What is this metric and why is it important?
Our definition of innovation is the creation of a new product, service, or process that creates social or economic value. This metric represents the portion of firms in a given year who report that kind of work, which makes it an important indicator of development activity.
How is Canada doing?
- In 2017, 66% of Canada's firms claimed to have created a new product or process; this is the highest rate in the OECD, with the average being 40%.
- This impressive result could be explained by Canada having a high level of process innovation. Canada tends to be more of an upstream supplier of commodities and cheap manufactured goods than its peers, which means that innovation in Canada is more likely to show up as plant-floor process changes—to ensure efficiency and keep costs low—than the development of new and improved products.
This metric is gathered through a variety of surveys across the OECD. Firms are asked whether they have created or significantly improved a product or process in the last year. We then count the portion of firms that said yes. Canada uses the Survey of Innovation and Business Strategy, but all countries use the definitions provided from the 2018 Oslo manual.
Product innovation is the introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses. This includes significant improvements in technical specifications, components and materials, incorporated software, user friendliness, or other functional characteristics. Process innovation is the implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment, and/or software. We measure here the portion of firms that have created such a product or process in a given year.
The first limitation of this metric is that it counts whether a firm said they have innovated in the year, but doesn’t show how valuable those innovations were or how many were made. It therefore captures just one of the two pieces of our definition of innovation.
Another major issue is just that the data is gathered through a survey, and while the definition of innovation that is provided to firms is the same across the OECD, the interpretation is left up to the firm being asked.