Innovation profiles of enterprises - statistics

Data extracted in January 2023

Planned article update: February 2025

Highlights

Around half of the persons employed in the business sector in the EU work in enterprises that have product innovations and develop them internally.

In the EU, innovative enterprises that have developed market novelties in-house account for more than a quarter of employment in the business sector.

In the EU, equity finance is comparatively often used by innovators that introduce novel products in the market, while debt financing is also wide-spread among innovation-active enterprises without market novelties.

Average number of employees by innovation profile: R&D vs. non-R&D performers, 2020
Source: Eurostat (inn_cis12_pf_bas)

Over the past few years Eurostat, in collaboration with the statistical offices of the EU Member States, has developed a new tool to report on innovation in European businesses: the 'Innovation Profiles'. This article explains the concepts and methodology of the 'Innovation Profiles' and presents results for the reference year 2020. In the future, Eurostat will report more detailed information on the 'Innovation Profiles', and more timely, i.e. together with the main indicators and detailed tables from the Community Innovation Survey (CIS).

Full article

General overview

Innovation in businesses is a complex process. It requires multiple capabilities and involves various activities that can result in several outcomes. The Community Innovation Survey (CIS) is the established tool for reporting on business innovation in Europe. It offers researchers a myriad of possibilities to classify enterprises in regard to their innovation - and indeed researchers have used CIS data in many ways, depending on the focus of the analysis. The CIS reports on innovation activities and shows if an enterprise has (its own substantial) innovation capabilities. It identifies 'implemented innovation' in an enterprise as well as the degree of novelty of an innovation. It reports on the presence and level of research and development (R&D) activities, the presence of ongoing or abandoned innovation efforts, and the innovative potential for companies that have not introduced innovations.

The review of the Oslo Manual (OM) 'Guidelines for collecting and using data on innovation' of 2018 has given rise to a review of the CIS 2018 (see the background article Community Innovation Survey). The review has improved the information balance between innovators and low- or non-innovators because most variables are available for all enterprises (>= 10 employees).

The data from the reviewed CIS can disentangle the complex mix of capabilities, activities and outcomes of business innovation. It is now possible to construct a non-overlapping classification of all enterprises, based on the established concepts of business innovation. The result: seven easy-to-understand 'innovation profiles' that account for all relevant aspects in parallel. They provide better information to analysts and policy-makers than one-dimensional standard indicators. 'Innovation profiles' is a new tool that will capture better the complete picture of innovation in European businesses.

Seven innovation profiles

Innovation profiling takes an intuitive, pragmatic and relevant approach in choosing a hierarchy. Seven basic innovation profiles have been developed around the lines of analysis shown below (Figure 1 presents a tabular representation of the innovation profiles). The CIS reports on the enterprise as the 'generator' of innovation (enterprise as the 'subject'), rather than on the innovation itself (resulting innovation as the 'object'). This logic is in line with policy purposes: the question is not "How many innovations were reported for a country and how successful were they?" The mere number of innovations is not a good indicator for a successful outcome innovation activity, and producing statistics on the success of all innovations in a country is not feasible^[1] Instead, the question is rather: "What do enterprises do to have innovation, what conditions do they face, which conditions are favourable for innovation, and what can be done to create favourable conditions and thereby increase the competitiveness of an economy?" This logic is, therefore, also the logic of the innovation profiling.

Figure 1: Combining the core CIS variables: Innovation Profiles
Source: Eurostat

Innovation profiling uses established concepts of measuring business innovation, and puts them into a hierarchy according to their inherent relevance for describing enterprises in view of their innovative behaviour.

1. At the very top level, the structure distinguishes enterprises with innovation activities from those without. The Oslo Manual defines innovation activities as 'all developmental, financial and commercial activities, undertaken by a firm, that are intended to result in an innovation'. Innovation activities are the starting point of a firm to engage in innovation. These activities characterise the enterprise that has introduced at least one type of innovation (product, business process) or has been involved in any ongoing or abandoned innovation activity.

