innovation

Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself.

Etymology

The word innovation derives from the Latin word innovatus, which is the noun form of innovare "to renew or change," stemming from in—"into" + novus—"new". Diffusion of innovation research was first started in 1903 by seminal researcher Gabriel Tarde, who first plotted the S-shaped diffusion curve. Tarde (1903) defined the innovation-decision process as a series of steps that includes:^[1]

1. First knowledge
2. Forming an attitude
3. A decision to adopt or reject
4. Implementation and use
5. Confirmation of the decision

Inter-disciplinary views

Society

Due to its widespread effect, innovation is an important topic in the study of economics, business, entrepreneurship, design, technology, sociology, and engineering. In society, innovation aids in comfort, convenience, and efficiency in everyday life. For instance, the benchmarks in railroad equipment and infrastructure added to greater safety, maintenance, speed, and weight capacity for passenger services. These innovations included wood to steel cars, iron to steel rails, stove-heated to steam-heated cars, gas lighting to electric lighting, diesel-powered to electric-diesel locomotives. By mid-20th century, trains were making longer, more comfortable, and faster trips at lower costs for passengers.^[2] Other areas that add to everyday quality of life include: the innovations to the light bulb from incandescent to compact fluorescent and LEDs which offer longer-lasting, less energy-intensive, brighter technology; adoption of modems to cellular phones, paving the way to smartphones which meets anyone’s internet needs at any time or place; cathode-ray tube to flat-screen LCD televisions and others.

Business and economics

In business and economics, innovation is the catalyst to growth. With rapid advancements in transportation and communications over the past few decades, the old world concepts of factor endowments and comparative advantage which focused on an area’s unique inputs are outmoded for today’s global economy. Economist Joseph Schumpeter, who contributed greatly to the study of innovation, argued that industries must incessantly revolutionize the economic structure from within, that is innovate with better or more effective processes and products, such as the shift from the craft shop to factory. He famously asserted that “creative destruction is the essential fact about capitalism.”^[3] In addition, entrepreneurs continuously look for better ways to satisfy their consumer base with improved quality, durability, service, and price which come to fruition in innovation with advanced technologies and organizational strategies. ^[4]

One prime example is the explosive boom of Silicon startups out of the Stanford Industrial Park. In 1957, dissatisfied employees of Shockley Semiconductor, the company of Nobel laureate and co-inventor of the transistor William Shockley, left to form an independent firm, Fairchild Semiconductor. After several years, Fairchild developed into a formidable presence in the sector. Eventually, these founders left to start their own companies based on their own, unique, latest ideas, and then leading employees started their own firms. Over the next 20 years, this snowball process launched the momentous startup company explosion of information technology firms. Essentially, Silicon Valley began as 65 new enterprises born out of Shockley’s eight former employees. ^[5]

Organizations

In the organizational context, innovation may be linked to positive changes in efficiency, productivity, quality, competitiveness, market share, and others. All organizations can innovate, including for example hospitals^[6], universities, and local governments. For instance, former Mayor Martin O’Malley pushed the City of Baltimore to use CitiStat, a performance-measurement data and management system that allows city officials to maintain statistics on crime trends to condition of potholes. This system aids in better evaluation of policies and procedures with accountability and efficiency in terms of time and money. In its first year, CitiStat saved the city $13.2 million.^[7] Even mass transit systems have innovated with hybrid bus fleets to real-time tracking at bus stands. In addition, the growing use of mobile data terminals in vehicles that serves as communication hubs between vehicles and control center automatically send data on location, passenger counts, engine performance, mileage and other information. This tool helps to deliver and manage transportation systems.^[8]

Still other innovative strategies include hospitals digitizing medical information in electronic medical records; HUD’s HOPE VI initiatives to eradicate city’s severely distressed public housing to revitalized, mixed income environments; the Harlem Children’s Zone that uses a community-based approach to educate local area children; and EPA’s brownfield grants that aids in turning over brownfields for environmental protection, green spaces, community and commercial development.

