Project #196207 - discussion

Business Tutors

Subject Business
Due By (Pacific Time) 08/13/2017 12:00 am

STRATEGIC AND SOCIAL IMPACT: Measuring the Contribution of Innovation


Traditionally, R&D expenditure has been used as proxy for innovation investment. This measurement bias has shaped innovation policy. After several decades of measurement of R&D, many countries have formulated policies to encourage more of it. For example, the Lisbon European Council set a target that EU member states should spend the equivalent of 3% of GDP on R&D, and have introduced R&D tax credits as a means of increasing it.


However, R&D represents only 11% of the investment in innovation measured by the Index, which includes a range of complementary investments needed to commercialise ideas, including product design, training in new skills, organisational innovation, developing new customer offering and brands, and copyright. The Index includes a number of investments that relate to important aspects of ‘hidden innovation’, such as organisational innovation, the investment in skills needed to provide new services, investment in product design, and investment in branding necessary to take an innovative product or service to market. Many of these, such as training and skills development and organisational improvement, are particularly relevant for innovative services businesses, and constitute the bulk of their investment in innovative offerings.


Two-thirds of UK private sector productivity growth between 2000 and 2007 (1.8 percentage points of productivity growth per year) was a result of innovation. Innovative firms enjoyed a much faster growth rate than non-innovative ones in a wide range of sectors, for example, in innovative software 13% average revenue growth per year compared with just above zero, and even in traditional conservative sectors like legal services, where innovative firms enjoyed average revenue growth of over 10%, while non-innovative firms’ revenues shrank on average.



Answer Discussion question 1 on page 529 of the text.


1. What are the relationships between R&D spending, patents and economic performance?


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