A Study on Financial Leverage within UK Innovational Industry

This report presents an in-depth analysis of financial leverage within the UK innovational industry, specifically examining the communication challenges that arise between innovators and investors. The research, framed as a business consultancy project, utilizes a qualitative approach and primary data collected through questionnaires from Rolls Royce employees. The study aims to evaluate the importance of innovation from an investor's perspective, understand the relationship between innovators and investors, assess the communication of innovation strategies, identify potential barriers to effective communication, and determine methods to rectify these issues. Findings highlight passive innovation resistance and ambiguity in strategy formulation as significant barriers, suggesting that improved investor engagement can foster mutual respect and trust, thereby resolving communication problems. The report includes a literature review, methodology, data analysis, and conclusions, providing a comprehensive overview of the research and its implications for the automotive industry, particularly Rolls Royce.

An Analysis into the extent of
Financial Leverage within UK
Innovational Industry

DECLARATION
Date (Month/Year) This dissertation is my original work and has not been submitted
elsewhere in fulfilment of the requirements of this or any other award. In accordance with
academic referencing conventions, due acknowledgement has been given to the work of others.
[word count]
Signature_____________________________________________ Date ____________

ABSTRACT
This research paper offers a detailed account regarding the identification of
communication problems between innovators and investors. Communication holds the key to
driving growth, performance and profitability within all organisations irrespective of their size,
nature and complexity. The research aims to provide a detailed account regarding what
communication problems arise innovators and investors. In order to facilitate a clear
understanding of the research aim, Rolls Royce has been taken into account. This business is a
part of automotive industry which is considered to be one of the most innovation-inducing
segment all around the world.
Research Objectives:
In order to conduct this research, the following research objectives have been identified:
 To evaluate the importance of innovation from investor's perspective;
 To understand the relationship between innovators and investors;
 To assess the importance of communicating innovation strategies to investors;
 To identify potential barriers that may disrupt communication between owners and
innovators;
 To determine the ways which may facilitate rectification of communication problems in a
significant manner.
Methods and Findings:
For the successful completion of this research, the research design is in the form of a
Business Consultancy project and is inclusive of qualitative approach which is widely based
upon the primary data. The sample has been chosen using Random Sampling technique and
includes 30 employees working full-time with Rolls Royce for which the primary data has been
collected by way of Questionnaire. Based on this the findings indicate that passive innovation
resistance and ambiguity present while formulating innovative strategy are two of the most
impactful barriers that hinder the communication between innovators and investors. It is also
discovered that there resolution is possible by improving investor engagement as it helps in
creation of an environment of mutual respect and trust between innovators and investors.

Table of Contents
DECLARATION.............................................................................................................................2
ABSTRACT.....................................................................................................................................3
TITLE..............................................................................................................................................1
CHAPTER 1: INTRODUCTION....................................................................................................1
OBJECTIVES..................................................................................................................................3
CHAPTER 2: LITERATURE REVIEW.........................................................................................5
Systematic Identification of Gaps from Literature Review Analysed above.......................14
PROPOSED CONSULTANCY APPROACH AND OUTPUT...................................................15
Proposed Approach..............................................................................................................15
Output...................................................................................................................................16
CHAPTER 3: RESEARCH METHODOLOGY...........................................................................18
Time Horizon........................................................................................................................18
Research Philosophy..............................................................................................................5
Research Approach.................................................................................................................6
Research nature......................................................................................................................6
Research Design.....................................................................................................................8
Data Collection.......................................................................................................................9
Data analysis ........................................................................................................................10
Research Ethics....................................................................................................................10
CHAPTER 4: DATA ANALYSIS AND FINDINGS...................................................................11
Limitations of the Study.......................................................................................................23
CHAPTER 5: CONCLUSION......................................................................................................24
REFERENCES..............................................................................................................................25
APPENDICES...............................................................................................................................28

TITLE
“Identifying Potential Communication Problems between innovators and investors- A
case study on Rolls Royce”
CHAPTER 1: INTRODUCTION
Overview
This particular research is based on the analysis of extent to which financial leverage is
present within the UK Innovational industry. Financial Leverage can be defined as the level of
debt which a particular organisation has utilised in order to finance its assets. It is important to
note that this unit of measurement differs between companies (Clinton and Whisnant, 2019).
