at both the firm and industry levels, due to the lack of adequate empirical data. The approach taken by some researchers has been to look at the relative importance of a host of firm characteristics and practices, industry demand conditions, the nature of technological opportunity as afforded by knowledge flows and the vitality of the underlying science, and the means of capturing profits from innovation as determinants of the level of effort and effectiveness of innovation. Although there has been considerable analysis of some manufacturing sectors, there was general agreement that it is not clear how to assess innovation determinants in the emerging industries and the services sector generally.

A coherent analytical framework is also needed to help identify and assess observed changes in the innovative activities of firms. Because they appear to represent structural changes, several widely perceived trends in industrial research and innovation should be captured in national data series or should at least be considered candidates for systematic tracking. These trends include

  • Changes in the composition and orientation of research and innovation, including an apparent shortening of the time horizon of corporate investments, a focus on incremental improvements in technology, and shifts in R&D performance among sectors of the economy;
  • Changes in the organizational structure of R&D and innovation, including greater corporate reliance on external sources of technology and collaborative arrangements with public and private institutions domestic and foreign;
  • Changes in the location of R&D and innovation, including domestic regional clustering of technology-intensive enterprises and increased foreign direct investment in and out of the United States; and
  • Innovation across manufacturing and service industries in information technology that is developed largely but not exclusively outside the user industries and is often supplied by intermediaries such as systems integration and consulting firms.

As a starting point in the discussion of a conceptual framework, innovation has been defined as the practical use of an invention to produce new products or services, to improve existing ones, or to improve the way in which they are produced or distributed. Innovations include technologically improved products or processes, where processes may involve changes in equipment, human resources, or working methods (Statistics Canada, 1996). Fred Gault, Director of the Science and Technology Redesign Project at Statistics Canada, suggested a narrower and simpler definition of innovation as ''the commercial use of invention," as distinct from pure knowledge-creation activities commonly referred to as basic or fundamental research. This definition leaves the status of industrial reorganizations and new management approaches that can greatly affect performance ambiguous.

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