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Measuring innovation


									 Measuring innovation

                                                         Cairo, Egypt
                                                28-30 September 2009

            Measuring Innovation
Oslo Manual - 2005: (Guidelines
for collecting and interpreting
innovation data)
(central reference document for the statistical
definition of innovation and forms the basis for
surveys of innovation throughout the world)

UIS - Annex to the Oslo Manual
Measuring Innovation in
Developing countries

        WHY measure innovation?

 Innovation – key to the growth of output and
 The relationship between innovation and
  economic development is widely
 Innovation policy should be evidence-based.
 Innovation data – to better understand
  innovation and its relation to economic
  growth; to provide indicators for
  benchmarking national performance.
      WHAT is 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.

                        The innovation measurement framework

Business enterprise (all firms, organisations and institutions whose primary activity is the market production of
goods or services (other than higher education) for sale to the general public at an economically significant price,
as well as the private non-profit institutions mainly serving them. Includes public enterprises). This includes
„private enterprises‟ as well as „public enterprises‟.                            
Chain-linked model of innovation
(Rosenberg & Kline, 1986)


           Types of innovations

 Product innovation: 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.
 Process innovation: implementation of a new or significantly
  improved production or delivery method. This includes
  significant changes in techniques, equipment and/or software.
 Marketing innovation: implementation of a new marketing
  method involving significant changes in product design or
  packaging, product placement, product promotion or pricing.
 Organisational innovation: implementation of a new
  organisational method in the firm‟s business practices,
  workplace organisation or external relations.
         Degree of novelty

 Diffusion
 New to the firm
 New to the market
 New to the world
 Disruptive innovations

           Degree of novelty

 Diffusion is the way in which innovations spread, through
  market or non-market channels, from their first worldwide
  implementation to different consumers, countries, regions,
  sectors, markets, and firms. Without diffusion, an
  innovation will have no economic impact. The minimum
  entry for a change in a firm‟s products or functions to be
  considered as an innovation is that it must be new (or
  significantly improved) to the firm.
 New to the firm: A product, process, marketing method, or
  organisational method can already have been implemented
  by other firms, but if it is new to the firm (or in case of
  products and processes: significantly improved), then it is
  an innovation for that firm.

              Degree of novelty (continued)
 New to the market:
   • the firm is the first to introduce the innovation onto its market.
   • The market is defined as the firm and its competitors.
   • The geographical scope is subject to the firm‟s own view of its
     operating market and thus can include both domestic and
     international firms.
 New to the world:
   • the firm is the first to introduce the innovation for all markets and
     industries, domestic and international.
   • implies a qualitatively greater degree of novelty than new to the
 Disruptive innovations:
   • an innovation that has a significant impact on a market and on the
     economic activity of firms in that market.
   • focuses on the impact of innovations as opposed to their novelty.
   • These impacts can, for example, change the structure of the
     market, create new markets, or render existing products obsolete.
     However, it might not be apparent whether an innovation is
     disruptive until long after the innovation has been introduced.

       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.

                  Innovation activities for product
                  and process innovations
   Intramural (in-house) R&D: This comprises all R&D conducted by the enterprise,
    including basic research.
   Acquisition of R&D (extramural R&D): R&D purchased from public or private
    research organisations or from other enterprises (including other enterprises within
    the group).
   Acquisition of other external knowledge: Acquisition of rights to use patents and
    non-patented inventions, trademarks, know-how and other types of knowledge from
    other enterprises and institutions such as universities and government research
    institutions, other than R&D.
   Acquisition of machinery, equipment and other capital goods: Acquisitions of
    advanced machinery, equipment, computer hardware or software, and land and
    buildings (including major improvements, modifications and repairs), that are
    required to implement product or process innovations.
   Other preparations for product and process innovations: Other activities related
    to the development and implementation of product and process innovations, such as
    design, planning and testing for new products (goods and services), production
    processes, and delivery methods that are not already included in R&D.
   Market preparations for product innovations: Activities aimed at the market
    introduction of new or significantly improved goods or services.
   Training: Training (including external training) linked to the development of product
    or process innovations and their implementation.

         Innovation activities for marketing
         and organisational innovations
 Preparations for marketing innovations:
  Activities related to the development and
  implementation of new marketing methods.
  Includes acquisitions of other external knowledge
  and other capital goods that are specifically
  related to marketing innovations.
 Preparations for organisational innovations:
  Activities undertaken for the planning and
  implementation of new organisation methods.
  Includes acquisitions of other external knowledge
  and other capital goods that are specifically
  related to organisational innovations.

