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Innovation Strategies for Growth

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Practice Advice on Strategy and Structure

Innovation Strategies for Growth (OECD)

Description: A book chapter by OECD staff advises that successful innovation strategies should help governments to utilize the country’s inherent strengths and comparative advantages and work around inherent weaknesses in order to maximize the potential for future sustainable economic growth and social well-being.

Commentary: Innovation has been recognized as an engine of growth by both high and middle income countries. Although governments of both high and middle-income countries have recognized the importance of innovation, the growth strategies each of these states adopted are very distinct. As a result, notwithstanding a shared determination to support innovation, governments often introduce policies which create “frictions of convergence” in areas like intellectual property, professional training, development and talent recruitment, technology transfers and standardization of production processes. The OECD has reviewed international policies aimed at supporting innovative systems and has identified the following common characteristics and trends:

  • Innovative activity requires changes to the production and management processes in industries and firms. Cross-border exchanges and technology transfers are essential for a healthy economic performance of a country.
  • Design, management and implementation of innovation strategies play an important role in innovation policy. Often, innovation policies are formulated and implemented without any input from R&D stakeholders.
  • Potential users of new technologies and procedures are usually unfamiliar with technology. In fact, most innovation in services is non-technical.
  • A major obstacle to innovation is market saturation and the lack of demand for new, improved products and services.

In order to launch successful innovation policies and ensure consistent governance of such policies, the OECD recommends that governments address the systemic failures that act as obstacles to innovation policy. Provided that state intervention can, in fact, reduce systemic failures, governments need to intervene on a number of levels to support innovation and research. Structural failures which would necessitate state intervention are:

  • Capability failures, such as lack of technological understanding, managerial deficits and lack of training, contain the use and adaptation of innovative technologies.
  • Institutional failures. When introducing innovation policy, governments often fail to reconfigure institutions which are tasked with the implementation of innovation policy.
  • Network failures. The effectiveness of an innovation policy may be limited due to problems in the interactions among actors in the innovation system.
  • Framework failures. Deficiencies in regulatory frameworks may have a negative impact on the effectiveness of innovation policy.
  • Political failures. Often, the topic of innovation policy does not receive enough political attention, making it difficult to address systemic failures which act as obstacles to innovation.

State intervention to mitigate the above mentioned failures can happen in the form of development of absorptive capacity, the finding of strategic and basic research, support of networks and other system linkages, provision of information and intelligence to policymakers and other innovation-policy stakeholders. The OECD recommends the following types of interventions to mitigate structural failures:

  • Policy Mix and Instruments. Innovation policy should include a wide range micro/macroeconomic as well as social policy elements which may potentially act as reinforcement mechanisms. New innovation policies must not necessarily negate the instruments and goals of previous policies, but act as an added layer of policy instruments.
  • Getting the framework conditions right.  Science, Technology and Innovation policies that seek to increase innovation fail to succeed because of government instability, lack of a modern regulatory framework and macroeconomic concerns. Governments need to enact economic policies which provide support for high level training in science, engineering, mathematics and management. Market regulations need to be liberalized in order to allow employers to adjust compensation of their labour force as new products and processed are introduced, a competitive product market that puts pressure on firms to innovate, a reliable financial market which provides funds for innovative projects, a modern transport and communications infrastructure, and, finally, institutions which will provide support and advice on innovation policy to stakeholder firms and individuals.
  • Science, Technology and Innovation Policy Mix.  Governments need to nurture both supply and demand side of innovation policy. Traditionally, innovation policy focuses on the supply of new technical knowledge, and has been highly R&D biased. Yet, the OECD has found that demand for innovation needs to be recognized as an important factor in government policy. For instance, public procurement can be used to channel suppliers into the direction of new technologies, and new “lead markets”. Firms are more likely to invest in and embark on the creation of new products and technologies if they are certain of the existence of a potential client for their future product. Governments should also support R&D efforts and innovation activities through tax credits based on institutional/competitive funding and “sector-neutral” eligibility.
  • STI Governnace of innovation systems. Governments need to define a set of institutional arrangements and incentive structures to determine how public and private actors interact in managing and allocating government resources devoted to support innovation. The institutional arrangements include, but are not limited to: public private partnerships, extended use of social capital, evidence based policy which takes into account path dependence of governmental institutions, etc. ( See the STI Governance Triangle and the STI Layers of Governance for further reference). Governments will face a challenge in managing such multi-functional institutional arrangements, yet STI policy governance can be more strategic if governments clearly define the expected outcomes of innovation policy.

In sum, there is a consensus among policymakers in OECD countries that innovation is a key factor in determining a country’s economic performance. Governments need to support business innovation and facilitate the transfer of such innovations to achieve economic success. To achieve this, governments need to develop policies which mitigate the systemic obstacles to innovation policy.

Source: OECD (2009). "Innovation strategies for growth: insights from OECD countries," in Innovation and Growth, Chasing a Moving Frontier, at http://www.oecd-ilibrary.org/science-and-technology/innovation-and-growth/innovation-strategies-for-growth-insights-from-oecd-countries_9789264073975-8-en (accessed 11 November 2012).

Page Created By: Khilola B. Zakhidova on 11 November 2012. Updated by Ian Clark on 2 January 2013. The content presented on this page is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases. This material does not necessarily reflect the official view of the publishing organization.

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© University of Toronto 2008
School of Public Policy and Governance