Innovation

Innovation is now commonly defined as the creation of novelty of economic value. This usually translates into seeing innovation as the creation of new products and services, as the processes of production of these and as the associated organizational changes, sometimes including the establishment of new work practices and skills.

Early discussions of innovation focused on the technological elements of new products and processes, especially on the way in which these new technologies contributed to overall changes in major areas of an economy, a change referred to as a technoeconomic paradigm shift. Many analysts now focus on the relationship between innovation, especially technological innovation, and economic growth and development. Many economists now view technological innovation as an endogenous factor in economic growth and see companies' growth trajectories as increasingly affected by their organizations' innovation strategies and activities. More and more firms in high-income countries depend on continuous innovation to maintain their competitiveness. How and in which ways organizational forms and strategies selected can assist or retard innovation success is thus increasingly important to companies, especially those operating in international markets; this concern has generated an important literature.

Innovation is not only about technology; there are many elements important to success. Because innovation is a highly risky activity and most candidate products for commercial markets do not succeed, most income from firms' innovation activities comes from very few products or product families.

What may be called the ingredients of innovation have come to be a more recent focus. Innovation surveys in many countries have established the levels of innovation activity undertaken by companies and assessed what is often the most important ingredient: expenditure on research and development. These surveys show significant differences in levels of innovation-related expenditure between sectors of economies, between firms of different sizes, and between countries. In many cases, high-technology firms, such as biotechnology, are innovation-intensive (knowledge-intensive) and spend up to 10% or more of turnover on research and development. Very new, science-based firms spend considerably more.

Innovations may be radical or incremental; they may change fundamentally the kinds of products produced—think computers or cars—or they consist [Page 671]of smaller improvements to existing products or processes of manufacture. Incremental innovations are much more common, both across industries and across size and age of firms, than radical ones as most firms stay on familiar trajectories and smaller changes are much less risky. Radical innovations, such as those in the information and communications technology fields, which start life as products may then push major process changes—think computer-aided design, computers in manufacturing, or new biological ways for dealing with waste matter. Economies mostly function with a mix of firms making radical and incremental innovations. In some cases, the same firms will move between radical and incremental innovation as the technologies used, for example, mature.

The so-called high-tech industries are often thought of as more innovation-intensive than their low-tech counterparts, but recent work in several countries has shown that the low-tech sectors often have leading edges where both product and process innovation are occurring. “Old” industries such as mining and agriculture are in fact highly knowledgeintensive and research and development–intensive, and increasingly constant innovators through the application of science.

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