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Innovation Activities in Companies in the Federation of Bosnia and Herzegovina

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International Journal of Management Science and Business Administration
Volume 1, Issue 5, April 2015, Pages 51-68


Innovation Activities in Companies in the Federation of Bosnia and Herzegovina

DOI: 10.18775/ijmsba.1849-5664-5419.2014.15.1005
URL: dx.doi.org/10.18775/ijmsba.1849-5664-5419.2014.15.1005

1Benina Veledar, 2Adnan Veledar

1School of Economics and Business, University of Sarajevo, Bosnia and Herzegovina,
2International Management Group, Sarajevo, Bosnia and Herzegovina

Abstract: This paper aims to provide information on the extent to which companies in the Federation of Bosnia and Herzegovina implement innovation activities. For this purpose, we used both qualitative and quantitative research methods. We performed qualitative analysis of legislation in the field of innovation as well as the attitude of the government towards innovation processes. In order to quantify innovation activities in Bosnia and Herzegovina companies, we conducted survey questionnaire among profit-oriented companies who employ at least 10 people. The working hypothesis of the paper is that the authorities in Bosnia and Herzegovina have a marginal role when it comes to encouraging the development and implementation of innovations and statistical monitoring of business innovation processes, which results in the lack of innovation activities in Bosnia and Herzegovina companies and has a negative impact on the business. Different parametric and non-parametric statistical tests were applied to test the stated hypothesis. Quantitative research has shown that a small number of enterprises continuously introduce new products/services which has negative impact on their performance. Conducted qualitative research has shown that the role of government in promoting and developing the acquired competitive advantages such as knowledge and innovation in Bosnia and Herzegovina is marginalized. According to the obtained results we derived some recommendations for improving operations using innovation potential.

Keywords: Innovation, Innovation Activities, Innovation Potential, Bosnia and Herzegovina

Innovation-activities-in-companies-in-the-federation-of-bosnia-and-herzegovina

1. Introduction

In today’s dynamic business environment, innovation should be an essential part of all successful business practices of the company. Companies that ignore the importance of innovation in business processes can very easily get into a situation of being threatened by the competition. Science, research and technological development are priorities of the European Union policy. The aim is to strengthen the scientific and technological base of EU industry to become more competitive on a global scale. In this context, the EU encourages universities, scientific research institutes and enterprises in their high-quality research and technological development activities and supports their efforts to cooperate. The European vision of the Federation of Bosnia and Herzegovina and the EU accession process have a very important role in terms of possibilities for involvement in European Area for Innovation, Research and Development.  In order to explore innovation activities in companies in Bosnia and Herzegovina, we performed qualitative analysis of legislation in the field of innovation, as well as the attitude of the government towards innovation processes. We investigated whether there is cooperation between relevant stakeholders regarding the implementation of innovation processes, and whether there is a statistical record of innovation activities of enterprises in Bosnia and Herzegovina. We have analyzed the existing experience in the use of innovation by companies in Bosnia and Herzegovina and evaluated the role of innovation in their business. For this purpose, we used qualitative research methods. In January 2013, the research was conducted among profit-oriented companies who employ at least 10 people using questionnaire survey, which was distributed to 100 selected companies by e-mail. 51 out of 100 have returned our questionnaire answered.

Research has shown that a small number of enterprises continuously introduce new products/services. Those companies that do not introduce new products and services have proved to be less successful. Statistical tests showed that these differences were statistically significant. Thereby, it can be concluded that companies which do not use innovations have weaker market positions. Also, it was shown that the average value of success ratings of enterprises according to the system of balanced goals is lower in companies that have not introduced new or significantly improved products/services. Conducted qualitative research has shown that the role of government in promoting and developing the acquired competitive advantages, such as knowledge and innovation is marginalized in Bosnia and Herzegovina. The paper is organized as follows. In the first section we review literature and discuss theoretical background for the research. Next, we present results of qualitative and quantitative analysis. Finally guidelines for the improvement of business activities using innovation potential are presented together with concluding remarks.

