Measuring innovation: Main definitions & indicators Regional Workshop on Science, Technology and Innovation (STI) Indicators for Gulf countries Doha, Qatar 15 to 17 October 2012

UIS - Annex (OM, 2005): Innovation Surveys in Developing Countries Measuring Innovation Oslo Manual: Guidelines for collecting and interpreting innovation data UIS - Annex (OM, 2005): Innovation Surveys in Developing Countries

Why measure innovation? Innovation and economic development; Innovation is more than R&D; Innovation policy should be evidence-based; Innovation data… Understanding of innovation and its relation to economic growth; Indicators for benchmarking national performance. Innovation: key to the growth of output and productivity; Much innovation activity is not R&D-based.

What is innovation? Innovation is the implementation of: New or significantly improved product or process; New marketing or organisational method. Implementation: A new or improved product is implemented when it is introduced on the market; New processes, marketing methods or organisational methods are implemented when they are brought into actual use in the firm’s operations.

The innovation measurement framework OM, p. 33

Types of innovation - Product (1) Product Innovation: Introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses; New products: different characteristics or intended uses from previous products; Significantly improvements: changes in materials, components, and other characteristics that enhance performance.

Types of innovation - Product (2) Product Innovation - examples: New products: The first microprocessors; The first digital cameras; The first portable MP3 player; Significantly improvements: Introduction of ABS braking, GPS navigational systems, or other subsystem improvements in cars; The use of breathable fabrics in clothing; Improvements in internet banking services, such as greatly improved speed and ease of use.

Types of innovation - Process (1) Process Innovation: Implementation of a new or significantly improved production or delivery method (changes in techniques, equipment and/or software); Intended to: decrease unit costs of production or delivery, increase quality, or produce or deliver new or significantly improved products.

Types of innovation - Process (2) Process Innovation - examples: Introduction of a bar-coded goods-tracking system; Introduction of GPS tracking devices for transport services; Implementation of computer-assisted design for product development; Implementation of a new reservation system in a travel agency.

Types of innovation - Marketing (1) Marketing Innovation: Implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing; Better addressing customer needs, opening up new markets, or newly positioning a firm’s product on the market  increasing firm’s sales; Marketing method NOT previously used - part of a new marketing concept or strategy; For both new and existing products.

Types of innovation - Marketing (2) Marketing Innovation: Product design or packaging: changes in form and appearance that do not alter products’ functional or user characteristics + changes in the packaging; Product placement: new sales channels; Product promotion: new concepts for promoting a firm’s goods and services; Pricing: new pricing strategies to market the firm’s goods or services.

Types of innovation - Marketing (3) Marketing Innovation - examples: Development and introduction of a fundamentally new brand symbol; First use of a significantly different media - product placement in a television programme; Introduction for the first time of a franchising system.

Types of innovation - Organisational (1) Organisational Innovation: Implementation of a new organisational method in the firm’s business practices, workplace organisation or external relations; Increase firm’s performance by reducing administrative/transaction costs, improving workplace satisfaction, accessing non-tradable assets, or reducing costs of supplies; Organisational method NOT used before - result of strategic decisions taken by management.

Types of innovation - Organisational (2) Organisational Innovation: Business practices: implementation of new methods for organising routines and procedures for the conduct of work; Workplace organisation: new methods for distributing responsibilities and decision making among employees for the division of work within and between firm activities + new concepts for the structuring of activities; External relations: new ways of organising relations with other firms or public institutions.

Types of innovation - Organisational (3) Organisational Innovation - examples: First implementation of a database of best practices; Establishment of new types of collaborations with research organisations; First implementation of an organisational model that gives the firm’s employees greater autonomy in decision making and encourages them to contribute their ideas.

Diffusion and degree of novelty Firm; Market; World; Radical innovations: Significant impact on a market; Impact of innovations (as opposed to their novelty); May become apparent only long after introduction. 211. A related concept is a radical or disruptive innovation. It can be defined as an innovation that has a significant impact on a market and on the economic activity of firms in that market. This concept focuses on the impact of innovations as opposed to their novelty. The impact can, for example, change the structure of the market, create new markets or render existing products obsolete (Christensen, 1997). However, it might not be apparent whether an innovation is disruptive until long after it has been introduced. This makes it difficult to collect data on disruptive innovations within the period reviewed in an innovation survey.

