Innovation Systems

An innovation is a purposeful combination of market and non-market mechanisms to optimize production deployment and use of new knowledge for sustainable growth or institutionalized processes in the public and private sector.

Innovations do not happen in isolation. They come about as a result of a collective effort or achievement. Manufacturers come up with new ideas through a number of sources. Other manufacturers might produce better, cheaper and more quickly and the competition causes some changes in the process. They also learn from consumers’ feedback and have new ideas as a result. Suppliers get new products and these could change the manufacturers’ practice. The government may fund R&D and university professors might contribute some new information. Innovation is not solely an independent activity conducted by businesses on their own so it makes sense to consider the entire system rather than a business in isolation.
By employing a systems perspective, we are able to include other relevant factors that contribute to firms’ performance. This includes the skill of the workforce available, the political climate of supporting change (or restricting it), and financial institutions willing to extend the capital. A system perspective allows other relevant factors to be included in the analysis.

Systems exhibit complementarities, constituent components within a system that are linked to one another. The presence of linkages is crucial for the effective functioning of the system. The absence of a critical link or a component could block or slow down the growth of the system. These components could be technical or social.

An innovation systems perspective is useful for understanding the interaction between an innovator and the environment. The innovator is usually a business which depends on links to components of the system which either makes it more efficient or slows things down. Components are product market conditions, the education and training system, the macroeconomic and regulatory context and communications infrastructure. A system of innovation has the capacity or the potential to affect a country’s performance in economic growth, job creation, and competitiveness. It is why policy makers try to enhance innovation systems.

The first definition of innovation systems concerned the combination of market and non-market mechanisms for the production of new knowledge. Now we're defining an innovation system as a set of institutions that jointly and individually contributes to the development and diffusion of new technologies. We are focusing on a framework within which governments form and implement policies. We're focusing more on the policy-making dimension that the innovation systems conceptual approach can highlight.

In other words, an innovation system is a system of interconnected institutions that collectively create, store, and transfer the knowledge, skill, and artifacts which define new technologies. This definition is from the OECD. The interconnectedness refers to the linkages between different components within a system that collectively combine to help define the emergence of new technologies within a society.
from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology