Organisational innovation in companies

Organisational changes play an increasingly important role in innovation processes in companies in Luxembourg. This is the findings of a 2008 study by the Centre for Population, Poverty and Socioeconomic Policy Studies. The research is based on data from the Community Innovation Survey covering the period between 2002 and 2004, and relates to companies of different sizes and economic sectors with a base in Luxembourg.

About the study

In 2008, the Centre for Population, Poverty and Socioeconomic Policy Studies (Centre d’Études de Populations, de Pauvreté et de Politiques Socio-Economiques/International Network for Studies in Technology, Environment, Alternatives, Development, CEPS/INSTEAD), in cooperation with the Luxembourg Central Service for Statistics and Economic Studies (Service central de la statistique et des études économiques, STATEC), carried out a study (in French, 1.1Mb PDF) examining the characteristics and relevance of organisational innovation in Luxembourg-based companies. The analysis is based on data from the fourth Community Innovation Survey (CIS4) conducted over the period 2002–2004 and coordinated by Eurostat.

According to the Oslo Manual, published in 1997 by the Organisation for Economic Co-operation and Development (OECD) in collaboration with Eurostat, a company is regarded as technologically innovative if it introduces a production innovation and/or if it has developed a process innovation. Non-technological innovation is defined as the introduction of organisational changes and/or the implementation of new or significantly improved marketing methods in the company.

Methodology

The CIS4 survey was conducted on a face-to-face basis among a representative sample of 568 companies based in Luxembourg, employing at least 10 workers and belonging either to the manufacturing industry or a selection of services sectors. The survey aimed to collect data relating to innovation activities of companies in Luxembourg.

Organisational innovation most widespread

Organisational innovation is the most widespread form of innovation among companies in Luxembourg. In total, 59% of the companies surveyed report that they have employed this form of innovation over the period 2002–2004. When comparing the survey results by sector, companies in services innovate more in the field of organisation (61%) than companies in manufacturing (52%). However, an analysis of the survey results by company size reveals that 74% of companies in industry with over 250 employees engage in organisational innovation, compared with 42% of those employing 10 to 49 staff (see table).

Note: 74% of companies in industry with more than 250 employees practise organisational innovation.

Source: CEPS/INSTEAD, CIS4 2002–2004

Types of organisational innovation

Three types of organisational innovation are considered in the survey: knowledge management, work organisation and the development of external relations. Knowledge management, which includes training, knowledge sharing, codification or storage and flexible remuneration, is the organisational practice most widely adopted by companies (47%), regardless of whether they engage in product and/or process innovation (Figure 1).

Some 43% of companies surveyed have changed the way in which they organise their work, by introducing, for example, project groups, decentralised decision-making processes, just-in-time production or teamworking. Almost a quarter of companies (24%) have also introduced organisational changes that involved modifying or improving relations with external partners; such changes included outsourcing, subcontracting, customer relations and formation of research networks.

Figure 1: Distribution of organisational innovation practices across companies (%)

Source: CEPS/INSTEAD, CIS4 2002–2004

Distribution of organisational innovation practices across companies (%)

All organisational practices combined, companies with over 50 employees innovate more frequently than smaller ones: for instance, 38% of companies employing 10–49 staff innovate in terms of work organisation, while the proportion for companies with more than 50 employees amounts to over one company out of two.

Of all the economic sectors surveyed, companies in the wholesale sector are the most innovative in the area of knowledge management (62%). Over half of companies in sectors such as financial intermediation, research and development (R&D), architecture and engineering have also introduced such practices.

Aims and context of innovation

In general terms, regardless of the sector of activity and company size, more than one in two companies introduce organisational changes with the aim of substantially improving the quality of their goods and services (58%), or reducing their turnaround time (52%). However, only one out of four companies report that they have benefited in terms of improved employee satisfaction (26%) or reduced unit costs (19%).

In most cases, these organisational changes coexist with technological innovation, particularly in a competitive context characterised by strongly fluctuating demand or products and services rapidly becoming obsolete.

Perceived barriers to innovation

Technologically innovative companies that have encountered significant barriers during the innovation process are also more likely to introduce innovations of an organisational type than other companies. Some 19% of technologically innovative companies report that they have encountered significant barriers associated with cost (lack of finance or scale of innovation costs), 15% of such companies have experienced difficulties relating to knowledge (lack of qualified personnel, lack of information about technology or difficulty in finding cooperation partners) and 20% have experienced difficulties relating to markets (dominance of incumbent operators and uncertainty of demand).

Organisational innovation, R&D and knowledge transfer or acquisition

In the course of an innovation process, the activities of technologically innovative companies are often associated with organisational innovation, particularly where they consist of external R&D or the transfer or acquisition of other knowledge from external partners. The former refers to any creative work performed by other companies (including other companies within the same group), or other public or private research establishments where the company purchases R&D. The latter relates to the purchase of rights to use patents and unpatented inventions, know-how and other types of knowledge from other companies or organisations.

Nearly 90% of technologically innovative companies which have introduced external R&D for their technological innovation activities have introduced organisational changes internally. These companies have made extensive use of knowledge management, as well as modifying and improving external relations – 74% and 70% of companies, respectively (Figure 2).

Figure 2: Organisational innovation of companies, by involvement in innovation activities (%)

Note: Proportions given of technologically innovative companies that have introduced organisational innovation activities.

Source: CEPS/INSTEAD, CIS4 2002–2004

Organisational innovation of companies, by involvement in innovation activities (%)

Commentary

The study highlights that organisational innovation is the most widespread form of innovation among companies in Luxembourg. Knowledge management and work organisation are the organisational practices most widely adopted by companies. In general, enterprises in the services sectors innovate more frequently in the organisational field than those in the manufacturing industry, and larger companies innovate more frequently than smaller ones.

In most cases, the organisational changes coexist with technological innovation, particularly in a competitive context. Technologically innovative companies that have encountered barriers during the innovation process are more likely to introduce innovations of an organisational type than other companies. In the course of an innovation process, technologically innovative companies often link their activities with organisational innovation, particularly where they consist of external R&D or the transfer or acquisition of other knowledge from external partners.

Veronique DeBroeck, Prevent