and
maintain a level of skills that allows firms to acquire new knowledge impacts innovative
activities (Heyes, 1993; Williams, 1994).
Labor regulations, which are essential for the protection of workers, can sometimes
discourage innovation by making it more difficult to introduce new technologies or new
approaches to workplace organization (Saint-Paul, 1997, 1998).
2.4.3. Regulation and access to complementary assets
Competition policy is another example of regulation, which influences the ability of
companies to exploit linkages and improve collaboration with their customers and suppliers.
The ability of innovating firms to cooperate, by striking necessary vertical and horizontal
agreements or entering into alliances, often raises issues of antitrust, as do other elements of
business strategy (Jorde & Teece, 1991). As Schumpeter (1942) suggested half a century ago,
the kind of competition embedded in standard microeconomic analysis may not be the kind of
competition that really matters if enhancing economic welfare is the goal. Rather, it is
dynamic competition propelled by the introduction of new products and new processes that
really counts.

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

25

The predicted effect of institutional rigidities on innovation can be formalized as follows:

Hypothesis 4: The more the institutional rigidities, the less the innovation output.
In conclusion, innovation requires an attitude open to change and organizational
flexibility. It also requires the ability to acquire new knowledge and access complementary
assets. The institutional environment, through training, legislation, norms, and subsidies, can
hinder or facilitate the adaptability of firms and their access to knowledge and complementary assets. This framework is laid out in Fig. 1. Fig. 1 illustrates the four dimensions of the
institutional environment described above: attitude toward risk and uncertainty, ability to
access knowledge, availability of complementary assets, and regulations. These dimensions
do not impact firms innovative capacity independently. Rather, innovation will vary according to a combination of these aspects. These propositions are tested by analyzing the
perceptions of European managers on the dimensions of the institutional environment mentioned above.

3. Methods
Over the past two decades, there has been an increasing research effort, which has
significantly advanced both conceptual and empirical understanding of how enterprises,

Fig. 1. The four dimensions of the institutional environment.

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M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

economies, and societies innovate and the economic and social effects of such innovation.
However, statistical measures have not kept pace with modern conceptual approaches to
innovation. A dramatic proliferation of innovation surveys has occurred (Archibugi &
Pianta, 1996; Brouwer & Kleinknecht, 1996; Hollenstein, 1996). Industrial associations,
universities, public and private research centers, and statistical offices have produced their
own innovation surveys. However, reviews of the literature show that there has been very
little statistical material at the European level on the resources, which are required for
innovation in different enterprises and industries, on how enterprises access and develop
technology, and on the roles played by innovation in the development of enterprises and in
the evolution of industries.
Recognition of the role of innovation on economic change should therefore be coupled
with an awareness of sharp limitations in the available information. This is especially the case
for information collected in a systematic way at the enterprise level.
3.1. The Community Innovation Survey (CIS)
The CIS is an action of the European Commission (EC) and its Member States. It is the
first time that innovation surveys are carried out at a large scale in a harmonized way in the
12 Member States of the EU (at that time) and Norway, and Iceland. It is also the first time
that microdata of different innovation surveys have been stored in one common database.
The EC harmonized questionnaire was developed on the basis of the Oslo Manual by
Eurostat and the OECD secretariat in cooperation with a team of external experts (OECD &
Eurostat, 1997).
There are essentially two ways of collecting innovation data: the so-called subject
approach and the object approach. In the latter, a single innovation and its sources and
results are studied. In the subject approach, each single firm is studied, including any
innovative project it might have. The last approach is chosen for CIS as recommended
in the Oslo Manual. The method allows aggregation of activity across industries and
countries and allows international comparison if sampling is done properly. Another
advantage is that all innovative activity is included, successes as well as failures. Finally, firms without innovative activity are included, allowing for comparisons between
those active and those inactive in innovationa matter of great importance for policy making.
There is a general problem of accuracy and reliability when collecting data through survey
questionnaires, in particular when the questions do not match readily available data in the
firms. This is the case with the innovation survey, as most firms do not keep a record of
either innovation inputs or outputs. In effect, the answers cannot be treated as accurate
measures but rather as well-informed estimates by the people responsible in the firms (i.e., as
indicators of the activity going on). In addition, there are several questions asking for
opinions or more qualitative information about the firm and its activities. Such information is
highly dependent upon who the respondent is and what function he or she has in the
organization. On the other hand, many issues relating to innovation are not available as
hard data. Surveying or interviewing may therefore be the best source for collecting more

