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Innovation indicators

Svein Olav NåsNIFU STEP andResearch Council of Norway

Science, Technology and Innovation IndictorsENID-PRIME summer school on S&T indicatorsAmsterdam September 1-4 2009

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My background

Researcher since early 1990’sCo-founder of STEP group in Oslo Currently analysis for policymakingOECD NESTI delegateDrafting of Oslo manualEconomics a starting pointEvolutionary approachInnovation systemsAdministrative dataFirm demography, HRSTNon-R&D innovation – embedded knowledge

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OutlinePart 1 (2x45 min): What are innovation (indicators)?

Explicit measures; Frascati family, Oslo manualCISIndirect/related measures; Other economic indicatorsOutputs and effects OECD innovation strategyMicro analysis

Part 2 (45 min): Papers and postersKnowledge investment agenda photo (Edo Haveman) Measuring innovation in emerging economies (Marins and Zawislak)The correlation between social capital and incremental innovation in small and medium enterprises (Maria Katia Orteca)

Part 3 (45 min): Needs, shortcomings and prospectsInnovation in public sectorsEntrepreneurship and firm demographySkills for innovationPolicy for innovationOther ideasDiscussion

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Introduction of new productsNew methods of productionOpening of new marketsDevelopment of new sources of supply for raw materials or other inputsCreation of new market structures in an industry

What are innovations -Schumpeter

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What are innovations - and -indicators?

New, improved, new context, knowledge, intention, economic benefit, marketed/implementedModified?, copied?, embedded?, finalised?, successful?, profitable?, public sectors?, embedded?, .. Product (good, service, solution/adventure?), process (organisation, marketing, delivery, business model?), source of raw materials?, market?Timing: For how long is it new?InputsActivitiesOutputsEffectsComplementary information?Surveys or administrative data?

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STI indicators

The Frascati family of OECD manuals STI as the starting pointR&D in Frascati the first concept – long time seriesThe conditions for and value of (academic) researchExplicit borderlines to development and innovationA broadened perspective over time (for the family)Patents as an output, trademarks, trade in intangibles (TBP), high-tech trade, scientific publications and citations Human resources (HRST) (Canberra)Globalisation – a big challenge to measurementsGeneric technologies: ICT, Biotech, nanoBusiness demographyOslo….

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R&D in Frascati

Research and experimental development (R&D) comprise creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications.

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Not R&D in Frascati

Education and trainingOther related scientific and technological activitiesOther industrial activities

Including innovationAdministration and other supportingactivities

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Oslo Manual

Oslo manual 1992Explicitly addressing the left-overs from FrascatiR&D kept as a core activityBiased towards manufacturing – TPP innovationProduct focusLimited to what was considered measurable – pragmatic approach

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Oslo…

Second edition in 1997Adaptation to services

Third edition in 2005Linkages in focusMarketing innovationOrganisational innovationRecommends measure for output from process innovations

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Oslo innovation definition 2005

An innovation is the implementation of a new or significantly improved product (good or service), process, or marketing method, or a significant organisational change. Innovations are the result of deliberate plans or activities aimed at improving the firm’s products and/or business functions. Innovations can utilise new knowledge or technologies, or can be based on new uses or combinations of existing knowledge or technologies.

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Oslo innovation activities definition 2005

Innovation activities are all scientific, technological, organisational, financial and commercial steps, including investment in new knowledge, which actually, or are intended to, lead to the implementation of new or significantly improved products, processes, marketing methods or significant organisational changes. Some may be innovative in their own right, others are not novel activities but are necessary for the implementation of innovations. Innovation activities also include basic research that (by definition) is not directly related to the development of a specific innovation.

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Oslo (CIS) type innovation

Differences between the manual and actual surveys like CIS, Canada, Australia, Brasil – which also differ..CIS the de facto standard – but variations also in CIS (countries, time)Intended to be inclusive

Diffusion; new to firm, open for “mainly developed by others”Incremental innovation; New or significantly changed

Focus and filtering by outputs; innovations launched last 3 years or activities with the intention to launch Innovative products shares of sales as output measuresActivity metrics by types of innovation activitiesR&D bias

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CIS questionnaire 2008

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What did we get from Oslo?

Better understanding of innovationInnovation is much more than R&DInnovations are everywhereUseful for micro-data analysisInternational comparisonsInnovation modes – more nuanced conceptsIncreasing number of academic publicationsGood platform for further improvements and linking to external data

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What did we not get from Oslo (so far)?

