Measuring Innovation in Developing Countries

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Measuring Innovation in Developing Countries
SEMINAR WORKSHOP ON SCIENCE, TECHNOLOGY AND
INNOVATION INDICATORSGaborone, Botswana22-25
Sept 2008
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WHY measuring innovation?

• The relationship between innovation and economic
  development is widely acknowledged.
• Innovation policy should be evidence-based.

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The innovation measurement framework
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Chain-linked model of innovation (Rosenberg
Kline, 1986)
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Symbols
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WHAT is innovation

• Aninnovationis 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.

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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 firms business
  practices, workplace organisation or external
  relations.

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Degree of novelty

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

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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 firms 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.

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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 firms
  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 market.
• 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.

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Innovation activities

• Innovation activitiesare 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
  RD that is not directly related to the
  development of a specific innovation.

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Innovation activities for product and process
innovations

• Intramural (in-house) RD This comprises all RD
  conducted by the enterprise, including basic
  research.
• Acquisition of RD (extramural RD) RD
  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 RD.
• 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 RD.
• 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.

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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.

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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
  innovation.

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Classifying firms by degree of innovativeness

• 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.

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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.

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Objectives and effects of innovation

• Competition, demand and markets
• Replace products being phased out
• Increase range of goods and services
• Develop environment-friendly products
• Increase or maintain market share
• Enter new markets
• Increase visibility or exposure for products
• Reduced time to respond to customer needs
• Production and delivery
• Improve quality of goods and services
• Improve flexibility of production or service
  provision
• Increase capacity of production or service
  provision
• Reduce unit labour costs
• Reduce consumption of materials and energy
• Reduce product design costs
• Achieve industry technical standards

• Reduce production lead times
• Reduce operating costs for service provision
• Increase efficiency or speed of supplying and/or
  delivering goods or services
• Improve IT capabilities
• Workplace organisation
• Improve communication and interaction among
  different business activities
• Increase sharing or transferring of knowledge
  with other organisations
• Increase the ability to adapt to different client
  demands
• Develop stronger relationships with customers
• Improve working conditions
• Other
• Reduce environmental impacts or improve health
  and safety
• Meet regulatory requirements

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Factors hampering innovation activities

• Knowledge factors
• Innovation potential (RD, design, etc.)
  insufficient
• Lack of qualified personnel Within the
  enterprise / In the labour market
• Lack of information on technology / markets
• Deficiencies in the availability of external
  services
• Difficulty in finding co-operation partners for
  Product or process development / Marketing
  partnerships
• Organisational rigidities within the enterprise
  Attitude of personnel/ managers towards change,
  Managerial structure of enterprise
• Inability to devote staff to innovation activity
  due to production requirements
• Institutional factors
• Lack of infrastructure
• Weakness of property rights
• Legislation, regulations, standards, taxation

• Cost factors
• Excessive perceived risks
• Cost too high
• Lack of funds within the enterprise
• Lack of finance from sources outside the
  enterprise Venture capital / Public sources of
  funding
• Market factors
• Uncertain demand for innovative goods or services
• Potential market dominated by established
  enterprises
• Other reasons for not innovating
• No need to innovate due to earlier innovations
• No need because of lack of demand for innovations

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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.

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Linkages

• 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 linkages.
• 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).

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Data collection The survey approach

• 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.

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Innovation RD surveys

• RD and innovation are related phenomena which
  can lead some countries to consider the
  combination of RD and innovation surveys. There
  are a number of points for and against
• 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
  RD and innovation activities at the unit level.
• Units not familiar with the concepts of RD 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 RD surveys. Combining them might
  involve sending questions about RD to a large
  number of non-RD 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.

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Expenditures

• 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
  RD are included in intramural RD, while non-RD
  capital expenditures linked to product and
  process innovations are included in acquisition
  of machinery, equipment and other capital goods.
  Non-RD 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 expenditure.

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Classification by main economic activity

• 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.

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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.

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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 units.

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Annex to the Oslo Manual

• After the publication of the 2nd Oslo Manual,
  also developing countries started conducting
  innovation surveys.
• 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 ST Indicators) first effort to
  compile particularities and guide the design of
  cross-nationally comparable innovation surveys.

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Annex to OM (continued)

• 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,
  Tanzania, and Thailand.
• UIS drafted the final annex based on this input.

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Characteristics of innovation in developing
countries

• Size and structure of markets and firms
• Instability
• Informality
• Particular economic and innovation environments
• Reduced innovation decision-making powers
• Weak innovation systems
• Characteristics of innovation

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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

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Principal adaptations

• ICTs in innovation surveys
• strategic use of new technologies (Front office
  vs Back office)
• Linkages
• linkage agents and types of linkage
• geographical location of linkages
• 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 training
• Quality and environmental management

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Methodological issues for developing country
contexts

• Information systems specificities weakness of
  statistical systems
• Application of the survey
• Questionnaire design
• Frequency
• Publication
• Difficulties

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Thinking ahead

• The role of entrepreneurs and their attitudes
  towards innovation.
• 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.

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Issues arising in the follow-up to the Annex

• Innovation in informal sector?
• Innovation from traditional knowledge?
• Surveying innovation, rather than RD, in
  business (and informal) sector?

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Thank you!

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