Innovation in New Zealand: 2011

Transcription

1 Innovation in New Zealand: 2011

2 Crown copyright This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. You are free to copy, distribute, and adapt the work, as long as you attribute the work to Statistics NZ and abide by the other licence terms. Please note you may not use any departmental or governmental emblem, logo, or coat of arms in any way that infringes any provision of the Flags, Emblems, and Names Protection Act Use the wording 'Statistics New Zealand' in your attribution, not the Statistics NZ logo. Liability While all care and diligence has been used in processing, analysing, and extracting data and information in this publication, Statistics New Zealand gives no warranty it is error free and will not be liable for any loss or damage suffered by the use directly, or indirectly, of the information in this publication. Citation Statistics New Zealand (2011). Innovation in New Zealand: Wellington: Statistics New Zealand ISSN (online) Published in June 2012 Updated on 19 July 2013 Statistics New Zealand Tatauranga Aotearoa Wellington, New Zealand Contact Statistics New Zealand Information Centre: Phone toll-free Phone international

3 Information about the data Rounding procedures Figures may be rounded to the nearest thousand or some other convenient unit. This rounding may result in a total disagreeing slightly with the sum of the individual items, as shown in tables. Where figures are rounded, the unit is either expressed in words below the table headings, or shown in figures (eg (000) for thousands). All counts in this report are randomly rounded to base 3 to protect the confidentiality of respondents. For this reason, not all figures will sum to a stated total. Changes of base Where consecutive figures were compiled on different bases and are not strictly comparable, a footnote describes the difference. Treatment of sub-industries We advise readers to treat data for sub-industries (indented industries in the tables) with caution they have higher sample errors than the errors mentioned in table Disaggregating sub-industries results in some loss of data quality, because the sample design is based on 1 digit-anzsic 06 industries. Source Statistics New Zealand compiled all data, except where otherwise stated. Both administrative and survey data are used in this report. More detail For more information about the data, see the Information about the survey' section. Acknowledgement Statistics New Zealand appreciates the cooperation of the businesses and individuals who participated in the Business Operations Survey, which enabled these results to be produced.

4 Contents List of tables and figures Summary of innovation results... 1 Purpose... 1 Summary of the key results from Rate of innovation remains stable... 4 Overall innovation rate similar to Innovation rate increases with business size... 5 Service industries innovate more New Zealand's innovation rate similar to Australia's... 8 New Zealand and Australia innovation rates similar... 8 International definitions of innovation vary Innovation characteristics are diverse and complex Innovation evenly spread across different types Most businesses develop their own innovations Innovative industries not the biggest contributors to national income Almost half of businesses innovate again in R&D and growth activities are key to innovation Research and development is a main component of innovation expenditure Innovators tend to perform more growth activities Performance of innovators and non-innovators is mixed Complex relationship between competition, performance, and innovation Comparisons with previous year are mixed Innovators are more profitable Most product development expenditure is on R&D $1.7 billion is spent on product development and related activities Product development expenditure per employee Most product development expenditure is on R&D Business size affects product development spending level Size affects product development expenditure Product development expenditure can be high or low intensity Different perspectives on barriers to innovation Cost is key barrier to innovation Picture of barriers varies for different industries Innovators have different perception of barriers... 25

5 11 Ideas for innovation come from many sources Most ideas and information come from existing staff Important sources vary for different industries Access to new markets drives cooperation Most cooperation is with New Zealand suppliers Sharing costs and access to new markets are key drivers of cooperation Marketing or distribution is most-common cooperative activity Strong links between innovation and international engagement Innovators more internationally engaged Mixed picture for types of international engagement Similar barriers to international engagement Information about the survey Background to the Business Operations Survey Consistency with other time periods Target population Sample design Measurement errors Response rate Non-response and imputation Other data sources Income and expenditure data Gross domestic product data Research and development data Innovation data Definitions References Appendix: Detailed Excel tables... 47

6 List of tables and figures Tables by chapter 2 Rate of innovation remains stable Innovation in New Zealand, last two financial years at August 2009 and New Zealand's innovation rate similar to Australia's New Zealand and Australian innovation rates New Zealand and Australian innovation characteristics Different perspectives on barriers to innovation Barriers to innovation, last financial year at August Strong links between innovation and international engagement Innovation and international engagement, last two financial years at August Information about the survey Business Operations Survey module structure Sample errors for Business Operations Survey Business Operations Survey 2011 sample errors by size and industry Figures by chapter 2 Rate of innovation remains stable Innovation rate, by business size Innovation rate by industry, last financial year at August Innovation characteristics are diverse and complex Innovation activity, last two financial years at August 2007, 2009, and Almost half of businesses innovate again in Innovation activity across time, last two financial years at August 2009 and R&D and growth activities are key to innovation Research and development and innovation activity, by business size Research and development expenditure comparison, R&D and Business Operations surveys Innovation and other activities, for innovators and non-innovators Performance of innovators and non-innovators is mixed Comparison of performance with competitors, for innovators and noninnovators Comparison of performance with previous year, last financial year at August

7 8 Most product development expenditure is on R&D Average product development expenditure per business, by industry Business size affects product development spending level Businesses, employees, and product development expenditure, by business size Different perspectives on barriers to innovation Barriers to innovation, last two financial years at August Ideas for innovation come from many sources Sources of information, last financial year at August 2009 and Access to new markets drives cooperation Cooperative arrangements, for innovating businesses Reasons for cooperative arrangements, last two financial years at August Strong links between innovation and international engagement Overseas purchases, last financial year at August 2007 and

8 1 Summary of innovation results Purpose Innovation in New Zealand: 2011 gives a statistical picture of business innovation and performance in New Zealand. Results from the 2011 Business Operations Survey tell us about the types of innovation occurring in businesses, reasons for the innovation, factors that hamper innovation, and about cooperation in innovation between businesses. This information is useful for policy makers, researchers, business advocates, or anyone interested in the subject of innovation. It provides an in-depth look into innovation in New Zealand through data analysis and by explaining some key results. This first chapter summarises key results from the survey. Defining innovation and its importance Innovation is defined as the introduction of any new or significantly improved goods, services, processes, or marketing methods. Innovation is important to New Zealand as it encourages growth, knowledge transfer, and entrepreneurship. To understand the way innovation occurs in New Zealand businesses, we need to measure not only the rate of innovation, but also the characteristics and activities surrounding this innovation. Business Operations Survey: 2011 The statistics presented in this report result from the Business Operations Survey (BOS) 2011, which was conducted in August Most tables in this release cover the last two financial years, unless otherwise stated. The survey included an innovation module (sponsored by the Ministry of Science and Innovation), a business performance module, and an international engagement module. The modular design enables analysis of the effect of businesses practices on their performance. Previously released information is presented in new ways to gain a better understanding of the effect of innovation on businesses. New statistics in this report compare business 'innovators' and 'non-innovators' across a range of practices, activities, and characteristics. This report also draws on the results of previous innovation modules, back to We have also used data from other Statistics New Zealand sources and international statistical agencies. The comparisons in this report focus on changes since innovation information was last gathered in Comparisons between innovation and international engagement focus on 2007 and 2011 data, where both were collected in BOS. Summary of the key results from 2011 Rate of innovation remains stable Almost half (46 percent) of all businesses reported innovation activity in 2011 the same as in percent of businesses reported they had implemented new or significantly improved goods and services, processes, or marketing methods. The industries with the highest innovation rates were education and training, and arts and recreation services, both at 62 percent. 1

