1. Measuring innovation
TRAINING WORKSHOP ON SCIENCE, TECHNOLOGY AND INNOVATION INDICATORS Cairo, Egypt September 2009

2. Measuring Innovation
Oslo Manual : (Guidelines for collecting and interpreting innovation data)
(central reference document for the statistical definition of innovation and forms the basis for surveys of innovation throughout the world)
UIS - Annex to the Oslo Manual Measuring Innovation in Developing countries

3. WHY measure innovation?
Innovation – key to the growth of output and productivity.
The relationship between innovation and economic development is widely acknowledged.
Innovation policy should be evidence-based.
Innovation data – to better understand innovation and its relation to economic growth; to provide indicators for benchmarking national performance.

4. WHAT is innovation
An innovation is 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.

5. The innovation measurement framework
Business enterprise (all firms, organisations and institutions whose primary activity is the market production of goods or services (other than higher education) for sale to the general public at an economically significant price, as well as the private non-profit institutions mainly serving them. Includes public enterprises). This includes ‘private enterprises’ as well as ‘public enterprises’.

6. Chain-linked model of innovation (Rosenberg & Kline, 1986)

7. Symbols

8. 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 firm’s business practices, workplace organisation or external relations.

9. Degree of novelty Diffusion New to the firm New to the market
New to the world
Disruptive innovations

10. 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 firm’s 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.

11. 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 firm’s 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.

12. Innovation activities
Innovation activities are 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 R&D that is not directly related to the development of a specific innovation.

13. Innovation activities for product and process innovations
Intramural (in-house) R&D: This comprises all R&D conducted by the enterprise, including basic research.
Acquisition of R&D (extramural R&D): R&D 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 R&D.
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 R&D.
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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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

19. Factors hampering innovation activities
Knowledge factors:
Innovation potential (R&D, 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

20. 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.

21. Linkages Types of external 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).

22. 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 public innovation support svcs
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 (i.e. environment, security)

23. 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.

24. Innovation & R&D surveys
R&D and innovation are related phenomena which can lead some countries to consider the combination of R&D 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 R&D and innovation activities at the unit level.
Units not familiar with the concepts of R&D 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 R&D surveys. Combining them might involve sending questions about R&D to a large number of non-R&D 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.

25. 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 R&D are included in intramural R&D, while non-R&D capital expenditures linked to product and process innovations are included in acquisition of machinery, equipment and other capital goods. Non-R&D 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.

26. 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.

27. Classification by size – detailed: number of employees
1 - 9
5 000 and above.

28. 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.

29. 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 S&T Indicators) first effort to compile particularities and guide the design of cross-nationally comparable innovation surveys.

30. Annex to OM (continued)
Annex to Oslo Manual 3rd edition: Innovation surveys in developing countries
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, and Tanzania.
UIS drafted the final annex based on this input.

31. Characteristics of innovation in developing countries
Size and structure of markets and firms: SMEs, Large firms (operate sub optimal production scale, higher unit cost, less efficiency) Competitiveness (based on cheap labour, exploitation of natural resources. Not on efficiency, differentiated products)  leads to fewer R&D and innovation projects.
Instability: - wide difference in potential for innovation  limits long term innovation activity.
Informality: - rely on informal practices  lack of systematic application  not favourable for innovation
Particular economic and innovation environments: prevalence of state-owned enterprises, para-statal enterprises  lack of competitiveness discourage innovation. Some state-owned enterprises  technological leader S&T policies in countries with less developed economic system  more impact on innovation than strategise of private enterprises. - Innovation in agriculture sector  high economic impact.
Reduced innovation decision-making powers: externally controlled or multinational organization. Technology transfer is a fundamental source of innovation.
Weak innovation systems: - fewer resources to innovation activities. - Government perform and finance R&D. - low level of resources are devoted to R&D by businesses  reduce innovation potential of enterprises. - weak linkages (Uni/R&D Inst/BE)  challenge capabilities to overcome technology related problems in BE.
Characteristics of innovation: - acquisition of embodied technology (equipment); Incremental changes; organizational changes.

32. 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

33. Principal adaptations
ICTs in innovation surveys
strategic use of new technologies (“Front office” vs “Back office”)
Linkages
To understand firm’s different linkages  matrix of ‘linkage agents’ and ‘types of linkage’
geographical location of linkages; local, regional, national
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 (by qualification, occupation, gender) training
Quality and environmental management

34. Methodological issues for developing country contexts
Information systems specificities – relative weakness of statistical systems – weak linkages between ‘surveys’ and ‘data sets’  prevent use of info. from other surveys in the design of innovation surveys. – lack of business registers  problems in the sample frame. – Involvement of NSO  experience in the design of industrial surveys; registers and background info.; higher response rate; wider-ranging analysis. – no basic info. on firms’ performances (sales, investment, exports)  relationship between action taken by the firm for innovation and market performance.
Application of the survey - interviews made in person; trained staff
Questionnaire design – separate sections (economic data; finance div., innovation process; product/plant manager). – include guidelines, definitions, present in more than one language
Frequency – 3 to 4 years, high cost
Publication – results should be published and distributed widely. Increase further participation and awareness.
Difficulties – lack of appreciation of the importance of innovation. – Managers are secretive about finance. – lack of adequate legislative base.

35. 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.

36. Issues arising in the follow-up to the Annex
Innovation in informal sector?
Innovation from traditional knowledge?
Surveying innovation, rather than R&D, in business (and informal) sector?

37. Thank you!