Saturday, March 1, 2014

Probability of Inter-Firm Information Linkages that Lead to Innovation

Product and service innovation is not something that occurs in a vacuum. It requires various connections throughout the market to obtain the information and ideas to create marketable products and services. Formal business connections, informal social connections, and formal research institutes all have a hand in the success of the firms around them. Fretas, et. al. (2011) discusses the complexity of these relationships and study which types of connections firms pick to achieve objectives in different types of companies.

Industrial innovation can be seen as a process that involves the search for information and interaction with market actors such as customers, competitors, and suppliers or research institutions like universities or government to achieve their objectives (Salter and Martin, 2001). They develop several different types of formal and informal relationships to obtain the information they need to create dynamic interactions.  

Prior research has found a relationship between reliance on external informational sources and the desire to create greater cooperative R& D agreements. Companies that desire to grow and seem to be most open to collaboration efforts are the ones who actively seek out these connections. They create formal agreements that help them collaborate with others in their goals. 

Simple innovation requires simple connections while complex market breakthroughs require larger networks of connections. Simply innovations occur when an enhancement to a product or services is developed and implemented. When market busting products and services are created they require a higher level of interaction and development. 

Those companies that can develop better formalization of networks do better at managing the data and advantages. It is not enough to collect information from others without formatting that information to create meaningful concepts. The systems in which this formalization is developed and used will determine its fruitfulness. 

The researchers use the following formula to determine the likelihood of firms linking in their analysis:

The researchers use the formula to analyze the different types of firms and how they are interrelated to each other to see if different industries attracted different types of linkages. A high technology firm will have different information needs than low technology firms. Each firm and their competitors will create and enhance the informational sources that are most beneficial to them. 

That information must be collected, analyzed and put within a framework that makes productive development possible. Improper displays of information can mislead users who do not see the connections between the information. How the information managed and interpreted between these connections will determine the success of such relationships. 


Firms have several types of innovation strategies. These strategies are based more on the position and needs of the company than its country of origin. Innovation strategies impact the types of interactions and connections firms make. For example, novel products have formal and informal interaction with customers and research organizations. Firms that create improved products use informal linkages with competitors and formal and informal links with customers as information sources. Those that innovate both products and processes rely on customers and public research organizations. To improve upon their development firms will need to create both wider collaboration efforts and methods of understanding the complex array of information available to them. 

Freitas, et. al. (2012). Formal and informal external linkages and firms’ innovative strategies. A cross-country comparison. Journal of Evolutionary Economics, 21 (1).

Salter A. & Martin, B. (2001) The economic benefits of publicly funded research: a critical review. Res Policy 30:509–539

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