Innovation Economics
Class 5
Characteristics of a
National Innovation
System
Source:
Interest Group
George Teather, Presented to:
AEA Research Technology and Development Technical
Innovation

There are a range of definitions, from the narrow
technological version to the broader macrolevel
interpretation

Cummins in 1998 defined innovation as “The first
successful application of a product or process”
(successful implies market acceptance -less costly
to achieve same results, improved results, or a
new application for which there is an existing
market demand or one that can be developed )

OECD defines innovation more broadly as “The
process through which new economic and social
benefits are extracted from knowledge” (covers
complete research to results continuum, includes
longer term socio-economic outcomes and
impacts resulting from application of knowledge)
3
Innovation Process Models

Many conventional models of the innovation process used in
S&T focus on the early stages of the process of going from
“Blue Sky“ to applied research, proof of concept to further
technical development and commercialization

Process is assumed to be linear and controlled by the
organization or organizations involved in the innovation
process

Market acceptance / commercialization is presumed to occur
because of the improved technology
4
Innovation Process Models

There is a tendency to focus attention on the R side and
ignore the complexities and many steps required to move
from technical success to acceptance and utilization of the
new or improved technology

The influence of external factors is usually not considered

Little consideration of the difference in the innovation
process among technologies and industrial sectors (IT is
quite different from pharmaceutical sector, and mining or
manufacturing are different again)
5
The Innovation Process
(Conventional Technology Development and Application)
Knowledge
Creation
Knowledge
Application
Technology
Development
Prototype
Testing
Commercialization /
Application
The Innovation Process
Knowledge
Creation
Knowledge
Application
Technology
Development
Prototype
Testing
Technology
Demonstration
Production / Market
Acceptance
Utilization /
Commercialization
National and International
Innovation Systems

Examination of an innovation system requires

identification of the actors involved directly and indirectly in the
innovation process,

their role,

the interaction between the actors, and

their level of influence on the system
8
National and International
Innovation Systems
External Factors

The factors influencing a national innovation system are
complex and different for every country









education system (colleges and universities)
Government laboratories
Government funding (GERD)
Government innovation support programs (R, D, technology transfer,
economic development)
Private sector (R&D and purchasing)
Public / private partnerships and networks
Legal system
Regulatory system, codes and standards
Investment policies, environment


Sources and levels of early, intermediate and late stage funding
Taxation system, reward for entrepreneurship
9
National Innovation System
Education
System
Knowledge
Creation
Government
Laboratories
Knowledge
Application
Early Stage
Funding
National
Investment
Framework
Technology
Development
Intermediate
Stage Funding
National
Standards
Prototype
Testing
Technology
Demonstration
Legal
Framework
Regulatory
Framework
Production / Market
Acceptance
Utilization /
Commercialization
Late Stage
Funding
Innovation System Models

variety of actors and influences





education system / scientific and technical capabilities
public policy, infrastructure
political environment
economic system
National competitive advantages (SWOT)
11
Innovation System Models

Tassey considers innovation system and pathway from
knowledge to commercialization / utilization from
perspective of an economist






public policy, role of gov’t
important education system / scientific and technical capabilities
contribution of technical infrastructure (infratechnology)
risk reduction (testing, standards)
economic system
Model implicitly identifies:


