Doing well by doing good: A study of university-industry interactions, innovationess and firm performance in sustainability-oriented Australian SMEs

Abstract

Increased concerns about excessive resource consumption, environmental degradation and social inequity have led to calls for a transition toward a more sustainable economy and society. Against this background, the role of innovation in helping enterprises become more sustainable has received increasing attention in the academic literature. While cooperation with external actors is assumed to increase enterprises' capacity for sustainability-oriented innovation (SOI) there is a dearth of empirical studies to support this notion, particularly with regard to university–firm interactions. This is surprising, given the so-called “third mission” activities. The purpose of this study is to address this gap by examining the role and effect of university–firm interactions on innovation outcomes, and firm performance in SOI in small and medium-sized enterprises (SMEs). Using structural equation modelling to analyse a sample of 153 SMEs, we find that generic links in the form of human resource transfer have a significant positive effect on innovativeness, and innovativeness, in turn, is positively related to firm performance. Furthermore, human resource transfer affects firm performance through innovativeness. Therefore, this study supports the premise that developing human resource transfer via employing new graduates, providing graduates with further education and providing employees with vocational training generates performance benefits in the form of innovation outcomes, which in turn indirectly leads to productivity and sales growth in SOI in Australian SMEs. This research contributes to an improved understanding of the relationships between university–firm interactions, the innovation output, and firm performance in the context of SOI in SMEs adding to the emerging dialogue on the “third mission” activities of universities, and the business case for sustainability.

Introduction

Increased concerns about excessive resource consumption, environmental degradation together with social inequity have led to calls for a transition toward a more sustainable economy and society (Adams et al., 2015). Against this background, the role of innovation - defined as ‘the successful exploitation of new ideas’ (DIT 1998) - in helping enterprises become more sustainable has received increased attention in the academic literature (Adams et al., 2015, Hansen and Klewitz, 2012, Klewitz, 2015). Sustainability-oriented innovation (SOI) involves making intentional changes to an organisation's philosophy and values, and to its products, processes or practices, in order to create and realize social, environmental and economic value (Adams et al., 2015). SOI describes a ‘direction’ or journey (Adams et al., 2015, Klewitz and Hansen, 2014), which involves the deliberate management of economic, social, and ecological aspects (Hansen et al., 2009, Paech, 2007) so that they become integrated into the design of new products, processes, and organisational structures (Rennings, 2000).

Although small and medium-sized enterprises (SMEs) – defined as enterprises comprising < 200 employees (Department of Innovation Industry Science and Research, 2011) – are increasingly recognised as central contributors to sustainable development, research has mainly focused on large organisations (Bos-Brouwers, 2010, Hansen and Klewitz, 2012) with little research into SOI in SMEs. This is despite the fact that SMEs play a major role economically, accounting for the majority of firms in most economies, including Australia's (ABS, 2015), and thus are, as a group, essential to sustainable development (Hansen and Klewitz, 2012). Empirical work that does exist on SMEs tends to focus on environmental issues (i.e., eco-innovation) rather than on the broader SOI concept (Adams et al., 2015, Klewitz and Hansen, 2014). Thus, more systematic research on SOI in SMEs is needed (Adams et al., 2015, Hansen and Klewitz, 2012, Klewitz and Hansen, 2014), particularly in terms of how SOI can be achieved in SMEs (Adams et al., 2015).

Bos-Brouwers (2010) note that a distinguishing feature of SMEs is their inability to internalise all elements of the innovation process (Maillat, 1990) due to a lack of resources (e.g., time, knowledge, personnel and financial capital) or liability of smallness. As a consequence, it is difficult for SMEs to allocate the requisite resources to SOIs, which are much more resource intensive than conventional innovations (Hansen and Klewitz, 2012). The multidimensional nature of SOI means that the development of SOIs in SMEs is complex, typically requiring knowledge and skills that are quite distant to, and distinct from, an enterprise's existing knowledge base (Perl-Vorbach et al., 2014). For example, more radical SOIs typically require novel ideas, new information and resources exchanged in knowledge flows that are more distant to the enterprise's own environment (Klewitz and Hansen, 2014). This knowledge is often diverse and widely distributed (Clarke and Roome, 1999, Wagner, 2009, Wagner and Llerena, 2008). This fact, together with SMEs' resource constraints, incentivise SMEs to open up the innovation process and cooperate in order to overcome their resource limitations (Freel, 2005, Hansen and Klewitz, 2012).