9 New Zealand's innovation rate similar to Australia's New Zealand's innovation rate in 2011 was similar to Australia's in Innovation rate characteristics are diverse and complex In 2011, each of the four types of innovation product, process, marketing, and organisational was reported by around one-quarter of businesses. Almost 60 percent of innovating businesses developed their own product innovations. Almost half of businesses innovate again 44 percent of businesses that innovated in 2011 also innovated in R&D and growth activities are key to innovation Innovators are more likely to perform growth activities such as exporting, investing in expansion, or R&D. In 2011, 9 percent of businesses carried out R&D, a component of innovation. Performance of innovators and non-innovators is mixed In 2011, there was no link between innovators and non-innovators for performance measure perceptions such as productivity. Innovators aggregate profitability was twice that of non-innovators. Most product development expenditure is on R&D 52 percent of expenditure on product development was spent on R&D Businesses spent $1.7 billion on product development activities in 2011 (0.3 percent of their total expenditure*). The mining industry had the highest average spend on product development and related activities per business, at $233,000. Business size affects product development spending level Smaller businesses spent a higher proportion of their total expenditure on product development. Businesses with a low proportion of product development expenditure spent more on marketing than businesses with a high proportion. Different perspectives on barriers to innovation 21 percent of businesses reported the cost of developing or introducing innovations hampered their innovation to a high degree. Access to intellectual property rights was the factor that least hampered innovation 82 percent of businesses reported this as a factor. Ideas for innovation come from many sources 70 percent of innovating businesses used existing staff as a source for ideas or information for innovation. Three out of four businesses used a mixture of internal and external sources. 2

10 Access to new markets drives cooperation In 2011, 14 percent of innovating businesses had cooperative arrangements with their suppliers for the purpose of innovation. 37 percent of innovating businesses with cooperative arrangements said gaining access to new markets was a reason for their innovation. Strong link between innovation and international engagement Just over half of innovating businesses engaged internationally in 2011, compared with 27 percent of non-innovators. Innovators and non-innovators both experienced similar barriers to innovation, regardless of their international engagement. 3

11 2 Rate of innovation remains stable This chapter details innovation rates for New Zealand businesses over the two financial years ending August (Definitions of innovation, innovative activities, and the subcategories are in the 'Definitions' section.) Innovation rate for 2011 remained the same (46 percent) as 2009 The industries with the highest innovation rates were education and training; and arts and recreation Please see detailed tables 1 4 in the Excel workbook, available from the 'available files' section, alongside this chapter. Innovation types and rates The innovation rate is the proportion of businesses that undertook any activity during the last two financial years that resulted in the development or introduction of new or significantly improved: goods or services (products) operational processes (process) organisational or managerial processes marketing methods. Goods or services and marketing methods are usually the most visible forms of innovation. These types of innovation can result in changes in income and sales, or even reduced costs for a business. Operational, and organisational or managerial process innovation is not always so visible to customers these innovations involve changes in the way the company operates. In other words, some innovations focus on external aspects of the business and some focus on internal aspects. The type of innovation a business carries out may depend on the industry they are in. For example, a business in the manufacturing industry is likely to innovate in the goods or services area, because it designs and creates goods. However, a business in the accommodation and food services industry is likely to undertake marketing innovation, because they rely on the customer knowing about the business and its services. Overall innovation rate similar to 2009 Almost half of all New Zealand businesses (46 percent) reported innovation activity in 2011, a similar proportion to Even though the innovation rate has remained similar, businesses are still innovating. This means new products, services, processes, or methods are available now that were not available two years ago. The variety of innovation activities (explored later in this report) broadly means that a range of new products, or different ways of producing products, are being developed by businesses. 4

12 Innovation stages The value of innovation is realised when an idea is implemented, but it also has value at other stages. This report presents information on the other valuable stages in the innovative process. The three stages are: implemented the innovation was introduced ongoing the innovative activity was still in progress or being developed abandoned the innovation was abandoned over the two-year period. Businesses can be involved in more than one stage at any point in time. Most innovating businesses had implemented innovations in the last two years, as illustrated in table Rates of innovation in each stage have been steady since Table 2.01 Innovation in New Zealand Last two financial years at August 2009 and Innovation in New Zealand, last two financial years at August 2009 and 2011 Innovators With implemented innovations only With implemented innovations and ongoing or abandoned innovation activity With ongoing or abandoned innovation activity only 5 6 Total innovators Non-innovators For more information on the businesses included, see chapter 14 'Information about the survey'. Note: All counts (not percentages) in this survey w ere randomly rounded to base 3 to protect confidentiality. Due to rounding, some figures may not sum to totals. Source: Statistics New Zealand Percentage of all businesses (1) Innovation rate increases with business size Results from the Business Operations Survey (BOS) 2011 (see figure 2.01) show the innovation rate increased with business size from 44 percent for businesses with 6 19 employees, to 62 percent for businesses with 100+ employees. Larger businesses tend to have more resource and capacity to perform innovation. 5

13 Figure Innovation rate, by business size Service industries innovate more Figure 2.02 shows the innovation rate for each industry relative to the overall innovation rate. The education and training, and arts and recreation services industries reported the highest rates of innovation (both 62 percent). The following industries also had rates above 50 percent: financial and insurance services (61 percent) wholesale trade (59 percent) manufacturing (55 percent). 6

14 Figure Innovation rate by industry, last financial year at August 2011 The manufacturing industry is of interest as it had the largest number of businesses taking part in the survey. Innovation rates for the sub-industries are in table 2 in the Excel workbook, available from the 'available files' section. 7

15 3 New Zealand's innovation rate similar to Australia's This chapter gives comparisons between New Zealand and Australia, on innovation rates and for international comparisons. In 2011, New Zealand's innovation rate was 46 percent while Australia's was 39 percent. Differences in methodology and population mean New Zealand's innovation may actually be lower than Australia's. Comparing innovation rates across other countries is difficult. Most Organisation for Economic Co-operation and Development (OECD) countries collect innovation data in accordance with the Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data (2005). However, due to differences in coverage and reporting, direct international comparisons are not always possible. Please see detailed tables 5 7 in the Excel workbook, available from the 'available files' section, alongside this chapter. New Zealand and Australia innovation rates similar Australia and New Zealand use similar classifications and approaches to data collection to measure innovation, so we can make some comparisons between the countries. These comparisons are useful since Australia is a major trading partner of New Zealand, and we operate in common markets for goods and employment. Australia's rates of innovation and innovation activities were similar to those for New Zealand in Table 3.01 shows that 46 percent of New Zealand businesses reported innovation activity, compared with 39 percent in Australia. The New Zealand figure only includes businesses with six or more employees, while the Australian figure also includes businesses with 0 5 employees. New Zealand data on size characteristics (see figure 2.01) suggest that smaller businesses have lower innovation rates. If the same pattern applies in Australia, including their smallest businesses (0 5 employees) would lower their overall innovation rate. If the Australian figure included only businesses with six or more employees, they would have a higher innovation rate than New Zealand. However, we cannot accurately calculate this from the data available. Previous comparisons in Innovation in New Zealand: 2009 showed this. 8

16 Innovation New Zealand 2011 Table 3.01 New Zealand and Australian innovation rates, New Zealand and Australian innovation rates, 2011 Comparing characteristics in innovation Table 3.02 shows innovation characteristics that New Zealand and Australia can be compared against. However, differences in population scope, methodologies, and reporting periods limit direct comparison of numbers. Table 3.02 New Zealand (1) Australia (2) Percent Goods or service innovations Operational process innovations Organisational or managerial processes Marketing methods Overall innovation rate For more information on businesses included, see chapter 14 'Information about the survey'. 2. Australian results include businesses w ith less than six employees. Source: Statistics New Zealand, Australian Bureau of Statistics New Zealand and Australian innovation characteristics, New Zealand and Australian innovation characteristics, 2011 Implemented innovations (2) Ongoing innovations (2) Abandoned innovations 20 6 (2) Cooperative arrangements (3) Rank New Zealand (1) Australia Percent of all businesses Cooperative arrangements (w ith:) suppliers 1 8 (3) customers 2 9 (3) competitors and other businesses from the same industry 4 7 (3) other businesses w ithin the business group 3 7 (3) businesses from other industries 4 0 (3) universities (4) 5 1 (3) Crow n research institutes, other research institutes, 5 2 (3) or research associations consultants.. 8 (3) other private, non-profit research institutes.. 1 (3) other government/public research institutes.. 1 (3) other commercial research institutes.. 1 (3) 1. For more information on businesses included, see chapter 14 'Information about the survey'. 2. Results are the latest available for the year ended 30 June Australian results include businesses w ith 0 5 employees and exclude the agriculture industry. Results are the latest available for the year ended 30 June New Zealand results include polytechnics and universities. Source: Statistics New Zealand, Australian Bureau of Statistics. For the following characteristics, the categories with the greatest response were similar in New Zealand and Australia: hampering factors, sources of information for innovation, collaboration partner, and methods of protecting intellectual property rights. The industries with the highest innovation rate differed slightly. In New Zealand this was 9