actors involved at various stages
rationale, opportunities for intervention,
12
National Innovation System (Tassey Model)
Strategic
Planning
Production &
Processes
Outputs/Market
Development
ValueAdded
Innovation
- Economic Development
- Public Health & Safety
- Environmental Protection
Risk
Reduction
Entrepreneurial Activity
Applied
Technologies
Generic
Technologies
Science Base
Economic, Social and Environmental Conditions
G. Tassey, National Institute of Standards and Technology, U.S.A. 1991
*
Government Policy Interventions in the National Innovation System
Production &
Processes
Strategic
Planning
Outputs/Market
Development
ValueAdded
Innovation
- Economic Development
- Public Health & Safety
- Environmental Protection
Joint Industry
Government Planning
National
Research
Facilities
S&T Education
and Promotion
Funding and
Technical
Assistance
Entrepreneurial Activity
Risk
Reduction
Technology
Standards and
National Test
Facilities
Intellectual
Property
Rights
Applied
Technologies
Direct Funding
for universities,
Federal labs,
industry
Generic
Technologies
Science Base
Improve Research
and Production
Efficiency
Economic, Social and Environmental Conditions
Derived from G. Tassey, National Institute of Standards and Technology, U.S.A. 1991
*
Spheres of Influence*
State
Your environment of indirect influence
e.g., Industrial sectors, government decision makers, other
communities of interest where you do not
make direct contact
Behavioural Change
Your environment of direct influence
e.g.people and groups in direct contact with
your programs, staff (i.e. clients, target
audience, co-delivery partners
Time
Operational
Your operational
environment
You have direct control
over the behaviours within
this sphere
*reference S. Montague, www.pmn.net
17
Reduction in government financing of private sector R&D
35
30
25
20
Percentage of Business Enterprise
R&D Financed by Government
15
10
5
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
United States 31.6 31.6 31.7 31.3 32.3 31.8 33.4 31.3 28 25.6 22.5 20.8 19.4 18.8 17.8 16.4
22.6 22.8 22.4 22 22.1 21.8 21.9 20.1 17.9 16.7 15 13.6 12.9 12.2 11.6 10.7
OECD
15
0
Complementarity between government investments in R&D and
private sector investments in R&D
50.00
40.00
Rate of Growth of R&D
30.00
20.00
10.00
0.00
-10.00
-20.00
Rate of Growth of Federal R&D
Rate of Growth of Private Sector R&D
1954 1956 1957 1959 1960 1962 1963 1965 1966 1968 1969 1971 1972 1974 1975 1977 1978 1980 1981 1983 1984 1986 1987 1989 1990 1992 1993 1995 1996 1998
22.38 45.60 31.15 17.61 7.42 5.68 14.11 1.52 8.28 2.50 -1.94 -1.79 4.10 -0.37 4.04 9.83 6.13 12.31 17.61 11.92 13.42 2.63 10.60 -6.60 -2.11 -7.16 -6.82 4.53 0.84 1.92
6.03 33.21 6.89 9.72 5.42 7.73 8.06 11.27 11.14 10.59 4.37 3.56 13.60 11.93 11.90 10.92 16.25 18.55 13.20 11.18 10.97 5.06 8.58 10.24 11.00 4.20 2.69 11.86 10.41
Oslo Manual Version 3
Summary of main changes
Background



One of the family of manuals covering the
measurement of innovation and technology.
First version was focused on manufacturing; the
second covered technology based innovation
across broader range of sectors.
This is the third version which covers a wider
conceptual range and a fuller treatment of nonTPP innovation.
OSLO and the CIS



The manual is a generic guide to innovation
measurement.
The CIS is intended to follow the guidance, in
line with a Eurostat regulation but there are
always issues of implementation in practice.
The CIS is the highest profile example of OM
based surveys but it underpins others in eg
Australia, Canada, South Africa, New Zealand,
OSLO 2 : Main Topics


Defining TPP innovation and innovating firms
Identifying factors influencing TPP innovation:
Activities, inputs and expenditures
 Sources of information
 Hampering factors


Achieved innovation and impacts on the
business.
Oslo 3 – Main Changes .




New chapter on innovation theory, from
economic, organisational and marketting
perspectives.
New chapter on linkages in the innovation
system.
Includes an annex on measuring innovation
in non-OECD countries.
A revised definition of Innovation.
Definition of Innovation





Extends coverage to 4 types. Objective is to better
accommodate service industries and nontechnological innovation
Product innovation (goods and services)
Process innovation (in making or supplying goods
and services)
Marketing innovation (first use of methods to
influence demand)
Organisational innovation ( in specific domains of
business)
Definitions

An innovation is the implementation of a new or significantly improved
product (good or service), or process, a new marketing method, or a new
organisational method in business practices, workplace organisation or
external relations.
Product and Process Innovation

A product innovation is the introduction of a good or service that is
new or significantly improved with respect to its characteristics or intended
uses. This includes significant improvements in technical specifications,
components and materials, incorporated software, user friendliness or other
functional characteristics.

A process innovation is the implementation of a new or significantly
improved production or delivery method. This includes significant changes in
techniques, equipment and/or software.
Organisational and Marketting
Innovations


An organisational innovation is the
implementation of a new organisational method in the
firm’s business practices, workplace organisation or
external relations.
A marketing innovation is the implementation of
a new marketing method involving significant changes in
product design or packaging, product placement, product
promotion or pricing.
Degrees of Novelty




new to the firm.
new to the market (firm and competitors)
new to the world (optional for surveys)
radical or disruptive innovation (optional but impractical)
Innovation activities and
expenditures



More clearly include investment for future
innovations.
Coverage of expenditures for marketing and
organisational innovations left open to survey
designers.
Design recognised as broader than “industrial
design”.
Innovation Activities

Innovation activities are all scientific, technological,
organisational, financial and commercial steps which
actually, or are intended to, lead to the implementation of
innovations. Some innovation activities are themselves
innovative, others are not novel activities but are
necessary for the implementation of innovations.
Innovation activities also include R&D that is not
directly related to the development of a specific
innovation.
Implications and Reflections



This revision moves more towards a summary
of ideas on innovation measurement, and is less
a detailed survey guide.
the implementation of the innovation questions
is left to survey designers.
The implementation of the questions on
expenditures for organisational and marketting
innovations is also left to particular surveys.