A composite indicator of a firm's innovativeness. An empirical analysis based on survey data for Swiss manufacturing

Most empirical studies on innovative activity are based on a single (or a very small number of) indicator(s), a procedure not appropriate in view of the complexity of the innovation process. Therefore, in a perspective of ranking firms or industries according to their innovation intensity, we develop a composite measure of a firm's innovativeness by using factor analysis of a whole set of innovation variables. The resulting aggregate indicator is based on the extraction of two factors depicting the technical and the market dimension in the case of product innovations; for new production techniques, the two factors refer to the input and output side of the generation of innovations. The overall measure is superior to any single innovation variable as shown by canonical correlations which make use of an empirically validated model of innovation behaviour. The composite indicator yields economically plausible results at the firm (e.g. innovation patterns) and industry levels (e.g. sensible similarities and differences of ranking according to the aggregate measure and R&D intensity, respectively). Provided similar indicators and methods are used for several countries, a composite indicator may be useful for international comparisons.