2. Theoretical background

In contemporary, turbulent and dynamic business environment, innovation has become a necessity and duty. Companies are constantly facing the choice of whether to innovate in order to ensure their own survival in the long term or to maintain the status quo which can by time easily lead the company to be less competitive. Ultimately, innovation should result in better products and services, all with the aim of meeting the demands of customers and markets more effectively. There is great interest among researchers to find out what are the key factors for the development of innovation. Hidalgo and Albors (2008) believe that knowledge is the main driver of the economy in the current business conditions. Using means of knowledge management they identify the main Innovation Management Techniques (IMTs) which can improve firm competitiveness. Ortt and Duin (2008) also analyze the trends in innovation management and R&D in large companies over time through different generations of management. The main goal of their research was to explore that innovation management has evolved towards a contextual approach.  Measurement of innovation process becomes critical for both practitioners and academics. By analyzing the literature, Adams et.al., (2006) point out that there is diversity of approaches, prescriptions and practices of innovation process measurement that can be confusing and contradictory. The aim of their study is to assign each stage of innovation management process an appropriate framework for its measurement.

Enkel et.al., (2009) emphasize the importance of open innovation for corporate R&D. They point out that the company does not need to focus only on the internal processes of R&D, but it should be open to outside innovation. They mention four types of processes that are related to open innovation. These are: (i) the outside-in process – enriching the company’s own knowledge base through integration of suppliers, customers and external knowledge sourcing; (ii) inside-out process – refers to earning profits by bringing ideas to market and multiplying technology by transferring ideas to the outside environment; (iii) the coupled process – refers to co-creation with mainly complementary partners through alliances, cooperation and joint ventures during which they can give and take what is crucial for success. Christensen and Raynor (2003) claim that idea must be evaluated for feasibility, developed into a concept and turned into a reality. For example, the idea of a new product first has to be turned into a prototype and get feedback from the market for functionality. Afterwards, production lines get established and attempts get started to find suppliers and much more. Any of such actions involve the participation of a large number of different people who contribute to the overall innovation process. Ideally, the new creative thinking should be incorporated into every step of the production process making it more creative over time. Unfortunately, in many organizations, there is resistance to take risks and wish to remove all potentially creative elements which reduces the innovative potential. In this case, it is necessary to persist on potential creative ideas so that they get accepted eventually. Christensen (2003) has divided innovation into two large groups: (i) traditional innovation, (ii) disruptive innovation. Traditional innovations are incremental improvements to existing products or processes. Disruptive innovations are technological innovations that introduce entirely new products to the market. Because disruptive innovations are mostly highly innovative products that market does not expect, therefore, they usually find their intended group of consumers and have a lower price. Business based on disruptive innovation is specific and has the following features: lower profit rate, smaller target market and simpler products that do not have to look equally attractive as existing products. Many other authors have also dealt with the concept of disruptive innovation. By analyzing the theory of disruptive technological innovation, Danneels (2004) pointed out that there is a need for a more detailed explanation of certain terms, such as disruptive innovation. On the trail of these findings, Markideos (2006) points out that it is necessary to distinguish between disruptive technological innovation and disruptive business-model innovation as well as a disruptive product innovation.

3. Role of innovations in companies in Bosnia and Herzegovina

3.1 Innovation system in Bosnia and Herzegovina

Conducted qualitative research of the current innovation system in Bosnia and Herzegovina enabled us to identify major problems that we are facing with the promotion of research and development which are the main drivers of innovative activities. Research sector in the Bosnia and Herzegovina is neglected for two decades, both in personnel and institutional level. Professors have the exclusive origin in higher education. Their number and quality are basic indicators of research potential. Therefore, the enrollment policy on tertiary education (education after high school) is very important. This is one of the most difficult problems that Bosnia and Herzegovina is facing with. The Strategy for Development of Science in  Bosnia and Herzegovina for the period 2011 to 2021 (2010) shows that only 36.9% of the relevant generation (ages 18-24 years) are enrolled in higher levels of education after high school. This indication for Slovakia is 50.8%, 54.8% for Czech Republic, 76.2% for Norway and 93.8%for Finland as a comparison.

