Activities related to innovation within a company can include research and development; acquisition of machinery, equipment and other external technology; industrial design; and training and marketing linked to technological advances.

Lets look at the various innovation expenditures and try to find a correlation. Three types of innovation expenditures are

1) R&D expenditures, or, more precisely, current expenditures on R&D.
2) Current innovation expenditures, which are not comprised under the heading R&D that is current non-R&D innovation expenditures. These include product design, trial production, training, acquisition of products and licenses, market analysis and other expenditures.
3) Investments in relation to innovation, as for instance the acquisition of new technology through investment in new machinery and equipment


On average, 53% of all companies in the manufacturing sector in 12 EEA Member States were considered as 'innovative' in the period 1994-96. An innovative enterprise is classified as one that has either brought new or improved products to the market, or has introduced new processes. Large enterprises were found to be notably more innovative than SMEs - 81% of businesses employing more than 250 people met these criteria. The percentages for medium-sized and small enterprises were 59 and 44, respectively.

There is a widespread agreement on the opinion that innovation is a management concern mainly in large firms, that can invest a large amount of resources in R& D activities.
The available data of some surveys seem to support this opinion; however small and medium firms do innovate; the way in which they do it is different and often not so visible.

“Large firms are more prone to have innovation expenditures than small firms, but their innovative efforts are less intense”

Looking at the qualitative differences we can observe that innovation in large firms is still often carried out by dedicated innovative units; but even if it is managed by the whole organization under the leadership of a “Coordination Board”, its characteristic is given by the planning of all the necessary steps, from acquisition of information, to exploration of technological opportunities, to implementation of new products/processes. In a few words, the most part of large (and innovative) companies pursues codified and systematic innovation strategies. These strategies are often focused on the synergies: large firms having a wide product portfolio can exploit a particular technology for more than a single family of products, and in the same time, a single product may yield experience and learning that are likely to be used in other product families.

In SMEs, on the other hand, the process of innovation is rarely planned in the above way. The improvement process of the existing products/processes is due to the entrepreneurial approach of managers more than to a real awareness of the strategic importance of innovation. In this sense, it is important to note that managers of SMEs are less linked to bureaucratic procedures than their colleagues of large firms; hence SMEs may undertake all the necessary actions to maintain a good level of competitiveness in short time.
The core differences between large companies and SMEs, when we analyze them in the perspective of the way in which they manage innovation, are:

• Spontaneous management behavior is the starting point of innovation in SMEs, more than a (formal) research activity.
• Large firms may enjoy a solid culture of innovation, supported by ad hoc structures and units, and required funds for R&D. On the other hand SMEs are more flexible and ready to capture, interpret and implement all the signals coming from the outside, even if they have modest or nonexistent budgets for R&D.
• Large companies can plan their future, but are slow to change and less reactive. SMEs do not have enough economic resources enabling them to plan, but are sufficiently flexible to react when facing new external conditions.

From these statements, we can also understand why there is a general agreement on the observation that innovations in SMEs are less visible than they are in the large ones (and this may be one of the reasons why SMEs are said to be less innovative.)

Typically, in assessing rates of innovation, innovative activity is reflected by the use of one or both of two indicators – an input indicator (for example, R&D expenditure, percentage of skills of different sorts in the labor force) or an output indicator (notably patents). But there are so many difficulties that are involved (like the effectiveness of patents as a barrier to entry varies across sectors). Clearly, none of these input or output indicators of innovation are ideal; So, at best, we need to apply a range of innovation indicators, in each case interpreting the results with care.
Some of the innovation indicators include efforts of (R&D) employees, expenditures on innovation, use of subsidies and other arrangements, extra-organizational co-operation, knowledge-diffusion practices, use of external knowledge sources, use of information technology (IT), training & education, market research, design and testing, presence of bottlenecks like poor market knowledge, non-qualified personnel, lack of finance, introduction of new products, services and/or processes, effects of innovative output (profit, growth), possession of patents and Organizational renewal activities.

Is quantity of resources (like R&D expenses, etc) correlated with innovation?

No, not necessarily, because it may never be IMPLEMENTED, nor satisfy a real market need. Quantity of resources allocated can help us to find a new way of perceiving or reconfiguring data.

Innovation, by contrast, is the implementation of such activity.