17 Innovation New Zealand 2011 education and training, and arts and recreation, but in Australia it was wholesale trade, which ranked fourth in New Zealand. International definitions of innovation vary Comparing New Zealand's innovation rate with countries other than Australia is difficult, as many differences exist between countries' definitions, methodology, population, and collection methods. New Zealand collects a wider range of innovation data than most other countries. Tables 5 and 6 (in Excel workbook) provide high-level comparison of New Zealand's innovation rates against some European countries. It is also difficult to compare countries across time, for the same reasons. However, information that is available shows relatively stable innovation rates across countries and time (except where definitions change). The OECD is currently investigating these issues around international comparisons, and this increased knowledge may help to better inform comparisons in the future. 10

18 4 Innovation characteristics are diverse and complex This chapter explores innovation rates and characteristics for New Zealand businesses in more detail. Similar proportions of businesses innovated across all innovation types. 59 percent of product innovators developed their own innovations. Industries with the highest innovation rates (62 percent) only contributed 6 percent to GDP. In 2011, innovation was spread evenly across the four innovation types (goods or services, operational processes, organisational or management processes, and marketing methods). More than half of innovating businesses developed these innovations themselves. Please see detailed tables 8 10 and 24 in the Excel workbook, available from the 'available files' section, alongside this chapter. Innovation evenly spread across different types The survey asked businesses about their innovation activities in each of the four innovation types product, process, organisational, and marketing. Figure 4.01 illustrates the rates for each innovation type. These rates have remained stable since data has been comparable (2007). The total innovation rate for 2011 was 46 percent, and each type of innovation had a rate close to 25 percent. This suggests there is interdependence between innovations. For example, a business with a product innovation may need to develop new processes, or organisational or marketing methods in parallel. For 35 percent of businesses, they introduced process innovations because they introduced new goods or services. Figure Innovation activity, last two financial years at August 2007, 2009, and

19 Most businesses develop their own innovations Businesses have differing levels of capability, resource, experience, or knowledge for innovation. Some choose to develop their own innovations, keeping them in-house. Others develop innovation in partnership, so they benefit from shared knowledge or resources. Businesses may choose more than one option. For product innovations, survey results showed: 59 percent of businesses developed their own innovations 25 percent developed innovations in partnership with others 19 percent obtained innovations from others and made no significant improvements 15 percent obtained innovations from others and made significant improvements. Innovative industries not the biggest contributors to national income To explore innovation more thoroughly, we can look at innovation rates in relation to gross domestic product (GDP) by industry. The latest available GDP results are for the year ended March 2011, but the contributions of each industry have remained similar for the past few years. These few results show that innovation rates vary, due to the nature of the business activities in different industries. Also, the industries with the highest innovation rates are not necessarily those that are most important to New Zealand's economy. GDP is a commonly used measure of national income. (For full details of GDP methodology, see Gross Domestic Product information releases). In 2011, the industries with the highest innovation rates (education and training, and arts and recreation), at 62 percent each, contributed only 6 percent to GDP. This low contribution is due to the small number and size of businesses in these industries. The manufacturing industry contributed the most to GDP (13 percent), and had the fifthhighest innovation rate (55 percent). In comparison, the primary agricultural sector contributed 5 percent to GDP and had an innovation rate of 26 percent. 12

20 5 Almost half of businesses innovate again in 2011 This chapter shows that while overall innovation rates remained stable from 2009 to 2011, the mix of businesses carrying out innovation has changed. Please see detailed table 11 in the Excel workbook, available from the 'available files' section, alongside this chapter. For businesses that innovated in 2011, we can compare their innovation activity in 2009 (see figure 5.01). Of the 46 percent of businesses that innovated in 2011: 44 percent also innovated in percent did not innovate in percent were not in the 2009 sample. Figure Innovation activity across time, last two financial years at August 2009 and 2011 The proportions were quite similar across the four innovation types. Of the 46 percent of businesses with innovation in 2011: 48 percent of those with product innovation also had this innovation in percent of those with process innovation also had this innovation in percent of those with organisational innovation also had this innovation in percent of those with marketing innovation also had this innovation in Statistics NZ is currently undertaking more detailed analysis on business innovation behaviours over time. 13

21 6 R&D and growth activities are key to innovation This chapter presents information about some growth activities that businesses may undertake that have links to innovation. Research and development (R&D) is one of the key components of innovation and of product development expenditure. The 2011 Business Operations Survey (BOS) collected information on R&D activity, tourism, export behaviour, investment in expansion, requests for finance, and international engagement. Nine percent of businesses performed R&D, compared with 46 percent for the more-widely defined innovation. The upward trend of R&D expenditure was confirmed. Innovating businesses were more likely to perform growth activities. Please see detailed tables in the Excel workbook, available from the 'available files' section, alongside this chapter. Research and development is a main component of innovation expenditure R&D is a key component of innovation and product development. This section compares the overall rate of innovation with the proportion of firms undertaking or funding R&D activities. Only a small proportion of all businesses carried out R&D (9 percent), compared with a much higher rate for the more-widely defined innovation (46 percent). However, in expenditure terms, R&D is not necessarily a small component of innovation activity (see chapter 8 'Most product expenditure is on R&D'). Results show that larger businesses have higher rates of R&D and innovation with businesses of 100+ employees being most likely to carry out R&D and/or innovate. Figure Research and development and innovation activity, by business size 14

22 Types of R&D spending We can break down R&D spending into types, as for innovation. Results from the R&D Survey (2010) showed that the majority (63 percent) of business R&D expenditure was on experimental development. This kind of R&D most closely resembles the work done for innovation. Thirty-one percent of R&D expenditure was on applied research, and 6 percent was spent on basic research. Other results from the 2010 R&D Survey showed 31 percent of R&D expenditure was for manufacturing purposes. This was followed by information and communication purposes (19 percent) and animal production and animal primary products (10 percent). Due to differences in sample selection, target population, and the reporting period, R&D Survey results are not directly comparable with results from BOS. However, both surveys show a similar upward trend. The figures for R&D expenditure from the R&D Survey are higher than from BOS, because the survey design represents more of the businesses likely to be carrying out R&D. In other words, the R&D Survey aims to capture a greater proportion of business from the more R&D intensive industries and business types. Figure Research and development expenditure comparison, R&D and Business Operations surveys Innovators tend to perform more growth activities Innovating businesses were much more likely to engage in growth activities than noninnovators. Growth activities include sales from tourism, export sales, investment in expansion, requests for finance, and international engagement. The biggest differences between innovators and non-innovators were in investment in expansion, and international engagement. 39 percent of innovators invested in expansion (15 percent of non-innovators). 51 percent of innovators had international engagement (27 percent of noninnovators). 15

23 Figure Innovation and other activities, for innovators and non-innovators This difference in growth activities between innovators and non-innovators was also reflected in the financial figures the survey collects. The 46 percent of businesses that innovated contributed 75 percent ($35.9 billion) of the measured export income. 16