While cooperation with a range of external actors is assumed to increase the capacity of SMEs for SOIs (Hansen and Klewitz, 2012, Harms and Klewitz, 2013, Klewitz, 2015, Perl-Vorbach et al., 2014), there is a dearth of empirical studies which explore the role that HEIs and related research institutes play in this process, despite the fact that these institutions can provide new knowledge that smaller enterprises could not typically generate based on their own capabilities (Hansen and Klewitz, 2012, Huggins, 2010). Research that does exist tends to be conceptual in nature (Hansen and Klewitz, 2012, Harms and Klewitz, 2013, Klewitz and Hansen, 2014, Perl-Vorbach et al., 2014), qualitative, or case studies based on narrow networks initiated and/or maintained by third party actors or intermediaries; (Bigliardi et al., 2012, Klewitz, 2015), leading to calls for quantitative research (Klewitz and Hansen, 2014), and more generally, research into the types and sources of knowledge beneficial for SOI in SMEs (Hansen and Klewitz, 2012, Perl-Vorbach et al., 2014).

The purpose of this research is to begin to address this gap by examining the contribution of knowledge flows from HEIs and related research institutes to the innovation output and firm performance on SOI in SMEs. Although knowledge flows or transfer can occur through a range of actors, we focus on knowledge transfer between HEIs and related research institutes and SMEs, given universities have long been considered as key sources of knowledge in knowledge-based societies (Etzkowitz and Zhou, 2006) and more recently, as a knowledge source for SOI in SMEs (De Marchi, 2012, Hansen and Klewitz, 2012). Research on networks and open science indicates the increasing importance of sourcing knowledge from external organisations in general and from universities in particular (Cohen et al., 2002, Hansen and Klewitz, 2012, Perkmann et al., 2011, Perkmann and Walsh, 2007, Powell and Grodal, 2005); however empirical evidence of the impact of direct links between universities and firms is weak and inconsistent (Bekkers and Freitas, 2008, Dornbusch and Neuhäusler, 2015), including in the SOI SME context (Klewitz, 2015). Fernández-Esquinas et al. (2015) note that the difficulty in translating scientific results into the market is well established, raising important questions with respect to how to maximise benefits from HEIs and related research institutes (hereafter, for simplicity we use the term HEIs to incorporate HEIs and related research institutes) for skills and development (OECD, 2007), especially in peripheral regions in which the industrial fabric is composed of many SMEs with low absorptive capacity (Fernández-Esquinas et al., 2015).

We investigate whether the various pathways that constitute university–firm interactions have a differential impact on innovation output and firm performance on SOI in SMEs. In line with prior research (Corral de Zubielqui et al., 2015, Hansen and Klewitz, 2012, Perkmann and Walsh, 2007) we use the term HEI–industry links to describe the various ways in which publicly funded research may potentially benefit industry, and which comprise what is commonly referred to as knowledge/technology transfer links that include the use of scientific publications and university-generated intellectual property (IP) (e.g., patenting, licensing, commercialisation) and human mobility mechanisms aimed at transferring skills (e.g., graduate recruitment and postgraduate education/vocational training of employees). These links are generally considered to have low relational involvement or engagement since they do not necessarily require relationships between universities and industry users (Perkmann and Walsh, 2007). In contrast, HEI–industry relationships refer to situations where individuals and/or groups from academia and industry work together on specific projects and produce common outputs and are characterised by high relational involvement. Examples include research partnerships (e.g., collaborative or sponsored research) and research services (e.g., academic consulting, contract research and use of research facilities) (see Table 1). We define innovation outcomes or innovativeness¹ as the range of innovation types (i.e., product, process, organisational and/or marketing) that might reasonably be expected in an enterprise (Adams et al., 2006). Jay and Gerand (2015) note that the premise that underlies SOI is that all four types of innovation will be required in order to significantly move toward sustainable development.

In doing so, the research contributes to the existing literature in three important ways. First, it provides an improved understanding of different HEI knowledge access pathways for innovation purposes in SOI in SMEs, by examining the extent to which SOIs SMEs utilise HEIs' generic links and relationships, and their influence on innovation outcomes. To date, there is a dearth of empirical studies that examine the specific pathways through which knowledge flows from HEIs in SOI in SMEs, and the differential impact, if any, that HEI links and relationships have on SOI in SMEs. We contribute to filling this gap.

Second, an improved understanding of the link between knowledge flows from HEIs to SOI SMEs also contributes to the debate about the so-called third role of universities, by examining the relative contribution of knowledge/technology transfer links that include the use of scientific publications, university-generated IP and human mobility mechanisms allied to their educational programs vis-a-vis broader knowledge-based linkages via research linkages with firms.

Finally, by empirically examining the business performance (benefits) of knowledge transfer activities aimed at innovation in the context of SOI in SMEs, we add to the business case for sustainability (Schaltegger and Wagner, 2006).

The remainder of the paper is organised as follows. Section 2 presents a brief overview of the National Innovation Systems (NIS) and Triple Helix Model (THM) which is the backdrop against which university–industry interactions occur. This is followed by presentation of the conceptual framework that forms the basis for the development of the research questions. Section 4 describes the data. Section 5 discusses the empirical results and Section 6 presents the conclusions.