         Kinds of innovation activities

 Successful in having resulted in the
  implementation of a new innovation (though they
  need not have been commercially successful).
 Ongoing, work in progress, which has not yet
  resulted in the implementation of an innovation.
 Abandoned before the implementation of an

            Classifying firms by degree of
 The innovative firm is one that has introduced an
  innovation during the period under review. The innovations
  need not have been a commercial success – many
  innovations fail.
 An innovation active firm is one that has had innovation
  activities during the period under review, including those
  with ongoing and abandoned activities. In other words,
  firms that have had innovation activities during the period
  under review, regardless of whether the activity resulted in
  the implementation of an innovation, are innovation active.
 A potentially innovative firm is one type of “innovation
  active firm”, that has made innovation efforts but not
  achieved results. This is a key element in innovation
  policies: to help them overcome the obstacles that
  prevent them from being innovative (converting efforts
  into innovations) – Annex for developing countries.
         Factors influencing innovation

 Objectives: Identifying enterprises‟ motives for
  innovating and measuring their importance
 Hampering factors: reasons for not starting
  innovation activities at all, or factors that slow
  innovation activity or have a negative effect on
  expected results. These include economic factors,
  such as high costs or lack of demand, enterprise
  factors such as lack of skilled personnel or
  knowledge, and legal factors such as regulations
  or tax rules. The ability of enterprises to
  appropriate the gains from their innovation
  activities is also a factor affecting innovation.

                Objectives and effects of
 Competition, demand and                   •   Reduce production lead times
  markets                                   •   Reduce operating costs for service
•   Replace products being phased out           provision
•   Increase range of goods and services    •   Increase efficiency or speed of
                                                supplying and/or delivering goods or
•   Develop environment-friendly products       services
•   Increase or maintain market share       •   Improve IT capabilities
•   Enter new markets
•   Increase visibility or exposure for      Workplace organisation
    products                                •   Improve communication and interaction
•   Reduced time to respond to customer         among different business activities
    needs                                   •   Increase sharing or transferring of
                                                knowledge with other organisations
 Production and delivery                   •   Increase the ability to adapt to different
•   Improve quality of goods and services       client demands
•   Improve flexibility of production or    •   Develop stronger relationships with
    service provision                           customers
•   Increase capacity of production or      •   Improve working conditions
    service provision
•   Reduce unit labour costs                 Other
•   Reduce consumption of materials and     •   Reduce environmental impacts or
    energy                                      improve health and safety
•   Reduce product design costs             •   Meet regulatory requirements
•   Achieve industry technical standards

                      Factors hampering innovation
 Knowledge factors:                                    Cost factors:
•   Innovation potential (R&D, design, etc.)           •   Excessive perceived risks
    insufficient                                       •   Cost too high
•   Lack of qualified personnel: Within the            •   Lack of funds within the enterprise
    enterprise / In the labour market                  •   Lack of finance from sources outside the
•   Lack of information on technology / markets            enterprise: Venture capital / Public sources
•   Deficiencies in the availability of external           of funding
•   Difficulty in finding co-operation partners         Market factors:
    for: Product or process development /              •   Uncertain demand for innovative goods or
    Marketing partnerships                                 services
•   Organisational rigidities within the               •   Potential market dominated by established
    enterprise: Attitude of personnel/ managers            enterprises
    towards change, Managerial structure of
    enterprise                                          Other reasons for not
•   Inability to devote staff to innovation activity     innovating:
    due to production requirements
                                                       •   No need to innovate due to earlier
 Institutional factors:                                   innovations
•   Lack of infrastructure                             •   No need because of lack of demand for
•   Weakness of property rights
•   Legislation, regulations, standards, taxation

         Impacts and outcomes

 Impacts of innovations on firm performance range
  from effects on sales and market share to changes
  in productivity and efficiency. Important impacts at
  industry and national levels are changes in
  international competitiveness and in total factor
  productivity, knowledge spillovers of firm-level
  innovations, and an increase in the amount of
  knowledge flowing through networks.
 The outcomes of product innovations can be
  measured by the percentage of sales derived from
  new or improved products.

   The innovative activities of a firm partly depend on the variety and structure of
    its links to sources of information, knowledge, technologies, practices, and
    human and financial resources. Each linkage connects the innovating firm to
    other actors in the innovation system: government laboratories, universities,
    policy departments, regulators, competitors, suppliers, and customers.
    Innovation surveys can obtain information on the prevalence and importance of
    different types of linkages, plus the factors that influence the use of specific
 Types of external linkages:
     • Open information sources provide openly available information that does
       not require the purchase of technology or intellectual property rights, or
       interaction with the source.
     • Acquisition of knowledge and technology are purchases of external
       knowledge and capital goods (machinery, equipment, software) and
       services embodied with new knowledge or technology that do not involve
       interaction with the source.
     • Innovation co-operation is active co-operation with other firms or public
       research institutions for innovation activities (which may include purchases
       of knowledge and technology).