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

27

or less qualitative information. As the same technique has been applied in a series of
countries and most results seem to be relatively consistent across both countries and
industries, I believe them to be a reasonable picture of reality.2
There is no legal basis for the collection of innovation data. Hence, the EC was unable
to impose any demands on Member States and could only compile a list of implementation and sampling issues, which were presented to Member States as recommendations.
The EC was therefore highly dependent on Member States cooperation. The data transferred from the Member States to the EC went through a logical consistency check to
verify whether the data were transferred into the appropriate format and position according
to the guidelines.3
3.2. Measurements
Surveys on the hindrances to innovation are quite common, and an attempt to replicate
them would be tedious and of little advantage in the present context. Vickery and
Northcott (1995) give a number of examples of the genre and illustrate the difficulties of
attempting to survey the field. The CIS however is superior to all previous studies in its
breadth and coverage. The questionnaire is developed around eight separate chapters: general information, sources of information for innovation, objectives of innovation, acquisitions/transfer of technology, R&D activity, factors hampering innovation, cost of
innovation, and impact of innovation activities. This paper is concerned with two chapters of the survey: innovation activity (within general information) and factors hampering innovation.
3.2.1. Innovative and noninnovative firms
The dependent variable is innovation. The questionnaire is concerned with technological
innovation. A technology is interpreted broadly as the whole complex of knowledge, skills,
routines, competence, equipment, and engineering practice, which are necessary to produce a
product. A new product rests on a change in this underlying technology. More generally,
innovation occurs when a new or changed product is introduced to the market or when a new
or changed process is used in commercial production.
In the CIS questionnaire, two types of innovations are distinguished: significant and
incremental innovations. A significant innovation is a newly marketed product whose
intended use, performance characteristics, technical construction, design or use of materials,
and components are new or substantially changed. Such innovations can involve radically
new technologies or can be based on combining existing technologies in new use. An
incremental innovation is an existing product whose technical characteristics have been

For an evaluation of the CIS approach, see Archibugi, Kristensen, and Shaffer (1995).
Guidelines EC document Doc.Eurostat/D3/REDIS/005 (3rd EC EFTA joint working party on R&D and
innovation statistics, March 1993).
3

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M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

enhanced or upgraded. This can take two basic forms. A simple product may be improved, in
terms of better performance or lower cost, through use of new components or materials. A
complex product, consisting of a number of integrated technical subsystems, may be
improved by partial changes to one or more of the subsystems.
The dependent variable is derived from the question 1 of the CIS called general
information about innovation activities. Two questions were used to assess the innovativeness of the company. The first one asked whether the company had developed or
introduced any technologically changed products (goods or services) during 19901992.
The second one asked whether the company had developed or introduced any technologically changed processes during 19901992. An innovative firm would be a firm that
answers yes to one of these questions. The dependent variable is coded 1 for innovators and
0 for noninnovators.
3.2.2. Factors hampering innovation
The data for the independent variables are derived from the response to question 12 of
the CIS, concerning factors hampering innovation. Question 12 asked: what have been
the most important difficulties hindering the realization of innovation in your enterprise

Table 1
Variables definition and descriptive statistics
n

Mean S.D.

Min Max

Attitude toward risk and uncertainty

RISK, Excessive perceived risk
PAYTIME, Pay-off period of innovation too long
COSCONTR, Innovation costs hard to control
RESCHANGE, Resistance to change in the enterprise
UTIME, Uncertainty in timing of innovation

6860
6860
6860
6860
6860

0.354
0.405
0.316
0.107
0.155

0
0
0
0
0

1
1
1
1
1

Knowledge acquisition
SKILL, Lack of skilled personnel
TECHINFO, Lack of information on technologies
MKTINFO, Lack of information on markets

6860 0.311 0.462

6860 0.142 0.349 0
6860 0.231 0.421 0

1
1

6860
6860
6860
6860

0
0
0
0

1
1
1
1

Institutional rigidities
COPY, Innovation too easy to copy
6860 0.336 0.472 0
REGUL, Legislation, norms, regulations, standards, and taxation
6860 0.311 0.462 0
MKTACCES, Lack of customer responsiveness to new products and processes 6860 0.230 0.421 0