Processes

Sources of innovation

There are several sources of innovation. According to the Peter F. Drucker the general sources of innovations are different changes in industry structure, in market structure, in local and global demographics, in human perception, mood and meaning, in the amount of already available scientific knowledge, etc. Also, internet research, developing of people skills, language development, cultural background, skype, facebook, etc. In the simplest linear model of innovation the traditionally recognized source is manufacturer innovation. This is where an agent (person or business) innovates in order to sell the innovation. Another source of innovation, only now becoming widely recognized, is end-user innovation. This is where an agent (person or company) develops an innovation for their own (personal or in-house) use because existing products do not meet their needs. MIT economist Eric von Hippel has identified end-user innovation as, by far, the most important and critical in his classic book on the subject, Sources of Innovation.^[9] In addition, the famous robotics engineer Joseph F. Engelberger asserts that innovations require only three things: 1. A recognized need, 2. Competent people with relevant technology, and 3. Financial support. ^[10]

Innovation by businesses is achieved in many ways, with much attention now given to formal research and development (R&D) for "breakthrough innovations." R&D help spur on patents and other scientific innovations that leads to productive growth in such areas as industry, medicine, engineering, and government.^[11] Yet, innovations can be developed by less formal on-the-job modifications of practice, through exchange and combination of professional experience and by many other routes. The more radical and revolutionary innovations tend to emerge from R&D, while more incremental innovations may emerge from practice – but there are many exceptions to each of these trends.

An important innovation factor includes customers buying products or using services. As a result, firms may incorporate users in focus groups (user centred approach), work closely with so called lead users (lead user approach) or users might adapt their products themselves. U-STIR, a project to innovate Europe’s surface transportation system, employs such workshops. ^[12] Regarding this user innovation, a great deal of innovation is done by those actually implementing and using technologies and products as part of their normal activities. In most of the times user innovators have some personal record motivating them. Sometimes user-innovators may become entrepreneurs, selling their product, they may choose to trade their innovation in exchange for other innovations, or they may be adopted by their suppliers. Nowadays, they may also choose to freely reveal their innovations, using methods like open source. In such networks of innovation the users or communities of users can further develop technologies and reinvent their social meaning.^[13]

Value of experimentation

When an innovative idea requires a better business model, or radically redesigns the delivery of value to focus on the customer, a real world experimentation approach increases the chances of market success. Potentially innovative business models and customer experiences can't be tested through traditional market research methods. Pilot programs for new innovations set the path in stone too early thus increasing the costs of failure. On the other hand, the good news is that recent years have seen considerable progress in identifying important key factors/principles or variables that affect the probability of success in innovation. Of course, building successful businesses is such a complicated process, involving subtle interdependencies among so many variables in dynamic systems, that it is unlikely to ever be made perfectly predictable. But the more business can master the variables and experiment, the more they will be able to create new companies, products, processes and services that achieve what they hope to achieve.^[14][15]

Goals/failures

Programs of organizational innovation are typically tightly linked to organizational goals and objectives, to the business plan, and to market competitive positioning. One driver for innovation programs in corporations is to achieve growth objectives. As Davila et al. (2006) notes, "Companies cannot grow through cost reduction and reengineering alone... Innovation is the key element in providing aggressive top-line growth, and for increasing bottom-line results." ^[16]

One survey across a large number of manufacturing and services organizations found, ranked in decreasing order of popularity, that systematic programs of organizational innovation are most frequently driven by: Improved quality, Creation of new markets, Extension of the product, range, Reduced labor costs, Improved production processes, Reduced materials, Reduced environmental damage, Replacement of products/services, Reduced energy consumption, Conformance to regulations.^[16]

These goals vary between improvements to products, processes and services and dispel a popular myth that innovation deals mainly with new product development. Most of the goals could apply to any organisation be it a manufacturing facility, marketing firm, hospital or local government. Whether innovation goals are successfully achieved or otherwise depends greatly on the environment prevailing in the firm.^[17]

Conversely, failure can develop in programs of innovations. The causes of failure have been widely researched and can vary considerably. Some causes will be external to the organization and outside its influence of control. Others will be internal and ultimately within the control of the organization. Internal causes of failure can be divided into causes associated with the cultural infrastructure and causes associated with the innovation process itself. Common causes of failure within the innovation process in most organisations can be distilled into five types: Poor goal definition, Poor alignment of actions to goals, Poor participation in teams, Poor monitoring of results, Poor communication and access to information. ^[18]

Diffusion

Once innovation occurs, innovations may be spread from the innovator to other individuals and groups. This process has been proposed that the life cycle of innovations can be described using the 's-curve' or diffusion curve. The s-curve maps growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point customers begin to demand and the product growth increases more rapidly. New incremental innovations or changes to the product allow growth to continue. Towards the end of its life cycle growth slows and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return.

The s-curve derives from an assumption that new products are likely to have "product life". i.e. a start-up phase, a rapid increase in revenue and eventual decline. In fact the great majority of innovations never get off the bottom of the curve, and never produce normal returns.