According to Strategy mentioned above (2010), the quality of higher education can be evaluated by using following two indicators. One is university income per student. FBCH is earning approximately 500–1,000 euros per year, while this amount is 8,000 euros in the EU on average. In this case, it is difficult to assume that the total amount of funds collected in the form of tuitions are sufficient for making investment in laboratories as well as for giving decent salaries to university teachers. Another indicator is scientific engagement of teachers. It is defined in OECD standards that every university teacher is both an educator and a researcher. In Bosnia and Herzegovina this norm is true with only 3% of all the university teachers.

In Bosnia and Herzegovina, there are funds that finance scientific research. Attained pre-war standard of allocating 1.5% of GDP on state level for science and research development hasn’t been followed. According to the World Bank and UNESCO Institute of Statistics, out of 114 countries surveyed, Bosnia and Herzegovina was in the 113th place in 2009 by research and development expenditure (in % of GDP). In fact, Bosnia and Herzegovina invests only 0.02% of GDP in research and development. The main reason for this happening is general crisis in Bosnia and Herzegovina society, within which the government needs to buy social peace and pump money into public spending. Lack of research knowledge prevents Bosnia and Herzegovina researchers to actively participate in FP7 bid program of the EU. According to Eurostat, the total public and private spending on research in the EU is about 2% of GDP and it is planned to increase to 3% by 2020. Scientific and professional journals in Bosnia and Herzegovina exist thanks to commitment of publishers themselves but they are not largely indexed in relevant databases, except a few. Some journals are currently in the process of joining relevant scientific databases. The number of indexed journals is several times smaller than, for example, it is in Croatia or Serbia. This indicates a small possibility of local authors to publish relevant papers in domestic journals. The largest number of indexed journals in Bosnia and Herzegovina is in the field of bio-medical sciences and it is not surprising that around 40% the papers published are in this area. Certainly, it should be emphasized that scientific papers are mostly results of scientific projects and this is what the scientists in Bosnia and Herzegovina at this moment are missing the most. Research institutions are not subject to monitoring of Federal Institute for Statistics. Information can be found only for universities, but not for independent institutes or other legal entities. Also, there is no data for research and development centers within companies. This information deficit is a result of the fact that there is no federal law on research activities that would prescribe registration requirements and criteria. Patents are statistically recorded at the Institute for Intellectual Property only at the state level.

Innovators are one of the key stakeholders of development. According to data from Association of Inventors of Bosnia and Herzegovina, 1,112 Bosnia and Herzegovina innovators received international recognitions in 2011. Last year, in Geneva and Banja Luka fairs, Bosnia and Herzegovina innovators received 14 medals. Rarity of Bosnia and Herzegovina is the fact that the ratio of applied innovation ranges between 15% and 27%, which is higher than the world average. Although Bosnia and Herzegovina innovators have proven a lot of times that Bosnia and Herzegovina has intellectual potential, they are not being adequately supported by the government. It is confirmed by the fact that entity ministries of science participate with only 0.3% and 0.4% in the total RS and Bosnia and Herzegovina budget. Association of Inventors of Bosnia and Herzegovina received only 95,000 KM a year till 2011 and in 2012 the state has granted a total of 7,000 KM only. Seems, Bosnia and Herzegovina authorities have not yet came to be aware that the realization of innovation takes far more resources. As it is clear to everyone, the world situation in this matter is quite different. Some advanced countries allocate quite large amounts for this purpose; 4.5% of GDP in Israel and even 6-7 % of GDP in Japan. Judging by the level of investment in R&D in the period from 2002 to 2010, Finland was the highest-ranked country in Europe, Israel in West Asia, Japan in the area of Oceania, South Korea in the Far East, the United States in North America, Singapore in Southeast Asia, Tunisia in North Africa, Brazil in Latin America and South Africa in Sub-Saharan Africa.