1
1
1

Access to complementary assets

FINANC, Lack of appropriate sources of finance
COST, Innovation costs too high
EXTSERV, Deficiencies in the availability of external technical services
COOPOP, Lack of opportunities for cooperation with other firms and
technological institutions

0.408
0.470
0.207
0.190

0.478
0.491
0.464
0.309
0.362

0.491
0.499
0.405
0.393

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

29

during 19901992? It includes 15 variables in consistence with the Oslo Manual

(OECD, 1997).4
Using my proposed approach, these variables are classified into four groups: attitude
toward risk and uncertainty, knowledge acquisition, access to complementary assets, and
institutional rigidities. Each variable is on a five-point scale from insignificant to crucial
(Table 1). It is clear that as these variables have not been tailored for this research, they are
used as proxies of the concepts developed in Section 2 of the paper.
3.2.3. Attitude toward risks and uncertainty of innovation
Risks associated with innovation have been proxied by variable RISK, which asked
whether Excessive perceived risk had been a difficulty hindering the realization of
innovation. Concerning uncertainty of innovation, timing was introduced with variable
UTIME Uncertainty in timing of innovation. Cost was introduced as a proxy of
uncertainty with variable COSCONTR Innovation costs hard to control. The rigidity of
companies is assessed by variable RESCHANGE, which represents Resistance to change in
the enterprise.
3.2.4. Knowledge acquisition
In order to approximate the concept of knowledge, two notions are used: (a) the type of
competencies required and (b) the availability of competencies. Human competencies are
approximated by Skilled personnel with variable SKILL on Lack of skilled personnel.
Knowledge is proxied by information and divided in two categories: with variable
TECHINFO on Lack of information on technologies and variable MKTINFO on Lack
of information on markets.
3.2.5. Access to complementary assets
The lack of access to complementary assets is characterized by variable EXTSERV on
Deficiencies in the availability of external technical services and variable COOPOP on
Lack of opportunities for cooperation with other firms and technological institutions.
Access to finance is represented by the difficulty to finance innovation: variable FINANC
Lack of appropriate sources of finance and variable COST on Innovation costs too high.
3.2.6. Institutional rigidities
The difficulty to protect innovation is presented by variable COPY on Innovation too
easy to copy. Regulatory uncertainty is assessed by REGUL, which asked about difficulties
pertaining from Legislation, norms, regulations, standards, and taxation.
The proxy to assess market responsiveness to innovation is represented by variable
MKTACCES on Lack of customer responsiveness to new products and processes.

The original survey included 18 variables but several countries did not answer to three of these variables
(12.5 enterprise innovation potential too small, 12.13 lack of technological opportunities, and 12.14 need not
innovate due to earlier innovation). I removed them from the analysis.

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M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

The dependent variables (RISK, FINANC, COST, PAYTIME, SKILL, TECHINFO,

MKTINFO, COSCONTR, RESCHANGE, EXTSERV, COOPOP, COPY, REGUL,
MKTACCES, and UTIME) are regressed on innovation activities (product and process
innovations). Both independent and dependent variables are taken from the same questionnaire. The interpretation should then be: which perceived factors hampering innovation
predicts perceived innovative behavior. Because the variables are categorical, binomial logit
is used for the statistical analysis. The model is estimated using the SAS procedure.

4. Results
The empirical results are summarized in Tables 2 and 3. They provide support for
most of my hypotheses and some results challenge the received wisdom on European
innovation. Table 1 provides descriptive statistics of the independent variables and Table 2
reports the percentage of innovating companies within each country using the estimated
population. The countries included in the analysis are Belgium, Denmark, Germany, Spain,
Ireland, Luxembourg, and Norway. There are 6860 companies in the sample, which represent a population of 80,760 companies. Eurostat uses a weighted procedure to estimate
the total population based on industry and size distributions. In each country, the
coefficient of variation between the estimated total population and the sample was less
than 10% (see Appendix A for more details on the methodology). Table 2 provides descriptive statistics on the number of innovators and noninnovators in the sample. Overall,
there are 4453 firms declared being innovative and 2407 noninnovative. When using the
estimated population, there are 47,765 innovative firms and 32,995 noninnovative firms.
The percentage of innovators is higher in Ireland (72%) and Germany (67%) than in the
other European countries that are analyzed in this paper. The percentage is particularly
low for Spain (37%). Table 3 reports the coefficients of the binomial logit. Firms
(n=6860) replied to question 12 on factors hampering innovation out of 42,000, the total
European sample.