This is largely due to the fact that every firm has different anomalies which create a variation in
the degree of complexity and financing needs of the business. From investors' perspective, the
more investment they have in a given business, the more leverage they hold over the firm's
operations. This is due to the fact that when a business enterprise wants to undertake a capital
project or expansionary activity, it may require additional funds that may be sourced by it from
external organisations or investing parties. As a result, an entity providing more number of funds
to that particular enterprise would become an investor of the business which holds a considerable
amount of leverage over the operations as well as strategic decisions undertaken by the business.
On the other hand, innovation can be termed as the application of better solutions which
are generated through the introduction of new ideas or creative thoughts that help in the
achievement of new new requirements, uncommunicated or existing needs of the markets. In
UK, this phenomenon has become a hub for many aspirants, organisations and researchers. As a
result, innovation has become a key for this economy that contributes towards national growth in
a sustainable manner both in the past as well as in current-day scenario. Today, some of the most
prominent and active innovation industries found in the economy relate to automotive,
telecommunications, pharmaceutical, retail and electronic industries among others (Akhmetshin
and et.al., 2017). The present study entails the identification of potential communication
problems which arise between innovators and investors. Currently, almost every organisation has
identified the usefulness of innovation in terms of future growth and enhancement of corporate
performance as well as profitability. Although this is true, it is equally crucial for the
organisations to communicate such intentions to the investors as they are true owners of the
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business. Here, a problem may arise between the company and investors based on the difference
in perceptions. If the investor relations among businesses are not aligned in a manner that fosters
healthy communication among the two, a problem may arise between the company and investors
based on the difference in perceptions. This means that what an organisation may perceive as a
profitable investment may not be considered the same by its owners. As a result, communication
problems arise between innovators and investors.
Background
Rolls Royce is a luxury automotive manufacturer based out of Derby, England, United
Kingdom. The company was founded by Henry Royce in 1884 which mainly dealt in the
electrical and mechanical business. However, by 1960s the company's performance declined due
to mismanagement of its RB211 Jet Engine, thus, resulting in creation of heavy cost over-run
situations for the organisation. The company remained nationalised until 1987 and currently
operates as a subsidiary of Rolls Royce Holdings PLC. Rolls Royce envisions continuous
innovation of their products in order to facilitate best market solutions to their customers. Based
on this, its management believes that the following three trends are most crucial in the present
day scenario to successfully compete in the global automotive market:
 Increasing demand for cleaner, safer and improved competitive power;
 Electrification; and
 Digitalization.
The company's innovators aim to provide highly customized and tailor-made products to
their customers. However, the investors are of the view that excessive innovation may result in
erosion of competitive advantage which is usually found in the form of cheap labour. Also, there
seems to be a disagreement between the investors and innovators due to various reasons such as
misunderstanding of message and educational or intellectual differences among others
(Dickinson, Kassa and Schaberl, 2018).
Rationale
The rationale behind selecting Rolls Royce for this study is the fact that when it comes to
innovation, automotive sector as a whole is one of the most affected industries. In addition to
this, Rolls Royce has been known for differentiation. With high degree of exclusivity combined
with customization and innovation, this company is most suitable for the purpose of successfully
investigating the aims and objectives proposed under this study. Through its analysis, this
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research will be highly beneficial in determination of how communication problems between
such parties can be easily identified and what are the steps that may be taken so as to reduce the
gap between the two. This study will also enable the readers to recognise the issues which may
arise due to such communicative problems and help the users to derive valuable insights in
regards to the problem identified.
Research Aim:
“To identify the potential communication problems among innovators and investors”
OBJECTIVES
In order achieve the aforementioned research aim, it is crucial to understand the concept
of innovation from investors perspective so as to know what kind of expectations do these type
of stakeholders have from the businesses they invest in (Barile, Saviano and Simone, 2015).
Apart from this, the research aims to identify potential communication problems between
innovators and investors, for this purpose, the relationship shared between them is also of critical
value for this particular study. Once this is established, identification of potential communication
problems can be carried out effectively along with the ascertainment of possible ways to address
such problems. Keeping this flow in mind, the following objectives have been formulated to
successfully fulfil the Research Aim:
 To evaluate the importance of innovation from investor's perspective;
 To understand the relationship between innovators and investors;
 To assess the importance of communicating innovation strategies to investors;
 To identify potential barriers that may disrupt communication between owners and
innovators; To determine the ways which may facilitate rectification of communication problems in a
significant manner.