2. At the second level, the structure distinguishes enterprises that have implemented an innovation during the reference period from those that have not. The implementation of an innovation is mostly the desired outcome of innovation activity, and it is therefore again intuitively logical to place it at the second level of the innovation profiling. The concept of 'implementation' is essential to the definition of innovation in the Oslo Manual. For business enterprises, it means that their product has been introduced in the market, or that a new business process has been brought into use by the firm.

3. The third level refers to the innovation capabilities of enterprises. The Oslo Manual dedicates great attention to the measurement on business capabilities for innovation because it is 'of critical importance for the analysis of the drivers and impacts of innovation (why some firms have innovation and others do not)'. The innovation profiling identifies innovators with their own substantial innovation capabilities. They develop their product or business process innovation themselves or together with other enterprises or organisations, or co-operate on any of their innovation activities with other enterprises or organisations.

4. The fourth level of analysis refers to the innovation itself. It is nested within the third level (innovation capabilities) as it allows the typologies of innovation introduced to be disentangled while accounting for the presence of substantial innovation capabilities. The profiles take the market view, and reply to the basic questions: did the enterprise have a product innovation not previously offered by competitors? If not: did the enterprise have any improvement of its assortment (only including identical or very similar products already offered by competitors)? If not: did the enterprise have any business process innovation (with a potential indirect effect on the market)?

5. At an alternative (parallel) fourth level, the structure distinguishes systematically R&D performance (R&D performers versus non-R&D performers) within the resulting innovation profiles. R&D activities represent an important input of innovation activities. Hence, their presence allows for better disentangling of the profiles of both enterprises that introduced product or business process innovations (Profiles I-IV), and those enterprises that worked on innovations but did not implement them (Profile V).

The resulting 'innovation profiles' are:

PROFILE I: In-house product innovators with market novelties.

This group includes all enterprises that introduced a product innovation that was developed by the enterprise and that was not previously offered by competitors ('new to the market'). Profile I comes closest to the intuitive idea of an 'innovator' by creating novel products and putting them on the market. They have innovation capability and use it in order to compete in the market with new products, or even by creating new markets.

PROFILE II: In-house product innovators without market novelties.

This group includes all enterprises that introduced a product innovation that was developed by the enterprise but that is identical or very similar to products already offered by competitors ('only new to the enterprise itself'). Profile II enterprises are actively trying to stay abreast with competitors by renewing and/or enlarging their firms' assortment.

PROFILE III: In-house business process innovators.

This group includes all enterprises that did not introduce a product innovation, but that did introduce a business process innovation that was developed by the enterprise. Enterprises with Profile III aim at getting more efficient. They actively work to become more competitive by introducing better business processes. The impact on the market of their innovation activity is indirect, e.g. by being able to offer lower prices or better non-monetary conditions to their customers, or by reaching new customers for their established products.

PROFILE IV: Innovators without their own substantial innovation capabilities.

This group includes all enterprises that introduced an innovation of any kind but did not develop it themselves. Enterprises with Profile IV are active in their markets (either by offering new products or introducing better business processes), but choose not to build up innovation capabilities themselves, but instead buy innovation from third parties.

PROFILE V: Non-innovators that worked on innovations but did not implement them.

This group includes all enterprises that have not introduced any innovation recently, but have either ongoing or abandoned innovation activities. Enterprises with Profile V have not introduced any innovation in the three years reference period, but they are not estranged to the idea of innovation either. They have worked on innovation but did not finish it or abandoned it during the past three years.

PROFILE VI: Non-innovators that tried to innovate but were impeded.

This group includes all enterprises that did not introduce any innovation, and had no ongoing or abandoned innovation activities, but that did consider to innovate. Enterprises with Profile VI have not introduced or worked on any innovation in the three years reference period, but they are not estranged to the idea of innovation either.

PROFILE VII: Non-innovators that did not try to innovate.

This group includes all other enterprises, those that neither introduced an innovation nor have any ongoing or abandoned innovation activities, nor considered to innovate. They prefer to just continue business as usual and can be said to have no inclination to engage in innovation activity.