3.2 Existing experience in the use of innovation in Bosnia and Herzegovina companies

In January 2014, we conducted research on the existing level of innovation activities carried out by profit-making legal entities, which employ at least 10 people. Since the Federal Bureau of Statistics does not have information on the total number of such legal entities in the Bosnia and Herzegovina, we randomly selected 100 companies that meet above-mentioned criteria. The study was conducted using a survey questionnaire distributed by e-mail to 100 addresses. In the end, some 51 of them responded. Characteristics of the sample with respect to their activities, age, position in the market as well as employees characteristics is given in table 3-1. Of the total number of companies the largest share is in the manufacturing sector (25.5 %), and in the banking, insurance and finance sector (23.5%). The smallest share of around 7.8% of the total sample is companies from three sectors namely real estate sector, IT services and energy.

Table 1: Characteristics of the sample companies

Number of companies Structure(%) Cumulative (%)
Property 4 7,8 7,8
Insurance, Banking and Finance 12 23,5 31,4
Business Services 7 13,7 45,1
Retail and wholesale 5 9,8 54,9
IT services 4 7,8 62,7
Production 13 25,5 88,2
Telecommunications 2 3,9 92,2
Energy 4 7,8 100,0
Total 51 100,0

 

Structure of companies in the sample with respect to the number of employees is given in table 2. The largest share of the companies has more than 250 employees (37.3 %), while 31.4 % of companies have between 11 and 50 employees. The smallest share of the sample companies have up to 10 employees (9.8 %), while 2 % of the companies have not stated about the number of employees.

Table 2: The number of employees in sample companies

Number of companies Structure(%) Cumulative (%)
Up to 10 employees 5 9,8 9,8
From11 do 50 employees 16 31,4 41,2
From 51 do 250 employees 10 19,6 60,8
More than 250 employees 19 37,3 98,0
No response 1 2,0 100,0
Total 51 100,0

 

Specified minimum, maximum, average age of the company as well as standard deviation calculated is given in table 3. From a total of 51 companies, the minimum age of the company is 2 years, while the maximum age is 161 years. It can be concluded that the average age of the company is 34 years with deviation of 38.66.

Table 3: Descriptive statistics of the age of sample companies

Number of companies Minimum Maximum Average Standard Deviation
Age of companies 51 2,00 161,00 33,37 38,66

 

Table 4 shows substantial ownership of companies in the sample. The highest percentage of companies (43.1%) is in the private domestic ownership, while 39.2 % of the companies are foreign-owned. The smallest proportion of companies (17.6%) in the sample is state-owned.

Table 4: Ownership of the sample companies

Number of companies Structure (%) Cumulative (%)
Private domestic ownership 22 43,1 43,1
State ownership 9 17,6 60,8
Foreign ownership 20 39,2 100,0
Total 51 100

 

Table 5 shows the market position of the companies in the sample. More than half of the sample companies (52.9%) are leaders. An equal proportion of companies in the sample (17.6%) are companies that are challengers and followers in their market position. The smallest share of (11.8 %) companies serve market niche.

Table 5: Market position of sample companies

Number of companies Structure (%) Cumulative (%)
Market Leader 27 52,9 52,9
Market Challenger 9 17,6 70,6
Market Follower 9 17,6 88,2
Niche marketer 6 11,8 100,0
Total 51 100,0

 

Table 6 shows the markets in which sample companies operate. The largest share of the companies (76.5 %) operates on a local/regional market within Bosnia and Herzegovina. The smallest share (5.9 %) of the companies in the sample operates in the national market. 17.6 % of the companies operate in the European Union (EU), EFTA and EU candidate countries.

Table 6: Operating markets of sample companies

The market in which the company operates Number of companies Share in the total number of companies
Local/regional within Bosnia and Herzegovina 39 76,5
National 3 5,9
The European Union (EU) , EFTA and EU candidate countries 9 17,6
Other countries 11 21,6

 

Table 7 shows specified minimum, maximum, average age of the respondents as well as standard deviation calculated. From a total of 51 companies, the minimum age of the respondents was 24 years, while the maximum was 62. It can be concluded that the average age of respondents is 36 years with the deviation of 8,547.

Table 7: Descriptive statistics of age of respondents in sample companies

Number of companies Minimum Maximum Average Standard Deviation
Age of respondents 51 24 62 35,51 8,547

 

Table 8 shows the structure of respondent’s workplaces. There is the largest number of respondents in accounting/finance (14), less (10) in engineer/designer/developer positions. The minimum number – 2 respondents only belong to marketing department.

