The benefits of R&D and breadth in innovation strategies: a comparison of Finnish service and manufacturing firms

This empirical study compares the determinants of innovation in manufacturing and services through descriptive and regression analyses of sales from innovative products and services. A particular focus is on the effects of R&D investments and breadth in knowledge sourcing and innovation objectives. The results suggest that, contrary to earlier research, R&D investments play a statistically and economically significant role in service innovation. We suggest that this results from the growing engagement of service firms in regular R&D activity. Both service and manufacturing firms also benefit from breadth in external knowledge sourcing strategies. In contrast, breadth in terms of pursuing parallel innovation objectives appears to have detrimental effects on innovation in service industries. We interpret the latter results through reference to service firms’ R&D management capabilities: Managing multiple innovation projects is challenging, and some service firms may not have accumulated the requisite managerial processes and capabilities to benefit from these strategies. The available data provide support for this conjecture. The detrimental effects of breadth in innovation objectives are significantly mitigated by regular R&D activities.