INNOVATION Warwick Business School Key learning objectives Understand
INNOVATION Warwick Business School
Key learning objectives Understand the key terms and measures in innovation Be able to evaluate key explanations for how innovation occurs Be able to discuss how business size impacts on innovation Warwick Business School
Invention and Innovation Invention is ‘the first occurrence of an idea for a new product or process’ Innovation is ‘…the first commercialisation of the idea’ (Fagerberg, 2003: 3) Mousetrap inventions and innovations Astebro (2003) suggests that the returns from invention are often likely to be minimal Invention and innovation critical to economic development: need ‘creative destruction’ Warwick Business School
Schumpeter’s five types of radical innovation 1. 2. 3. 4. 5. Introduction of a new method of production (Production lines) Opening up of new market (East India Company) The conquest of a new source of supply of raw materials or half manufactured goods (steel) The creation of a new type of industrial organisation (franchise) Introduction of a new good or significant improvement (PCs) Warwick Business School
Measuring innovation: input measures R&D expenditure or the number of R&D ‘workers’ employed Not necessarily correlated with innovation output Biased towards the large business Small business innovation spread throughout business rather than restricted to the R&D department Limited measure of innovation Warwick Business School
Measuring innovation: intermediate output measures Measures can be patents applied for, granted or number of new product announcements Patents are a negative right which ‘shelter’ the innovator Governments agree to patent protection to foster innovative activity (otherwise entrepreneurs may not innovate) and to promote ‘spillover’ benefits Advantages: Better measure because patents are costly so minimises ‘trivial’ patents Better measure of innovation output than R&D expenditure/workers Warwick Business School
Problems with patents Not the only type of IPR: Design rights Copyright Trademarks Cost of patenting Difficulties in enforcing IPR rights Use of alternative strategies (e. g. trade secrets, reverse engineering) Warwick Business School
Large businesses make more use of IPR Warwick Business School
Problems with intermediate measures Large businesses more likely to use IPR New product announcements are not always a reliable measure of product innovation Patents/product announcements more a measure of technological activity than innovation Warwick Business School
Direct measures of innovation Involves asking businesses about their innovation Advantage is that an innovation fertility measure (innovation/employment) can be constructed But problems of subjective opinions and hindsight bias No measure is perfect Warwick Business School
How does innovation occur? Not just about inputs (exogenous) but also being ‘smart’ (endogenous) Spillover effects – incremental changes to product and process innovations Path dependent and context specific Warwick Business School
Kondratieff waves Warwick Business School
Technological paradigm approach Warwick Business School
Steam, electricity and petrol Warwick Business School
Schumpeter Mark I and II Mark II Warwick Business School • Behaviour is key • Creative destruction • Economic change • Achieved by dynamic entrepreneurs • Resources are key • Creative accumulation • Economic change • Achieved by large firms making changes to price/quality
Evidence on Mark I and II Superficially, evidence tends to support Mark II Large businesses much more innovative than smaller businesses Warwick Business School
Evidence on Mark I and II Evidence now suggests that innovation is dependent on Sector (concentration) Life cycle stage of sector (new vs mature) Mark II perspective ignores innovation rate (innovation/employment) of small businesses Spillover effects (Cambridge) Warwick Business School
Conclusions Measuring innovation is difficult Can delineate broad patterns of innovative activity but still cannot ‘pick winners’ Innovation amongst small and large businesses is context (sector) specific and assessments need to account for dynamic (spillover) activities Warwick Business School
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