Table 8: Respondent workplace in sample companies

Number of companies Structure (%) Cumulative (%)
Director of the company 6 11,8 11,8
Accounting/Finance 14 27,5 39,2
Planning and Analysis/Controlling 5 9,8 49,0
Marketing 2 3,9 52,9
Engineer/designer/programmer 10 19,6 72,5
Salesman 7 13,7 86,3
Other 7 13,7 100,0
Total 51 100,0

 

Once we have analyzed the different aspects of the observed sample, we cross over to the other part of the research that is related to the analysis of the level of innovation activities in the sample companies and their impact on the operating results. Table 9 shows the introduction of new or significantly improved products/services in the sample companies in the last five years of year operations. Of the total number of companies, 40 have introduced new or significantly improved products/services. Only a small number of companies (11) have not introduced new or significantly improved products/services.

Table 9: Introduction of new or significantly improved products/services

Number of companies Structure in % Cumulative %
The company introduced a new or significantly improved products/services 40 78,4 78,4
The company has not introduced a new or significantly improved products/services 11 21,6 100
Total 51 100

 

Table 10 shows how the companies in the sample implement innovative activities: (i) internal research and development, (ii) external research and development, (iii) the purchase of machinery, equipment and software (iv) acquisition of external knowledge, (v) training for innovation activities, (vi) introduction of innovations to the market, (vii) other innovation activities. The largest number of companies carried out innovation activities through their own research and development activities (43), through the purchase of machinery, equipment and software (43), and through the training for innovation activities (41). On average one quarter of sample companies have not implemented any innovation activities.

Table 10: Introduction of new or significantly improved products/services: Implementation of innovation activities in sample companies

Innovation activities Number of companies Total
Implement Not implement
Internal research and development 43 8 51
External research and development 38 13 51
Purchase of machinery, equipment and software 43 8 51
Acquisition of external knowledge 33 18 51
Training for innovation activities 41 10 51
Introduction of innovations to the market 39 12 51
Other innovation activities 32 19 51
Average 38,4 12,6

 

3.3 The role of innovation in companies in Bosnia and Herzegovina

In this section we analyze what is the role of innovation in observed companies and how implementation of innovative activities affect their system of balanced scorecards.  Table 11 shows a comparison of the average value of company’s success rating to the system of balanced scorecards with regard to the introduction of new or significantly improved products/services in the last five years. Companies introduced new or significantly improved products/services in the past five years have been successful in all indicators of success within the system of balanced scorecards.

Table 11: Comparison of the average value of company’s success rating to the system of balanced scorecards with regard to the introduction of new or significantly improved products/services in the last five years

Dimension Measure Introduction of new or significantly improved products/services to sample companies in the last five years N Average Standard Deviation
Financial Profitability Yes 40 3,68 0,829
No 10 3,00 1,247
Profit Yes 40 3,55 0,846
No 10 2,90 1,370
Return on investment Yes 39 3,56 0,912
No 10 3,20 1,317
Market position Customer satisfaction Yes 40 4,03 0,698
No 10 3,50 1,269
Market share Yes 40 3,48 0,905
No 10 3,30 0,949
Quality of products/services Yes 40 4,20 0,791
No 10 3,90 1,370
Process management Efficiency of internal processes Yes 40 3,68 0,694
No 10 3,40 1,430
Innovation of products/services Yes 40 4,00 0,816
No 10 3,20 1,229
Innovation of internal processes Yes 39 3,79 0,894
No 10 3,60 1,350
Learning and knowledge Employee competence Yes 40 3,85 0,736
No 10 3,60 0,699
Application of new technology Yes 40 3,95 0,783
No 10 3,40 0,843
Organizational climate Yes 40 3,73 0,716
No 10 2,90 1,197
Corporate social responsibility Yes 39 3,85 0,745
No 10 3,70 0,949

 

In order to investigate the difference between the average values of company’s success rating to the system of balanced scorecards with regard to the introduction of new or significantly improved products/services, t-test has been conducted. The test results showed that significant differences exist for the following performance indicators:

  • Profitability with 95% probability (t = 2.071, p-value = 0.044).
  • Profit with 90% probability (t = 1.903, p-value = 0.063).
  • Customer satisfaction with 90% probability (t = 1.778, p-value = 0.082).
  • Innovation of products/services with 95% probability (t = 2.491, p-value = 0.016).
  • Organizational climate with 99% probability (t = 2.820, p-value = 0.007).

