Although ideas are the engine of growth, they do not create economic benefits until they are incorporated into actual products, services, and processes that reach the marketplace. This helps to explain why national investments in R&D are not always strongly correlated with average incomes. Understanding the causes that result in a lack of implementation and commercialization of new ideas, whether patented or not, is at the core of economic research on innovation.
This focus on microeconomic drivers of growth—that is, on how dynamics in the business world affect the creation of new products or companies—is at the cutting edge of innovation research and has not yet generated many firm conclusions. However, in principle the link between company-level innovation and national productivity is straightforward. By bringing new products and services to market, companies foster productivity though the technology embedded in those new products and provide efficiency gains associated with their use.
The innovation process is a function of two aspects of a company. The first is its corporate culture: the extent to which it promotes the vision and capacity to manage new technologies, develop new business models, and exploit old technologies in new ways.105 Openness to new, unconventional, and disruptive ideas has a first-order impact on creative innovations that break new ground in knowledge creation.106 Such openness is influenced by society’s prevailing norms, such as the degree of risk aversion.107
The second aspect is business execution, some important elements of which are already captured in other pillars. For example, one of the effects of the availability of venture capital and other financial resources—as reflected in the financial development section—is to permit an organization to bear the costs of implementing new ideas and absorb failure.108 Similarly, ideas may not be implemented because of a lack of human capital, an issue already addressed in the education pillar.109
The effectiveness of marketing influences the degree to which new ideas are implemented because marketing activities complement product innovation by making newly developed products seem appealing. The more a company is able to create product differentiation through strong branding, thereby reducing the sense that a firm’s products are substitutable by those of its competitors, the more willing it will be to bear the risks associated with introducing innovative new products.110
Other, softer aspects that may prevent a firm from transforming an idea into a product are not yet fully assessed by the literature. For example, commercialization of ideas may be held back by inadequate internal processes and misalignment of different departments.111