The February "Technology Review" a magazine published by MIT since 1899 has an editorial by Jason Pontin, who some will remember for his writing in the "Red Herring." Jason's editorial focuses on the geography of innovation and he correctly points to locations of culture and methodology and innovative hubs where there has been difficulty with the innovative process. He mentions the Organization of Economic Cooperation and Development as a think tank on innovation. As a former consultant to that think tank and a researcher of knowledge creation and innovation in the pharmaceutical industry, Jason's ideas caught my attention.
There is possibly no better way to understand the innovative process than by reading the many writings of Joseph Schumpeter, the famous Harvard economist of the 1930's. Schumpeter's ideas caught the imagination of economists and propelled innovation in the field of economics itself. What Schumpeter emphasized was the role of new men in the process of innovation, men without the habits of earlier technologies. What Schumpeter was looking for was a cluster of innovations occurring together that would produce an economic upswing and a reversal of the decline in the profit rate.
Schumpeter was claiming that Karl Marx had got the dynamics of the economy all wrong and that innovation produced economic cycles. Marx's notion that it was the issue of capital accumulation which led to immiserization growth was extremely limited, if only because the economic mix of labour and capital was not governed by a linear mathematics, but a non-linear mathematics, one much more difficult to predict and one which could lead to higher profit rates rather than gradually declining profit rates. The key to a new profit stream was new products and new processes.
Innovation in the modern economy usually involves a new division within an existing company. There may be 'new' men or women involved. but they have a different vision of the product or process they are using in order to make a profit.
Occasionally, innovation may require only a new application of an existing product with a minor modification of specifications, such as dosage for pharmaceuticals.
Innovation as Jason correctly states requires a liberal attitude of management because there will be many strikes before home runs.
These figured dominantly in capitalist economic growth but at that time few had researched the process now best called economic development. Innovation and development go hand in hand. What really brought about the end to Communist economics was the fact that innovation occurs in products as well as processes, and that capitalism is driven by a creative destruction of existing productive capacity for both products and processes.
Schumpeter's definition of innovation was that it brought about a fundamental restructuring of the producing or processing base of an economy, and nearly always resulted in higher profits. Innovation was commercial activity that took place after invention and involved a significantly new technology.
What follows innovation is imitation activity or renovation of an existing technology for a product or process. Obviously, there is going to be questions asked whether innovation has occurred or renovation. The best way to tell is to look at the underlying processes that make up the earlier technology and the direction that the technology is applied. Much innovation is accomplished without obvious profit though an examination of value added might be helpful. What you will find is that even innovation involves building on previous technology structures, e.g. tiny transistors superseded large electronic valves; LED's may supersede fluorescent bulbs, and so on.
Much insight into the role of multinational firms and innovation has come from the work of Professor John Dunning who was the former chairman of the EIBA.