Strengthening the innovation system
[ Last Updated 15 August 2008 ]
Innovative activity is the key driver of growth. Countries which generate innovation and create and adopt new technologies grow faster than those that do not.
Knowledge, like capital and labour, is a key factor of production.
What is innovation?
Innovation is the dynamic process of creating and introducing new ideas and new ways of doing things. Innovations may be incremental (small, stepwise improvements), major (substantial improvements), or radical (new lines of business, paradigm shifts).
The traditional view of innovation is from two perspectives: innovation as an output and innovation as a process. From a policy perspective, a more integrated and useful viewpoint also considers innovation as a system.
Innovation as an output
Innovation as:
- a new or improved product, service or production process
- the opening up of a new market
- the adoption of a new technology
- a change to the organisation of a business.
Innovation as a process
This is the process of taking an invention through to commercial introduction and can include:
- basic or applied research
- development
- commercialisation
- diffusion and marketing.
Innovation as a system
This means looking at innovation as a system of interconnected organisations and institutions that influence the development, diffusion and use of innovations.
Innovation systems occur at a variety of levels. They may relate to specific sectors, geographies or markets. All are open systems and they overlap with one another. A group of businesses, for example, will at the same time be part of a sectoral, a regional and a national system.
Thinking about innovation from a systems approach highlights important factors that impact on how innovation actually occurs in the economy.
- Collaboration: Firms do not innovate in isolation but in interaction with other organisations, both locally and offshore.
- Creativity: Innovation involves creativity. There is no such thing as a general order of how innovations come about. They can be unexpected and in response to opportunities that arise in the environment.
- Tacit knowledge: Personal experience and informal, unwritten aspects of knowledge are as valuable for innovation as formal, written knowledge.
- Geography: Despite the advances in communications technology, sharing knowledge, skills and experience is simply easier when the participants in a learning network are in the same place.
- Demand: The sophistication and requirements of purchasers (which includes governments and other businesses as well as household consumers) play an important role in stimulating innovation.
- Evolution: Innovation processes take time, sometimes decades. Therefore a long-term perspective is important.
- Cross-sectoral: Innovation occurs in all parts of the economy, not just in high-technology sectors. Bringing together business in different sectors, e.g. IT and agriculture, can also be important.
How innovative is New Zealand?
The available evidence suggests that while New Zealand firms are relatively innovative and a majority are using up-to-date equipment, our levels of investment in research and development (R&D) are lower than the OECD average.
Firm-level innovation
The 2003 Innovation in New Zealand survey by Statistics New Zealand showed that 44 per cent of New Zealand businesses reported innovation activity over the previous three years. Innovation activity was defined as the introduction of a new product, service or process. This rate is the same as the total innovation rate in the European Union (EU) and puts us in about the middle of the EU, just below Finland and Netherlands.
According to the innovation survey, over 90 per cent of the innovations were implemented successfully, with 80 per cent of the "innovative" businesses indicating that their innovations resulted in higher profitability.
R&D investment
As a percentage of GDP, both the public and private sectors in New Zealand spend less on R&D than most other OECD countries. This is most pronounced in the private sector, where business expenditure in New Zealand on R&D was 0.6 per cent of GDP in 2002, compared to an OECD average of 2.2 per cent. But expenditure on R&D has grown strongly over recent years, with total expenditure on R&D increasing by 20 percent between 2000 and 2002. Business expenditure on R&D increased by 31 per cent over the same period.
The role of government
An interdepartmental working group on innovation has been set up to focus on New Zealand's innovation systems. Its role is to identify, where appropriate, policy areas that will further strengthen our innovative performance.
The group has been assisted by research and policy work undertaken by the Ministry of Economic Development, the Ministry of Research, Science and Technology, and the Treasury.
This work includes a business practices and performance survey Firm Foundations 2002, an innovation survey, demand-side finance issues research, and analysis of capital investment in New Zealand. It also includes further policy work and research recommended by the working group, for example, work on standards and procurement, and research on collaboration and linkages in New Zealand. The information the working group has generated has provided a useful platform for developing policy recommendations for budgets and work agendas across government.
The 2004 Budget included funding for a range of innovation initiatives.
Contacts and links
Contact
Convenor
Interdepartmental Working Group on Innovation
Ministry of Research, Science and Technology
P: +64-4-917 2900
E: gif@morst.govt.nz
Links
Back to Top