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This chapter introduces the issues and provides a fuller argument as to why soft innovation, conceptually, is important. Innovation that encompasses the artistic, formal (as in the contrast between form and function), intellectual or aesthetic, has largely been ignored in the mainstream literature on innovation. At the centre of the analysis here is a form of innovation labelled soft innovation, defined to encompass changes in goods and services that primarily impact upon these aspects rather than functional performance. Soft innovation mainly concerns product innovation and product differentiation. The emphasis upon product differentiation means that economic analysis designed for exploring (static) models in differentiated markets can be brought to bear upon dynamic questions relating to innovation. Innovation in terms of new product launches in such markets may reflect either movements towards equilibrium or changes in the equilibrium. Two main types of soft innovation are detailed: the first involving changes in products in the creative industries; the second involving changes in the aesthetic/intellectual dimensions of products in other industries.

This chapter examines the effect of innovation on labour productivity in France, using a general framework that accounts for research activities and for both product and process innovation. To control for selection and endogeneity effects, the chapter estimates a nonlinear multiple-equations econometric model. This model is estimated on the third and fourth waves of the French component of the Community Innovation Survey, using a three-step and a two-step estimation procedure. The chapter identifies process innovation as the main driver of labour productivity in the manufacturing industry, but the results are less consistent in the services industry. Sensitivity analyses actually suggest that our two indicators of innovations both tend simply to measure overall innovation. When a single indicator is used, the chapter finds a positive effect of innovation in all industries and in all periods. The chapter concludes with some cautionary words relating to the joint modelling of the impacts of product and process innovation on productivity.

This chapter argues that there is a dual causal link between technological change and insurance. On the one hand, technological change often presents new opportunities, but also challenges to insurers. However, what has been rarely recognized up to now is that insurance may also induce technological change, in the guise of both product innovation and process innovation. The first part of the chapter discusses the impact of innovation on insurance, followed by innovation in medicine and its impact on health insurance. The second half is devoted to the reverse causal relationship, starting with the feedback from insurance to innovation, in general, and ending with the feedback from health insurance to technological change in medicine.

This chapter investigates the effect of innovation on the productivity of firms when two technological paths are available: product innovation on the one hand, and process innovation on the other. This is done by estimating a nonlinear multiple-equation econometric model, which allows us to control for both selection and endogeneity. The results suggest that process innovation appears as the main driver of labour productivity in the manufacturing industry, but it is difficult to disentangle the respective effects of product and process innovation. Both types of innovation actually seem to capture ‘overall’ innovation, and when a single indicator of innovation is used, it always has a significantly positive impact on labour productivity, both in the manufacturing industry and in the services.

Confronting patent applications to a ‘true’ measure of innovative output in the German CIS, the chapter concludes that patent applications are mainly done by innovators that develop new (physical) goods. Compared to goods innovators, service and process innovators show quite poor patenting rates. Collaboration with universities increases the propensity to patent, while collaboration with other partners does not. An innovator’s orientation to local and national markets reduces, while international market orientation increases the probability of applying for patents. The estimates suggest dividing industries into two classes: high versus low patent propensity industries. Low patent propensity industries include all services industries as well as most traditional manufacturing industries. The probabilities estimated might give a clue to users of patent databases about the extent of their measurement bias when using patents as an innovation indicator. Especially service oriented innovations may not be equally captured by patent data.

This chapter examines the consistent pattern with regard to the trajectories of technology learning or capability acquisition among the four enterprises from the case studies and describes the evolution of a unique top-down mode of technology learning. The enterprises' ready access to the science and technology resources that had been accumulated in the state sector was indispensable in permitting them to start directly with product innovation. In all four cases, indigenous innovations in technology stemmed from the need to process Chinese-language information. However, it was the organizational innovation in the institutional structure of enterprise governance that enabled these enterprises to bring the technological capabilities to meet the market needs. There was a coupling between the institutional structure of enterprise governance and the trajectories of technology learning.

This chapter discusses how China Great Wall Computer Company (CGC) transformed China's state-run computer industry as a result of exploring new organizational forms and adapting to a new business environment at the highest level of the industrial administrative hierarchy. The CGC is a fully integrated high-tech enterprise group engaging in a wide range of IT related businesses, including R&D, manufacturing, distribution, services, systems integration, foreign trade and finance. The foundations for the success of the CGC were laid by the indigenous product innovations that met specific local needs from the very beginning and the corresponding adoption of a market-oriented organizational structure. The Great Wall Model, with its four basic ingredients — market orientation, independent product development, OEM production arrangement, and dealership distribution system — proved that it was possible to build a competitive enterprise without relinquishing state ownership altogether.