Innovation profiles: size structure

The average size of the enterprises is 67 employees and varies substantially between the innovation profiles^[2] (Table 1a). In-house product innovators are far above the other profiles (131 employees combined average of Profile I and Profile II), while non-innovators are far below the average (40 employees). Innovators that do not develop innovations themselves (Profile IV) show an average size of 49 employees, while the remaining firms with innovation activities (Profiles III and V) do not differ significantly from the total average.

Differences also emerge among in-house innovators, with the in-house product innovators with market novelties (Profile I) showing an average size that is much higher than the in-house product innovators without market novelties (Profile II): 166 and 95 employees, respectively.

Table 1a: Average number of employees by size class and innovation profile, 2020
Source: Eurostat (inn_cis12_pf_bas)

Table 1b: Distribution of enterprises in each profile by size class, 2020, %
Source: Eurostat (inn_cis12_pf_bas)

Size variations among profiles are mainly concentrated in the largest enterprises (250 and more employees), representing 4 % of the reference total (Table 1b). Half of these large enterprises develop product innovation with internal capabilities (Profile I and II). Conversely, there are no significant size variations across the innovation profiles within the small enterprises (10 to 49 employees) representing the vast majority of the European businesses (79 % of the reference total, Table 1b). At the same time, variations by profile are slightly more pronounced among medium-sized enterprises with 50 to 249 employees, 18 % of the reference total.

Size differences are relevant between innovators with internal capacity (Profiles I to III) compared with all the other profiles that do not develop innovation internally or do not innovate. The large average size observed in the group of in-house product innovators with market novelties (Profile I) reflects the higher incidence of large enterprises endowed with such competencies. Table 1b shows that in this profile, the share of large enterprises with 250 and more employees is 6 pp higher than the total (10 % and 4 %, respectively).

Figure 2: Average number of employees by innovation profile: R&D vs. non-R&D performers, 2020
Source: Eurostat (inn_cis12_pf_bas)

Within each profile, being an R&D performer makes the difference in terms of size gaps within each profile (Figure 2). In the in-house product innovators with market novelties (Profile I), the size gap between R&D and non-R&D performers is noticeably higher than in the other profiles (206 versus 73 employees). Within the in-house product innovators without market novelties (Profile II), the difference in average size exists but is smaller (122 versus 67 employees).

Regarding employment, the size structure is quite diversified among the profiles (Figure 3). Enterprises that develop product innovation internally (Profiles I and II) have the largest share of total employment (47 %) ^[3]. Among them, in-house innovators with market novelties (Profile I) account for almost 28 % of employment. The share increases to 42 % in large firms (>=250 employees), dropping to 10 % in the smallest ones (10-49 employees). On the other side, in-house innovators without market novelties (Profile II) account for a lower share (19 %). In this case, differences between size classes are less pronounced, although large enterprises exhibit the largest share (22 %) compared with small and medium firms (13 % and 20 % respectively).

Figure 3: Distribution of employment by size class and innovation profile, 2020, %
Source: Eurostat (inn_cis12_pf_bas)

The share of employment in enterprises developing only business processes (Profile III) is much smaller (16 %). In the large firms the share is slightly lower than in the other size classes (2 pp below the overall average). Innovators that do not develop innovations themselves (Profile IV) show a reduced contribution to total employment (about 4 %), with a higher proportion in the medium and small enterprises (6 % in both classes). Similarly, the innovation-active non-innovators (Profile V) represent the 4 % of the total, without relevant differences between size classes. The group of enterprises that did not introduce innovation represents about 28 % in terms of employment. Among them, the non-innovators with the potential to innovate (Profile VI) account for 11 %, while the non-innovators without the disposition to innovate (Profile VII) account for an even higher share (18 %).

The geographical distribution of firm sales

Enterprises mainly sell their products in national markets. On average, 70 % of total turnover comes from sales to customers in the same country as the firm (Table 2).

