FAGERBERG MOWERY RICHARD R. NELSON —s = =The Oitived Handbook of INNOVATION INNOVATION Edited by JAN FAGERBERG DAVID C. MOWERY AND RICHARD R. NELSON OXFORD UNIVERSITY PRESS PREDACE In. famous poem, “The Blind Men and the Hlephanl.” toba Godfrey Saxe {eh087 desvsibed what may heppen when difecent observers approach “he same phys: nom froma rather defforeru slacting poi. fn The poem Saxe lets one of Ube blind neh approach the elephart’s side. The man tinds it to be “very Bike a wail” Another Hits acound its leg and conchndes that it resembles a tree. And su ria, ‘fhey end up disputing "loud and laag” Saxe dew the following moral: So-0f in thealogte wars, “Fhe dispatants Fomor, Raion in eater gaoranre Of wat each others mea, ‘Avil pusce about an kiephane ‘Nol ome wf Uwem las sera ‘The point is, of course, thal cach “disputant” has a valid insight, bnt seeds to combine it with the insights of ethers to reach a holistic understanding. W we substitute “innawation” for the dephant and the “social scientists tio different dbscigfines” for the blind men, we coane close to underscanding the motives that fed (© the creation of this handbook, Innovation is a roudtifaceted phenomenon that cannot be easily squeered inte # particnlar tranch of the socio} sciences or the humanities. Consequently, the rapidly increasing literatnre on innovation is char- acterized by « anulkituds of perspectives based on—or cutting across existing ‘Usciplines and specializations. These is a danger, however, that scholars studing inmovation do it from starting poiuts so diffcrent that they become unable to-—-or not interested in—communicating with each other, preventing the developmrentota more complete arslerstanding of the phenomenon, The purpose of this volume is (e contribute to a holistic understanding at innovation. The volume includes twenty-one carcfully sulected and designed coo tributions, each focusing nn 2 speelic aspect of innovation, a8 well as an etuzodac- tory essay that sets the siage for the chapters that follow. The authors are Feading academic caperts om theic specific topics, and include economists, geagraghes istorians, psychologists, and sociologists, Some contributors Inve engiuceting degrees in addition ro their soctal science degeee, Bach chapter ean be read separately, but most readers will benefil (rom reading the intraductory interested in pursuing further study on specitic topice will Lind suggestions for ssa first, Readers Vio PREFACE xdditional reading (inarked with asterisks) im the reference list al the end of each chapter. ‘As with all books there is a history behind it. in fact there are several, There is a Jong history: related to how innovalion studies have evalved aver the years. Many of the contributions presented liere, Chapter 1 in particular, give elements of that story. The shorter history begins in the mid-i990s with the big impetus to intiovation research in Europe provided by the “Framewark” programmes of the European Commission. Having participated actively in this research for some time, several of the contributors to this volume became interested in establishing a network that could support discussion and evaluation of its results. Vor this purpose Tan Fager erg organized in igg9, with the support of the Norwegian Research Council, an internationat network for innovation studies that met occasionally Lo discuss selected topics within innovation research. The ntectings of this group led 10 a proposal for a book reflecting our current knowledge on innavation. Oxford University Press was contacted and welcomed the idea. Economic support from the Kuropean Commission and the Norwegian Research Council made it possible for the contributors to meet lwice to exchange ideas and comment on each other contributions, greatly enhancing the quality and consistency of the volume, One of the conteal participants in the network that led to this volume was Keith Pavitt, Professor at SPRU (University of Sussex} and cditor of Research Policy, the leading jouttal in the field. With a background in both enginecring and economics, Keith was one of the pincers in crass- disciplinary research on innovation, Charac terized by a “fuct-nding” approach and a lack of respect tor received “grand theories” not supported by solid evidence, he influenced generalions of younger researchers and helped put innovation studies on its current “issne-driven,” empir ically oriented track, Keith enthusiastically supported this book initiative, very quickly (hetnre anybudy else) cisculated a full draft of a chapter and participated aclively in the discussions duting the first workshop in Lisbon in November 20v2, He lied unexpectedly shortly afterwards, ‘fhe editors and contributors dedicate tis book to his memory, LE, DM, RIN, Oslo, Berkeley, and New York January 2004 ACKN OWLEDGEMENTS Without financial support froin the Norwegian Research Councit {projects wnaGbfne and 1338670) and the Emopean Commission (the TEAR! project — HIPSE-CT 2002-60521 this hook would not have been realized. We thank Trygee Lande and Helge Rynning from Norwegian Research Councif and Nicholavs Kes, nos from the European Commission for their cooperation. The Centre for Technology. Innovation, and Culture (THK), University of Osto gave Jan Fagerberg a leave of absence ro stact working with this project, which he spent at ISEG, Technical University of Lisbon, tle would also like 10 thank ISEG and the Gulben, Kian Foundation for helping ta: make this possible. Similarly, David Mowery would like fo thank the Division of Research of the Harvard Business Sclivol for a Bower Fellowship during 2003-4 that aided his work on this volume, Manuel Godinhe of 'SEG helped organize the first workshop in Lisbon in November 2000, and Bact