This chapter presents evidence that free innovation is a very substantial phenomenon with respect to the development of products consumed within the household sector. Today, tens of millions of consumers annually spend tens of billions of dollars creating and modifying products to better serve their own needs. In fact, aggregate household sector product development expenditures rival the scale of business sector expenditures by producers developing products for consumers. The chapter then shows how more than 90 percent of the developers of product innovations in the household sector meet both of the criteria for free innovation specified in the previous chapter. Finally, the chapter explores the nature of transaction-free self-rewards central to the viability of free innovation, and discusses why it can make economic sense for free innovators to reveal their innovations for free.

This chapter introduces the book and discusses its main objective—the microeconomic analysis of product innovation—and its potential readership—third-year undergraduate and postgraduate students, researchers, private and public sector policy professionals—both in economics and in management and business. The chapter argues that this book will fill an important gap in the literature. It also provides an overview of subsequent chapters, summarizes their content, and describes the way they interact. In particular, it indicates that the material provided encompasses the definition of product innovation, the sources of new products, the measurement and extent of product innovation, analytical material on the demand for new products, their supply, and the incentives to product innovation, empirical material on the determination of the extent of product innovation, the diffusion or spread of product innovations, the impact of product innovation on firm performance, price measurement, and welfare and policy issues relating to product innovation.

This chapter shows that free innovation extends well beyond product innovation—the type of innovation focused upon by almost all studies of household sector innovation to date. It reviews field-specific empirical studies that find significant levels of free innovation present in services, processes, marketing methods, and new organizational methods. The chapter also discusses illustrative examples of the sources of innovation across five innovation categories used in official Organisation for Economic Co-operation and Development (OECD) government statistics. Thus, the chapter argues that the scope of free innovation in the household sector is indeed broad—and perhaps as broad as that of producer innovation with respect to products, services, and processes of interest to consumers.

The questions addressed in this volume are motivated by the recognition that engineers play an important role in generating innovation and economic growth. In this chapter, we seek to offer some description of engineering work by looking in detail at a specific manufacturing industry—firms that supply automakers—to gain insight into how engineers create innovation. Autos account for 5% of US GDP and in 2011, 70% of auto suppliers contributed design effort, a task typically performed by engineers, making the auto supply chain an important context in which to study engineering and innovation. Some highlights from our original survey data include a wide range in terms of size and strategies of supply chain companies; a majority was small- to medium-sized, often family-owned. We observed barriers to patenting for manufacturing firms' developing process rather than product innovations. And interviews revealed the importance of customers for the innovative efforts of supplier firms. Certain Japanese customers were preferred because they shared expertise and helped suppliers improve, while other, American, customers were viewed as having unreasonable demands for regular, incremental price reductions and did not offer technical or organizational support.

This chapter discusses the main sources of product innovations, thus encompassing R&D, design activity, creativity, imports, foreign direct investment, and the emulation of others. Although there is no neat statistical breakdown of the relative importance of the various sources, R&D is not the sole source of new products. It will be especially important in some industries; but in others—such as the creative industries—design and creativity may be more relevant. For any individual economy, many product innovations may originate from or be supplied from outside the national economy. Emulation is also a major source of innovative new products, and the chapter discusses how emulation may be limited by formal and informal means of protecting intellectual property.

Organizations began generating streams of new products only recently. Building products that actually solve customer problems required new social technologies for extensive interdisciplinary work to figure out the product, and for coordinating working in parallel. Complexity requires new social technologies again, to figure out how to build products with so many unknowns, and to coordinate work over such long periods. Examples illustrate the inherent complexity of drug development, how scientists use abductive learning routines to figure out how to build products by taking advantage of emergence, and how they use event-time pacing to coordinate. However, project scientists do not use abductive learning or event-time pacing well, in part because knowledge scientists and managers impose their own problems onto the projects. Tensions between the different groups are illustrated to argue that R&D productivity in the pharmaceutical infrastructure cannot improve unless innovations in the other subsystems take place simultaneously.

This chapter explores the manufacture and production of kosher and halal meat (both red meat and poultry) in London and Manchester in the UK and also Denmark with specific reference to audits/inspections, legislation, networking, product innovation and certification. The reason for focusing on the UK in particular is, firstly, the UK has large Jewish and expanding Muslim communities as well as some well-known kosher and halal certification bodies. At the same time this market is far more complex than the market in Denmark.

This chapter shows how the basic cum-ex trade was subject to recurrent (and ingenious) further refinements through financial engineering in order to massively amplify its effectiveness and profitability. It identifies six separate constraints on a seller implementing a ‘stand-alone’ approach to cum-ex trading in the open market. These constraints are discussed in turn, before an exploration of the actions adopted by cum-ex traders to overcome each of them. The chapter then considers various refinements made to the design and implementation of the cum-ex trade to broaden the scale of trading activity, to improve the cosmetics and efficiency of the trade, and to boost its profitability both by devising a way to permit multiple repetitions of the basic trade between the same counterparties and also by cutting the costs of implementing the trade. Some further changes were made to sidestep efforts by the tax authorities to close down the cum-ex trade. The refinements to the cum-ex trade were continually layered onto the basic transaction, leading ultimately to colossally complex transaction structures.