Critical factors of innovation success and profitability – A quantitative empirical study for the chemical and pharma industry
The main project objective is the investigation of the relation between innovation activities and profitability in large companies from the chemical and pharmaceutical industry. We focus on choices regarding the intensity and orientation of technical innovation and their long and short-term impact on profitability from a business and an investor’s point of view. In general, chemical and pharmaceutical firms face very long product development times connected with considerable risk and high upfront investments, making these industries rather unique.
In this project, we aim to develop time resolved explanatory models for the impact of innovation on profitability in the chemical and pharmaceutical industry. We also aim to provide guidance for senior management on dimensions to consider for decisions on innovation setup, organizational culture, and evaluation of innovation projects as well as guidance for external shareholders in evaluating indicators commonly published in annual reports and their relevance for future business development.
The project consists of the following key activities.
A database containing financial and non-financial data between 1983 and 2018 will be compiled from different data sources covering selected multinational companies from the chemical and pharmaceutical industry. Technical innovation is assessed based on patent documents, their classification and legal status. In the pharma industry, technical innovation is additionally accessed using mandatory approvals for product launches from the US Food and Drug Administration.
Quantitative research will follow using the newly developed database. Common quantitative indicators will be used combined with newly developed indicators for innovation direction and innovation output. All indicators will be used in panel data regression models.
In parallel with the quantitative modeling, indicators will be discussed with innovation experts from multinational companies in the chemical and pharmaceutical industry.
The final step of the project will be the elaboration of conclusions and practical recommendations on innovation and its validation in the chemical and pharmaceutical industry.