Research Questions
Based on the established objectives, the following Research Questions have been
formulated and addressed throughout this study:
 What is importance of innovation from investor's perspective?
 What kind of relationship exists between innovators and investors?
 Why it is important to communicate innovation strategies to investors?
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 What are the potential barriers that may disrupt communication between investors and
innovators?
 What ways which may facilitate rectification of communication problems in a significant
manner?
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CHAPTER 2: LITERATURE REVIEW
A Literature Review is one which comprises evaluation of secondary sources that are
available in the form of academic journals, articles and research papers among others. This
section of the given research study aims to analyse the literary works of previous scholars in
order to analyse the research objectives for the purpose of successfully completing this
investigation (Bozcuk, 2012). Through this, the earlier research of the given objectives is
analysed from different perspectives of previous authors, thus, enabling me to ascertain possible
solution to the established research problems of this study. Additionally, the chapter of
'Literature Review' also provides a justification of chosen sources as well as identifies five main
issues that are identified throughout scholarly articles, so as to gain insights upon the
communication problems arising between innovators and investors. As people have mostly used
deductive or hypotheses based analysis in their studies previously, I have undertaken an
Inductive reasoning approach as there is no postulation of hypothesis under this study.
The first research objective talks about the evaluation of importance of innovation from
investor's perspective. To begin with, an investor can be defined as an individual or business
entity who allocates capital with a motive to reap higher financial returns on their investments in
the future. Hence, one can affirm that such parties are risk bearers who identify as well as
approve of a certain window of opportunity and seize them to reap financial benefits. This has
been evidenced through the Article named 'Investor-Driven Financial Innovation' by Judge
(2018) which talks about how investors are the key facilitators of financial growth and
profitability for a given organisation. It also states that every company aims to improve their
levels of productivity and financial growth in a comprehensive manner. Thus, Judge (2018) aims
to provide a comprehensive account upon why investor behaviour plays a crucial role in
determining how the spread of investor-driven innovation is creating waves and transforming
structures as well as analysing the need to cover the innovating costs. In order to harness
innovation opportunities, it is crucial for the management to analyse all the focal points which
may enable the business enterprises to gain economies of scale along with higher revenue
development. For this purpose, innovation holds a special importance from investors' perspective
since backing such projects would enable them to retrieve higher return on investments not only
in current period but also in future.
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On the other hand, such an assertion is also confirmed by Aghion, Van Reenen and
Zingales (2013) who, in their paper named 'Innovation and Institutional Ownership' states that
greater institutional ownership is associated with increased level of innovation. The rationale
behind undertaking this paper was to determine how institutional ownership is affecting
innovation. Through the deductive reasoning, hypotheses have been analysed and a conclusion
has been drawn in regards to the same. This has aided in providing a quantifiable justification of
the topic of institutional ownership and innovation. According to paper, innovation is the catalyst
for growth and communicating to business' stakeholders about its ability to innovate and grow in
a sustainable manner. It is important to note that an investor may be an individual or an
institution. Thus, from investors' perspective, identification of an opportunity is one of the key
aspects or driving factor which determines whether an investment must be made or not. In a
nutshell, innovation can be equated to technological changes which impact various aspects of an
organisation such as operations, finances, profitability as well as growth. It is also determined
that competitiveness within the business environment infused with rapid diffusion of
technologies incentivise the innovators to pressurise the businesses to undertake innovation
activities on an extensive scale.
Hence, it can be asserted that innovation holds paramount importance for investors,
mainly due to the fact that through its employment, investors are able to reap higher benefits in
the form of financial returns. In addition to this, this phenomenon also drives productivity which
is a direct indicator of sustainable growth achieved by a particular business enterprise in the
long-run. Thus, enabling such parties to know whether or not a particular investment would lead
to long-run efficiency that would eventually increase investor returns. Therefore, innovation
holds significance in terms of key financial decisions taken by the business including Rolls
Royce which are directly related to the investors' interests too.
