The Ministry of Research and Development, Research and Development in New Zealand - A Decade in Review, 2006.
This report provides a long term perspective of changes to the New Zealand science system.
Designed as a tool for science managers, policy makers, politicians, researchers and educators, it seeks to measure NZ’s successes and recognise where it can improve.
The results show that over the past ten years, NZ has seen a 60 per cent increase in the number of scientific positions. The amount of R&D carried out in NZ has almost doubled and it has seen 11 per cent growth in business R&D per annum since 2000.
As the report points out; the measurement of R&D is defined by the Organisation for Economic Co-operation and Development (OECD) in the Frascati Manual1 as:
‘creative work undertaken on a systematic basis in order to increase the stock of knowledge.
It is characterised by originality, where investigation is a primary objective’.3
Research and development encompasses basic or untargeted research, as well as research supporting identified sectors and needs (sometimes called strategic research). Operational research and routine data collection and monitoring activities are excluded from the OECD definition of R&D, although they are recognised as important activities of the science system that often provide input to research. The report notes that some types of research, such as market research, are outside the scope of OECD R&D and therefore are outside the context of the report.
The report provides comparable information for all sectors of the New Zealand science system, and provides detail not previously released. Specifically, business enterprise R&D is discussed in detail, with results for the primary, manufacturing, scientific research and other services industries shown separately over time. R&D performed by Crown Research Institutes (CRIs), which was previously reported as a part of government R&D, is also
3The Ministry of Research and Development, Research and Development in New Zealand - A Decade in Review, 2006, p.10
discussed in detail. In addition, contributions made by each of the CRIs and universities have been individually identified.
OECD (2005), Innovation Policy and Performance: A Cross-Country Comparison, OECD, Paris.
The OECD is a unique forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalisation. OECD
Publishing disseminates the results of the organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members.
Taking a national innovation systems (NIS) perspective, this report examines innovation policy and performance in six OECD countries – Austria, Finland, Japan, the Netherlands, Sweden and the United Kingdom. In-depth analyses, based on a common framework using quantitative indicators and qualitative information, highlight countries’ strengths and weaknesses in innovation, as well as the effectiveness of their innovation systems and innovation policies in driving economic performance.
The research effort summarised here is devoted to the twofold task of assessing both countries’ innovation performance, highlighting their specific strengths and weaknesses, and the effectiveness of their innovation policies in the specific economic and institutional context in which they operate. The underlying hypothesis is that the benefits of countries’
science, technology and innovation policies, including specific policy instruments, cannot be adequately assessed outside the specific context of the national innovation system (NIS) for which they are designed. To accomplish this task, a new approach based on NIS
concepts has been applied drawing on both quantitative and qualitative information (this is explained in Annex 1 of the report which I have included below). National experts from selected countries – Austria,
Finland, Japan, the Netherlands, Sweden, and the United Kingdom – provided short country studies containing an overall assessment of the relative strengths and weaknesses of the country’s NIS and of the relationship between its innovation performance and innovation
policies. The economies and innovation systems of participating countries vary widely with respect to their structural features and governance mechanisms, providing scope for deriving sufficiently general conclusions.
The report concludes that the methodology of combining quantitative information with informed judgment and interpretation was necessary and successful. The country studies provided evidence that the specific economic and institutional conditions of each country, need to be taken into account in order to be able to assess countries’ innovation policy and make their experience applicable to others.
Even amongst the OECD member countries who participated in the study – which were relatively homogenous in terms of income per capita – NIS vary greatly in their structural features and modes of governance. Accordingly there is no single “optimal” policy in terms of the design of either individual instruments or the mix of policies readily transferable to different contexts.
OECD (2005), Innovation Policy and Performance – Annex 1:
GUIDELINES FOR PREPARING COUNTRY NOTES
Participating countries were asked to prepare short accounts of their own innovation
performance, using a set of qualitative and quantitative indicators. They were asked to give their own overall assessment of the relative strengths/weaknesses of their national
innovation system (NIS) and of the relationship between their innovation performance relates and the overall stance of the country’s innovation and RTD policy, including the implementation of specific policy instruments (e.g. government-funded R&D, patenting and licensing policies for public research organisations, public/private partnership
programmes, cluster policies). The OECD Secretariat provided countries with a
standardized set of quantitative indicators of innovation activities and performance (e.g.
R&D expenditure, human resources, innovative outputs, economic performance) so that country experts could concentrate their efforts on more qualitative aspects of the analysis and assessments of policy efficiency (see Annex 2 for a set of country-specific indicators).
Set out below are some notes on how participating countries were asked to assess economic performance, innovation output and the performance of the various elements of the NIS.
They attempt to identify the links between policy and performance and to outline the factors
that influence policy effectiveness in the national context. Innovation policies of particular interest are those outlined in the OECD Growth Study, including policies related knowledge creation, industry-science linkages and industrial innovation.
