Measuring High Growth Innovative Firms

Measuring innovative high-growth firmsStatistics for policymaking: Europe 2020

Anders Hoffmann, Ph.D.Director of Entrepreneurship and Innovation Policy

Brussels, 10-11 March 2011

Quotes from the opening of the conference

“Concrete targets focus the mind!”

“Policy makers need fresh data…”

“Good statistics are much cheaper that wrong decisions”

“Indicator based evaluation of policy is a democratic demand”

“We are still using the R&D indicator from 2000 – we need a new measure”

- Measuring progress is a key part of the the EU 2020 strategy.

- The 5 targets for the EU in 2020

…

- 2. R&D / innovation - 3% of the EU's GDP (public

and private combined) to be invested in R&D/innovation

Not all innovators do R&D

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Innovative firms without R&D Innovative firms with in-house R&D%

We need a indicator of the "share of

high-growth innovative enterprises in the economy“

High Growth Enterprises (HGE)

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Eurostat-OECD definition of HGE:

All enterprises (10+ employees) with average annualised growth greater than 20% per annum, over a three year period should be considered as high-growth enterprises. Growth can be measured by the number of employees or by turnover.

Different growth length, thresholds and rates

HGE 2004-2007 (2 years) No of employeesGrowth rate (empl.) 5+ 10+ 15+ 20+10 procent 19,8 10,7 6,8 5,015 procent 14,0 6,7 4,1 2,920 procent 8,7 4,4 2,6 1,825 procent 6,4 3,0 1,8 1,2

HGE 2004-2007 (3 years) No of employeesGrowth rate (empl.) 5+ 10+ 15+ 20+10 procent 16,2 8,0 5,2 3,715 procent 9,1 4,5 2,9 2,020 procent 5,5 2,6 1,6 1,125 procent 3,5 1,5 0,9 0,7

HGE 2003-2007 (4 years) No of employeesGrowth rate (empl.) 5+ 10+ 15+ 20+10 procent 10,9 5,5 3,7 2,715 procent 5,8 2,7 1,8 1,320 procent 3,2 1,4 0,9 0,725 procent 1,9 0,8 0,5 0,4

Does growth imply innovation?

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High Growth Enterprises - Denmark

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Total number of HGF 1,174

Share of high-growth innovative enterprises

?

Different approaches

1. Use data on inputs/outputs to identify innovative sectors and then only look at these

2. Measure the share of HGE that innovate in each sector by linking Community Innovation Survey (CIS) data with HGE-data. Use those share to calculate number of Innovative High Growth Firms

3. Combination of the above methods

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Highly innovative sectors - method I

Analyses have shown that there is a correlation between innovation and knowledge intensive enterprises.

One attempt is therefore to identify the innovative industries based on data on the employees’ level of education. The data stems from Labour Force Survey

The sectors (on a 2 digit NACE level) that have the highest share (i.e. more than a certain percentage) of knowledge intensive employment (KIA) are considered innovative.

The share of firms that innovate in a given sector can be calculates based on the Community Innovation Survey

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KIA x CIS-innovative (product or process)

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KIA x HGE

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CIS x HGE

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Conclusion of the first approach

The identified innovative sectors are different depending on the method used

HGE and CIS identifies to a higher degree the same sectors as innovative than KIA and CIS

There seems to be a correlation between innovation and growth and to a lesser degree between KIA and growth – but not between KIA and innovation.

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  Correlation R2

KIA x PP -0,15 0,02 

HGE X PP 0,61 0,37

KIA x HGE 0,33  0,11 

Share of HGE that are innovative – method 2

Measure the share of HGE that innovate in each sector by linking Community Innovation Survey (CIS) data with HGE-data. The share can be used to measure innovation in the years where the CIS is not carried out

On average for the sector (NACE 2 digit) the share is 50,9 pct.

In the lowest end 0 pct.

In the highest end 100 pct.

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Share of high-growth innovative firms 2005-2007

  Threshold at the beginning of the growth period  

Growth rate5+

employees10+

employees15+

employees20+

employees Average

10 percent 0,59 0,61 0,61 0,62 0,61

15 percent 0,58 0,60 0,60 0,60 0,59

20 percent 0,60 0,63 0,63 0,64 0,62

25 percent 0,62 0,63 0,65 0,66 0,64

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Conclusion of the second approach

PP-innovation is correlated with HGE, so it seems that enterprises that have implemented either new processes or products experience high growth rates.

The share of high-growth firms that are innovative varies a lot among sectors – WHAT ABOUT AMONG COUNTRIES?

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Method 3 – My Conclusion

We calculate the number of high-growth firms in all sectors

We identify sectors with no innovative firms in either CIS or KIA. These are removed from the sample

We use the shares from the latest two CIS for each sector to find the share of high-growth firms that are actually innovative (these weights will be country and sector specific)

We calculate a final number for each country

We update the list of included sectors each year and the CIS share every time we have a new CIS

Measuring innovative high-growth firms