14 Aug Chapter SummaryTraditionally, R&D expenditure has been used as proxy forinno

Chapter SummaryTraditionally, R&D expenditure has been used as proxy forinnovation investment. This measurement bias has shapedinnovation policy. After several decades of measurement of R&D,many countries have formulated policies to encourage more of it.For example, the Lisbon European Council set a target that EUmember states should spend the equivalent of 3% of GDP onR&D, and have introduced R&D tax credits as a means ofincreasing it.However, R&D represents only 11% of the investment ininnovation measured by the Index, which includes a range ofcomplementary investments needed to commercialise ideas,including product design, training in new skills, organisationalinnovation, developing new customer offering and brands, andcopyright. The Index includes a number of investments that relateto important aspects of ‘hidden innovation’, such as organisationalinnovation, the investment in skills needed to provide newservices, investment in product design, and investment in brandingnecessary to take an innovative product or service to market. Manyof these, such as training and skills development and organisationalimprovement, are particularly relevant for innovative servicesbusinesses, and constitute the bulk of their investment ininnovative offerings.525526Two-thirds of UK private sector productivity growth between 2000and 2007 (1.8 percentage points of productivity growth per year)was a result of innovation. Innovative firms enjoyed a much fastergrowth rate than non-innovative ones in a wide range of sectors,for example, in innovative software 13% average revenue growthper year compared with just above zero, and even in traditionalconservative sectors like legal services, where innovative firmsenjoyed average revenue growth of over 10%, while noninnovative firms’ revenues shrank on average.Source: NESTA (2009) The Innovation Index. National Endowment for Science,Technology and Arts. www.nesta.org.uk/assets/documents/innovation_index526527Chapter SummaryIn this chapter we have reviewed how innovation andentrepreneurship contribute to personal, economic and socialsuccess. Traditional measures of technological innovation such asR&D spending and number of patents granted are associated witheconomic growth at the national level and in some sectors, but arenot predictive across most sectors and are not good indicators atthe firm or individual level. Broader indicators of innovation, suchas proportion of earnings from new products and degree ofdifferentiation are more general and stronger drivers of economicsuccess. More fundamentally, process, organisational andmanagerial innovations are more likely to result in economic andsocial benefits. Moreover, the adoption of innovations can have afar greater impact than the generation of innovations. Innovationcan occur in all elements of a business model to create and capturevalue. High growth new ventures contribute disproportionately toeconomic growth and employment, but these ‘gazelles’ are rare.The growth of a new venture is very sensitive to the foundingconditions, and the combination of a small number of factors is avery strong predictor of success: the age, number, experience andeducation of founders; access to adequate capital; and an explicitstrategy of differentiation and intent to grow.#content_wrapperPage527Goto the specified printed page number

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