INNOVATION BASE ECONOMY

The innovation economy is based on intellectual capital and the ability to translate ideas into new technologies, products and services faster and better than the competition.

Innovation economics is an economic doctrine that reformulates the traditional model of economic growth so that knowledge, technology, entrepreneurship, and innovation are positioned at the center of the model rather than seen as independent forces that are largely unaffected by policy. Innovation economics is based on two fundamental tenets. One is that the central goal of economic policy should be to spur higher productivity and greater innovation. Second, markets relying on price signals alone will not always be as effective as smart public-private partnerships in spurring higher productivity and greater innovation.

Innovation economics can be summarized as follows:
The major drivers of economic growth are productive efficiency and adaptive efficiency. If the focus in neoclassical economics is “the study of how societies use scarce resources to produce valuable commodities and distribute them among different people,” the focus in innovation economics is the study of how societies create new forms of production, products, and business models to expand wealth and quality of life.

In contrast to neoclassical economics, which is focused on getting the price signals right to maximize the efficient allocation of scarce resources, innovation economics is focused on spurring economic actors – from the individual, to the organization or firm, and to broader levels, such as industries, cities, and even an entire nation – to be more productive and innovative. From the standpoint of innovation economists, if government policies to encourage innovation “distort” price signals and result in some minor deadweight loss to the economy, so be it, because allocative efficiency is not the major factor in driving economic growth in the 21st century knowledge-based economy.

Generating Successful Innovations
Managers can take a number of steps to build innovation skills in their organizations and avoid failure. Six of the most important steps to be:
• Building skills in basic and applied scientific research.
• Developing a good process for project selection and project management.
• Using cross-functional integration.
• Creating product development teams.
• Implementing partly parallel development process.
• Placing a radically new technology in autonomous organization unit.