"The challenge to create value-added high quality jobs and the need for intensive knowledge based R&D to sustain our economic performance into the future is reflected in the extent of the Government’s commitment to this key area of enterprise, science and innovation and human capital investment I have outlined this morning, " Martin concluded in his statement at the press conference.

There were no specifics provided on how we are going to become a world class knowledge economy in six years and it raises the question as to how much is aspiration and if the minister really knows himself?

Invention and Innovation

US IT research firm Forrester Research says in a report, which was published in December 2006, that governments put innovation high on their national agendas as a way of creating jobs, economic growth, and general well-being. But much of the tax money invested goes to waste because many politicians and bureaucrats confuse innovation with invention.

Successful strategies will build on the comparative advantage of each nation in a global Innovation Network consisting of Inventor, Transformer, Financier, and Broker nations.

Developed nations should select two of these innovation roles, while developing nations should stick to one. Forrester's evaluation shows 26 different nations which roles they should focus on and with which other nations they can partner to make their policies a success.

Navi Radjou, one of the authors of the report  The Forrester Wave: National Innovation Networks, Q4 2006, was interviewed on the Innovate Forum on issues of innovation.

You cite this statistic in your findings, as well – “Only 17% of global CEOs even mention R&D when listing their sources of innovation, and less than 3% of CEOs consider their R&D managers capable of leading enterprise-wide business innovation. So, what gives? After all – investment in R&D has historically been viewed as a bellwether of a firm’s ability to innovate – is this simply not true anymore?

That’s right – it’s simply not true anymore. Investment in R&D is not a bellwether of a firm’s ability to innovate. The nail in the coffin was a study conducted by Booz Allen Hamilton – which showed no correlation between R&D spending and innovation. But you do have to be careful here. As you can see in the case of even something like the iPod, the iPod is just a device – the real value is in iTunes. So it’s not that R&D is necessarily being seen as less important, it’s just that traditionally, R&D was focused on generating product innovation.

Today, however, more and more CEOs are finding that business model innovations – offerings like iTunes,  car insurance that you pay as you drive, or tailored drug delivery -  are just as important as coming up with a better mousetrap.

The numbers reflect this. For example, on a global basis - 46% of company CEOs say that new products and services will give them a competitive advantage, whereas 54% say that new business models will give them a better competitive advantage.

So, from this perspective, they’re not saying that R&D isn’t important, they’re saying that if the kind of innovation that matters is business innovation – like new operating models or new alliances – whatever it is, then how much – realistically – can R&D help with that? After all, R&D is made up of scientists and PhDs – and they can’t help you to improve your supply chain or your business model, right?

If you break down the numbers by region, it’s kind of interesting as well. While U.S. companies still seem to believe that products and services are more important – in Asia Pacific, it’s radically different. Those interviewed from the Asia Pacific region ranked new business models as being much more important than coming up with a new widget -- which is very interesting – because what we’ve been seeing is that the power is shifting to the Asia Pacific region.

Another statistic that you quote is that 90% of the engineers in 2008 or 2010 will come out of Asia. So , apparently they’re building up their technical talent, yet at the same time, you’re saying that they expect their innovations to come from new business models, not from product innovations – the two don’t really correlate. How do you explain this seeming contradiction?

That’s a good question. In the U.S., we’ll be tapping into their engineering talent, potentially – because we still think product innovation is where it’s at – but that puts us in kind of a precarious position. Which is why I’m worried. Because basically, what’s happening is that in the U.S., we have CEOs who are still obsessed with product innovation – and, in particular, with product design. In fact, we have publications like Business Week giving away design awards for innovation, which reinforces this obsession with product innovation. Yet we know that business model innovation is equally, if not more important. The challenge is - how do you reward or recognize something that relates to a business model, which is much less tangible than say, a new product design?

So, what we’re thinking is going to happen is that - because the U.S. doesn’t produce enough engineers and they have an aging R&D workface – they’re going to leverage the engineers from the Eastern countries more and more for product innovation. At the same time, companies from the East are going to play their cards very, very carefully. Take India, for example. India is going to say, “Ok, U.S. company – you need my engineering talent to drive your product innovation. That’s fine. We can supply you with engineering talent. But in the meantime, we’re also going to develop companies that are going to compete with you on a business model level.”

Horses for courses

Forrester attempted to rank 26 countries, all members of the Organisation for Economic Co-operation and Development, in terms of what Forrester sees as the four global competencies necessary for innovatory success: invention, transformation, financing and broking.

The authors say that inventive nations invest heavily in research and development and create patentable products. Transformers take products from the inventors and turn them into marketable items through manufacturing skills and other services. Financiers provide the money which underpins invention and transformation. Brokers bring the parties together, Forrester says, “buying and selling or enabling service delivery both within and among nations”.

Forrester used a benchmarking exercise involving 84 criteria – and threw up some unexpected results. Switzerland leads the inventive nations category: “Switzerland ranks highest in its current inventor capacity due to high academic achievement and hi-tech advantage,” the authors say. The US and the UK both rank as strong performers as inventors, as do Germany and Japan.

Ireland leads the transformer category through our capacity for attracting foreign companies looking for production capabilities while Finland, Sweden, the US, the UK, Belgium and Switzerland are all powerful financiers. No nation, however, stood out as a leader in broking.

Forrester’s principal argument is that innovation can no longer be sustained by nations – or companies – acting alone. Invention, transformation, financing and broking are all essential and no nation has enough of all of these skills in-house.

It calls, therefore, for what it terms as “multicountry innovatory networks” in which the companies, universities and governments of a number of countries collaborate and share the various innovatory roles between them. Rich countries such as the US or UK should concentrate on developing two roles. Poor countries should concentrate on single skills.

Forrester says a number of international companies such as Procter & Gamble and BT are already moving in the right direction, providing a model of how such partnerships might work.