Economics and innovation:

 Innovation is generally the result of a selfish temper and confined views. -Edmund Burke
 Beware of innovation in politics. -George Washington
 A.F.Riedel (1839) recognized that new products have a significant impact on the economy.
 Schumpeter (1943) Discussed the importance of not only product innovation, but also
process innovation.

Innovation and economic Growth

 What is economic growth?

 Economic output per person: Physical capital accumulation, Human capital, Technical
progress.
 Technical progress is one of the main factors regarding economic growth. Technical progress
generated as much as 88% of the growth in output in the U.S between 1909 and 1949.
(Based on data from 1957)
 Innovation is a large part of economic growth.
 Generally difficult to measure, therefore economist often uses proxies. (normally estimated
as the remainder or residual).
 Economists use proxies such as
- Number of patents (Patenter/fullmakter)
- R&D (Research and development) expenditure
 Political structures and institutions are important facilitators of economic growth, but in
general Innovation is the dominant factor in economic progress.
 Ultimately the countries that best apply new technology benefit the most

Innovation and business cycles

 The diffusion phase (Beginning, attention, perception and growth)

 The equilibrium phase (when the innovation doesn’t grow anymore) (Stagnates)

Innovation and company size

 Does large companies innovate more than startups/small companies? The evidence is not
clear therefore we can say that there isn’t a straightforward answer regarding this question.
Drivers of innovation:

- Reverse innovation, already existing “ideas/innovation” but launching in new markets

and potentially targeting new segments and new customer groups

- Internal is within the firm while external is based on factors outside the firm.
Diffusion of innovations:
Diffusion of innovations:

- The characteristics of the innovation itself

Relative advantage
Observability
Trialability
Compatibility
Complexity
Risk
What is open innovation?

“Open Innovation is a paradigm that assumes that firms can and should use external ideas as well as
internal ideas, and internal and external paths to market, as the firms look to advance their
technology. Open Innovation combines internal and external ideas into architectures and systems
whose requirements are defined by a business model.”

“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal
innovation, and expand the markets for external use of innovation, respectively.

[This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and
internal and external paths to market, as they look to advance their technology.”

“Open innovation means treating innovation like anything else — something that can be bought and
sold on the open market, not just produced and used within the boundaries of the firm.”

“Firms that embrace open innovation employ markets rather than hierarchies to obtain and
commercialize innovations.”

Another Perspective: User Innovation

• Innovation system centred on intellectual property-free

• Innovation that is often developed by users