                                                                  Open        Sources for   Co-operation
Sources for transfers of                                       information   purchases of     partners
knowledge and technology                                         sources      knowledge
                                                                             & technology

Internal sources within the enterprise:                             *
    R&D                                                             *
    Production                                                      *
    Marketing                                                       *
    Distribution                                                    *

Other enterprises within the enterprise group                       *             *              *

External market and commercial sources:
    Competitors                                                     *             *              *
    Other enterprises in the industry                               *             *              *
    Clients or customers                                            *                            *
    Consultants/consultancy firms                                                 *              *
    Suppliers                                                       *             *              *
    Commercial laboratories                                         *             *              *

Public sector sources:
    Universities and other higher education institutions            *             *              *
    Government/public research institutes                           *             *              *
    Private non profit research institutes                          *             *              *
    Specialised public innovation support svcs                      *             *              *

General information sources:
    Patent disclosures / Professional conferences, meetings,        *
    literature and journals / Fairs and exhibitions /
    Professional associations, trade unions / Other local
    associations / Informal contacts or networks / Standards
    or standardisation agencies / Public regulations (i.e.            
           Data collection: The survey
 The “subject” based approach starts from the innovative
  behaviour and activities of the firm as a whole. The idea is
  to explore the factors influencing the innovative behaviour
  of the firm (strategies, incentives and barriers to
  innovation) and the scope of various innovation activities,
  and above all to examine the outputs and effects of
  innovation. These surveys are designed to be
  representative of all industries so the results can be
  grossed up and comparisons made between industries.
 The “object” approach involves the collection of data about
  specific innovations (usually a „significant innovation‟ of
  some kind, or the main innovation of a firm). The approach
  involves collecting some descriptive, quantitative and
  qualitative data about the particular innovation at the same
  time as data is sought about the firm.
                Innovation & R&D surveys
 R&D and innovation are related phenomena which can lead
  some countries to consider the combination of R&D and
  innovation surveys. There are a number of points for and
   •Overall response burden of the reporting units will be reduced.
   •Length of questionnaire could lead to a decline in response rates.
   •Possibility of analysing the relations between R&D and innovation activities at the
    unit level.
   •Units not familiar with the concepts of R&D and innovation can confuse them.
   •Efficient method of increasing the frequency of innovation surveys.
   •The frames for the two surveys will generally be different. For example, the frame
    population for innovation surveys may cover industrial classifications (and small
    units) that are not included in R&D surveys. Combining them might involve sending
    questions about R&D to a large number of non-R&D performers that are included
    in the frame population for the innovation survey, and this would increase the cost
    of the joint survey.

 In principle, other business surveys can also be merged with
  innovation surveys, including surveys on the diffusion of ICTs,
  and on the adoption of knowledge management practices.

 Total expenditure for innovation activities comprises
  current and capital expenditure incurred for the innovation
  activities defined above. Current innovation expenditures
  are composed of labour costs and other current costs.
  Capital expenditures for innovations are composed of
  gross expenditures on land and buildings, on instruments
  and equipment and on computer software. Capital
  expenditures that are part of R&D are included in
  intramural R&D, while non-R&D capital expenditures linked
  to product and process innovations are included in
  acquisition of machinery, equipment and other capital
  goods. Non-R&D capital expenditures specifically linked to
  marketing or organisational innovations are included in
  preparations for marketing innovations and preparations for
  organisational innovations, respectively. The remaining
  categories of innovation activity consist solely of current

          Classification by main economic
 Statistical units of innovation surveys can be
  broken down by different classifications. The most
  important classification is the principal economic
  activity of the statistical unit (“industry”). The
  International Standard Industrial Classification
  (ISIC Rev. 3.1) is the appropriate international
  classifications for this purpose. Countries that use
  a national industrial classification system rather
  than ISIC Rev. 3.1 should use concordance tables
  to convert their industrially classified data to ISIC
  Rev. 3.1.

            Classification by size – detailed:
            number of employees
 0
 1-9
 10 - 49
 50 - 99
 100 - 249
 250 - 499
 500 - 999
 1 000 - 4 999
 5 000 and above.

           Classification by type of institution

 Private enterprise:
  • National (no Controlled Affiliates (CA) abroad)
  • Multinational:
     » Foreign-controlled affiliates (where the affiliate does not control
       any other affiliates abroad).
     » Foreign-controlled affiliates with CAs (parent companies under
       foreign control).
     » Parent companies with CAs abroad (parent company not under
       foreign control).