La Rocca and Snehota (2014) agree that business relationships are important for
building a strong knowledge base that is highly important from innovation perspective. For an
innovator and investor it is important to have coherent environment that induces the business
enterprise such as Rolls Royce to develop a distributed knowledge system that is largely external
to the company. Doing this would not only help in development of innovative ideas in a
sustainable manner but also help the innovators and investors to have relationship which is
mainly built on executor and supporter premise rather than provider and reaper of benefits.
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While analysing the literature related to the identification of the relationship between the
innovators and investors, this article helps in establishing premise for further investigation in this
regards.
While the role of investors has been identified previously in this chapter, an innovator
can be defined as an individual or business enterprise who undertakes the activity of researching
and developing innovation as well as implementing them. This is evidenced in the article named
'Creating innovators: The making of young people who will change the world' written by
Wagner and Compton (2012) which states that an innovator consistently acts different to think
different which refuels them to generate innovative ideas on a continuous basis. Analysing this
paper, one can differentiate between innovators and investors on the grounds that the former are
mostly concerned with inventing solutions to address a particular problem. Whereas investors are
a group who are concerned with the derivation of financial returns by investing in those projects
or opportunities which, in their eyes, has the potential to reap such benefits in the near future.
Since it is important to understand the meaning of innovator and investor before determining
their relationship, Wagner and Compton's paper provides a premise for undertaking further
investigation. From the paper it can also be inferred that no business organisation can remain
static, it needs to continually grow so as to survive in current as well as future business
environment. Wagner and Compton (2012) assert that employees are one of the key business
assets that investors look at while valuing a business. This is due to the fact that such employees
of an organisation including Rolls Royce are critical to the success of these enterprises as they
are solely responsible for coming up with new ideas that provide the management with
opportunities to venture into new fields. It is worthy to keep in mind that such a group of
innovators is what makes an organisation innovative at the end of the day. One can say that while
innovators are the ones responsible for executing innovation, investors are the ones who provide
financial support to their ideation.
Another evidence is found in the writings of Mazzocchi (2018) who asserts, in their
paper named 'The Process for Innovators/Founders to Raise Capital to Start a Company', that
innovations are a type of investments which require incurring of research and development costs
heavily along with employee dedication. From an investor's perspective, if such a group is
convinced that introducing a particular innovation would bring about financial growth to the firm
and returns to them, they are ready to undertake such risks. This is an important revelation as it
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depicts the role of investors and innovators aptly which mainly paints the relationship between
the two parties as that of a loan seeker and loan giver. Wherein, the loan seeker is innovator who
has the idea and ways to execute such an idea in reality whereas the loan provider is the investor
who has provided the resources to the innovator with an expectation that such an idea would not
result in defaulting on the financial capital provided by them to the innovator. Apart from this,
the paper also throws light upon the power of investor to determine which investment
opportunities must be pursued by the innovators while discarding others by pointing out the fact
that an investor is able to assess the key projects in the capacity of acting as the provisioner of
finance to the company.
Reypens, Lievens and Blazevic (2016), in their article, observe that in order to develop
innovative solutions that address complex societal and scientific challenges, it is important for
investors and the innovators to be collaborative in nature. The rationale behind choosing this
article is that it explores the theme of value capture through innovation which is not only
concerned with the strategic planning activities undertaken by innovators but also their impact
upon investors. It states that every organisation including Rolls Royce requires to identify and
develop a strategy which captures value creation in a significant manner, as a result, it becomes
all the more important to include stakeholders, specifically investors, while undertaking those
activities which result in the co-creation of innovative value. This would not only help the
innovators to better network themselves in the increasingly competitive business environment
but also result in improving the individual value share for investors. Thus, enabling innovators
and investors to be more conducive to each other helps in strengthening their relationship in a
greater manner. Such an analysis is crucial in relation to the research objective of this study as it
provides supportive evidence to empirical findings of Mazzochi (2018) which indicate that
assessment of investment opportunities by investors helps in growing innovative capabilities of a
business.
As far as communication of innovation strategies is concerned, it is crucial for the
stakeholders to know what value does a particular innovation holds for them. Thus, making it
important for these type of stakeholders to be aware of the strategies relating to such innovations.
In their paper, Harrison and Wicks (2013) emphasize that the stakeholders play a key role in
increasing value as well as directing firm performance in a significant manner. Thus, providing a
sufficient amount of evidence in regards to the impact strategy communication has over the
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