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Figure 1.1. Driving forces of innovation

Source: Parry, Malcolm (1996), “The Role of Science Parks in the Process of Innovation” in Corsi, Carlo (ed),

Science and Innovation as Strategic Tools for Industrial and Economic Growth, Kluwer Academic Publishers, Netherlands.

Innovation is a systemic process

•In the past, the process of generation of commercial innovation was considered to be confined within the firms’ boundaries.

•This has changed in the modern knowledge-based economy: The innovation of a firm nowadays emerges from its interaction and technological cooperation with other firms, universities or research and development (R&D) organizations.

•Commercializing an innovation often requires interaction among numerous stakeholders, including financiers, suppliers, buyers, regulators, etc.

•Therefore, firms are not isolated in their innovation activities but rather perform them in collaborative networks and innovation activities are highly dependent on this external environment.

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Innovation activity results from purposeful entrepreneurial and managerial decisions

•Companies willing to engage in innovation activities need to put in place the right management structures and systems, including making innovation the responsibility of either a member of the board or a small group, in order to combine technical, marketing and business skills.

•Public institutions mandated to support a firm’s innovation activities need to put in place innovation governance structures (including science and industry councils,

foresight programmes, etc.) to ensure the right decisions are being made in relation to investment in science and technology.2

The role of public policy

•Commercializing an innovation can be an extremely difficult and cumbersome process, especially for start-up innovating entrepreneurs.

•Start-up innovating entrepreneurs need to overcome a myriad of barriers in the spheres of financing, technological, managerial, regulatory, administrative and others.

•Innovating entrepreneurs also often find it difficult to reap the benefit of their innovation due to poor protection of their intellectual property rights.

•The main role of public policy in this regard is to establish a conducive environment that supports innovating entrepreneurs in bringing their innovation to the market.

•This includes both direct support through various public agencies and also public support for the establishment of private innovation support institutions.

B.Spurring the innovation process at the firm level: key issues and actions

Getting started: issues to be addressed by the innovating entrepreneur:

•The definition of the value proposition to customers that sits within a specific market segment;

•Developing and deploying resources to successfully address this market;

•Putting the idea into a commercial context which takes account of the cost structure of the product and the commercial margins that this will provide;

•Establishing where the new product sits in a market; and

2 For more details see UNECE (2007), Creating a Conducive Environment for Higher Competitiveness and Effective National Innovation Systems. Lessons Learnt from the Experiences of UNECE Countries, New York and Geneva.

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•Defining if this is what customers are looking for and what commercial benefit it delivers.

Is the commercial environment suitable? Questions to be answered include:

•What is the problem this technology solves?

•What is the compelling need for a solution?

•Who, if anyone, has a real need for the product I propose to sell, and how many potential customers are there?

•Does technology solve the problem best – and why?

•Who are the customers and can they be accessed?

•How much, if anything, are they spending to address that need today?

•What is the value proposition to the customer?

•Does my product meet that need in a way that either saves or makes them substantial amounts of money?

•How many people will buy it?

•What is the price and can this make money?

•Is there a deal killer in the project?

•What is the unfair advantage this technology provides?

•Does the business idea offer a long-term advantage that will stand the test of time and other changes in the market?

•Is the market deliverable?

Key external factors that affect the innovation process in a company:

•The market/customers;

•Supply chains;

•The skills base they can access;

•The technology base they can access and how well this is managed in relation to accessibility;

•Business support services;

•Availability of capital to support innovation;

•Fiscal structures that support innovation;

•Business related regulations;

•Social status of business; and

•The quality of communications.

Size matters for the innovation style

Companies range in size from those that are just at the point of formation with no funds to those that dominate world markets. The vast differences in the financial status of these companies means they are likely to behave in different ways in relation to their innovationrelated activities. Some large corporations that have a significant R&D effort recognize the importance of innovation. However, they also understand that:

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•Radical innovation can disrupt their existing markets and be commercially damaging. New ideas with commercial potential are not exploited because managers fear the effect these inventions may have on their markets.

•Their internal structures and resources many not provide all the necessary skills to innovate.

How different companies respond to the challenge of innovation?

The differences in innovation style related to size/development stage are characterized in Table 1.1.

Table 1.1. Innovation style at different stages of the firm

•Typically try to commercialize is a radical innovation;

•Rely on external equity funding;

•Explore new technologies, and must develop the market for them;

•Their growth rate is unpredictable and difficult to analyze; and

•May need to experiment with different business before a successful structure is developed.