Technology innovation and socio-

economic development
Characteristics of innovation process
Science brings innovation and the higher education of a
country needs National Innovation Strategy. This needs
a major investment in science by governments.

• If ten scientists work as teams, they produce more

scientific research and technological progress
compared to if ten scientists isolated on ten different
islands do research. This is why scientists gather in
islands or valleys like Silicon Valley.
 Characteristics of innovation process

Innovation needs market-based incentives.

• Developing a new idea and putting the idea into
effect requires a lot of investment on R&D
(research and development) and therefore there
must be a market for the invention so that
expected sales can cover the development costs.
• A small market size may not cover the production
costs so the export markets may be needed to
increase the market size.
 Characteristics of innovation process
Knowledge has nonrivalness
• This means if one person develops a new idea and
shares it with others, it will not be lost like a barrel of
oil where use of the commodity by one person will
reduce the quantity for other users.
• Scientists are offered social status, fame and prizes
plus the direct market incentives.
• They enjoy a temporary monopoly by patents but
this is temporary financial benefit to the scientists for
some years.
• This also limits the ability of other users of
knowledge in society if the scientist will not allow
them.
 Characteristics of innovation process
Innovation needs financing
• Banks do not offer loans to scientists with ideas
because banks need collateral as security.
• Knowledge is intangible and cannot be kept as
collateral.
• Venture capitalists may provide the finance to the
scientists with productive ideas so that they achieve
commercial success. These venture capitalists are
wealthy individuals and may expect some profit
percentage after when the innovative product
becomes profitable.
• Banks have to follow certain regulations to reduce
risk so they should not provide finance for ideas only.
 Characteristics of innovation process
Innovation brings destruction of older technologies
• Joseph Schumpeter famously termed “creative
destruction”. New technologies gives pain to those
who produce and use old technologies.
• The economic death of older sectors of economy give
way to the advance new sectors.
• Soviets could never develop a new industry is that
they never let an old one die.
• With no sectors ever declining,no new sectors could
ever grow.
 Characteristics of innovation process

Innovation needs special management style

• the innovation process is characterized by specific
forms of organization that develop, test and
prove ideas.
• Innovation first requires networks to bring
different kinds of knowledge together.
• It also requires a great deal of risk taking and
decentralization within larger enterprises
• The most advanced innovation systems are
comprised of enterprises investing heavily in their
workers’ knowledge
 Characteristics of innovation process

Some technologies are site specific

• if you want to solve problems in agriculture,
health, energy use and so therefore local
ecological characteristics are so important
that the relevant problems need to be solved
at home.
• If U.S. inventors develop new processes for
raising wheat productivity,that may have little
direct benefit for cassava growers in Africa.
 Dealing with uncertainties
• The top 20 American firms spent together USD
54 billion on R&D in the year 2000.
• More than 16000 American firms had their
own industrial research laboratories
• Even spending of billion dollars on R&D would
not make it free of risk of failure.
• It is possible that a spending of millions of
dollars on the research program end up in
complete failure to develop anything useful.
 Dealing with uncertainties
• Even if the research results in the
development of a new product, the new
product may not achieve commercial success.
• If the research leads to a valuable product,
there are some questions to be answered:
➢ how will the new product perform technologically
and economically both? The Concorde airplane
was magnificent in terms of its speed and design
but became a financial disaster.
 Dealing with uncertainties
➢ The development costs of the plane were more
than 300 planes but only 16 units were sold.
➢ How rapidly will performance improve and how
rapidly is the cost of production likely to decline.
➢ How likely is this that the innovating firm makes
profits from the sale of the new product. This is
more likely when the innovation is patentable. If it
is not patentable then the competitors may
imitate the design when they have not spent
money on this innovation.
 Dealing with uncertainties
➢In US pharmaceutical industry, the Food and Drug
Administration requires the testing period for
innovated products like medicines spanning over
a decade. Some estimates say that in USA, the
cost of introducing a new pharmaceutical product
has exceeded USD 500 million.
➢ How long will it take that any competitor will
develop a more advanced and better prdo
 An example of innovation
• In 1939 the New York Times reported about the
success of new product TV but did not tell about
its future.
• This newspaper said that TV will never be a
competitor for radio because people must sit and
keep their eyes glued on screen.
• They added, the average American family has not
time for it.
• The New York Times overlooked the possibility
that this invention may become the most
influential in 20th century.