INTRODUCTION

This chapter examines the effects of innovation on the organization, activity, and performance of innovating firms and their employees.

Understanding the process of innovation requires answers to two main questions. What is it that is being done? How is it being accomplished? A study of innovation needs to understand what the knowledge-creation process produces and what inputs are used. Previous chapters have examined each of these in turn — outlining the different types of innovative outputs and then examining which inputs (associated with R&D or engineering and production departments) are employed to produce innovations. In this chapter, we examine select aspects of how innovation affects the firm.

A number of issues are investigated. We ask whether changes in the production process allow the firm to improve its ability to exploit scale economies or to improve its specialization. We investigate whether and how the innovation affects the ultimate objectives of the firm — its size and profitability.

Firms innovate in order to increase their profitability, which can occur via reductions in costs, improvements in sales, or a combination of both. The two issues are related. The general economic objectives relating to market share and profitability of innovative activity are accomplished by decreasing production costs, by increasing product line diversity, or by improving the quality of the product.

Since innovation is not universal, it is important to understand the specific effects that Canadian entrepreneurs associate with their innovation, because they delineate both the advantages and impediments to the innovative process.