Research

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Research

Project no: nr9033

Publication title: Training, innovation and business performance: An analysis of the Business Longitudinal Survey

This paper utilises the Australian Bureau of Statistics’ Business Longitudinal Survey (BLS) to explore relationships between training, innovation and firm performance for Australian businesses with less than 200 employees. The paper is structured to consecutively concentrate on the determinants of training practices, innovation and finally measures of firm performance. The longitudinal nature of the data is used to test various hypotheses about the nature of the link between training, business changes and innovation. Can a firm foster greater innovation by providing a greater level of training, or is training simply a part of the process for implementing already determined business changes or innovations? Are training commitment and innovation joint characteristics of a distinctive progressive firm culture?

Different types of training—such as technical, on-the-job, structured and managerial training —are not substitutes but complements, and firms implementing training changes are likely to undergo further similar changes in following years. This is suggestive of the existence of ‘high-training’ and ‘low-training’ cultures across firms, at least for limited periods. There is strong evidence that training often occurs in tandem with other business changes. It seems clear that training is used as one of the major tools by which the implementation of new technology, work practices and business strategies is facilitated. Evidence that training is a causal factor in bringing about change that otherwise wouldn’t have occurred is weak.

Analysis of the determinants of which firms are more likely to report an innovation reveals a ‘large firm’ effect consistent with an extensive economic literature arguing that larger firms (or efficient networks) offer synergies in innovation and in research and development. However, research-and-development-based variables appear to be very poor proxies for innovation, despite their common use within the literature for that purpose. Strong evidence appears of changes in training being associated with the occurrence of innovations over the period of the survey, and to a minor extent of a link between innovation and the level of onthe-job training being provided in the final year of the survey. We could not, however, claim to have found adequate support to sustain a claim that training in itself brings about innovation. Two findings that do offer some support for this notion are:

Firms which undertake formal business or strategic planning are both higher trainers and high innovators. Moreover, increases in management training were found in several models to precede the implementation of business planning. This is consistent with management training providing mangers with the capacity to implement formal planning processes, which in turn appears to promote innovation.
Using internet-related activities as an applied example of innovation, evidence is found of a positive link between increases in management training and the adoption of e-commerce. More importantly, three indicators of the take-up of internet-related activities were positively associated with the level of structured training provided in the following year, suggesting a high level of formal training may be a component of an innovative firm culture.

The analysis is significantly constrained by the quality of data. This applies in particular to the instruments used for measuring training, and also for measures of innovation, both of which are far from ideal. A strong bias seems to be present, for example, in respondents’ reporting of major increases in training for the firm. Attempts to further relate training and innovation variables to business performance outcomes have been even less successful, again partly reflecting limitations in the data. Before any claims can be made in this regard, considerable improvements in the modelling of firm performance using the BLS data will need to be achieved.

The research has served to re-emphasise the many problems that have confounded economists in attempting to analyse the benefits and impacts of training, particularly in relation to issues of the measurement of training and the ability of survey data to support the analysis of associations between training and firm performance. The findings here suggest that one fruitful avenue may be to shift the focus of the research away from viewing training as a ‘general’ input to one that is purpose-specific. The impacts of training could then be evaluated against the relevant objectives, rather than more general performance measures.