The notes below are not intended to provide a comprehensive guide, but provide a broad indication of how countries might undertake the exercise. The notes should be read in conjunction with the main text. The notes include references to quantitative indicators and such indicators should be used wherever available and relevant. However they are rarely able to tell the full story and participating countries should also use relevant qualitative analysis from the full range of available sources. The aim should be to combine the two to produce an account of innovation performance which is coherent and convincing within the context of the overall economic and social situation of the country concerned.
Measuring innovation outputs
Direct output measures of innovation performance fall into three types:
• Overall measures of economic performance such as the level and rate of growth of GDP per head.
• Measures from innovation surveys such as the proportion of business turnover accounted for by products or processes introduced in the last three years.
• Surveys of the diffusion of new technologies, processes and business methods.
It should be noted that a successful performance at the second and third of these measures does not automatically translate into a successful performance as measured by the first. Any apparent discrepancy needs to carefully analysed and explained. Where such a
discrepancy exists this may be due to a variety of factors such as, for example, weaknesses in downstream business processes which inhibit firms from capitalising fully on new
products introduced or of recent innovations adopted.
Patents are often used in assessments of innovation performance, but they mainly measure invention not innovation and are therefore an intermediate rather than a final indicator of innovation performance. It will often be the case, however, that a countries patenting performance will often be closely correlated with its overall innovation performance.
The same may also be true of other intermediate and input indicators of innovation performance (e.g. R&D expenditures, human resources for science and technology), but such ‘reduced form’ correlations however well corroborated by each other should not be regarded as an adequate substitute for a thorough behavioural and structural analysis of how well a country is performing at innovation and the exploitation of new science and technology.
Possible indicators are other evidence which can be used to assess innovation performance are set out below:
• Economic performance. Growth of GDP and productivity. Proportion of output in high-tech sectors. What structural factors strongly influence recent economic performance? To what extent is innovation policy linked to overall economic policy?
• Innovation output. Proportion of turnover consisting of newly introduced products and processes. Speed of adoption of new technologies, technological processes and business best practice. Patents as a measure of inventive activity. In which areas is innovation concentrated? What is the role of innovation in the service sector?
• Innovation diffusion. Surveys of the adoption of particular new technologies or business practices particularly those which cover a number of comparable countries (since
innovations take considerable time to diffuse surveys covering only a single country need very careful interpretation). Innovation surveys may include questions about the adoption of new technologies and practices. In the current situation surveys of the adoption of
information and communication technologies are of particular interest but are primarily a matter for ICCP.
Determinants of innovation performance: the national innovation systems (NIS) perspective For policy making purposes it is not sufficient to measure the outputs of a country’s
innovation performance; it is also necessary to ascertain how that performance was determined. There is a considerable academic and business literature on the innovation process, but for policy purposes it is best considered within the framework of a national
innovation system (NIS). A good deal of analysis and description has been undertaken of the NIS, and there is an element of choice about different descriptions of the NIS. For the
purposes of assessing national innovation performance it can be assumed to include the following ten main elements or drivers. The first item covers the markets for innovative goods and services, the next four cover the inputs to the innovation process within the firm, the sixth the firm itself and the last four the environment in which firms operate.
They encompass the wide range of factors which are now held to determine innovation performance:
a) Demand. The willingness and ability of consumers, firms and public sector organisations to be intelligent and demanding customers and to purchase novel products and services. Ability to sell new products and services abroad will be
vital if necessary economies of scale are to be realised. The propensity of consumers to buy novel products and services is a function of national culture, per capita income etc., while that of firms will be much more endogenous to the NIS; the more innovative are firms the more they will buy innovative inputs from their suppliers. However innovation policy makers will be particular interested in public procurement where governments have direct influence on markets and can create demand for innovative products and services.
b) Human resources, including the supply of qualified scientists and engineers, trained craftsmen and technicians, and well educated and trained managers. This is an area where the OECD is currently trying to improve the availability of internationally comparable data.
Government policies related to higher education, training and university research can have a strong influence on the availability of domestically produced human resources. Polices related to immigration can influence international mobility and the inflow and outflows of workers.
c) Finance. The ability of firms (a) to generate sufficient internal finance and allocate it effectively to innovation activities, (b) to raise external finance for innovation on appropriate terms and conditions and which meets their particular needs. Governments often provide financing for business innovation, either directly though R&D and innovation subsidies (sometimes linked to specific government needs) or indirectly through tax incentives and
other means. A range of government policies can influence the availability of external financing, especially for new technology-based firms.
d) Physical inputs. The ease with which domestically based firms can obtain supplies of components, materials, services, capital equipment and software. Inevitably all firms will rely significantly on supplies from abroad, although in the case of some OECD countries these may be obtained within regional clusters which span international frontiers.
e) Access to science, technology and business best practice. The sources of technological, scientific and technological knowledge and related knowledge of business best practice and the means by which firms can access them. Sources will include universities, R&D service companies, national, regional and local R&D support organisations, customers, suppliers, other firms generally, international collaborative programmes, business support organisations such as chambers of commerce, as well as a variety of government
programmes. Means will include networks and clusters, supply chains, seminars,
exhibitions, licensing, publications, mobility of qualified personnel, government support programmes, etc.
f) Ability and propensity of firms to innovate. The ability of firms to use external resources (people, finance, technology, bought in supplies) to develop high value added products, processes and services that meet customers’ needs and generate the revenues needed to finance its activities. This will include the effectiveness of internal innovation and other business processes as well as the ability of firms to develop effective organisational structures, ways of working and culture which allows and encourages managers and
employees to give of their best. The ability of firms to interact effectively with their external environment, to identify and seek out the inputs they require and to formulate appropriate strategies for survival, growth and coping with change is also crucial.
g) Effectiveness of market processes. This is the extent to which the interaction of firms and other factors in the market place is conducive to innovation. In particular competition provides an important stimulus to innovation while innovation is one of the most important ways in which firms compete. Similarly while the removal of entry barriers to markets is conducive to innovation, firms will try and innovate in ways that make it difficult for other firms to match them in the market place. Even if they succeed the advantage will only be temporary or until the associated IPR expire. Radical innovation is one way in which existing
entry barriers can be overcome and the competitive advantage of incumbent firms eroded.
The ability of an economy to foster the creation of new firms and encourage their
subsequent growth and development plays a vital role in innovation and the ability to adapt to changing economic circumstances and exploit new opportunities. These processes will be affected by competition policy, other regulatory policies particularly those affecting new firm creation, standards and the IPR regime as well as by trade policy.
h) Networks, collaboration and clusters. Markets are one way in which firms and other agents interact, networking and collaboration are the others. Networks play a key role in the transmission of knowledge and information because markets are not very effective in doing this. Collaboration enables firms to share risks and costs and give them access to
complementary capabilities which they do not possess themselves. Clusters involve both market relationships and networking, typically require geographical proximity, and give firms the advantage of external economies of scale and scope including externalities.
Analysis carried by the TIP Working Party and by Michael Porter suggests that the degree to which the NIS is networked and exhibits inter-firm collaboration and clusters has a
significant effect on the rate of successful innovation. Numerous policies have been pursued in OECD countries to foster networking and collaboration.
i) Institutions and infrastructure. This covers a wide range of organisations, facilities and systems. Most important to innovation are universities, public research organizations (PROs), organisations which provide R&D support and/or links with the research base, education and training institutions, professional societies, government departments, transport and communications, a range of business support organizations, financial institutions, etc.
j) Business environment. This covers framework conditions such as macroeconomic stability, company and commercial law, etc. It should also include non-firm specific aspects of
business culture, the lore and practice and unwritten rules which govern how business is done. Corporate governance which may have significant impacts on corporate strategy and attitudes to innovation and risk is also included. Attitudes towards starting a business, bankruptcy, etc., are also important.
A country’s innovation performance will depend not only on its how it performs on each individual element of the NIS, but how these separate elements interact. Previous OECD work indicates that there are several different configurations which can result in a successful overall innovation performance. This is similar to a pipe organ where there are number of different settings of the stops which can produce a pleasing sound. It suggests that it is the cohesiveness of the NIS which matters for a successful innovation performance, as well as how well the country does against each of the main elements. It follows that rating a number of countries against a list of the main influences on innovation performance and adding up each country’s score may give misleading results.
It also follows that policy measures need to be tuned to suit the national context, including institutional factors, industry specialisation and size. As a result, policy instruments that may be effective in improving innovative performance in one country may be less effective or even inappropriate in another.
The above list of innovation determinants should be regarded as a check list to help countries make sure that they have covered all the main factors which drive their own innovation performance. They should not be regarded as a list of sets of variables which make up a formal mathematical model of how innovation happens – our knowledge of the innovation process is too incomplete and fragmented to make this possible. The relationship between these various elements of the NIS and any given aspect of innovation is often very complex and caution must be exercised in distinguishing what determines what.
In the case of the UK, for example, an indifferent record of firms investing in business enterprise R&D (BERD) may be a fundamental cause of weaknesses in the UK’s innovation performance due perhaps to the short-term interests of shareholders or it could be symptom of other problems such as an ex ante shortage of skilled labour which is depressing the rate of return which UK firms could achieve from additional R&D projects. From the point of view of the policy maker it is very important to diagnose the correct causes of individual aspects of innovation performance.
Discussion of earlier versions of this document raised the question of which of the ten determinants is most important. This can be answered in several ways. For an individual
country which the most important determinants will be those which are holding back national innovation performance and therefore need to be the main focus of policy.
country which the most important determinants will be those which are holding back national innovation performance and therefore need to be the main focus of policy.