Table 2
Percentage of innovators in the estimated population

Belgium
Denmark
Germany
Spain
Ireland
Luxembourg
Norway
Total
a

Innovators based on estimated

population size (%)a

Sample size

Estimated population size

61
56
67
37
72
37
53
59

600
638
1994
2236
762
130
500
6860

5959
2944
49,860
18,567
2179
171
1081
80,761

Eurostat uses a weighted procedure to calculate the estimated population within each country (see Appendix A).

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

31

Table 3
Analysis of maximum likelihood estimates
Dependent variable
Intercept
RISK, Excessive perceived risk
FINANC, Lack of appropriate
sources of finance
COST, Innovation costs too high
PAYTIME, Pay-off period of
innovation too long
SKILL, Lack of skilled personnel
TECHINFO, Lack of information
on technologies
MKTINFO, Lack of information
on markets
COSCONTR, Innovation costs
hard to control
RESCHANGE, Resistance to
change in the enterprise
EXTSERV, Deficiencies in the
availability of external
technical services
COOPOP, Lack of opportunities for
cooperation with other firms and
technological institutions
COPY, Innovation too easy to copy
REGUL, Legislation, norms,
regulations, standards, and taxation
MKTACCES, Lack of customer
responsiveness to new products
and processes
UTIME, Uncertainty in timing
of innovation

Parameter Standard
df estimate error
Wald c2

Standardized
Odds ratio
Pr > c2 estimate

1
1
1

0.8329
0.0766
0.0626

0.0196
0.00768
0.00655

1800.4938 0.0001
99.5379 0.0001
91.3428 0.0001

0.208703
0.185935

1.080
1.065

1
1

0.0759
0.0475

0.00860
0.00859

77.7829 0.0001
30.5642 0.0001

0.224181
0.134257

0.927
1.049

1
1

0.0345
0.1208

0.00707
0.00966

23.7965 0.0001
156.4799 0.0001

0.096034
0.280575

1.035
0.886

0.1020

0.00892

130.6848 0.0001

0.257224

1.107

0.1801

0.00801

504.9682 0.0001

0.468013

1.197

0.1712

0.00814

441.9872 0.0001

0.385296

0.843

0.2308

0.0102

510.1094 0.0001

0.573837

1260

0.2112

0.00902

548.8192 0.0001

0.536622

0.810

1
1

0.0368
0.2356

0.00653
0.00625

31.7862 0.0001
1422.2995 0.0001

0.105925
0.671095

1.037
1.266

0.0528

0.00734

51.6797 0.0001

0.134938

0.949

0.1217

0.00814

223.5447 0.0001

0.279839

1.129

Predicted variables represented 63.7% of observed values. It seems to be a remarkable

result in the context of the analysis. Indeed, the model depicts quite well how managers
perceptions differ according to their innovativeness.
The model reads as follows: a negative sign shows that the factor perceived as
hampering innovation does not lead to an innovation outcome. On the contrary, a positive
sign shows that the factor perceived as hampering innovation does not hamper participants from innovating. Of all the variables, five show a negative sign: COST (Innovation
costs too high, TECHINFO on Lack of information on technologies), RESCHANGE
(Resistance to change in the enterprise), COOPOP (Lack of opportunities for cooperation
with other firms and institutions) and MKTACCES (Lack of customer responsiveness to
new products).

32

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

4.1. Attitude toward risk and uncertainty of innovation

Hypothesis 1 predicts a negative relationship between a risk-averse attitude and the
innovation output. Variable RESCHANGE representing resistance to change in the enterprise
has a negative and significant sign (0.17). This is consistent with my hypothesis showing the
importance of the aptitude toward change to innovate.
The variable RISK representing excessive perceived risk shows a positive but not very
important coefficient for innovation (0.08). It shows that innovators although aware of the
risk associated with innovation are not afraid of engaging in such a process, revealing a risktaking attitude.
On the other hand, COSCONTR representing the difficulty to control costs has a positive
sign with innovation (0.18) as well as UTIME for uncertainty in timing of innovation, which
shows a positive sign for innovation (0.12). The PAYTIME expressing that the pay-off period
of innovation as too long has also a positive sign with innovation (0.04). These three variables
represent the implementation of the innovation process and therefore are more linked to
companies, which are experiencing the innovation process, rather than to noninnovators who
might not be aware of such difficulties.
4.2. Knowledge acquisition
Hypothesis 2 predicts a negative relationship between the ability to acquire knowledge and
innovation. Variable SKILL representing skilled personnel has a very small and positive
coefficient. This variable was maybe perceived as too broad to describe the competencies
necessary for innovation. Variables TECHINFO and MKTINFO representing information on
technology and on market show more important coefficients. Variable TECHINFO, which
represents the lack of information on technology, has a negative and important coefficient for
innovation (0.12). On the contrary, variable MKTINFO, which represents lack of information
on market, has a positive sign for innovation (0.10). This result is particularly interesting,
showing the two sides of innovation: research and technological innovation on the one hand
and its commercialization on the other hand. It indicates that managers perceive they lack the
necessary technological knowledge to innovate. Noninnovators cannot be aware of the
difficulty to market their innovation since this problem appears once technological innovation
has taken place. Innovators on the contrary are fully aware of the difficulty to find a market
for their innovation.
4.3. Access to complementary assets
Hypothesis 3 predicts a negative relationship between the difficulty to access complementary assets and innovation.
COOPOP characterizing the lack of opportunities for cooperation with other firms and
technological institutions has a negative and important coefficient for innovative firms
( 0.21). This is an important finding, which shows the difficulty of European firms to enter
cooperation with other firms inside or outside Europe.

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

33

Variable EXTSERV on deficiencies in the availability of external technical services shows

a positive and very significant sign for innovation (0.23). This reveals that it is not the
availability of external technical services complementary assets that poses a problem to
innovate but the lack of links allowing the access to them. This is therefore consistent with the
finding of variable COOPOP on the lack of cooperative opportunities.
Variable FINANC representing the lack of appropriate source of finance is positive but
shows a low coefficient (0.06). This means that innovators feel that this factor hampers
innovation. On the contrary, variable COST, which represents the cost of innovation, exhibits
a negative sign ( 0.07). It seems that innovators experience the difficulty to find appropriate
source of finance and that noninnovators feel that their firm cannot support alone the cost
of innovation.
4.4. Institutional rigidities
Hypothesis 4 predicts a negative relationship between regulatory rigidities and innovation.
Variable REGUL representing legislation, norms, regulations, standards, and taxation is
positive with a coefficient of 0.23. This factor is perceived as important only for innovators.
Innovators may face regulatory difficulties, for example, when trying to protect innovation.
Variable COPY representing whether the innovation is to copy also presents a positive sign
for Innovative firms (0.03).
Variable MKTACCES on lack of customer responsiveness to new products and processes
shows a negative sign for innovation. However, the coefficient is not very important
( 0.05). This represents the idea that it may be worthless to innovate since the market
will not be responsive to this innovation. This might be true or false and it is difficult to see
whether the problem resides in managers perceptions of this immovable situation or if
European customers are fixed in their preferences.
4.5. Rankings of the factors hampering innovation by country and size of the company
It is important to check how much these factors vary by country and by size of the
company. The method for the ranking procedure is summarized in Appendix B. The total
sample average ranking for each variable is an average of the ranks allocated by each
country weighted by the number of firms in the sample for each country.
There are minor differences between countries. I consider that there is a variation when a
country has ranked a factor hampering innovation five points below or above the total
average.5 Below are the few variables, which were ranked significantly differently by some
countries. In Germany, the variable TECHINFO is ranked 14 and the average is 9. It means
that for German firms, the lack of information on technologies is not perceived as a problem
hampering innovation when compared to other European firms. The variable REGUL is

The number of choices is 15, so a difference of five ranks means 1/3 of the total ranking scale.

34

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

ranked 8 as compared to an average ranking of 13. This means that German managers
perceive regulation has a more important factor hampering innovation than do other
European managers. In Spain, the variable COSTCONTR is ranked 11 as compared to an
average of 6. This means that in Spain, innovation costs are not perceived as hard to control
as compared to other European countries. The variable EXTSERV is ranked 7 as compared to
an average of 12. Deficiencies in the availability of external services seem to be a more
important factor hampering innovation in Spain than in other European countries.
In Ireland, COPY is ranked 13 as compared to an average ranking of 8. In Luxembourg, RESCHANGE is ranked 10 as compared to an average ranking of 15, REGUL is
ranked 7 compared to an average ranking of 13, and UTIME is ranked 8 as compared to an
average ranking of 14. In Norway, UTIME is ranked 9 as compared to an average ranking
of 14.
Concerning potential differences in the rankings of factors hampering innovation by the
size of the company, there are also few differences (see Table 4.). Using the same method, I
observe that firms of more than 500 employees rank the variable TECHINF 15 as compared
to an average of 9. Larger firms may indeed have a better access to technological information than smaller companies. On the contrary, REGUL is ranked 6 compared to a total
ranking of 13. Regulation seems to affect more large firms than smaller firms. UTIME also
ranked 9 as compared to a total ranking of 14, which suggests that uncertainty in timing of
innovation is more important for large firms than small firms. These differences highlight
some variations in perceptions due to the country or the size of the company. However,
there is consistency within the rankings for most of the variables with little variance around
the mean.

Table 4
Ranking of factors hampering innovation by country and size
RISK

FINANC

COST

PAYTIME

SKILL

TECHINFO

MKTINFO

Country
Belgium
Denmark
Germany
Spain
Ireland
Luxembourg
Norway

3
3
2
5
4
2
3

5
4
3
2
3
3
5

1
2
1
1
1
1
1

2
1
5
3
2
4
4

6
5
7
4
6
5
2

9
8
14
8
7
13
8

7
6
11
9
5
11
7

Size
20 99
100 249
250 499
500+
Total sample

4
3
2
3
4

2
4
4
4
2

1
1
1
1
1

3
2
3
2
3

5
5
5
5
5

9
12
12
15
9

8
8
7
8
7

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

35

In conclusion, the hypotheses presented in this paper are confirmed: noninnovative

European firms feel that there is resistance to change in their organization. They lack
technological competencies and have difficulties to access complementary assets and
perceive that customers will not respond positively to the introduction of new products. The situation is slightly different for innovative firms that may face difficulties
during the innovation process: uncertainty of timing of innovation, finding access to
market, and facing regulatory issues. Some of these factors play a more important role
in some countries or according to the size of the company. For example, regulation
seems to be more a burden in Germany and Luxembourg than in other countries and it
is also a problem for firm with more than 500 employees. Firms in Spain seem to have
more difficulties than their European counterparts to access external services. Smaller
firms (2099 employees) have more difficulties than larger firms to access technological information.

5. Discussion: toward an institutional approach to innovation

The results show that the most important factors perceived as hampering innovation are
the difficulty to establish cooperation and resistance to change in the enterprise. These
perceptions are linked to real difficulties: cost and rigidities of the European economy.
This pleads for a comprehensive policy approach to the problem, incorporating technological aspects, training, venture capital development, and the legal and administrative environment.

COSCONTR

RESCHANGE

EXTSERV

COOPOP

COPY

REGUL

MKTACCES

UTIME

4
9
6
11
8
9
6

14
13
15
13
14
10
11

15
15
10
7
12
15
14

12
14
12
7
9
14
13

8
11
4
10
13
12
12

13
10
8
14
11
7
15

10
7
9
12
10
6
10

11
12
13
15
15
8
9

6
6
6
7
6

15
15
15
12
15

13
10
14
10
12

11
14
13
14
11

7
7
9
11
8

12
13
10
6
13

10
9
8
13
10

14
14
11
9
14

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M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