24 7 Performance of innovators and non-innovators is mixed This chapter focuses on the difference between innovators and non-innovators across performance measures and activities, including competition and profitability. There were no clear links between perceived profitability, productivity, and competition. No clear links seen when comparing with previous year. Innovators had twice the actual profitability of non-innovators. Please see detailed tables in the Excel workbook, available from the 'available files' section, alongside this chapter. Complex relationship between competition, performance, and innovation The survey asked businesses how they perceived their profitability and productivity performance against their competitors in These perceptions tell us what underlies their approach to operating their business and can help to explain their choice of practices. Innovators thought more highly of their performance than non-innovators. On measures of productivity and profitability, more innovators than non-innovators perceived themselves to be higher than competitors. This was particularly evident for productivity, where 30 percent of innovators thought they were performing above their competitors, while only 19 percent of non-innovators believed they were. However, more innovators also thought their performance was lower than their competitors. For example, 11 percent of innovators thought their profitability was lower than competitors, compared with 8 percent of non-innovators. The proportion of businesses that indicated they did not know what their performance was, in comparison with their competitors, indicates that innovators are more aware of their performance than non-innovators. 17

25 Figure Comparison of performance with competitors, for innovators and non-innovators Comparisons with previous year are mixed When businesses compared themselves against the previous year's performance, a mixed picture arises. Slightly higher proportions of innovating than non-innovating businesses had increases in some performance measures. For example, 48 percent of innovators reported increased sales over the last financial year, compared with 40 percent of non-innovators. Similar proportions of innovators and non-innovators had decreases in their performance measures. Figure Comparison of performance with previous year, last financial year at August

26 Innovators are more profitable Profitability is often used as a measure of success in businesses. The Business Operations Survey does not collect financial figures to calculate profitability, but other sources of information can be used, such as the Business Activity Indicator, which reports GST sales. Innovators and non-innovators showed vast differences in profitability. At an aggregate level, innovators had a profit of $45 billion compared with $25 billion for non-innovators. This reflects previous innovation rate results, which show that innovating businesses tend to be larger than non-innovators. Innovators also tend to be larger than non-innovators in the number of employees. The profit per employee for innovators ($67,000) was larger than for non-innovators ($55,000). The profit per business for innovators was $2.8 million compared with $1.4 million for non- innovators. 19

27 8 Most product development expenditure is on R&D This chapter explores product development expenditure and the related activities of businesses. Figures in this chapter for 2011 differ significantly from those in 2009, due to a questionnaire change designed to collect more-accurate information. We use product development expenditure as a measure of the innovation expenditure of businesses. Research and development (R&D) was the area where most expenditure on product development and related activities occurred. Fifty-five percent of innovating businesses spent more than $1,000 per employee on product development expenditure. Please see detailed tables in the Excel workbook, available from the 'available files' section, alongside this chapter. $1.7 billion is spent on product development and related activities Overall, New Zealand businesses spent just over $1.7 billion on product development and related activities over the last two years. This equates to 0.3 percent of businesses' total expenditure. Expenditure levels increase with business size, as larger businesses have more capacity and funding for product development. The industries that spent the most in 2011 were: manufacturing ($502 million) professional, scientific, and technical services ($452 million) retail trade ($250 million) computer systems design ($250 million). These figures depend on the number of businesses in each industry, as industries with more businesses can spend more money collectively than smaller industries with fewer businesses. Therefore, spending per business is of interest. The industries with the highest expenditure per business were: mining ($233,000) professional, scientific, and technical services ($132,000) information media and telecommunications ($101,000) financial, and insurance services ($94,000). Expenditure on product development for the sub-industries is in table 18 in the Excel workbook. 20

28 Figure Average product development expenditure per business, by industry Product development expenditure per employee Half the businesses that invested in product development or related activities spent less than $1,000 per employee. The overall average spend per employee was $1,483 which is less than the average spend on depreciation ($18,569), and interest and donations ($39,705) per employee (Statistics New Zealand, 2011). Most product development expenditure is on R&D Data collected on product development and related expenditure covers R&D, design, marketing, and other activities such as prototyping, trials, or commercialisation. Innovating businesses spent the highest proportion (52 percent) of their total product development expenditure on R&D. Nine percent of total product development expenditure was on design. Small businesses allocated 11 percent of their product development expenditure to design, while large businesses allocated only 6 percent. The rest of the expenditure was spread across marketing, and other product development and related activities. These two categories can be difficult to obtain accurate results from, as respondents may not fully understand what expenditure fits into these categories. Change to 2011 questionnaire To improve understanding of definitions, we changed the questionnaire in Although the 2011 figures differ from the 2009 figures, they are of higher quality than previous years. Accurately measuring innovation expenditure continues to be a challenge, not only for Statistics New Zealand, but also for other OECD countries. Details of the questionnaire change in 2011 are in chapter 14, under 'Consistency with other time periods'. 21

29 9 Business size affects product development spending level This chapter explores how business size affects product development expenditure. Larger businesses are small in number, but contributed the most to product development expenditure, total expenditure, and employment. Businesses spending more than 1 percent of their expenditure on product development (high intensity) tended to be smaller businesses. Please see detailed tables in the Excel workbook, available from the 'available files' section, alongside this chapter. Size affects product development expenditure To give these results context in the New Zealand economy, we need to consider dimensions of scale. Only 4 percent of businesses in the survey had 100+ employees, while 74 percent had 6 19 employees. However, in terms of economic impact, a different picture emerges. The 4 percent in the largest business-size group accounted for 50 percent of all employees and 39 percent of all product development expenditure. We need to know the innovation practices of all the business-size groups to gain an accurate picture of the effect of innovation spending on New Zealand's economy. Figure Businesses, employees, and product development expenditure, by business size, 22

30 Product development expenditure can be high or low intensity Businesses that invest in product development have their expenditure categorised into high and low intensity. High-intensity businesses spent more than 1 percent of their total expenditure on product development, and low-intensity businesses spent less than 1 percent. Total expenditure was sourced from goods and services tax (GST) data. (See chapter 15, 'Other data sources', for more information.) The type of product development differed slightly between high- and low-intensity businesses. For example, 12 percent of product development expenditure by highintensity businesses was on marketing. For low-intensity businesses, 24 percent of product development expenditure was on marketing. However, this could be a characteristic of the activity, rather than of the business. High-intensity businesses tended to be smaller in terms of income, expenditure, and employee size than low-intensity businesses. Therefore, smaller businesses invest a higher proportion of their overall expenditure on product development. 23

31 10 Different perspectives on barriers to innovation Many factors can limit innovation activity, or stop businesses from innovating at all. This chapter looks at factors that businesses cited as hampering innovation in 2011, and explores the differences in these factors by business size and industry. The biggest barrier to innovation was the cost to develop or introduce innovations. Barriers differed between industries. Innovators and non-innovators perceived different barriers. Please see detailed tables in the Excel workbook, available from the 'available files' section, alongside this chapter. Cost is key barrier to innovation The Business Operations Survey asked businesses to rate the degree to which specific factors hampered their ability to innovate. These obstacles or barriers may have been reasons for not starting innovation activity at all, or for restricting innovation activity. Figure shows that the cost to develop or introduce innovation was the most significant factor limiting businesses' ability to innovate (21 percent reported it hampered them to a high degree and 21 percent to a medium degree), followed by lack of management resources (14 percent to a high degree and 20 percent to a medium degree). Figure Barriers to innovation, last two financial years at August

