Innovating against European rigidities: Institutional environment and dynamic capabilities

Bren School, University of California-Santa Barbara, 4670 Physical Sciences North, Santa Barbara, CA 93106-5131, USA
The Journal of High Technology Management Research 01/2002;

ABSTRACT European firms are confronted to the paradox of a strong R&D in many areas but a low level of innovation. Building on the dynamic capability approach, I propose an institutional approach where innovation is linked to cultural, organizational, and regulatory factors. These include managers' attitude toward risk and uncertainty, the ability to develop capabilities and access complementary assets, and a favorable regulatory environment. Using European microdata on how 6860 managers perceive factors hampering innovation, this paper shows that the risk-averse attitude of European firms and their difficulty to develop dynamic capabilities may explain the weakness of European innovation. Institutional factors such as pervasive rigidities and distortions that hamper the functioning of markets, may also prevent innovative responses. The use of manager's perceptions seems particularly well suited in the context of innovation where choices are taken with limited information. Conclusions drawn from this perspective call for policies that will take into account the system in which innovation can take place.

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