Table 2: Sales to geographic markets by size class and innovation profile, 2020, %
Source: Eurostat (inn_cis12_pf_mrkt)

Among the foreign markets, the EU and EFTA countries represent nearly one-fifth of the total sales. The general pattern of prevalence of internal sales is confirmed in all the innovation profiles. However, in the group of in-house product innovators with market novelties (Profile I), a slightly higher share of sales in international markets is observed (42 %), mainly captured by large enterprises (250 and more employees). These results suggest that small and medium enterprises may not have adequate managerial competencies internally to face international markets, even when they have the technological competencies to develop new products.

The distribution of innovative sales by profiles

Firms benefit from innovation activity when they introduce new or improved products into the market. Innovative sales can derive from products not previously offered by competitors (new-to-market products) or products identical or very similar to those already provided (new-to-firm products).

Table 3: Turnover per employee by degree of novelty of product innovation, 2020
Source: Eurostat (inn_cis12_pf_bas) and (inn_cis12_pf_prodt)

New-to-market products can only be sold by enterprises in Profiles I and IV, following the definitions of the innovation profiles. The turnover per employee for in-house product innovators with market novelties (Profile I) is four times higher than that for innovators that do not develop innovations themselves (Profile IV) (see Table 3). Although sectoral differences in the relative proportion of labour (compared with capital) may affect the turnover per employee ratio, results indicate that, on average, enterprises with innovation capabilities are characterised by a higher ratio than those without internal capabilities.

Within Profile I, differences between size classes exist but are smaller than those in Profile IV. In this latter group, sales due to new-to-market products of the small enterprises (10-49 employees) are about three-quarters of those of the medium enterprises (50-249 employees). Furthermore, in large enterprises (250 and more employees), the turnover per employee ratio is, on average, two and a half times that of medium enterprises.

New-to-firm products can be sold only by firms in Profiles I, II, and IV. On average, the turnover ratio is higher than for new-to-market products, due to the higher ratio observed in the large enterprises in the Profile I, and regardless of the size class in the other two profiles. These sales are highest per person employed for in-house product innovators without market novelties (Profile II), without substantial variation between size classes, followed by in-house product innovators with market novelties (Profile I). However, this latter group of product innovators is heterogeneous, with large enterprises having a turnover ratio much higher than smaller enterprises and comparable to that of Profile II in the same size class. Conversely, small and medium enterprises within Profile I are in line with innovators that do not develop innovations themselves (Profile IV). In this latter group, sales intensity is half that observed in Profile II without relevant differences across size classes.

The acquisition of new technology by innovation profiles

The acquisition of new technology represents an important source of 'embodied knowledge' for innovation in the enterprises. Technological advances may be incorporated in new assets such as machinery, equipment or software purchased by the enterprise. Figure 4 shows for each of the innovation profiles the shares of enterprises that purchase new technology that was not used in the enterprise before.

Figure 4: Purchased new technology that was not used in the enterprises before by size class and innovation profile, 2020, %
Source: Eurostat (inn_cis12_pf_purmes) and (inn_cis12_pf_bas)

On average, only one-fifth of enterprises invested in new embodied technologies, with the propensity to invest increasing significantly with firm size. Larger enterprises are more than twice as likely as small businesses to invest (the shares are 41 % and 19 % respectively). The propensity gap is also high compared with medium-sized companies, whose share represents about one-quarter of the total number of enterprises.

Differences between innovation profiles are significant and mainly driven by the in-house capacity to innovate. The higher propensity to invest characterises the product innovators with in-house innovation activities, particularly those introducing product innovation with market novelties (Profile I). Here almost half of the enterprises purchased new technologies.

The non-innovative firms are much less likely to invest in 'embodied technology' than the average. This evidence is not surprising for those non-innovators without a disposition to innovate (Profile VII, 5 %) – and, to some extent, those that have never started an innovative project, although considered to innovate (Profile VI, 11 %). Conversely, the share of investing enterprises is higher than the total average for innovation-active enterprises that, for various reasons, had ongoing or abandoned innovation activities (Profile V, 25 %).

Equity and debt finance used for R&D and other innovation activities

Enterprises can use both internal and external sources to finance their innovation activity. The use of external financing may be costly, due to the intrinsic uncertainty characterising innovation. Therefore, innovation-active firms make extensive use of internal resources, typically retaining earnings.