 Public enterprise,
  • Resident non-financial corporations and quasi-
    corporations that are subject to control by government
           Annex to the Oslo Manual

 After the publication of the 2nd Oslo Manual, also
  developing countries started conducting innovation
 The design of the surveys was intended to comply
  with Oslo Manual standards, with adaptations for
  capturing the particular characteristics of innovation
  processes. Adaptations were prepared by each
  country separately and with different approaches.
 Bogotá Manual published by RICYT (Ibero American
  Network on S&T Indicators) first effort to compile
  particularities and guide the design of cross-
  nationally comparable innovation surveys.
          Annex to OM (continued)

 Annex to Oslo Manual 3rd edition: Innovation
  surveys in developing countries
 UIS circulated a base document prepared by
  RICYT to a vast network of experts in the
  developing world covering China, Thailand,
  Singapore, Malaysia, Hungary, India, Lebanon,
  South Africa, and Tanzania.
 UIS drafted the final annex based on this input.

                  Characteristics of innovation in
                  developing countries
   Size and structure of markets and firms:
    - SMEs, Large firms (operate sub optimal production scale, higher unit cost, less efficiency)
    - Competitiveness (based on cheap labour, exploitation of natural resources. Not on efficiency,
    differentiated products)  leads to fewer R&D and innovation projects.

   Instability: - wide difference in potential for innovation  limits long term innovation activity.
   Informality:          - rely on informal practices  lack of systematic application  not favourable for

   Particular economic and innovation environments:
    - prevalence of state-owned enterprises, para-statal enterprises  lack of competitiveness discourage
    innovation. Some state-owned enterprises  technological leader
    - S&T policies in countries with less developed economic system  more impact on innovation than
    strategise of private enterprises. - Innovation in agriculture sector  high economic impact.

   Reduced innovation decision-making powers:
    - externally controlled or multinational organization. Technology transfer is a fundamental source of

   Weak innovation systems: - fewer resources to innovation activities. - Government
    perform and finance R&D. - low level of resources are devoted to R&D by businesses  reduce
    innovation potential of enterprises. - weak linkages (Uni/R&D Inst/BE)  challenge capabilities to
    overcome technology related problems in BE.

   Characteristics of innovation:                                 -   acquisition   of   embodied   technology
    (equipment); Incremental changes; organizational changes.              
        Innovation measurement in
        developing countries
 The definition of innovation needs to
  remain unchanged, as well as those
 concerning its subtypes.
 The concept of potentially innovative firm
  is incorporated.
 Measurement priorities:
  • Innovation capabilities (Human resources, Linkages,
    Quality assurance systems, ICTs)
  • Expenditure on innovation activities
  • Organizational innovation

              Principal adaptations

 ICTs in innovation surveys
   • strategic use of new technologies (“Front office” vs “Back office”)

 Linkages
   • To understand firm‟s different linkages  matrix of „linkage agents‟ and
     „types of linkage‟
   • geographical location of linkages; local, regional, national

 Innovation Activities
   •   “Hardware purchase”, and “Software purchase”
   •   “Industrial design”, and “Engineering activities”
   •   “Lease or rental of machinery, equipment and other capital goods”
   •   “In-house software system development”
   •   “Reverse engineering”

 Human resources (by qualification, occupation, gender)                        +
 Quality and environmental management
                 Methodological issues for
                 developing country contexts
 Information systems specificities – relative weakness
  of statistical systems – weak linkages between „surveys‟ and „data sets‟ 
   prevent use of info. from other surveys in the design of innovation surveys. – lack of business
   registers  problems in the sample frame. – Involvement of NSO  experience in the design
   of industrial surveys; registers and background info.; higher response rate; wider-ranging
   analysis. – no basic info. on firms‟ performances (sales, investment, exports)  relationship
   between action taken by the firm for innovation and market performance.

 Application of the survey -                     interviews made in person; trained staff

 Questionnaire design – separate sections (economic data; finance div.,
   innovation process; product/plant manager). – include guidelines, definitions, present in more
   than one language

 Frequency – 3 to 4 years, high cost
 Publication – results should be published and distributed widely. Increase further
   participation and awareness.

 Difficulties – lack of appreciation of the importance of innovation. – Managers are
   secretive about finance. – lack of adequate legislative base.
             Thinking ahead
 The role of entrepreneurs and their attitudes towards
 The intention to capture innovations driven by factors other than
  market forces, and in particular innovations conducted by the
  public sector.
 The adaptation of methodology to measure innovation in the
  primary sector (particularly in agriculture).
 The need for better measuring minor or incremental
  changes, including innovative applications of existing products
  or processes, and the so-called 'backwards integration' of
  technological capability.
 The development of indicators reflecting sub-national (regional)
  innovation systems.
         Issues arising in the follow-up to
         the Annex
 Innovation in informal sector?
 Innovation from traditional knowledge?
 Surveying innovation, rather than R&D, in
  business (and informal) sector?

  Thank you!


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