5.1. Innovation culture and need to foster organizational change

With the increasingly intangible nature of value added, the growing importance of services
and the rise in the application of information technology, organizational flexibility has
become a necessary precondition for companies to offer new products and services. Rigidities
in European company structures appear to work to resist change and impede development of
new products and processes. Many European companies still appear overweight and more
hierarchy-oriented than their American competitors. Integration within and between companies still seems to be more directed toward vertical integration rather than networking or
strategic alliances (CEC, 1996).
The difficulty of firms to engage in thorough reorganization can be explained by several
institutional rigidities as well as the lack of links established to allow firms access to
complementary assets in order to translate their technological investment into marketable
goods and services (Bianchi, 1994; Clark & Guy, 1998).
5.2. High cost and rigidities
The high cost of innovation in Europe can be explained by rigidities and lack of flexibility.
European labor costs in many key sectors are some 3050% higher than in the US.
Flexibility in labor management is restricted by sector-wide wage bargaining, restrictions on
working hours governed by collective agreements, and highly intrusive employment
protection legislation (Kleinknecht, 1998). Prices for key services (e.g., energy, communications, and transport) remain high in Europe as a result of barriers to entry and restrictive
regulations. With accelerate progress in liberalization elsewhere, the gap between Europe and
its major competitors has been widening.
5.3. Skills shortages
In all EU countries, expenditure on education is substantial and, as a percentage of GDP, is
broadly comparable to that in the US and higher than in Japan (Competitiveness Report,
1996). Despite the increase in general levels of educational attainment, skill shortages are a
common problem for business in many EU countries (Oughton, 1997). Skill shortages can
arise because of restrictions in mobility. This points to inflexibility in education and training
systems and an inability to supply specific skills to meet labor demand (Strange, 1998).
Furthermore, although qualifications are a measure of skills acquired, very often, they are
also the keys to access certain restricted product markets, particularly in services.
All education and training systems in the EU, despite their variety, are based upon
a formal block of concentrated learning at the beginning of employment. The qualifications system, which as an indicator of how skill levels improve the operation of the labor
market by making it more transparent, is structured around formal initial education and
training systems. This makes access to qualifications, which might improve employment prospects for workers and respond to employers needs, more difficult at later stages
of employment.

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

37

Validating skills, irrespective of how and in which country they were acquired, would also
contribute towards an open EU skills area and support mobility. Many Member States are
reluctant to recognize qualifications gained in other Member States, arguing that the
standards are different and not equivalent.
The opportunity to validate skills acquired in another Member State would enable Member
States to maintain standards but also provide an access route to those trained elsewhere.
It should also be noted that although training arrangements are not harmonized, the
setting of common standards in other areas, such as health and safety and product or
service standards, introduces common elements into the education and training of a wide
range of occupations. These changes are gradually bringing content and standards closer
together. However, it is also increasingly important that employers are able to understand
more readily and easily the content of different qualifications. Systems to improve the
transparency of qualifications should also be examined to contribute to greater mobility
and flexibility. In an environment where technology can quickly change the skills in
demand, systems for rapidly providing adequate new skills to workers are essential (Quinn
et al., 1996).
5.4. Difficulty to access financing
Access to external finance for innovation projects and new technology-based firms appears
to be a major bottleneck for many European entrepreneurs although, recently, special
financial instruments have been developed that aim to channel savings from those who want
to invest in high-risk, high-return projects. Such projects remain underdeveloped as compared
to main European competitors (Boekholt, 1996). For example, in the US, venture capital
plays a significant role in financing innovation. In Europe, it does not. The explanation lies in
part in the different structure of their financial systems. However, it is also due to
administrative and regulatory barriers that have hindered the growth of the European venture
capital industry.
The European venture capital industry has pointed out that it faces important legislative
gaps. In the US, venture capitalists can pool capital in special fund structures. They are
available to investors throughout the US, regardless of their state of residence. In Europe, the
equivalent fund structures do not exist even at the level of the Member States. Many Member
States do not have fund structures that suit local and foreign investors. A pan-European fund
structure is not available.
5.5. A complex regulatory environment
A suitable legal and regulatory environment would nurture innovation. The rules designed
to protect and disseminate innovation (intellectual and industrial property rights and
standards) need to be fully utilized. Cumbersome administrative formalities curb enterprise
formation. Current legal forms do not really facilitate enterprise cooperation and development at the European level. Patents play a central role among the different instruments
available for protecting innovation. It is a fact that the patent system has become com-

38

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

plicated in Europe, with national patents existing alongside European patents and Community patents (although the Community patent system has yet to actually come into
operation; Hagedoorn, 1995).