Figure 5: Use of equity and debt finance by innovation profile, 2020, %
Source: Eurostat (inn_cis12_pf_bas) and (inn_cis12_pf_fin)

For each innovation profile, Figure 5 shows the use of the two broad types of external sources - debt and equity - to finance R&D and other innovation activities. Enterprises in the reference population make limited use of both kinds of external finance, counting more on internal resources.

Debt finance is, on average, the most used source: 6 % of enterprises draw on this funding compared with 1 % using equity financing. Both sources are used most by in-house product innovators with market novelties (Profile I), followed by the other innovation profiles, with higher prevalence within the innovation-active profiles. However, the pattern of usage is rather different between debt and equity finance. Equity finance is mainly reserved to product innovators (7 % in Profile I against 3 to 1 % in Profiles II to V). Instead, debt financing is more wide-spread among all the innovation-active profiles (from 18 % in Profile I to 8 % in Profile V). It is worth noting the relevance of debt financing for the in-house business process innovators without product innovation (Profile III). For this group of innovators, almost entirely represented by SME (96 % according to Table 1b), the share of debt financing is 4 pp higher than the total average.

The public financial support for R&D or other innovation activities

Governments have always had a central role in promoting business-sector innovation. Among the range of public support, financial support to business innovation can foster R&D or other innovation activities.

Figure 6: Receiving public financial support by size class and innovation profile: % share of total enterprises in each profile, 2020
Source: Eurostat (inn_cis12_pf_bas) and (inn_cis12_pf_pub)

According to the innovation profiling, almost three out of ten in-house product innovators with market novelties (Profile I) receive public financial support (Figure 6), followed by in-house product innovators without market novelties (Profile II) and innovation active non-innovators (Profile V) (22 % and 21 % respectively). Large enterprises are more likely to receive public financial support for R&D or other innovation activities, mainly related to the group of in-house product innovators with market novelties (Profile I), where four out of ten receive public support.

R&D performers are more likely to receive public financing (Figure 7), which suggests that a large share of public financing is focused on R&D activities.

Figure 7: Receiving public financial support by innovation profile: R&D vs. non-R&D performers, 2020, %
Source: Eurostat (inn_cis12_pf_bas) and (inn_cis12_pf_pub)

Final considerations and future outlook

Innovation profiling allows for a better knowledge of the 'innovation styles' at the enterprise level. Moving from a single variable to a multidimensional approach also responds to the need to leverage the information value of official business statistics without increasing the respondent burden. For each profile, it is possible to have insights on topics of high relevance for policy-making. The complete set of tables can be further explored in Eurostat's dissemination database, covering the importance of different business strategies, intellectual property protection, and innovation co-operation.

The data analysed in this article show that the capability to innovate is crucially related to firm size characteristics. Developing product innovation with market novelties is prevalent in large firms with internal competences. Also, firm size continues to be highly and positively correlated with the availability of those inputs – R&D investment and the acquisition of embodied technology – which are critical to successful innovation.

Innovation profiling also shows that the propensity to invest in new technologies is lower than the reference average not only in the medium-sized firms dealing with developing internally new products, but also for the large amount of innovation-active enterprises that, for various reasons, did not successfully innovate.

External financing plays a crucial role for enhancing investment conditions, but this is limited to the biggest product innovators with in-house competencies. In general, the use of internal funding continues to be the primary source of innovation for European businesses. Enhancing access to equity, especially for small innovative firms, is key to creating growth opportunities.

Future efforts on 'innovation profiling' should be directed toward a better knowledge of the economic determinants and consequences of innovative behaviour at enterprise level. The need to leverage the value of innovation data through data linkage to other relevant sources is also clearly acknowledged by the Oslo Manual (see par. 9.2.3 - Data Linkages). Eurostat and the Statistical Offices in the EU Member States have started work on this development.