32 Innovation in New Zealand Factors that businesses reported as not hampering their ability to innovate were access to intellectual property (82 percent said this was not a barrier) lack of cooperation with other businesses (73 percent) government regulation (68 percent) lack of information (63 percent). Results were similar in 2009 across most categories. Picture of barriers varies for different industries Some factors affected certain industries more than others. For example, government regulation hampered a high proportion of businesses in the education industry (23 percent), but a low proportion in the rental, hiring, and real estate services industry (2 percent); and the professional, scientific, and technical services industry (2 percent). This difference may be explained by government regulations affecting operations in some industries more than others. Other factors affected business sizes differently. For example, 15 percent of smaller businesses (6 49 employees) saw lack of management resources as hampering innovation to a high degree, compared with 9 percent of larger businesses (50+ employees). Innovators have different perception of barriers While many factors can limit a business's innovation, to get a more detailed picture of innovation we need to look at how these factors relate to each other. For 33 percent of all businesses, no factors hampered their ability to innovate. However, 50 percent of non-innovators had at least one barrier, compared with 86 percent of innovators. This suggests barriers to innovation were perceived differently. Businesses that innovated were aware of more barriers to innovation because they were involved in innovation. But businesses that did not innovate might not perceive the same factors as barriers since they were not innovating. Table Barriers to innovation Last financial year at August Barriers to innovation, last financial year at August 2011 Non-innovator Innovator All businesses No factors hampered the business At least one hampering factor All factors hampered: to a high degree to a medium degree to a low degree Mixture of hampering factors For more information on the businesses included, see chapter 14 'Information about the survey'. 2. Percentages are of businesses in each business type. Note: All counts (not percentages) in this survey w ere randomly rounded to base 3 to protect confidentiality, so actual figures may differ from those stated. Due to rounding, some figures may not sum to total. Source: Statistics New Zealand Business type (1) Percent (2) 25

33 11 Ideas for innovation come from many sources This chapter presents results about sources for the ideas or information that businesses found important for innovation in Existing staff were the most-common source of information that businesses used for innovation. Sources of information differ greatly between industries. Most businesses use a wide mixture of internal and external sources. Please see detailed tables in the Excel workbook, available from the 'available files' section, alongside this chapter. Most ideas and information come from existing staff The most important sources of information for innovating businesses were: existing staff (70 percent) customers (56 percent) new staff (48 percent). Sources can be either internal or external to the business. Existing staff and new staff are internal sources of knowledge that businesses may have easy access to. External sources such as universities or polytechnics provide research and technical knowledge. Less than 10 percent of businesses rated universities, polytechnics, Crown research institutes (CRIs), other research institutes, or research associations as important sources of information. Businesses can use these sources to generate funds for R&D, a major component of innovation, as well. Results from the 2010 R&D Survey showed that 77 percent of R&D funding came from within the business, 8 percent came from the New Zealand Government, and 8 percent came from overseas sources. Therefore, the majority of ideas and funds came from internal sources. Government ranked higher as a funding source for R&D, than as a source of ideas or information for innovation. Over 80 percent of businesses used more than one information source. Thirteen percent used external sources only, while 6 percent used internal sources only. The wide-ranging search for information could be due either to businesses not finding the information they want in one place, or their willingness to explore all avenues to get the most comprehensive information available. 26

34 Figure Sources of information, last financial year at August 2009 and 2011 Important sources vary for different industries The finance and insurance industry had the highest proportion (82 percent) of businesses that reported existing staff were a source of information or ideas; the 'other services' (such as repair and maintenance, personal care, or religious services) industry had the lowest proportion (60 percent). The education and training industry had the highest proportion (70 percent) of businesses reporting customers were a source of information or ideas. This industry also had 70 percent of businesses reporting new staff were a source. Universities or polytechnics were most-often used by the education and training industry (36 percent), and least-often used by the mining industry (0 percent). CRIs were used by the agriculture, forestry, and fishing industry most often (28 percent), and least often by the retail trade and the construction industries (both 1 percent). The different use of CRIs relates to many CRIs having a specific industry focus. 27

35 12 Access to new markets drives cooperation Businesses can cooperate on innovation with many different kinds of partners. This chapter explores the types of cooperative arrangements businesses had for innovation in 2011 and the reasons for engaging with partners. Most cooperative arrangements were with suppliers located in New Zealand. The most-common reason for a cooperative arrangement was to access new markets. Please see detailed tables in the Excel workbook, available from the 'available files' section, alongside this chapter. Most cooperation is with New Zealand suppliers In the Business Operations Survey, a cooperative arrangement is defined as participating with another organisation or individual in activities for the purpose of innovation. Most cooperative arrangements were with partners located within New Zealand (see figure 12.01). Of innovating businesses, 14 percent had cooperative arrangements with suppliers and 12 percent had them with customers. Eight percent of innovating businesses cooperated with businesses in the same business group (subsidiaries or parent companies). Seven percent of innovators had overseas cooperative arrangements. Results for cooperation with overseas partners in 2011 were similar to those in Figure Cooperative arrangements, for innovating businesses 28

36 Sharing costs and access to new markets are key drivers of cooperation The most-common reason for innovating businesses engaging in cooperative arrangements was to share costs (38 percent), as shown in figure Other significant reasons included gaining access new markets (37 percent), and access to management skills or work practices (both 35 percent). The 2011 results for cooperative arrangements changed slightly from the 2009 results. 'Access to management skills' was a reason for cooperation for 35 percent of innovating businesses with cooperative arrangements in 2011, compared with 29 percent in The changing environment (such as a tight labour market) that businesses were operating in 2011 could explain this difference. Figure Reasons for cooperative arrangements, last two financial years at August 2011 Marketing or distribution is most-common cooperative activity Businesses carry out different activities when cooperating for the purpose of innovation. The most-common joint activities of innovating businesses were: marketing or distribution (48 percent) training (40 percent) R&D (30 percent) prototype development (23 percent). The rental, hiring and real estate industry had the highest rate of joint marketing or distribution activities, with 82 percent of innovating businesses reporting this. 29

37 13 Strong links between innovation and international engagement This chapter explores the relationships between innovation and international engagement. Twice as many innovators as non-innovators engaged internationally. Innovators had different types of international engagement. Innovation is a way for businesses to increase their ability to engage internationally. Also, operating in larger overseas markets with more competition may stimulate businesses to be more innovative. In the 2011 Business Operations Survey, we included a module on businesses' international engagement alongside the module on innovation. Please see detailed tables in the Excel workbook, available from the 'available files' section, alongside this chapter. Innovators more internationally engaged A business engaging internationally did at least one of the following: received income from overseas in the last financial year purchased goods or services from overseas produced goods or services overseas. Of all innovating businesses, 51 percent engaged internationally in 2011, compared with 27 percent of non-innovators. This indicates that innovators are more likely to be international engagers. Overall, 38 percent of all New Zealand businesses engaged internationally in For each type of international engagement, at least twice as many innovators as noninnovators carried out each activity (see table 13.01). Table Innovation and international engagement Last two financial years at August Innovation and international engagement, last two financial years at August 2011 Business type Number of businesses (1) International engagement International engagement type Current overseas Produce overseas income Percent (2) Purchase overseas Innovator 16, Non-innovator 19, Overall 35, For more information on the businesses included, see chapter 14 'Information about the survey'. 2. Percentages are of all New Zealand businesses in each business type. Note: All counts (not percentages) in this survey w ere randomly rounded to base 3 to protect confidentiality, so actual figures may differ from those stated. Source: Statistics New Zealand Among innovators in the wholesale trade industry, 90 percent engaged internationally, the highest proportion of any industry. Among non-innovators in the wholesale trade 30

38 industry, 69 percent engaged internationally, again the highest proportion. From this, it is clear that the wholesale trade industry has the greatest international engagement of any industry. This reflects the fact that businesses often import or export goods through a wholesaler. The information and communications technology industry was the industry in which being an innovator or not had the greatest effect 75 percent of innovators engaged internationally in 2011 compared with 43 percent of non-innovators. Mixed picture for types of international engagement Innovators and non-innovators showed only small differences in the source of their overseas income. For example, 43 percent of innovators with overseas income in 2011 gained this income from the sale of goods for use by other businesses, compared with 34 percent of non-innovators. Innovators and non-innovators showed more significant differences for their overseas purchases. Of innovators, 23 percent purchased finished goods for resale in New Zealand, compared with 11 percent of non-innovators. Innovators also purchased more services, raw materials, and licences from overseas than non-innovators, indicating an overall higher level of purchasing from abroad. Figure Overseas purchases, last financial year at August 2007 and 2011 Similar barriers to international engagement Businesses that engaged internationally and those that did not had similar barriers to innovation. For example, 29 percent of innovators that engaged internationally reported the cost to develop or introduce innovation highly limited their innovating. Twenty-nine percent of innovators who did not engage internationally also reported this factor. This indicates that being internationally engaged has little effect on the barriers to innovation. 31