6. Conclusion
Using a logit regression, I find strong support that innovation is linked to the perceptions
of the institutional environment and the organization of competencies internally and between
firms. Research on innovation along with research on organizational change and dynamic
capabilities has been hampered by the lack of measures of managers perceptions. This paper
analyzes innovation output by linking it to the perceptions of managers. The CIS questionnaire is particularly interesting because it measures how managers perceive factors
hampering innovation. This approach seems particularly well suited in the context of innovation where choices are taken with limited information. It shows that managers will direct
their strategies toward innovation in an environment that provides them with access to
complementary assets.
My research confirms and expands the dynamic capability approach to strategy.
Innovation requires, first and foremost, a state of mind combining creativity, entrepreneurship, and a willingness to take calculated risks. Innovation requires an attitude open to
change, which is facilitated by organizational flexibility. Building on this approach, I have
proposed that there are four dimensions of the institutional environment that facilitate or
hamper innovation. The first one is the attitude of managers toward risk and uncertainty.
The second one is the ability of firms to acquire new knowledge. It refers to the availability
of skilled personnel and the ease to access information and learn. The third one is the
ability to build interorganizational links and access to complementary assets such as sources
of finance. The fourth one is the regulatory environment, which can favor innovation by,
for example, providing adequate property right regimes and not obstructing the timing of
innovation. The results of this study support these propositions. Firms that (1) perceive
resistance to change within their organizations, (2) feel they lack technological knowledge,
(3) have difficulties to access complementary assets and (4) sense that customers will not
respond positively to the introduction of new products are less likely to innovate.
Innovators may be aware of the risk associated with innovation and emphasize the
institutional factors that hamper the success of innovation such as the difficulty to predict the
timing of innovation, the difficulty to find access to market, and the burden of regulations.
The CIS questionnaire has not been tailored for this specific research. Therefore, some
questions could be adapted to fit the model better. For example, variables concerning
regulation could be more specific. The next CIS, which will provide us with new results in
2001, takes some of these criticisms into account. However, the present CIS data set opens the
way to further analysis. It would be possible to undertake an analysis by country and industry
using NACE code. It would also be possible to test how factors hampering innovation impact
governance structure choices such as alliances as well as to do a comparative analysis
between countries.

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

39

Conclusions drawn from this perspective call for policies, which will take into account the system in which innovation can take place instead of looking at the innovation
output like R&D subsidies. New technologies will not be fully reflected in productivity growth until societal constraints are removed, allowing companies to undergo thorough reorganization.
Traditionally, technology policy has been aimed at the innovation end of the process,
concerning itself almost exclusively with incentives for R&D investments through subsidies
and tax credits or through strong property rights and standards. Research has shown that
R&D policies might not be sufficient to enhance technological innovation and transform
skills into competitive strength (Papadakis, 1995).
This approach has slowly been complemented by a parallel concern for an economic
environment conducive to the diffusion of innovations. A number of countries have put into
place policy measures aimed at encouraging firms to adopt new technologies efficiently,
either by removing regulatory and other obstacles, by using the tax system and fiscal measure
to encourage investment in next machinery, or in assimilation of knowledge developed
elsewhere. Recently, a few public policy measures have been implemented in EU countries to
support new technology-based firms and foster innovation. However, these programs are still
marginal and not included enough into an interdependent system of technological policies
(Storey & Tether, 1998).
Several classes of factors that are important for innovation can be identified: availability of
a labor force with the requisite training and technical skills; decentralized economic
structures that recognize private property and permit considerable autonomy, entrepreneurship, and wealth creation; economic systems that permit and encourage a variety of
approaches to technological and market opportunities; access to venture capital, either
from a firms existing cash flow or from an external venture capital community; good
relationship between the scientific community (especially the universities), the technological
community, users and developers of technology, protection of intellectual property, the
availability of contractual arrangements to enable innovating firms to capture a return from
their investment, and the ability to quickly build or contractually access cospecialized assets
inside or outside the industry. I hope to have made a contribution in showing their
importance as part of the European innovation system.

Acknowledgments
I thank the team of Eurostat for their help on the statistical analysis of this research.

Appendix A. Eurostats method for the weighted procedure

The considering up factors have been calculated as follows:
Consider the breakdown of the enterprises for a particular country by different sizes and
NACE classes.

40

M.A. Delmas / Journal of High Technology Management Research 13 (2002) 1943

Let Nx,j be the number of enterprises in size class x and NACE class j in this particular country.
Let nx,j be the number of enterprises who have answered to the survey in that country.
The weighting factor is (Nx,j)/(nx,j).

Appendix B. Eurostats method for the ranking procedure

Let Q be a question that is divided in, say, four subquestions.
Let Qi be the vector of answers to Q. The elements of the vector are the answer to the
subquestion ( Qij=answer of enterprise i to the subquestion j).
For each enterprise, Eurostat ranks these elements according to their values. This
ranking process ranks these values from smallest to largest. Eurostat assigns rank 1 to the
element that has the smallest number, rank 2 to the next largest, and so on up to rank
n, n being the number of elements that has nonmissing values. Two elements that have
the same value are called tied elements. Eurostat gives to those tied elements average ranks.

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