Table 12: Comparison of the average value of the company’s success rating to the system of balanced scorecards with regard to the introduction of new or significantly improved products/services – t-test

Dimension Measure T-test P-value
Financial Profitability 2,071 0,044**
Profit 1,903 0,063*
Return on investment 1,025 0,311
Market position Customer satisfaction 1,778 0,082*
Market share 0,542 0,591
Quality of products/services 0,915 0,365
Process management Efficiency of internal processes 0,884 0,381
Innovation of products/services 2,491 0,016**
Innovation of internal processes 0,551 0,584
Learning and knowledge Employee competence 0,970 0,337
Application of new technology 1,958 0,056*
Organizational climate 2,820 0,007***
Corporate social responsibility 0,523 0,603

Note: * statistically significant at 10% probability, ** statistically significant at 5% probability, *** statistically significant at 1% probability

4. Guidelines for the improvement of business activities by using innovation potential

Building a national innovation system is not possible overnight and without the active support of the state. It requires the agreement of all relevant parties in Bosnia and Herzegovina in order to accept necessary legislation, provide funds to encourage innovative activities and organize statistics to monitor progress in the fields of science, technology and innovation. Since Bosnia and Herzegovina possesses innovative potential as evidenced by numerous awards of domestic innovators in international competitions, it is necessary to find a way of its realization in the market through cooperation with businesses, which is currently not the case. The only viable long-term advantage of the state in the new knowledge-based economy is the level of the knowledge possessed by its human resources. The knowledge is acquired through education and research. In addition to formal higher education at three levels, ending with the academic degree of Bachelor, MA and PhD, lifelong learning is imperative in a modern environment. Forms of organizing life-long education can be different and usually boil down to different types as seminars, roundtables, and guest lectures of academic world experts, research institutions or practices. All university teachers should have the option to dedicate 50% of their working time to scientific research. This requires certain funds which can be provided from the budget for public universities, and from the tuition for private universities. The goals of economic development of Bosnia and Herzegovina by 2020 should largely include knowledge as a factor of growth and change in the economic structure.

Given the ravages of war and the transition, it is necessary to rebuild the scientific and technological potential of Bosnia and Herzegovina which requires the adoption of a “road map” with three general medium-term objectives: (i) training new generations of scientists at universities in Bosnia and Herzegovina and abroad, (ii) development of a network of research infrastructure in the country in accordance with international standards, (iii) investment in industrial research in a limited number of sectors (the priority should be given to those who export a large part of their production). Creating a competitive economy in Bosnia and Herzegovina lies in the acquisition of knowledge, its productive implementation, continuous improvement and enrichment. According to the vision of scientific and technological development, Bosnia and Herzegovina should become an innovative environment in which scientists reach European standards, contribute to the overall level of knowledge society and promote the technological development of the economy. It is important to ensure adequate budgetary resources for the establishment of infrastructure for technology and start-up companies to develop from universities and research institutes. This will contribute to a gradual closing of the gap that exists between excellent scientific results and their implementation in new products and services on the market, as well as economic and efficient utilization of high-quality innovations that arise as a result of research at universities and other public and private scientific organizations. Financing of R&D activities should be based on the principles of participation of all government levels (municipalities, cities, cantons, Federation, State), as well as private sector entities. In the long term, Bosnia and Herzegovina should allocate at least 2% of GDP to the research and development activities.

