By Ian Lindsay, Wadeson Patent & Trade Marks Attorneys

Innovation is considered to be an important driver for success. Whether we are talking about a stall holder at the local market, a Fortune 500 company or a country, innovation is high on the list of key considerations to being successful. But, what makes one country or organisation more innovative than another? What enables a culture of innovation?

Measuring innovation

Innovation can be broadly defined as making changes in something established; especially by introducing new methods, ideas, or products. It is harder to define a measure of innovation which does not include other factors that are unrelated. For example, continuing on our market stall example, growth in profit or turnover may be attributable on the balance sheet to a great new recipe for lemonade that the stall holder is selling.

However, how much of the growth is due to the particularly good crop of lemons this season? What about the new sign made to sell the new lemonade and the great run of recent weather? So, the fact that a new product has been generated is a sign of innovation but it may not be wholly attributable to the success of the business. Therefore, a company's financial state is not a reliable measure of their innovation.

Moving away from our market stall and thinking on a national basis, there would be some expectation that innovation is in some way correlated with research and development (R&D). Without some component of R&D -- even if a product is the "development" of an idea with no research -- innovation cannot have occurred, as no change will have occurred. If R&D expenditure is measurable, then perhaps, by correlation, innovation is measurable. 

While in no means definitive, many "innovative" products are patented, or at least a patent is applied for, and, purely on a relative comparison level, there is likely to be some expectation that a greater number of patent applications suggests a greater level of innovation.

Innovation drivers

It is interesting to note that the R&D incentives provided by governments do not necessarily correlate with the countries which are the most prolific patent filers. Switzerland, Finland, Japan and Israel all score relatively highly with regard to the number of patent applications per capita but all have a government R&D incentive scheme of less than 0.18% of GDP.

Indeed, all of those countries have businesses which appear to value the investment in R&D, with greater than 2% of GDP being spent by businesses on R&D. The Republic of Korea appears to be the exception, where the number of patent applications filed is very high per capita, yet they are also the country with the highest government incentive for R&D.

What is clear is that government R&D incentives alone do not produce a culture of innovation. Increased R&D incentives tend to encourage businesses to increase their R&D spend but this does not necessarily lead to end product, assuming that patent applications filing numbers equate to successful innovations. Anecdotally,(1) Israel is considered to be a producer of innovative companies. In fact, Start-up Nation: The Story of Israel's Economic Miracle was published in 2009 by Dan Senor and Saul Singer and a number of other commentators conclude that Israel has more high-tech start-ups per capita than any other country in the world.(2)

Israel does have 66 companies listed on the NASDAQ,(3) which is the second highest number for countries outside the USA, with China having 90 listed companies. Senor and Singer put Israel's culture of innovation down to a number of factors including an excellent education system, mandatory conscription and a cultural willingness to accept economic risk. Unfortunately, there is no magic bullet to enable a culture of innovation.

However, while I doubt that mandatory conscription would be considered by many governments as a method to improving innovation, perhaps concentrating on supporting businesses willing to spend more on their R&D in other ways than simple tax benefits and enabling a culture of accepting economic risk are good starting points.

(1) G Shapiro, What Are The Secrets Behind Israel's Growing Innovative Edge?, July 2013, accessed 27 January 2015, www.forbes.com.
(2) The Economist, Beyond the start-up nation: Israel has become a high-tech superpower over the past two decades. Can the good news
last?, 29 December 2010, accessed 27 January 2015, www.economist.com.
(3) NASDAQ, www.nasdaq.com.

Note: This is an extract from Australian Intellectual Property Law Bulletin, February 2015, Volume 28 No 1