Source data for tables and graphs

Download Excel file

Data sources

The Community Innovation Survey (CIS) is a survey on innovation activities in enterprises. The survey is designed to capture the information on different types of innovation, to enable analysis of innovation drivers and to assess the innovation outcomes. The survey focuses, among others, on the following aspects:

innovation activities,
innovation expenditure,
innovative products (new to firm / new to the market),
turnover from innovative products,
business process innovation,
incentives for implementation of innovation,
innovation cooperation,
source of financing of innovation,
sources of information on innovation,
innovation barriers, etc.

The information collected allows the innovativeness of business sectors (B-C-D-E-46-H-J-K-71-72-73) to be measured.

The CIS provides various innovation indicators by three main breakdown variables: type of innovator, economic activity and size class of enterprise. The following size classes of enterprises according to the number of employees are included in the core target population of the CIS 2020:

10 - 49 employees,
50 - 249 employees,
250 and more employees.

The innovation survey was first launched in the 1990s and became a regular biennial data collection starting with CIS4 (2004) in the EU Member States, EFTA countries and EU candidate countries. Since its launch the survey was based on the methodology laid down in the Oslo Manuals — international standards for conceptualising and collecting data on innovation. The first Oslo Manual was published in 1992. It has been revised on three occasions to take into account the experience and expand its measurement framework — in 1997, 2005 and in 2018. The CIS 2020 is the second CIS after the review of the Oslo Manual in 2018, resulting in its 4th edition (Oslo Manual (2018), 4th Edition).

For each survey round, Eurostat together with the participating countries develops a standard core questionnaire – Harmonised Data Collection (HDC) – listing the mandatory and rotational questions to be provided within a given round. The questionnaire includes the set of definitions and methodological recommendations to assure the comparability among countries.

CIS 2020 results are collected under Commission Regulation (EU) No 995/2012. This Regulation defines the mandatory target population of the survey referring to enterprises in the core NACE categories with at least 10 employees. Eurostat recommended using 'person employed' as size class unit already for the CIS 2018 in order to comply with the latest measurement standards in European business statistics and recommendations of the Oslo Manual, 4th edition. The standard mandatory questions refer to the number of innovative enterprises, products and goods new to the market and new to the firm, innovation cooperation, objectives of innovation, sources of information for innovation, hampering factors, innovation developer, turnover from innovation and expenditure on innovation. The following questions were new starting from the CIS 2018: customisation and co-creation, patents and intellectual property rights (IPRs), buying technical services, innovative purchases, using information channels, organising work and expectations from innovation.

Most statistics in CIS 2020 are based on the 3-year reference period 2018-2020, but some use only one calendar year (2018 or 2020).

Context

Within the statistical information system on science, technology, and innovation, business innovation statistics represent a crucial piece of knowledge to support and monitor EU policies.

Under the umbrella of the Commission Regulation (EU) 2152/2019, innovation statistics will be better integrated into the context of European Business Statistics. The redesign of the CIS has anticipated this critical change, thus allowing for an increasing harmonisation of the CIS data among business statistics. This change represents a necessary step for having data more and more harmonised among the EU countries, thus supporting EU policy monitoring. Also, the integration of data on business innovation will allow for a better understanding of the economic determinants and consequences of innovation.

In the Innovation Union flagship initiative, the European Innovation Scoreboard provides a comparative analysis of innovation performance in EU countries, other European countries, and regional neighbours. It assesses the relative strengths and weaknesses of national innovation systems and helps countries identify areas they need to address. The regional extension, the Regional Innovation Scoreboard, is relevant for assessing the innovation performance across 240 regions of 22 EU countries using a limited number of indicators.

Data on business innovation are a basis for the Commission’s report Science, Research and Innovation Performance of the EU (SRIP). The report provides a thorough analysis of the research and innovation performance in Europe and formulates recommendations for the future.

Under the European Green Deal it will be crucial in the following years to trace the technological change that the green economy transition will determine in the medium-long term. The CIS will be the natural source of information to provide data on innovations with environmental benefits and data on the perceived relevance of climate change for businesses to support related policymaking.

Direct access to

Main tables

Science and technology, see:

Community innovation survey (inn)

Community innovation survey 2020 (inn_cis12)

Database

Science and technology (scitech), see: