Measuring Innovation Everywhere – The Challenge of Better Policy, Learning, Evaluation and Monitoring

October 28, 2020

Academic publishing, Author Articles, Author Interviews, Book Reviews, economic policy, Economics, Economics Finance

**Fred Gault** gives an analysis on Measuring Innovation

Everywhere?

For over thirty years official statisticians have been measuring innovation using surveys, but only in the business sector. The surveys have produced indicators to support the development of innovation policy and monitoring and evaluation of the policy once it was implemented.

This has not stopped researchers from measuring ‘innovation’ in the public sector or in the household sector using their own definitions. However, with no agreed definition of innovation applicable in these sectors, there are no internationally comparable innovation statistics, outside of the business sector. This presents a challenge

In 2018, the fourth edition of the Oslo Manual introduced a general definition of innovation (OECD/Eurostat 2018: para. 1.25), applicable in all economic sectors, and then it provided a subset of the general definition of innovation applicable in the business sector only (OECD/Eurostat 2018: para. 3.9). This was in keeping with the history in which the Oslo Manual dealt only with the business sector.

What is the benefit of having official statistics for innovation in all economic sectors?

Innovation?

There are different ways of defining innovation and the emphasis in this book is the use of a common definitions to support statistical measurement. The general definition is:

An innovation is a new or improved product or process (or combination thereof) that differs significantly from the unit’s previous products or processes and that has been made available to potential users (product) or brought into use by the unit (process).

The definition of innovation for use in the business sector is:

A business innovation is a new or improved product or business process (or combination thereof) that differs significantly from the firm’s previous products or business processes and that has been introduced on the market or brought into use by the firm.

What is common to these definitions is that there use in a survey requires an assessment (an opinion) and an observation to decide whether there is innovation. A respondent to a survey has to say whether the product or process is ‘new or improved’ and ‘differs significantly from the unit’s previous products or processes’. The response can vary according to culture, language and knowledge of the respondent. What can be observed is that the product has been made available to potential users or the process has been brought into use by the unit.

The principle difference between the general definition and the business sector definition of innovation is that the requirement that the product has been ‘made available to potential users’ is replaced by ‘introduced on the market’. The market has been part of the Oslo Manual business sector definition for four editions.

Measurement, indicators and policy

Statistical surveys can produce information on the level of innovation in a particular industry, or region, but knowing that 56 per cent of firms in a particular industry are innovative is not helpful to policy development. Going back some years, the interest was in jobs and economic growth resulting from innovation. Jobs mattered and economic growth provided the revenue needed to provide social services.

More recently, the innovation policy questions have included sustainable development, controlling climate change, and inclusiveness. This introduces time as a key variable. Surveys can identify the population of innovative units and a subset of those units can provide a baseline for inclusion, sustainability, and other policy relevant states. However, more surveys are required to observe that the changes, supported by policy intervention are moving in the desired direction. This is discussed in the book under the heading of ‘restricted innovation’.

Talking about innovation

With the general definition of innovation, surveys can be designed, data gathered and used to populate indicators which influence policy development and evaluation but not all ‘innovation’ is open to statistical measurement and analysis .

There is a vast literature on social innovation and many definitions are used. The definitions are designed to deal with particular issues of society and to support discussion, not statistical measurement. That does not make social innovation any less important and, in developing countries, it could include innovation based on indigenous knowledge.

While innovation can happen everywhere, meaning in any of the economic sectors defined by the System of National Accounts, it will happen in both the economically formal and informal segments of sectors. While innovation in the formal part of the sector can be measured as there are records and registers to draw upon to produce samples for surveys, the informal part presents a problem for measurement. The definition is not the issue, but the methodology is. In many countries the informal economy is a large component of Gross Domestic Product and the measurement challenge is discussed in the book.

New issues

While the measurement of innovation is evolving, the economy where innovation is measured is changing. The digital transformation is happening rapidly and as products become digital, logistics become digital and the use of the products become digital, innovation can happen in any of the parts of the digital economy.

The general definition of innovation opens measurement opportunities in the digital economy as it can deal with zero price product innovations. While reading this, the smart phone of the reader may have an app that has been upgraded (new or significantly improved) and made available to a potential user (the reader) at zero price. The app may also collect information on the activity of the reader which raises an ethical issue.

The general definition of innovation, the digital transformation, the importance of a systems approach to classifying activities and the growing importance of zero price product innovations present the researcher with challenges and opportunities discussed in this book.

Reference material

This takes the reader to the OECD web page with many connections to related material

https://www.oecd.org/science/oslo-manual-2018-9789264304604-en.htm

This is the formal reference.

OECD/Eurostat (2018), Oslo Manual 2018: Guidelines for Collecting, Reporting and Using Data for Innovation, 4th edition, The Measurement of Scientific, Technological and Innovation Activities, Paris: OECD Publishing and Luxembourg: Eurostat.