Analysis of the legal system in Bosnia and Herzegovina shows that the implementation of the Strategy for Development of Science in Bosnia and Herzegovina depends on important governing laws: scientific research activity, higher education and library-informational activity laws. Unfortunately, Bosnia and Herzegovina has not explicitly established constitutional jurisdiction in any of the three domains. The negative consequences of this situation are numerous. Therefore, the adoption and implementation of the Law on science and scientific research activities in Bosnia and Herzegovina is highly necessary. The entire system of monitoring the development of science and scientific research must be supported by EU documents and agreed with FRASCATI method of analyzing the results of research and development. Data on research and development in Bosnia and Herzegovina should be collected each year for the previous calendar year for the business sector (companies), public sector and universities and colleges. A prerequisite for successful monitoring and evaluation of the development of science is to define indicators that are: specific, measurable, achievable, relevant, time-limited, valid, reliable, sensitive, cost-effective, time-convenient, consistent with local capacities, based on what already exists. Reaching the above mentioned prerequisites can improve the innovation potential of Bosnia and Herzegovina economy and therefore have positive impact on companies in Bosnia and Herzegovina.

5. Conclusion

The main objective of the paper was to explore the presence and role of innovation in companies in Bosnia and Herzegovina. The working hypothesis of the paper is that the authorities in Bosnia and Herzegovina have a marginal role when it comes to encouraging the development and implementation of innovations and statistical monitoring of innovation business processes, which results with the lack of innovation activities in companies in Bosnia and Herzegovina and has a negative impact on their business. To examine stated hypothesis we performed qualitative analysis of: (i) legislation in the field of innovation, (ii) the attitude of the government towards innovation processes, (iii) cooperation between relevant stakeholders regarding the implementation of innovation processes, (iv) statistical monitoring of innovation activities of enterprises in Bosnia and Herzegovina. By using survey questionnaire we have analyzed the existing experience of domestic companies concerning innovation activities and evaluated if they made any impact on their business.

Conducted qualitative research has shown that the role of government in promoting and developing the acquired competitive advantages, such as knowledge and innovation, in Bosnia and Herzegovina is marginalized. This proves the fact that, on average, less than 1‰ of GDP in Bosnia and Herzegovina is invested in the field of science and technological development, as opposed to EU countries, which usually consume for this purpose up to 20-30 times higher (about 2% of GDP).  Research institutions are not subject to monitoring of Federal Institute for Statistics. Information can be found only for universities, but not for independent institutes, development centers within companies and other legal entities. This information deficit is a result of the fact that there is no federal law on research activities that would prescribe registration criteria and requirements.  Research has shown that a small number of enterprises continuously introduce new products/services. Those companies that do not introduce new products and services have proved to be less successful. Statistical tests showed that these differences were statistically significant, and it can be concluded that companies which do not realize innovations have weaker market positions. Also, it was shown that the average value of company’s success rating according to the system of balanced scorecards is lower in companies that have not introduced new or significantly improved products/ services.

One of the limitations of research is its exclusive focus on companies from Bosnia and Herzegovina. Without the help of Institutes for Statistics, it is difficult to reach and collect data from other Entity. One more constraint which refers to the size of the sample is also result of above mentioned restriction. The sample could be much higher if there would be accessible database of legal entities that operate in the territory of Bosnia and Herzegovina, along with their contact information (email addresses or web pages). Since, this is not the case in current days; researchers had to invest much time and effort to successfully conduct their research. One of the guidelines for future work on this topic is to conduct similar research with bigger sample in order to derive conclusions related to the extent and characteristics of innovative activities throughout Bosnia and Herzegovina. It would be interesting to do a comparative analysis of the scope and structure of investment in research and development in Bosnia and Herzegovina with neighboring countries, and to analyze how the level of investment in research and development activities reflects the innovation process and the success of companies in these countries.

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Benina Veledar is a PhD candidate and Senior Teaching Assistant at School of Economics and Business, University of Sarajevo, Bosnia and Herzegovina. Main research interests are Cost and Management Accounting, Budget Accounting, Financial Reporting, Financial Reports Analysis and Performance measurement in public sector.

E-mail: benina.veledar@efsa.unsa.ba

Adnan Veledar is a MSc in the field of innovations. He works as Finance officer at International Management Group, Sarajevo, Bosnia and Herzegovina. Main research interests are Innovation activities, Disruptive innovations, Fundraising, Donors Relationship Management and Project management.

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