In an earlier posting , I referred to the Commission of Experts for Research and Innovation of the German Federal Government. In their 2011 report, they make an important point about innovation and R&D:
Non-insignificant numbers of innovating companies in Germany do not rely on research and development in the conventional sense. It can be useful to provide support for such companies in cases in which the support enhances use of existing knowledge, and in which it enables innovative companies without R&D to carry out research on an ongoing basis.This finding tracks the U.S. experience as well. According to data from the National Science Foundation, only about 3% of the 1.5 million for-profit companies surveyed conducted any R&D (see "NSF Releases New Statistics on Business Innovation" and "Business Use of Intellectual Property Protection Documented in NSF Survey" and an earlier posting).
Case in point is an earlier posting where I described the re-cladding the National Gallery's East Building. To do the job, the construction company had to invent new components for anchoring the marble slabs. The technique and components were developed by engineers and perfected in a special training facility. Yet, I'm not sure that the construction company would report on a survey that it was doing R&D.
The construction example is what the UK's NESTA has called "Hidden Innovation." NESTA has identified four types of hidden innovation:
Type I: Hidden innovation based on science and technology but excluded from traditional indicators for methodological reasons.
Type II: Hidden innovation in nonscientific and technological forms such as new forms of organization and process.
Type III: Hidden innovation from the novel combination of existing technologies and processes.
Type IV: Hidden innovation that takes place 'under the radar' of many surveys - locally-developed, small-scale, incremental innovation.
There is another form of innovation (and "R&D" investment) that does not get picked up in the standard R&D measures. A couple of articles in the MIT Sloan Management Review on "The User Innovation Revolution" (The Age of the Consumer-Innovator by Eric von Hippel, Susumu Ogawa and Jeroen P.J. de Jong and an Interview with Eric Von Hippel) revealed an astounding statistic:
Recent research by Eric Von Hippel shows that spending on consumer innovation (creating and/or modifying consumer products) in the US is about $20 billion -- which is about 1/3 of the total level of company spending on consumer product R&D.
In the UK it is about $3.6 billion or almost 1.5x total company spending on consumer product R&D.
In Japan it is only $5.8 billion or 13%.
All of this leads to the same conclusion as the German Commission of Experts for Research and Innovation: we need to rethink how we view "R&D" and "innovation." In a our working paper Rethinking Innovation Policy (and earlier posting), we noted that "Innovation policy needs to catch up to the innovation process." Broadening our thinking from "R&D" to "knowledge creation and utilization" might be a good starting point. Now, how do we, as the German's suggest craft policies to match that broader view?