39 14 Information about the survey This chapter backgrounds the structure of the Business Operations Survey and its design, and covers data quality information for the survey results. Background to the Business Operations Survey The New Zealand Government has a range of initiatives aimed at increasing New Zealand's economic growth rate, and sustaining this higher growth over many years. For New Zealand s economic performance to be measured against these initiatives, we need to collect a wide range of data on a variety of measures. Because of the range of data needed, Statistics New Zealand developed an integrated, modular survey the Business Operations Survey (BOS). The survey's design allows us to collect the required information while minimising the reporting load for New Zealand businesses. BOS includes several modules and has run annually since 2005.The yearly structure of the survey is shown in table Table Business Operations Survey module structure Business Operations Survey module structure Year Module content Module A Module B Module C Module D 2005 Business operations Innovation Business practices 2006 Business operations ICT Employment practices 2007 Business operations Innovation International engagement 2008 Business operations ICT Business strategy and skills 2009 Business operations Innovation Business practices 2010 Business operations ICT Price and w age setting Financing 2011 Business operations Innovation International engagement Note: ICT is information and communication technology Symbol: not applicable The survey's main objective is to collect information on the operations of New Zealand businesses, in order to quantify business behaviour, capacity, and performance. In addition, each module in the survey has its own specific objectives. The modules included in 2011 BOS and their objectives are listed below. Module A: Business operations Module A provides a longitudinal series of information relating to business performance. This helps to develop models aimed at investigating causal relationships. As well as traditional measures of performance, such as turnover and profitability, we also need to collect information on areas such as export intensity. By collecting business environmental information, analysis of any relationships between the environment in which a business operates and the results it achieves can be performed. 32

40 Module B: Innovation The objectives of module B are to: provide information on the innovation characteristics of New Zealand private sector businesses which contributes to policy development to aid innovation understand the dynamics of innovative businesses. The innovation module runs every two years. It replaced Statistics NZ s Innovation Survey, which last ran in The innovation module was designed to fit with OECD guidelines. It develops understanding of innovation's contribution to the New Zealand economy by measuring the following aspects: levels of business innovation how and why businesses collaborate with other businesses and institutions in order to innovate factors affecting a business's ability to innovate outcomes of innovation for businesses, including the effect on exports. Module C: International engagement Module C covers the characteristics and strategies New Zealand businesses use for international engagement. Data was collectively previously in The 2011 results cannot be compared with the results in the International Engagement by New Zealand Businesses report (2009) due to the change to the Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06). The objectives of the international engagement module extend those of BOS overall. The module collects information on practices and behaviours associated with either current, past, or future international engagement that may have a positive or negative impact on a business's performance. This module has topics that measure: current overseas income previous overseas income future generation of overseas income overseas goods and services production purchases from overseas. The Business Operations Survey 2011 questionnaire is available on our website ( Consistency with other time periods Module B: Innovation The product development expenditure question was modified in 2011 to make it clearer that only expenditure on product development should be included. The question asks respondents "For the last financial year, please estimate this business s combined expenditure on product development and related activities". The expenditure is broken down into these categories: research and development design marketing and market research 33

41 other expenditure. The Business Operations Survey 2011 questionnaire is available on our website ( The words "(for product development)" were added to the marketing and market research category in There was a significant drop in expenditure in this category in 2011, and in the overall expenditure on product development and related activities. We contacted some respondents to verify what their figures for both years included. We found that in 2009, most respondents were recording their full expenditure on marketing and market research. In 2011, they only recorded their product development expenditure on marketing and market research. This means the 2009 and 2011 figures are not comparable. We estimate that if the questionnaire wording was the same in 2009 and 2011, expenditure on marketing and market research would be at a similar level in both years. Therefore, the estimated total expenditure on product development and related activities in 2009 would be approximately $1.8 billion. This is considerably lower than the figure of $2.3 billion for 2009 reported in table 34 of the 2011 detailed tables. Module C: International engagement The international engagement module for 2011 differs slightly from the international engagement module in 2007, in order to obtain more relevant information. However, for the majority of variables, the 2011 results can be directly compared with the 2007 results (see tables accompanying this release). Both sets of data are presented using ANZSIC06. Industry classification change From 2008, the design of the survey was updated to ANZSIC06. See the technical notes of the Business Operations Survey: 2008 for more information about this classification change. Target population The target population for the 2011 BOS was live enterprise units on Statistics NZ s Business Frame that, at the population selection date: were economically significant enterprises (had an annual GST turnover figure greater than $30,000) had six or more employees had been operating for one or more years were classified to the ANZSIC06 codes listed as in scope in List 1 (see below) were private enterprises as defined by New Zealand Institutional Sector 1996 Classification (NZISC96) (see List 2: NZISC96 codes ). An enterprise is defined as a business or service entity operating in New Zealand, such as a company, partnership, trust, government department or agency, state-owned enterprise, university, or self-employed individual. The final estimated population size for the 2011 survey was 35,499 enterprises. List 1: ANZSIC06 codes In scope ANZSIC06 code description A Agriculture, forestry, and fishing 34

42 B Mining and quarrying C Manufacturing D Electricity, gas, water, and waste services E Construction F Wholesale trade G Retail trade H Accommodation, cafes, and restaurants I Transport and storage J Information media and telecommunications K Financial and insurance services L Rental, hiring, and real estate services M Professional, scientific, and technical services N Administrative and support services P Education and training Q Health care and social assistance R91 Sport and recreation activities R92 Gambling activities S94 Repair and maintenance. Out of scope O Public administration and safety R89 Heritage activities R90 Creative and performing arts activities S95 Personal and other services S96 Private household employing staff and undifferentiated goods and service producing activities of households for own use List 2: NZISC96 codes In scope NZISC96 code description 1111 Private corporate producer enterprises 1121 Private non-corporate producer enterprises 1211 Producer boards 1311 Central government enterprises 2211 Private registered banks 35

43 2221 Private other broad money (M3) depository organisations 2291 Private other depository organisations nec 2311 Private other financial organisations excluding insurance and pension funds 2411 Private insurance and pension funds. Out of scope 1321 Local government enterprises 21 Central bank 2212, 2213, 2222, 2223, 2292, 2293, 2312, 2313, 2412, 2413 Central and local government financial intermediaries 3 General government 4 Private non-profit organisations serving households 5 Households 6 Rest of world Sample design The sample design was a two-level stratification according to ANZSIC06 industry and employment size groups. This information was obtained using enterprise ANZSIC industry and employment information from Statistics NZ's Business Frame. The first level of stratification was 36 ANZSIC06 groupings. Within each of the groups there is a further stratification by employment size groups. The four employment size groups used in the sample design are: 6 19 employees (small) employees (medium 1) employees (medium 2) 50 or more employees (large). The two medium groups were amalgamated, and the large group was further broken down for this report, as these businesses were of particular interest for some results. The survey was designed to produce aggregate statistics at a national level it does not allow statistics to be produced at a regional level. Measurement errors The BOS 2011 results are subject to measurement errors, including both non-sample and sample errors. We advise users to consider these errors when analysing the survey results. Non-sample errors Non-sample errors include mistakes respondents make when completing questionnaires, variation in the way respondents interpret the questions, and errors made during data processing. In addition, the survey applied imputation methodologies to cope with nonrespondents. Although we adopt procedures to minimise these types of error, they may still occur and are not quantifiable. 36

