Forsaking Innovation: the Effect of Firm Failure on Exploratory and Exploitative Strategies

(Chiara Marzocchi, Ronnie Ramlogan)

The aim of this paper is to investigate the impact of innovation failure on firms' strategies to source innovation. In doing so, we regard innovation as a process where firms develop strategies along a continuum dimension stretching from explorative oriented to exploitative oriented strategies depending on the combination of characteristics encompassing cooperation, competition, research and development as well as knowledge base composition. The combination of the above elements can be viewed as a proxy of the innovation behaviour adopted at firm level. After briefly discussing the different types of innovation strategies emerging from our analysis, we will look at the effects that failure plays on them. Drawing on data from the seventh wave of the UK Innovation Survey (2008-2010), we define failure by looking at those firms which are innovation active and abandoned their innovation activity. To compare changes in innovative behaviour we build a matched sample employing propensity score matching methodology (Rosenbaum and Rubin 1983; Caliendo and Kopeinig 2008) and look at the effects of failure upon different types of innovation strategy. Our preliminary results highlight that at first failure does not have an effect on all the possible innovation strategies adopted at the firm level, but only where the firm's innovation behaviour is research oriented. Second, that the effect of failure on innovation behaviour is not homogeneous but nuanced, as failure seems to impact positively on those firm profiling innovation dynamics closer to pure exploration, whilst the effect is opposite for those firms that are more competition driven or whose strategy is mostly associated to the development rather than the pure research phase.

About Chiara Marzocchi

Chiara Marzocchi is Research Associate Professor in The University of Manchester.

She graduated in Applied Economics at Ferrara University (Italy) in 2003. After her degree Chiara began to participate as a junior researcher on several research projects for Ferrara University Economics department and in 2005 she started her Ph.D.

Her main research interests concern the role of institutions in the coevolution of systems of innovation.

She was visiting CRIC (Centre for Researc in Innovation and Competition at the University of Manchester) until September 2007 under the supervision of Stan Metcalfe and Ronnie Ramlogan.