Innovative companies will typically be working on new innovations that will eventually replace older ones. Successive s-curves will come along to replace older ones and continue to drive growth upwards. In the figure above the first curve shows a current technology. The second shows an emerging technology that currently yields lower growth but will eventually overtake current technology and lead to even greater levels of growth. The length of life will depend on many factors.^[19]

Measures

There are two fundamentally different types of measures for innovation: the organizational level and the political level.

Organizational level

The measure of innovation at the organizational level relates to individuals, team-level assessments, and private companies from the smallest to the largest. Measure of innovation for organizations can be conducted by surveys, workshops, consultants or internal benchmarking. There is today no established general way to measure organizational innovation. Corporate measurements are generally structured around balanced scorecards which cover several aspects of innovation such as business measures related to finances, innovation process efficiency, employees' contribution and motivation, as well benefits for customers. Measured values will vary widely between businesses, covering for example new product revenue, spending in R&D, time to market, customer and employee perception & satisfaction, number of patents, additional sales resulting from past innovations. ^[20]

Political level

For the political level, measures of innovation are more focused on a country or region competitive advantage through innovation. In this context, organizational capabilities can be evaluated through various evaluation frameworks, such as those of the European Foundation for Quality Management. The OECD Oslo Manual (1995) suggests standard guidelines on measuring technological product and process innovation. Some people consider the Oslo Manual complementary to the Frascati Manual from 1963. The new Oslo manual from 2005 takes a wider perspective to innovation, and includes marketing and organizational innovation. These standards are used for example in the European Community Innovation Surveys. ^[21]

Other ways of measuring innovation have traditionally been expenditure, for example, investment in R&D (Research and Development) as percentage of GNP (Gross National Product). Whether this is a good measurement of innovation has been widely discussed and the Oslo Manual has incorporated some of the critique against earlier methods of measuring. The traditional methods of measuring still inform many policy decisions. The EU Lisbon Strategy has set as a goal that their average expenditure on R&D should be 3% of GDP. ^[22]

Indicators

Many scholars claim that there is a great bias towards the "science and technology mode" (S&T-mode or STI-mode), while the "learning by doing, using and interacting mode" (DUI-mode) is widely ignored. For an example, that means you can have the better high tech or software, but there are also crucial learning tasks important for innovation. But these measurements and research are rarely done.

A common industry view (unsupported by empirical evidence) is that comparative cost-effectiveness research (CER) is a form of price control which, by reducing returns to industry, limits R&D expenditure, stifles future innovation and compromises new products access to markets.^[23] Some academics claim the CER is a valuable value-based measure of innovation which accords truly significant advances in therapy (those that provide 'health gain') higher prices than free market mechanisms.^[24] Such value-based pricing has been viewed as a means of indicating to industry the type of innovation that should be rewarded from the public purse.^[25] The Australian academic Thomas Alured Faunce has developed the case that national comparative cost-effectiveness assessment systems should be viewed as measuring 'health innovation' as an evidence-based concept distinct from valuing innovation through the operation of competitive markets (a method which requires strong anti-trust laws to be effective) on the basis that both methods of assessing innovation in pharmaceuticals are mentioned in annex 2C.1 of the AUSFTA.^[26][27][28]

Measurement indices

Several indexes exist that attempt to measure innovation include:

• The Innovation Index, developed by the Indiana Business Research Center, to measure innovation capacity at the county or regional level in the U.S.^[29]
• The State Technology and Science Index, developed by the Milken Institute is a U.S. wide benchmark to measure the science and technology capabilities that furnish high paying jobs based around key components.
• The Oslo Manual is focused on North America, Europe, and other rich economies.
• The Bogota Manual, similar to the above, focuses on Latin America and the Caribbean countries.
• The Creative Class developed by Richard Florida
• The Innovation Capacity Index (ICI) published by a large number of international professors working in a collaborative fashion. The top scorers of ICI 2009–2010 being: 1. Sweden 82.2; 2. Finland 77.8; and 3. United States 77.5.
• The Global Innovation Index is a global index measuring the level of innovation of a country, produced jointly by The Boston Consulting Group (BCG), the National Association of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM's nonpartisan research affiliate. NAM describes it as the "largest and most comprehensive global index of its kind".
• The INSEAD Global Innovation Index
• The INSEAD Innovation Efficacy Index

Global innovation index

This section is outdated. Please update this section to reflect recent events or newly available information. Please see the talk page for more information. (August 2011)

This international innovation index is part of a large research study that looks at both the business outcomes of innovation and government's ability to encourage and support innovation through public policy. The study comprised a survey of more than 1,000 senior executives from NAM member companies across all industries; in-depth interviews with 30 of the executives; and a comparison of the "innovation friendliness" of 110 countries and all 50 U.S. states. The findings are published in the report, "The Innovation Imperative in Manufacturing: How the United States Can Restore Its Edge."^[30]

The report discusses not only country performance but also what companies are doing and should be doing to spur innovation. It looks at new policy indicators for innovation, including tax incentives and policies for immigration, education and intellectual property.