Measures are not very accurate – indicators in the true senseThere is a lack of rigorous links to explicit theory – ad hoc modellingEconomic results and effects must be added from other sourcesInsufficient information on “non-innovators” Response rates are lowLack of confidence among policymakers

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Outputs and effectsInnovation activities may result in measurable outputs, like

New products share of salesScientific publicationsPatents, trademarks

Firms are not trying to innovate, but to earn moneyGovernments are not trying to be innovative, but to create welfareEconomic results are thus the first order effectDefending a position may be a positive effect – but difficult to identify as suchSecond order effects relate to other firms and societyDifficult to judge when, where and why effects occurMetrics for effects to a large extent exist in the form of standard economic indicators – although sometimes difficult to matchModelling – and underlying theory - essential for how causal relationships are understood

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Indirect/related measures

All the other Frascati family manuals, education, HRSTOther economic indicators, accounts, employment, wages, industry structure, market shares New firm formation; entrepreneurship and firm demography, FDIThe timing issue: causality, panel dataImmeasurable effects: Things we don’t see or count, keeping positionPublic sectors without measurable outputSocial versus private effects and benefitsAnything new or only useful new – which is??Indirect effects – input output tablesPolicy interventions

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OECD innovation strategyInitiated by Ministers 2007 – to deliver by summer 2010Broad notion of innovation as engine of sustainable growthWhole-of-government approachReferences to current crisis and global challenges“The quick pace of change and the new forms innovation is taking, require thorough consideration of what should and can be measured”

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IS – NESTI roadmapNESTI roadmap – inspired by Blue sky II, CanadaGap analysis – what we know and need to know(Econometric) analysis of micro data (CIS and similar)

CDM type productivity modelInnovation modes, cluster analysisMatching with external data; accounts, patents

Skills for innovation, HRSTInnovation in public sectorsPublic support to innovation Harmonising and rethinking R&D and innovation surveys Output indicators - results, effectsOpenness and knowledge flowsIntangible assets revisitedMeasurement of generic technologies – a common approach?

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ExtendedCDM Nordic

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CDM core model findings

20 countries, 4 with extended modelSurprisingly robust despite important problems (timing, productivity, endogeneity)Similar results across countriesInnovation inputs affect innovtion outputs positively which affects productivity positivelyThe model needs and can be refined

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Extended model in 4 countries

Confirms core model although smallercoefficientsBetter productivity measuresInclusion of output of process innovationwith positive coefficientPanel to time inputs and outputs correctlyDummies replaced with metrics wherepossibleHerfindahl index for concentration and industry characteristics, previousperformnce

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Papers and posters

Knowledge investment agenda photoEdo Haveman

Measuring innovation in emerging economies

Marins and ZawislakThe correlation between social capital and incremental innovation in small and medium enterprises

Maria Katia Orteca

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Innovation in public sectorsMake up large shares of the economiesConscious renewal and improvements going onMuch activity similar to private servicesHighly competent, utilises knowledge by persons, embedded, codified, commissions new knowledgeWhat are the public sectors?

AdministrationHealthEducationInfrastructure, securitySNA, ownership, NACE?

Public sectors are very different, nationally and across countriesAddress activities independent of sector?

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Innovation in public sectors 2What are the relevant units to address?Command lines, cost cutting, producing more efficiently Different incentive structures from businessLack of markets and prices; outputs==inputs, difficult to establish productivity measuresTwo approaches:

CIS inspired survey (Nordic, NL) Re-use/interpretation of national accounts data (UK)

Questionnaires become complex, conflicts with massive existing reporting systemsExisting data less accurate in terms of contents/definitions

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Entrepreneurship and firm demography

Economic growth and restructuring via two (interrelated) main routes:

Innovation in existing firmsFirm creation, destruction and reorganisation

The relationships needs to be investigatedFirm demography poorly understoodSuccess criteria and potential for entrepreneurship still open q.Can be studied using business registers and matched employer-employee data

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Skills for innovation“Knowledge society” interpreted to signify “more theoretical knowledge to all”:

Longer and more theoretical educationsR&D as core ingredient for innovation

Only R&D and education data available/in useInnovation means doing something different, original, new or in a new settingMost likely it involves things like ability to combine knowledge, coordinate, communicate, organise, market, establish positive relationships, trust, risk management, being visionary, seeing opportunities,…Where do we find the relevant information on this?Education is not enoughIs something hidden in CVs, other types of track records, income statements?Can the issue be surveyed – who and what should be asked?

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Policy for innovationGovenments support R&D and higher education and to some extent other types of innovation activities

Right types of education – other skills?Is R&D it – and do we supply the necessary complements?Do we manage to support other things than “things” – for business services, new business models, public services?

How much do governments effectively spend on innovation policies? Composition? Does it work? International comparisons?Are R&D tax credits better than direct support, crowding out or additionality?What innovation related bi-effects occur from all other types of regulations?Are anti-trust policies conducive for innovation, from a national perspective?Is the national level relevant for statistics on operations that are global in nature?