Project Description

Innovation is a key driver of economic growth at the firm and national levels (Johnston 1966; Griliches 1979; Baily et al. 1985). While the process of innovation can take place informally through hands-on experience, a majority of creative activity within firms takes place through formal research and development (R&D) efforts. Firms invest heavily in such programs; for example, the top five corporations with the largest R&D budgets spent over thirty-three billion dollars in 2003 (Rotman 2004).

Innovative output can be used as a component of firm strategy, generating revenue growth through new products and services and reducing operating costs via new processes (Rivette and Kline 2000). Apple Computer, for example, has sold over 100 million of its new, $249-$399 iPod digital music players since 2001 (Nichols 2007). Relatedly, Apple is selling nearly 1 million, $1 songs per day through its iTunes website, the proprietary music service for the iPod player (Cava 2005). Central to the market success of the iPod is Apple’s innovative activity as demonstrated by patents the company has been awarded or has pending in relation to the iPod (docking station, user interface, and hard drive capabilities).

R&D efforts can also provide a temporary competitive advantage for firms through the filing and awarding of patents. While not preventing new entrants, a patented innovation can restrict the entry of new competitors to those that offer only novel and differentiated products or services that do not infringe on the patent. This delay can provide a temporary competitive advantage, especially true with process innovations, where new entrants must develop a distinctive production process with a cost that is sufficiently lower than the new patented process; a very difficult endeavor (Langiner 2004). Thus, the competitive opportunities provided by R&D will lead firms such as Microsoft and Johnson and Johnson to continue to fund R&D well into the future, especially in today’s intellectual asset based economy (Buroker 2004).

An important supportive element of innovative efforts is information technology. Information capture, management, analysis, reporting, and distribution are core elements of the R&D function and IT is central to these information activities. Accordingly, IT has been used to support innovative activities like the establishment of virtual research networks and the development of simulation and modeling software applications (Shand 1998, Wright 1998). Knowledge management systems, intranets, and group support systems have also been used to support new product development (Nambison 2003; Knowledge Management 2001). Thus, it is reasonable to expect a relationship between information technology and the knowledge creation processes (Lee and Choi 2003).

The application of IT to the R&D process should ultimately affect the performance of the investing firm by improving the R&D process. The application of new technologies, for example, such as the electronic laboratory notebook (ELN) enables scientists to capture and record experiment data electronically (versus traditional paper-based lab books). The improved data capture helps to create a central repository of data accessible by other scientists and other drug development systems. ELNs not only eliminate nonproductive (i.e. inefficient) activities during the discovery process, but also help to reduce errors generated by the manual transcription process. (Elliott 2006).

As another example, Aventis, a major international pharmaceutical company, has improved the speed and effectiveness of its drug discovery process through the implementation of a chemical biology platform. This organizational based solution employs knowledge management technologies to create virtual communities centered around its drug discovery project teams. The solution enables information sharing and promotes the efficient interdisciplinary development of drugs (chemistry and biology disciplines), allowing Aventis to improve the productivity of drug discovery (Narayanan et al. 2004). Whether in drug discovery, electronics, consumer products, etc., better collaboration ultimately improves the creative process, generating higher quality output that better matches customer needs and results in higher company revenues through enhanced sales. Take Apple, for example, whose iPod product development process has created a pleasing and easy to use music device that generated nearly $1.8 billion in the 1st quarter of 2007 (Lane 2007).

Unfortunately, existing empirical research tells us little about the relationship between IT and firm innovation. In addition, little is known about the contribution of IT to these creative processes as well as the complementary relationship between IT and innovation to overall firm performance. We seek to close these knowledge gaps through completion of a research project which examines two primary research questions; (1) Does IT contribute to firm innovative activity?, (2) Does innovation enabling IT contribute to firm value? Through investigation of the first question, we hope to uncover IT’s value to a firm’s creative process. Does a relationship exist between IT and innovative activity and to what extent does IT contribute to the output of such activity. In addition, while investments in innovation and IT can result in new concepts and ideas, do such investments ultimately payoff for the investing firm. Our second research question examines this issue.

In this research report, we present the results of an exploratory analysis based on survey data generated specifically for this project. The data enable us to examine how firms use information technology to support the research and development process. We are also able to analyze the R&D organization, both its goals and its structure. Finally, we perform preliminary statistical analysis to estimate relationships between IT, R&D, and the performance of firms. In sum, this research report provides insight into firm innovative efforts and the role played by information technology.

Ronald Ramirez, who received his Ph.D. from UCI’s Merage School of Business, is a CRITO Faculty Associate and Assistant Professor of Information Systems at the University of Colorado at Denver. His research focuses on how organizations can effectively utilize information technologies to improve operational efficiency, market leadership, and overall performance. This research project was supported by grants from the US National Science Foundation and the NSF Industry/University Cooperative Research Center (CISE/EEC) to CRITO at the University of California, Irvine. Click here for a copy of the report.


(CRITO Research Spotlight, May 2007)

read past
Spotlights