Many innovation indicators only capture part of the innovation process. R&D data provide information about some of the inputs to innovation but have little information on the outputs. They tend to be more useful for measuring technology-based activities, which are influenced by industrial structure, and only cover one element of the broader concept of innovation.
Sound evidence on the sources of multi-factor productivity growth, i.e. the sources of technological and non-technological innovation, is found through firm-level analysis, which provides more detailed insight than country-level analysis. It is after all mainly firms that innovate, from small start-ups to large multi-establishment and multinational firms.
Innovation entials the production of new knowledge from complementary assets – R&D, but also software, human capital and organization structures – many of which are essential for fully realizing productivity gains and efficiencies from new technologies. As such intagible assets become strategic factors in firms’ value creation, their role in the economy has become as important as that of tangible assets. In Finland, Sweden, the United Kingdom and the United States, investment in in intangibles is now equal to or even superior to investment in tangibles such as machinery and equipment and structures. Investment in intangibles leads to creating and applying knowledge, and it is here that firms in OECD countries find their greatest comparative advantage.
Industries that may be regared s less innovative, primarily because of their low R&D intensity, such as printing and paper products or textiles and clothing, frequently have as much propensity to innovate as thoses in communication or financial services, which are often regarded as the leading innovation industries. Innovation is highly skewed, as a small proportion of firms account for the majority of inputs and outputs.
An OECD study based on firm-level data for 21 countries shows that 5 innovation patterns are common to most countires analyzed. One involves some form of new-to-market innovation linked to own generation of technology (in-house R&D and patenting). A second includes product innovation with marketing expenditures or marketing strategy changes. A third involves the upgrading of processes with spending on equipment, often with external or paternship-based development. A fourth is broader innovation involving orgaizational and marketing-related innovation strategies. A fifth is networked innovating, in which firms seek external sourcing of knowledge, often from the public knowledge base and through formal collaboration. The first mode (in-house R&D and patenting) can be seen as the traditional technological innovation strategy, while the other four extend the notion of innovation.