State of the Nation 2008

Innovation, the Innovation System and Innovation Performance

Innovation is the process by which individuals, companies and organizations develop, master and use new products, designs, processes and business methods. These can be new to them, if not to their sector, their nation or to the world. The components of innovation include research and development, invention, capital investment and training and development.

This wide definition includes the invention of new products, processes, services and systems, as well as their application, adaptation and diffusion in the economy and society. Agents of diffusion include individuals, companies and colleges and universities. These users and producers of innovation are part of the innovation system, which also includes governments as facilitators and regulators. Adoption and diffusion are encouraged by public policy including financial assistance in the form of direct support and tax incentives, intellectual property policies as well as other marketplace frameworks such as competition and regulatory policies. Venture capital firms and other private sector investors that finance innovation are also part of the system.

Innovation performance is influenced by multiple sectors and public policies on education, science and technology, industry, and finance, developed by different levels of government. Immigration, international science and technology, trade and foreign investment policies also affect innovation outcomes.