Verspagen of ECIS (University of Sindhoven) similarly assisted in organizing the second workshop in Roermond in June 2003. In addition to the contributors several people participated in these workshops and contritsuted to the progress ofthe works, w¢ would particularly like to montion Fulvio Castellacti, Joio Caraca, Maureen McKelvey, Sandro Mendonga, Richard Stankiewicr, and Mona Wihe, During the final phases of preparing the manusctipt for publication, Mike Hobday, Chris Freeman, Tan Miles, and Susan Lees provided invaluable assistance in editing, Proofteading, and preparing Keith Pavitr’s chapter for publication During the Final phase Charles McCann provided valuable advice to the non-English/ American authors, Ovar Andreas Johansson at TIK was a very efficient and helpful project assistant. At Oxford University Press David Musson and Matthew Derbyshire were inspiring and patient parmers, CONTENTS List of Figures ait List of Tables wil List of Boxes « List of Contributors Innovation: A Guide to the Literature 1 Jan Facerasnc PARTI INNOVATION IN THE MAKING Introduction 28 2. The Innovative Birm 29 Wrhiiiam Lazowicn 3. Networks af Innovators 56 Watrer W. Powsr anv Stiwe Gropat } Innovation Processes 86 Kern Pavirr Organizational Innovation 25 Auce Lam Measuring Innovation 148 Kerrn Smrrit Nick von Timzeamann ast VIRGINA ACHA * CONTERTS a . PART I} THE SYSTEMIC NATURE OF INNOVATION Introduction 180 7. Systems of Innovation: Perspectives and Challenges 81 CHARLES Epquisr 8. Universities in National Innovation Systems 209 Davie C. Mowsay awn Braven N. Sampat. 9. Finance and Innovation 240 Mary O'Scitivan 10, Innovation and Intellectual Property Rights 266 Ove Geansrranp 11. The Geography of Innovation: Regiunal Innovation Systems 291 Byoan AsHrim Ano Meric 8. GERTLER 12. Globalization of Innovation: ‘The Bole of Multinational Enterprises 28 RasneesH NagOLA AND ANTONETLO ZANFEL PART IH HOW INNOVATION DIFFERS Introduction 348 43, Innovation through Time 349 Kristexe Bro anno ann Davin C, Mowry 14. Sectoral Systems: How and Why lanovation Differs across Sectors 380 Frances MALERBA 5. Innovation in “Luw-Tech” Industries 407 16. Innovation in Services 33 20. Tan Mites Innovation and Diffusion 459 BRoxwys H. Hatt PARTIV INNOVATION AND PERFORMANCE Introduction 486 Innovation and Economic Growth 487 Baxt VERSPAGEN Innovation and Catching-up 54 Jan TaGERBERG AND Manvin M. GoninHo: Tnnovation and Competitiveness 343 Toun Cantweny, Innovation and Employment 568 Marto Prawta . Science, Technology, and innovation Policy 599 Benot-Ake LUNDVALL AND Susana Boxais List OF FIGURES Scholarly articles with “Innovation” in the title, 1955-2004 Strong and weak ties Structural holes and redundant ties Nerwork lypology Knowledge codification and innovati USPTO utility patents 4965-2002 The SPRU innovation database: The intersectoral flow of innovations Defining technological innovation —Community Innovation Survey (CIS) Resources devoted to innovation activities in 1996 Universities’ performance share of total national R&D, 1981-99 R&D performed by the higher education sector as a percentage of GDP Share of higher education R&D financed by industry, 1991-2000 US research university patents as a percentage of all domestic-assignee US patents, 1963-99 Technology field of LIS “research university” patents, 1960-99 Diffusion of electric motors in US manufacturing Diffusion of major innovations in the United States Jong-cun growth in the world economy Approximate chronology of technological revolutions ‘The Jones critique GDP per capita growth 1960~: 001 ‘Third-level enrollment in relation to age proup, 20-24 years old 1965-95) Ratio of first university degrees ia natural sciences and engineering \o 24-year-olds in the population, 1999 (all vatnes in %) R&I us percentage of GDP, 1960s and s990s US patenting per milfion imhabitauts (log scale) Share of new products in sales and employment change Relulionship between science, technwlogy, and innovation policy 2 The scientilic and technological architecture of Europe, 2001 a List of TABLES 4a. Examples of technological convergence and vertical disintegration 4.2 Matching corporate technology and organizational practices ‘with market needs and demands 5.2 Mintzberg's structural archetypes and their innowative potentials 6a GERDIGDP ratios acrase countries 6.2 Classification of industries based on R&I? intensity 6.3 Appendix 6.1: Recent (2002 onwards} journal publications using IS data 4 Appendix 6.2: Publications using CIS data sponsored by the European Commission—topic and institutions 8a The relevance of university science to industeial technology 8.2 Ipiportance to industrial R&D of sources of information on public R&D (including university research) 9. Venture capital and early-stage investment as 9 percentage of GDP 10.3. Fras in the history of patents and IP 10.2 Chronological overview of major events in US post-war IPR development (thrangh 2000} 10.3 Means for commercializing new product technologies 10.4. Sensitivity of the RED investments of large Japanese corporations to Tength of term (2992) 721 A taxonomy of the globalization of innovation 12.2 Rates of growth of industrial R&D and patenting in the ORCD countries 125 Sclected indicators of EDI and international production, 1982-2008 (US Shillion ar current prices and percentage values) 12.4 R&D expenditure of foreign affiliates as a percentage of total R&D expenditures by all firms in selected host economies, 1998 or lalest year 12.5 Shares of US patenting of largest nationally owned industrial firrns due to research located abroad, 1920-90 12.46 Share of US patents of the world’s largest firms attributable to vesearch in foreign locations by main area of origin of parent firms, 1969~95