Types of innovation - example Innovation in a restaurant: Product innovation: delivery (new service); Process innovation: new type of oven (new equipment used in the production process); Organisational innovation: new delivery unit (new organisational unit/model); Marketing innovation: billposting (new media for promoting the delivery service). 211. A related concept is a radical or disruptive innovation. It can be defined as an innovation that has a significant impact on a market and on the economic activity of firms in that market. This concept focuses on the impact of innovations as opposed to their novelty. The impact can, for example, change the structure of the market, create new markets or render existing products obsolete (Christensen, 1997). However, it might not be apparent whether an innovation is disruptive until long after it has been introduced. This makes it difficult to collect data on disruptive innovations within the period reviewed in an innovation survey. Note. Source: Adapted from Heinlo, A. (2011). Measuring R&D&I in Estonia. Almaty, Kazakhstan S&T Indicators Workshop. (PowerPoint Presentation)

Innovation activities (1) Innovation activities: all scientific, technological, organisational, financial and commercial steps which (intended to) lead to the implementation of innovations; Some innovation activities are themselves innovative, others are not novel but necessary; R&D not directly related to the development of a specific innovation.

Innovation activities (2) For product and process innovations: Intramural (in-house) R&D; Acquisition of (extramural) R&D; Acquisition of other external knowledge; Acquisition of machinery, equipment and other capital goods; Other preparations for product and process innovations; Market preparations for product innovations; Training.

Innovation activities (3) Preparations for marketing innovations: Activities related to the development and implementation of new marketing methods; It includes acquisition of other external knowledge and of machinery, equipment, and other capital goods and training; Expenditures for using these methods in daily business are NOT included.

Innovation activities (4) Preparations for organisational innovations: Activities undertaken for the planning and implementation of new organisation methods; It includes acquisition of other external knowledge and of machinery, equipment, and other capital goods and training.

Kinds of innovation activities Successful - resulted in the implementation of a new innovation (not necessarily commercially successful); Ongoing - work in progress, which has not yet resulted in the implementation of an innovation; Abandoned - before the implementation of an innovation.

Classifying firms by degree of innovativeness Innovative firm: Implemented an innovation; Not necessarily a commercial success; Innovation-active firm: Had innovation activities - ongoing and/or abandoned; Regardless of implementation; Potentially innovative firm: Innovation efforts but no achieved results; Key element for innovation policy; (Annex).

Factors influencing innovation Objectives: Motives for innovating; Effects: Observed outcomes of innovations (Table 9); Impacts on firm performance; Time lag; Hampering factors: Reasons for not starting innovation activities at all; Factors that slow innovation activity or have a negative effect on expected results (Table 10).

Linkages Linkages: connections with other agents; Source, cost, level of interaction; Types of external linkages: Open information sources; Acquisition of knowledge and technology; Innovation co-operation.

Sources for transfers of knowledge and technology Open information sources Sources for purchases of knowledge & technology Co-operation partners 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 (semi) public innovation support services 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

Appropriability Ability of enterprises to appropriate gains from innovation activities: Formal methods: patents, registration of design, trademarks, copyrights, confidentiality agreements, trade secrecy; Informal methods: secrecy that is not covered by legal agreements, complexity of product design, lead time advantage over competitors.

Developing countries Innovation Surveys in Developing Countries. Developing countries  3rd ed. OM standards, adaptations; LA: the Bogota Manual (RICYT, 2001); UIS: Annex (A) to 3rd ed. OM; Innovation Surveys in Developing Countries.

Characteristics of innovation in developing countries Size and structure; Instability; Informality; Particular economic and innovation environments; Reduced innovation decision-making powers; Weak innovation systems; Characteristics of innovation.

Characteristics of innovation in developing countries Potentially innovative firm; Measurement priorities - why / what / how: Innovation capabilities (HR, Linkages, ICTs); Expenditure on innovation activities; Organisational innovation.

Adaptations ICTs in innovation surveys; Linkages: Agents + Types + Location; Innovation Activities: Hardware purchase and Software purchase (split); Industrial design and Engineering activities (split); Lease or rental of machinery, equipment and other capital goods; In-house software system development; Reverse engineering; Human resources and training.

