The impact of industry associations: evidence from Statistics Canada data.

SUMMARY

Industry associations are nonprofit organizations with specialized knowledge and capabilities that typically perform innovation enabler roles. I present Statistics Canada data that show that industry associations have a strong impact on the ability of Canadian firms to innovate. In the interests of informing further empirical work on the contributions of organizations that work to enable innovation, I develop theory to describe how organizations that perform innovation enabler roles are expected to contribute to the ability of firms to innovate. I also describe how the measurement guidelines of the Frascati and Oslo Manuals published by the Organization for Economic Co-operation and Development make it difficult to observe the existence and impact of nonprofit organizations that perform innovation enabler roles.

KEYWORDS

industry associations; nonprofits; innovation policy

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In the innovation literature the linear model of innovation was laid to rest some time ago (Rothwell et al., 1974). It has been superceded by the understanding that innovation is a nonlinear, multidimensional process that involves many players and perspectives (Dougherty, 1990, 1992), multidirectional knowledge flows (Lane & Maxfield, 1996), and continuous iteration between new product development and use (Iansiti, 1998). But in public policy circles the linear model of innovation appears to be in robust health. Governments are outdoing each other in investments in the upstream elements of innovation, in the hopes of engendering eventual desirable behaviors on the part of downstream players. The thinking seems to be that if we just invest enough in research, technology commercialization, and knowledge dissemination activities, then eventually we will be rewarded with firms that are innovative and productivity numbers that will make us proud. The problem is: are the firms listening? Or is this a collective effort in technology push?

The vast majority of firms are small and do not perform R&D, but this doesn't mean there wouldn't be huge returns, both private and public, to their being more innovative. But small firms are highly resource constrained, especially in terms of the time of managers. Just as consumers have little interest in examining every new product that is brought to market, small firm managers have little interest in examining the many new technologies, opportunities, and incentives that governments put in front of them. And just as many new products don't fit the needs of the user, many new innovation enhancing offerings of government may be inappropriate. On average, the small firm manager may be better off attending to pressing concerns and engaging with people who understand his/her business and its needs, than by getting distracted by government interventions.

When managers see a need for engaging with others from whom they can learn and with whom they can engage in collective action to better their situation, they often set up industry associations (Aldrich, Bolton, Baker & Sasaki, 1998). Industry associations are autonomous, nonprofit organizations that generally do not receive funding from governments, except in circumstances where they are seen to contribute to national priorities. They would not exist without the support of the firms that are their clients, and as a consequence they must ensure that they understand and are attentive to their clients' needs. Their ability to do so is facilitated by the fact that they generally focus on a specific industry, and sometimes on a specific geographic region, and their specialization allows them to develop specialized knowledge and capabilities.

In the next section I present evidence that shows that that industry associations are valuable contributors to the ability of firms to innovate. Based on Statistics Canada data from over 2000 firms across a wide range of industries, I show that industry associations appear to outperform governments and universities as innovation enablers. I then present a theoretical perspective on the innovation enabler role, a role often performed by nonprofit organizations, with a view to facilitating further empirical work. In the subsequent section I describe how the conceptual models and measurement systems typically used to measure innovation and R&D in all OECD (Organization for Economic Co-operation and Development) countries make it difficult to observe the number of innovation enabling nonprofit organizations in existence, let alone measure the impact of their activities. In the conclusion I describe how industry associations can be leveraged to promote the innovativeness of firms.

IMPACT OF INDUSTRY ASSOCIATIONS

In 2003 Statistics Canada conducted a survey of 2123 establishments in 35 knowledge-based service industries in Canada. The target population included all establishments in selected service industries including all information and communications technology industries, selected knowledge-based professional, scientific and technical services industries, and selected natural resource and transport industries. Only establishments with a gross business income of at least $200,000 and at least 15 employees were considered in sample selection. Responses were divided into two groups based on whether or not the firm had introduced a new product, service, or process within the last three years and the results presented below are based on the subset of firms that had done so, i.e. the innovators (Statistics Canada, 2003a).

Statistics Canada identified two innovation-enabling mechanisms that might be expected to contribute to the ability of a firm to innovate. Based on the premise that a firm's ability to innovate is enhanced by its exposure to ideas, firms were asked to indicate their sources for ideas and to rate their importance Similarly, based on the premise that the innovative capacity of a firm is enhanced through collaboration, firms were asked to indicate the types of organizations with which they collaborated. The responses, shown in Figures 1 and 2, are segregated according to the extent to which the responding firm's 'new' products, processes, and services have not appeared earlier. The innovations of 'world first' innovators are new to the world, those of 'Canada first' innovators are new only within Canada, and those of 'firm first' innovators are new only to the firm.

[FIGURES 1-2 OMITTED]

As shown in Figure 1, customers were the most important source of ideas, followed by suppliers and competitors, and consistent with the literature on the sources of ideas for new products (von Hippel, 1986). In terms of non-firm organizations, nonprofit industry associations were more frequently cited as important sources of ideas than either federal government research institutes or universities. Similarly, as shown in Figure 2, industry associations were more frequently cited as collaborators of innovative firms than either federal government research institutes or universities with the exception of 'world first' innovators that cited universities slightly more frequently as collaborators.

One explanation for these surprising numbers says that since something like 99% of Canadian firms don't conduct research they can hardly be expected to turn to universities and federal government research institutes for ideas. But it turns out that the pattern is the same, even for firms that do conduct research. Firms with R&D personnel cite industry associations as important sources of ideas an average of 6.0 times more frequently than they cite federal government research institutes, and an average of 2.4 times more frequently than they cite universities.

It must be noted that there was no attempt to control for the relative sizes of the populations of organizational actors considered in the data presented in Figures 1 and 2. The population of organizations that could be customers, suppliers, or competitors is virtually infinite as these roles could be played by any organization ranging from a Canadian firm to a foreign government.

In comparison there are likely about 2500-3000 industry associations in Canada that may collectively employ about 40,000-50,000 people, assuming that respondents restricted themselves to Canadian industry associations. (1) There are about 502 universities, colleges, and other nonprofit post-secondary educational institutions in Canada that collectively employ some 212,596 people (Statistics Canada, 2005a) although there are only 92 universities (AUCC, 2005) that collectively employee some 47,340 personnel engaged in R&D (Statistics Canada, 2005b). The largest federal government research institute in Canada is the National Research Council that employs approximately 4,000 people (NRC, 2005) and collectively the federal government employs 13,960 personnel engaged in R&D (Statistics Canada, 2005b). And finally the numbers of provincial research institutes and private nonprofit research institutes are very low. In addition, it must be noted that the sample focused on firms in knowledge-based industries. The survey results may have been different had the sample been broader in terms of industry coverage.