Innovation and Innovative Capacity

Innovation, in the form of new products, processes, and ways of managing, underpins the growth of productivity that is necessary for a rising standard of living. Innovative capacity is especially important for advanced nations if they are to support higher wages than developing economies who can rapidly imitate. Innovative capacity in a nation or region is heavily rooted in its microeconomic environment, in areas such as the intensity of scientists and engineers in the workforce, the degree of protection of intellectual property, and the depth of clusters. Innovation also holds the key to solving many of the world’s most pressing social challenges such as health care and improving the quality of the physical environment.

The innovative capacity of the U.S. economy has been the focus of the National Innovation Summit in April 2001, an event organized by The Council on Competitiveness.  Professor Porter's remarks at the Summit provided the framework for a discussion of over 150 corporate chief executives, university and labor leaders, and national and regional policy makers on an action agenda advancing U. S. economic competitiveness and technological innovation.  In December 2001, Professor Porter was invited by the Dutch government to discuss the innovative capacity of the Netherlands.  This presentation provides an example of how to assess the innovative capacity in an advanced economy.

“Innovation: Location Matters”
     Michael E. Porter and Scott Stern
     MIT Sloan Management Review, Summer 2001;
     Vol. 42, No. 4
The authors describe how managers can understand the role of location in innovation and evaluate the innovative capacity of both countries and regions. Using data from the Organization for Economic Cooperation and Development and emerging nations over the past quarter century, their findings show the striking degree to which location matters for successful innovation at the global technology frontier. Their analysis sheds light on why individual nations have registered sharp differences in innovative performance.

The strong effect of location on innovation holds important implications for companies and creates a new broader agenda for innovation management. Choosing R&D location and managing relationships with outside organizations should not be driven by input costs, taxes, subsidies or even the wage rates for scientists and engineers, as they often are. Instead, R&D investments should flow preferentially to the locations with the greatest innovative capacity. Taking active steps to harness and extend locational advantages takes on equal weight with R&D process management. Locational advantages - rooted in proprietary information flows, special relationships with local companies, and preferential access to local institutions - are competitive advantages that are difficult for outsiders to overcome. They can help explain an apparent paradox of globalization: Ideas and technologies that can be accessed at a distance cannot serve as a foundation for competitive advantage. Effective management of locational advantages may ultimately prove more sustainable than simply implementing corporate best practices.
Order article from MIT Sloan Management Review

The determinants of national innovative capacity (pdf)
     Jeffrey L. Furman, Michael E. Porter, Scott Stern
     Research Policy, 31 (2002) 899–933
Motivated by differences in innovation intensity across advanced economies, this paper presents an empirical examination of the determinants of country-level production of international patents.  We introduce a novel framework based on the concept of national innovative capacity.  National innovative capacity is the ability of a country to produce and commercialize a flow of innovative technology over the long term.

Understanding the Drivers of National Innovative Capacity (pdf)
     Jeffrey L. Furman, Michael E. Porter, Scott Stern
     Academy of Management Best Paper Proceedings,
     2000 Annual Meeting, forthcoming
Motivated by R&D productivity differences across countries, we evaluate the determinants of country-level international patenting. Our framework is built on concept of national innovative capacity. Our results suggest that (a) patenting is well-characterized by a small but nuanced set of observable economic factors which may be affected by public policy and (b) the OECD has experienced substantial convergence in national innovative capacity over the last quarter century.

"The New Challenge to America's Prosperity: Findings from the Innovation Index" (pdf)
     Michael E. Porter and Scott Stern
     1999.
A comparison and projection of the innovation capabilities of the U.S. and 24 other nations based on a new set of quantitative indicators.

Wirtschaftsbericht 2004: Zunkunftsfaktor Innovationen
     Bundesministerium für Wirtschaft und Arbeit
Annual Report on the German Economy published by the German Ministry of Economy and Labor.  Interview with Christian Ketels on German innovative capacity appears on page 21. (pdf, in German)


Innovation Lecture (Netherlands) (pdf)
     Michael E. Porter, 2001

"National Innovative Capacity" (pdf)
     Michael E. Porter and Scott Stern
     The Global Competitiveness Report 2001-2002;
     New York: Oxford University Press, 2001
This chapter delves in detail into the conditions that allow a country to innovate at the global technology frontier. The findings reveal the striking degree to which the national circumstances actually explain the differences across countries in innovative activity measured by US patenting.

“Innovative Capacity and Prosperity: The Next Competitiveness Challenge”
     Michael E. Porter and Gregory Bond
     The Global Competitiveness Report 1999;
     Geneva, Switzerland: World Economic Forum, 1999.

Los Factores Impulsores de la Capacidad Innovadora Nacional: Implicaciones para Espana y America Latina (pdf)
     Michael E. Porter, Jeffrey L. Furman, Scott Stern
     Claves de la Economia Mundial, ICEX 2000 Madrid
English version:  The Drivers of National Innovative Capacity: Implications for Spain and Latin America (pdf)