New study examines innovation management performance at company level

For more than 50 years, Brazil has been trapped as a medium-income, medium-technology country and this is reflected in its slow economic growth. In this context, the country finds itself facing two challenges: on the one hand, its high production costs limit its competitive advantage against major exporting economies; and on the other hand, its level of capacity for technological innovation is not high enough to compete advantageously with companies in advanced economies in the global market.

A pioneering international study, led by Professor Paulo N. Figueiredo of the Brazilian School of Public and Business Administration (FGV EBAPE), examined the effectiveness of the innovation process at 63 companies in five sectors that are intensive users of process technology and natural resources in Brazil: steel, ethanol, pulp and paper, mining and oil. These companies and industries have combined annual revenue of approximately US$180 billion and they account for roughly 40% of Brazil’s exports and over 30% of value added in Brazilian industry.

Within this significant group of companies, the study looked at the relationship between innovation inputs (accumulation of levels of capacity for technological innovation and mechanisms for external and internal acquisition of knowledge for innovation) and the outputs of the innovation process (innovations implemented, increased labor productivity and export performance) over the course of 10 years. 

In relation to inputs for the innovation process, the following conclusions were drawn:

• - 70% of the studied companies built their technological capacities up to “Level 3” (capacity for intermediate innovation);
• - 22% of the companies reached technological capacity “Level 4” (in other words, they are rapid followers of global leaders);
• - 8% of the companies reached “Level 5” (meaning that they are able to implement innovations at an international leadership level);
• - Factors that hinder companies’ transition from Level 4 to Level 5 technological innovation capacity, especially the lack of an organizational basis for innovation, were examined.

The study found a positive and significant relationship between the accumulation of capacity levels for technological innovation and the use of mechanisms for external acquisition and internal generation of knowledge for innovation. Specifically:

• - The use of mechanisms for internal knowledge generation contributed to a 31% increase in the level of capacity for technological innovation;
• - Partnerships based on research and development between companies, universities and research institutes contributed to a 30% increase in the level of capacity for innovation;
• - The acquisition of codified knowledge and interactions with universities based on training, formal education and technical assistance were more important for companies to raise their technological innovation capacity from Level 2 to Level 3;
• - Partnerships based on research and development with universities and research institutes were more important for reaching and maintaining levels 4 and 5.
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In relation to the outputs of the innovation process, the study found the following:

• - Implementation of a spectrum of innovative activities, including adaptations of existing technologies, innovations based on design and engineering, and the most advanced levels of R&D at companies that accumulated progressively higher levels of technological capacity;
• - Average 55% increase in productivity at the least productive companies, associated with the accumulation of technological capacity beyond the basic level (Level 2);
• - Average 38% increase in productivity at the most productive companies, associated with a rise in the level of technological capacity from Level 3 to Level 4;
• - Average 37% increase in export performance at the smallest exporters, associated with the accumulation of capacity for technological innovation beyond the basic level (Level 2);
• - Average 52% increase in export performance at the biggest exporters, associated with the accumulation of capacity for technological innovation beyond Level 3.
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Therefore, the study demonstrated how effective efforts to build technological innovation capacity generate benefits in terms of increased labor productivity and export performance at company level.

According to the study’s coordinator, Paulo N. Figueiredo, “Brazil urgently needs to increase its rate of innovation to add value to the economy and accelerate its economic growth. This largely depends on increasing the effectiveness of the innovation process at companies, which implies generating and managing technological capabilities to promote and obtain value from innovation. Business efforts and public policies need to converge in this direction. Seeking to connect with demands and pressing issues in the five studied industries, a large part of the design of this study emerged from direct interaction with company leaders and other organizations in these industries’ ecosystem”.

To read one of the study’s publications, click here.