44 Given the nature of the data collected, the level of accuracy the survey can give has limitations. Many respondents do not keep separate accounts of their innovation expenditure, or their records may not be kept in the form the survey needs and estimation may be required. Even though the questionnaire had detailed descriptions of what should and should not be included as innovation, respondents may have interpreted what constitutes innovation, and the nature of any cooperative arrangements with other businesses involved in the innovation process, differently. Sample errors The estimates in this report are based on a sample of businesses. While this sample was chosen to be representative of the overall business population, we may have obtained somewhat different figures if a complete census of the entire business population had been taken using the same questionnaire and processing methods. Because the estimates are based on a sample of businesses, all estimates have a sampling error associated with them. The variability of a survey estimate, due to the random nature of the sample selection process, is measured by its sampling errors. Most of the tables are percentages of the total number of businesses in New Zealand in each size and industry category. Table shows the absolute sampling errors for the business population. Use these errors as a guide for judging the reliability of figures contained in the Excel tables that accompany this report (for overall estimates that are percentages of the different types of businesses mentioned in the table below only). Table Sample errors for Business Operations Survey Sample errors for Business Operations Survey 2011 Size of estimate (percentage) Sub-population (eg denominator of table) Sampling error All businesses Innovators Current overseas income No current overseas income Table presents the sample errors for the different size and industry groups in the survey. Use this table on the overall estimates that are percentages of all New Zealand businesses only. Table should not be used on the following tables: Table 8: Summary of innovation development Table 11: Innovation activity across time Table 15: Business performance indicators Table 19: Product development and related activities expenditure against performance Table 20: Product development and related activities expenditure per employee Table 21: Product development and related activities expenditure by type of innovation Table 22: Intensity of product development and related activities expenditure Table 23: Innovation intensity Table 32: Reasons for cooperative arrangements Table 33: Innovation-related cooperation activities 37

45 Table 34: Innovating businesses with international engagement Table 35: Non-innovating businesses with international engagement Table 36: Innovation and international engagement Table 39: Sales from product innovations Table 42: New-to-market product innovations Table 43: Operational process innovations required because of new goods or service 38

46 Table Business Operations Survey 2011 sample errors by size and industry Business Operations Survey 2011 sample errors by size and industry Business size or industry category Estimate size (percent) Sampling error Business size 6 19 employees employees employees employees Industry Agriculture, forestry, & fishing Agriculture Commercial fishing Forestry and logging Agriculture, forestry, and fishing support services Mining Manufacturing Food, beverage, & tobacco Textile, clothing, footw ear, & leather Wood & paper product Printing, publishing, & recorded media Petroleum, coal, chemical, & associated product Non-metallic mineral product Metal product Transport & industrial machinery & equipment Other machinery & equipment Other manufacturing Electricity, gas, w ater, & w aste services Construction Wholesale trade Machinery & equipment w holesaling Other w holesale trade Retail trade Accommodation & food services Transport, postal, & w arehousing Information media & telecommunications Publishing Motion picture Telecommunications Financial & insurance services Finance Insurance Auxiliary Rental, hiring, & real estate services Professional, scientific, & technical services Computer systems design Other professional scientific Administrative & support services Education & training Health care & social assistance Arts & recreation services Other services Overall The sampling errors provided in tables and are measured at the 95 percent confidence level. 39

47 Examples of how to use sample errors An estimated 46 percent of businesses had innovation activity in This estimate is subject to a relative sampling error of approximately plus or minus 2.2. This means that 95 percent of the possible samples of the same size will produce an estimate between: and , that is, between 43.8 and An estimated 44 percent of businesses in the agriculture, forestry, and fishing industry had innovation activity in This estimate is subject to a relative sampling error of approximately plus or minus 2.9. This means that 95 percent of the possible samples of the same size will produce an estimate between: and , that is, between 41.1 and The sampling errors in table only show the sample errors for some estimates. This is because sample errors for estimates higher than 50 percent mirror those below 50 percent. For example, an estimate of 30 percent of businesses will have the same sample error as an estimate of 70 percent. Sampling errors vary from estimate to estimate, and with population breakdown and size. We can provide similar tables of sampling errors at a size and industry level for specific variables on request. Response rate The BOS 2011 had an 80 percent response rate target. The survey achieved an actual response rate of 81.1 percent, which represented 5,352 businesses. Non-response and imputation Unit non-responses Unit (or complete) non-response occurs when units in the sample do not return the questionnaire. Non-response is accounted for by adjusting the weights of the responding units. Item non-responses Item (or partial) non-response is when units return the questionnaire, but some questions are not answered. Here, we carried out imputation on the unanswered questions, but not if the respondent answered less than 60 percent of the questionnaire. Imputation cells and merging We assigned units to imputation cells for calculating and assigning imputation factors. Imputation cells were based on industry and rolling mean employment. If an imputation cell did not have enough respondents within the cell, then it was merged before imputation, following a list of merging preferences until we achieved a sufficient number of responses. Imputation of numeric variables The imputation methods used were weighted mean imputation and donor imputation. Using the weighted mean method, we calculated a weighted mean from linked responding units for each numeric line code within each imputation cell. Non-responding units were then imputed with the weighted mean for their imputation cell. We used weighted mean imputation to impute totals. Donor imputation randomly selected a donor from within each imputation cell. The nonrespondent was then imputed with the value(s) from the donor. We used donor 40

48 imputation to impute components and percentages so that the distribution was maintained. Imputation of categoric questions For categoric imputation, the method used was nearest neighbour imputation, which involved finding a donor with the most similar responses across all categoric variables. Unlinking Influential responses were excluded from the imputation factor calculations for numeric variables. We used three kinds of unlinking: automatic exclusion due to logic; that is, unit was non-response (unit or item), specially treated or not required to answer that question automatic unlinking due to influence; that is, units with undesirable influence on imputation factor calculations for a variable were automatically detected and unlinked for that variable (with the ability to manually decline this). The checks were carried out at the imputation cell level or merged imputation cell level and were done separately for each variable manual unlinking due to influence; that is, additional units with undesirable influence on imputation factor calculations that were not automatically detected could be unlinked. Special treatment We identified special treatment candidates as outliers. If a unit was specially treated then its final weight was set to 1 and it was unlinked for all imputation factor calculations. If a unit was not specially treated then its final weight was its adjusted weight. 41

49 15 Other data sources This chapter outlines data sources that supplemented the Business Operations Survey (BOS) for us to compile the results in this report. Income and expenditure data We used the Statistics NZ prototype Longitudinal Business Database (LBD) to source data on income and expenditure for businesses in BOS. The LBD includes administrative data sourced from Inland Revenue, sample surveys administered by Statistics NZ, and comprehensive merchandise trade data from the New Zealand Customs Service, linked to a frame of all New Zealand businesses. Businesses provide goods and services tax (GST) information to Inland Revenue on the GST 101 form. We also used other GST-related information compiled internally by Inland Revenue and data from the client registration tables. Some activities are exempt from GST, so are not included in these figures. The exemptions include: financial services donated goods and services sold by non-profit bodies renting a residential dwelling supply of fine metal. Gross domestic product data We sourced gross domestic product (GDP) data from Statistics NZ's National Accounts data series. This data series provides annual information on economic activities such as the production of goods and services and the costs involved in producing them, the incomes earned by various groups within the economy and what they do with them, and the economic relationship with the rest of the world. Statistics NZ also releases quarterly data for GDP. GDP is a measure of the value added from all economic activity in New Zealand. Research and development data We sourced data on other aspects of research and development (R&D)from Statistics NZ's R&D Survey. The data measures the level of R&D activity in New Zealand, and employment and expenditure on R&D by private sector enterprises, government departments, government-owned trading entities, and universities. Innovation data Most OECD countries have data on their innovation activities. Most European countries use similar questionnaires (Community Innovation Survey/CIS) and similar definitions of innovation. However, results are sometimes published using different time periods, definitions, and methodologies. Readers can find information on the technical aspects of the results on each country's national statistical office website. 42