Methodological issues for developing country contexts Weakness of statistical systems; Questionnaire design; Survey application; Frequency; Publication; Difficulties… Lack of appreciation of the importance of innovation; Managers are secretive about finance; Lack of adequate legislative base. Will be discussed later The design and planning of innovation surveys in developing countries need to take into account the relative weakness of statistical systems. Though innovation is key to their catching up process, many times little is known about it in developing countries. And this justifies the effort to run a pilot survey…

How do we measure innovation? (1) Indicators - definition: Statistics and data, often gathered through specialised surveys, are the building blocks from which indicators are constructed; An indicator can be defined as something that helps us understand where we are, where we are going and how far we are from a specific goal. Therefore it can be a sign, a number, a graphic; An indicator quantifies and simplifies phenomena and helps us understand complex realities. Source: International Institute for Sustainable Development / Adapted from Blakley, W. (2012). Providing and calculating innovation indicators. Cape Town, South Africa. ASTII/HSRC/UIS Workshop. (PowerPoint Presentation)

How do we measure innovation? (2) Indicators - definition: Basic indicators: based on “one question”; Composite indicators: combine answers to several questions in order to examine a number of policy-relevant factors and better capture the diversity of innovative firms.

Innovation indicators - examples (1) Product or process innovation: % of firms that implemented product innovation % of firms that implemented process innovation % of firms that implemented product or process innovation (innovative firms) % of firms that developed in-house product or process innovation % of firms that implemented new-to-market product innovation

Innovation indicators - examples (2) Product or process innovation: % of firms that implemented product innovation (N) = Number of firms that implemented product innovation (in each economic activity) *100 (D) = Total number of firms (in each economic activity) (N) = Number of Manufacturing firms that implemented product innovation *100 (D) = Total number of Manufacturing firms

Innovation indicators - examples (3) Product or process innovation: Source: 2011 UIS Pilot Data Collection of Innovation Statistics

Innovation indicators - examples (4) Marketing or organisational innovation: % of firms that implemented marketing innovation % of firms that implemented organisational innovation % of firms that implemented marketing or organisational innovation

Innovation indicators - examples (5) Marketing or organisational innovation: % of firms that implemented marketing or organisational innovation (N) = Number of firms that implemented marketing or organisational innovation (in each economic activity) *100 (D) = Total number of firms (in each economic activity) (N) = Number of firms in the Electrical machinery industry that implemented marketing or organisational innovation *100 (D) = Total number of firms in the Electrical machinery industry

Innovation indicators - examples (6) Inputs: Total expenditures on innovation (as a % of total turnover) Expenditure on innovation by type of expenditure (as a % of total expenditure on innovation) % of firms that performed R&D % of firms that performed R&D on a continuous basis

Innovation indicators - examples (7) Inputs: % of firms that performed R&D (N) = Number of product or process innovation-active firms that performed R&D (in each economic activity) *100 (D) = Total number of product or process innovation-active firms (in each economic activity) (N) = Number of Services product or process innovation-active firms that performed R&D *100 (D) = Total number of Services product or process innovation-active firms

Innovation indicators - examples (8) Outputs: % of turnover from product innovations (as a % of turnover) % of turnover from new-to-market product innovations (as a % of turnover)

Innovation indicators - examples (9) Outputs: % of turnover from product innovations (as a % of turnover) (N) = Turnover from product innovations (in each size class) *100 (D) = Total turnover (N) = Turnover of Small firms from product innovations *100 (D) = Total turnover of Small firms

Innovation indicators - examples (10) Key policy-relevant characteristics: % of firms that were active on international markets % of firms that co-operated with foreign partners on innovations % of firms that co-operated with universities or other higher education institutions % of firms that received public financial support for innovation % of firms that applied for one or more patents % of R&D-performing firms that co-operated with other institutions

Innovation indicators - examples (11) Key policy-relevant characteristics: % of firms that co-operated with universities or other higher education institutions (N) = Number of product or process innovation-active firms that co-operated with a specific partner *100 (D) = Total number of product or process innovation-active firms (N) = Number of product or process innovation-active firms that co-operated with universities or other higher education institutions *100 (D) = Total number of product or process innovation-active firms

Innovation indicators - examples (12) Key policy-relevant characteristics: Source: 2011 UIS Pilot Data Collection of Innovation Statistics

Innovation indicators - examples (13) Key policy-relevant characteristics: % of R&D-performing firms that co-operated with other institutions (N) = Number of R&D-performing firms that co-operated with other institutions *100 (D) = Total number of R&D-performing firms (N) = Number of R&D-performing firms that co-operated with other institutions *100 (D) = Total number of R&D-performing firms

Final remarks Data collected with innovation surveys are a important component of comparative studies about countries’ competitive performance; Strategically important for policy-makers; Data confidentiality; Data reliability.

http://www.uis.unesco.org Thank you! m.schaaper@unesco.org CIS: http://www.oecd.org/dataoecd/37/39/37489901.pdf