Dynamic Analysis of Critical Factors for Innovation Performance

Abstract

The variety of recent research that focus on the topic of innovation underscores, its emergence as a major factor in determining sustainability and the growth of a firm in today’s environment characterized by fierce competition. Many companies that have invested in innovation - especially those that have invested heavily in research and development - believe that increase in the amount of resources channeled into innovation-based strategies will ensure better firm performances in the future. However, some scholars are skeptical about unnecessary investment in innovation, and some recent studies have actually found that R&D expenditure has no direct correlation with financial returns such as sales, or profit growth. Firms have to develop the optimal strategy that can effectively and directly increase the innovation performance while considering the changing pace and innovation dynamics of their industries. For effective strategy development, there has been much effort to reveal the innovation factors that affect innovation performance. However, few research has considered the direct influence of the factors on innovation performance with considering the likelihood of differences the factors influence product innovation performance according to the product innovation cycle time. The purpose of this research is to identify the factors directly affecting on product innovation performance and compare the relative importance of the factors in dynamic environment (with product innovation cycle time less than 13 months) and non-dynamic environment (cycle time greater than or equal to 13 months) and to analyze the dynamic relationship between innovation complexity and dynamic capability, and then to reveal how innovation complexity and dynamic capability affect a firm’s innovation performance by using the System Dynamics approach. This research expects that the presented results can play a critical role to set the direction for development or transformation of firms’ strategy having low performance in innovation.