50 Definitions The Business Operation Survey (BOS) was designed to collect data in accordance with the following definitions and terminology. ANZSIC 2006 Australian and New Zealand Standard Industrial Classification System New Zealand Version Applied research Applied research covers: new work undertaken to acquire knowledge for a specific practical aim work to determine possible uses of basic research work to determine new ways of achieving a predetermined objective. Basic research Basic research pursues a planned search for knowledge with either a broad underpinning reference, or no reference to a likely application. Business Frame A register of all businesses operating in New Zealand. Employees The number of employees is defined by an enterprise's rolling mean employment (RME) count. RME is a 12-month moving average of the monthly employment count (EC) figure. The EC is obtained from taxation data. Enterprise An enterprise is a business or service entity operating in New Zealand. It can be a company, partnership, trust, estate, incorporated society, producer board, local or central government organisation, voluntary organisation, or self-employed individual. Experimental development Systematic work undertaken using existing knowledge for the purpose of creating new or improved materials, products, processes and / or services. Goods and services tax (GST) In BOS, respondents are asked, if possible, to exclude GST in the financial figures provided in the questionnaire. If they did not, we take out GST so enterprises are comparable. Innovation definitions The innovation module of BOS is designed to collect innovation data in accordance with the definitions in the Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data (2005). The manual is available from The following definitions relate specifically to the innovation module. Innovation Innovation is broadly defined in BOS. It includes developing or introducing any new or significantly improved activity for the business. This includes products, processes, and 43

51 methods that the business was the first to develop, and those adopted from other organisations. For BOS 2011, innovation is defined as the development or introduction of new or significantly improved: goods or services this does not include selling new goods or services wholly produced and developed by other businesses operational processes methods of producing or distributing goods or services organisational/managerial processes significant changes in the business s strategies, structures, or routines marketing methods this includes sales and marketing methods intended to increase the appeal of goods or services for specific market segments, or to gain entry to new markets. Cooperative arrangement A cooperative arrangement is one in which there is active participation with another organisation or individual for the purpose of innovation. Each party should bring exclusive knowledge or expertise to the cooperation. Partners do not necessarily gain immediate commercial benefit from the cooperation. A cooperative arrangement does not include contracting-out work, where there is no active cooperation. Internal sources of information Innovative ideas may come from these internal sources: new staff existing staff other businesses within the business group. External sources of information Innovative ideas may come from these external sources: customers suppliers competitors and other businesses from the same industry businesses from other industries professional advisors, consultants, banks, or accountants books, journals, patent disclosures, or internet conferences, trade shows or exhibitions industry or employer organisations universities or polytechnics Crown research institutes, other research institutes, or research associations government agencies. International engagement International engagement can be one or more of the following types: Current overseas income Businesses that had income from overseas in the last financial year. 44

52 Internationally engaged Businesses that had some form of engagement with overseas countries. This engagement includes at least one of the following: generating overseas income producing goods or services overseas purchasing goods or services overseas. No current overseas income Businesses that had not generated income from overseas in the last financial year. They may have had overseas income in previous years, or may never have had overseas income. No overseas income Businesses that have never had income from overseas sources. Overseas income Income from: overseas sales of goods or services ownership of overseas assets (eg foreign direct investment) fees and royalties from licensing and franchising significant income from overseas residents visiting or studying in New Zealand (eg tourism and education). Previous overseas income Businesses that had no income from overseas in the last financial year, but had in previous years Last financial year The last financial year for which the business had results available, at August 2011, as entered on the questionnaire. Product development expenditure Product development expenditure is used as a measure of innovation expenditure. It includes expenditure on product development and related activities of research and development; design; marketing and market research; or other activities. Research and development Research and development covers any activity characterised by originality. It should have investigation as its primary objective, and has an outcome of gaining new knowledge, new or improved materials, products, services, or processes. Buying technical knowledge or information from abroad is included. Market research, efficiency studies, and style changes to existing products are not included. 45

53 References Australian Bureau of Statistics (2010). Innovation in Australian business, Canberra: Author. Available from Australian Bureau of Statistics (2011). Summary of IT use and innovation in Australian businesses, Canberra: Author. Available from Organisation for Economic Co-operation and Development (2005). Oslo Manual: Guidelines for collecting and interpreting innovation data (3rd ed). Paris: Author. Available from Statistics New Zealand (2009a). Innovation in New Zealand: Wellington: Author. Available from Statistics New Zealand (2009b). International engagement by New Zealand businesses: Key results from the Business Operations Survey Wellington: Author. Available from Statistics New Zealand (2011). Annual Enterprise Survey: 2010 financial year. Wellington: Author. Available from Statistics New Zealand (2012). National Accounts: Year ended March Wellington: Author. Available from 46

54 Appendix: Detailed Excel tables The following tables detail all the results mentioned in Innovation in New Zealand: Most tables are broken down by business size and industry. They are available on the Innovation in New Zealand: 2011 web page, from the 'Available files' section. Table 1 Business activities, last financial year at August 2007 to 2011 Table 2 Innovation rate, last two financial years at August 2009 and 2011 Table 3 Innovation in New Zealand, last two financial years at August 2005, 2007, 2009, and 2011 Table 4 Innovation activity, last two financial years at August 2009 and 2011 Table 5 Rates of innovation activity, for selected countries Table 6 Rates of innovation activity, by selected countries and reference year Table 7 New Zealand and Australian innovation characteristics, last two financial years at August Table 8 Summary of innovation development, by type of innovation Table 9 Development of innovations, last two financial years at August 2009 and 2011 Table 10 Innovation rate and gross domestic product (GDP), last two financial years at August 2007, 2009, and 2011 Table 11 Innovation activity across time, last two financial years at August 2009 and 2011 Table 12 Businesses with R&D or innovation activity, at August 2009 and 2011 Table 13 Growth activities, last financial year at August 2007 or 2009, and 2011 Table 14 Qualitative performance measures, last financial year at August 2009 and 2011 Table 15 Business performance indicators, last financial year at August 2009 and 2011 Table 16 Profitability of innovators and non-innovators, last financial year at August 2009 and 2011 Table 17 Quantitative measures, last financial year at August 2007, 2009, and 2011 Table 18 Product development and related activities expenditure and total employees, last financial year at August 2009 and 2011 Table 19 Product development and related activities expenditure against performance, last financial year at August 2009 and 2011 Table 20 Product development and related activities expenditure per employee, last financial year at August 2009 and 2011 Table 21 Product development and related activities expenditure by type of innovation, last financial year at August 2009 and 2011 Table 22 Intensity of product development and related activities expenditure, last financial year at August 2009 and

55 Table 23 Innovation intensity, last financial year at August 2009 and 2011 Table 24 Barriers to innovation, last two financial years at August 2009 and 2011 Table 25 Barriers that hampered innovation to a high degree, last two financial years at August 2009 and 2011 Table 26 Factors hampering innovation, last two financial years at August 2011 Table 27 Source of ideas or information for innovation, last two financial years at August 2009 and 2011 Table 28 Summary of source of ideas or information for innovation, last two financial years at August 2009 and 2011 Table 29 Number of sources of ideas or information for innovation, last two financial years at August 2009 and 2011 Table 30 Combined sources of ideas or information for innovation, last two financial years at August 2009 and 2011 Table 31 Cooperative arrangements for innovation, by partner and location Table 32 Reasons for cooperative arrangements, last two financial years at August 2009 and 2011 Table 33 Innovation-related cooperation activities, last two financial years at August 2009 and 2011 Table 34 Innovating businesses with international engagement, last two financial years at August 2007 and 2011 Table 35 Non-innovating businesses with international engagement, last two financial years at August 2007 and 2011 Table 36 Innovation and international engagement, last three financial years at August 2007 and 2011 Table 37 Summary of reasons for innovating, last two financial years at August 2009 and 2011 Table 38 Reasons for innovating, last two financial years at August 2009 and 2011 Table 39 Sales from product innovations, last financial year at August 2009 and 2011 Table 40 Methods used to protect intellectual property, at August 2009 and 2011 Table 41 Activities to support innovation, last two financial years at August 2009 and 2011 Table 42 New-to-market product innovations, last two financial years at August 2009 and 2011 Table 43 Operational process innovations required because of new goods or services, last two financial years at August 2009 and 2011 The Business Operations Survey 2011 questionnaire is available on our website ( 48