The latest index was published in March 2009.^[31] To rank the countries, the study measured both innovation inputs and outputs. Innovation inputs included government and fiscal policy, education policy and the innovation environment. Outputs included patents, technology transfer, and other R&D results; business performance, such as labor productivity and total shareholder returns; and the impact of innovation on business migration and economic growth. The following is a list of the twenty largest countries (as measured by GDP) by the International Innovation Index:

Rank	Country	Overall	Innovation Inputs	Innovation Performance
1	South Korea	2.26	1.75	2.55
2	United States	1.80	1.28	2.16
3	Japan	1.79	1.16	2.25
4	Sweden	1.64	1.25	1.88
5	Netherlands	1.55	1.40	1.55
6	Canada	1.42	1.39	1.32
7	United Kingdom	1.42	1.33	1.37
8	Germany	1.12	1.05	1.09
9	France	1.12	1.17	0.96
10	Australia	1.02	0.89	1.05
11	Spain	0.93	0.83	0.95
12	Belgium	0.86	0.85	0.79
13	China	0.73	0.07	1.32
14	Italy	0.21	0.16	0.24
15	India	0.06	0.14	−0.02
16	Russia	−0.09	−0.02	−0.16
17	Mexico	−0.16	0.11	−0.42
18	Turkey	−0.21	0.15	−0.55
19	Indonesia	−0.57	−0.63	−0.46
20	Brazil	−0.59	−0.62	−0.51

Government policies

Given the noticeable effects on efficiency, quality of life, and productive growth, innovation is a key factor in society and economy. Consequently, policymakers are working to develop environments that will foster innovation and its resulting positive benefits. For instance, experts are advocating that the U.S. federal government launch a National Infrastructure Foundation, a nimble, collaborative strategic intervention organization that will house innovations programs from fragmented silos under one entity, inform federal officials on innovation performance metrics, strengthen industry-university partnerships, and support innovation economic development initiatives, especially to strengthen regional clusters. Because clusters are the geographic incubators of innovative products and processes, a cluster development grant program would also be targeted for implementation. By focusing on innovating in such areas as precision manufacturing, information technology, and clean energy, other areas of national concern would be tackled including government debt, carbon footprint, and oil dependence. ^[11] The U.S. Economic Development Administration understand this reality in their continued Regional Innovation Clusters initiative. ^[32] In addition, federal grants in R&D, a crucial driver of innovation and productive growth, should be expanded to levels similar to Japan, Finland, South Korea, and Switzerland in order to stay globally competitive. Also, such grants should be better procured to metropolitan areas, the essential engines of the American economy. ^[11]

Many countries recognize the importance of research and development as well as innovation including Japan’s Ministry of Education, Culture, Sports, Science and Technology (MEXT);^[33] Germany’s Federal Ministry of Education and Research;^[34] and the Ministry of Science and Technology in the People’s Republic of China [1]. Furthermore, Russia’s innovation programme is the Medvedev modernisation programme which aims at creating a diversified economy based on high technology and innovation. Also, the Government of Western Australia has established a number of innovation incentives for government departments. Landgate was the first Western Australian government agency to establish its Innovation Program.^[35] The Cairns Region established the Tropical Innovation Awards in 2010 open to all businesses in Australia.^[36]. The 2011 Awards were extended to include participants from all Tropical Zone Countries.

See also

References

External links

• Academic article on Being a Systems Innovator on SSRN
• "Communication on Innovation policy: updating the Union's approach in the context of the Lisbon strategy" – The European Commission.
• Commission proposes 2009 to become European Year of Creativity and Innovation – The European Commission.
• PRO-INNO Europe – Innovation policy analysis and development throughout Europe (Initiative of the European Commission).
• 12 Innovations that Changed the World
• Ulrich Hottelet: Invented in Germany - made in Asia , Asia Pacific Times, October 2007