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 asks firms what percentage of their profits came from new products or services, indicating how valuable those innovations were.
How is Canada doing?
- In 2017, 6% of the turnover from Canadian firms was from new or significantly improved products that were new to the market, compared to an OECD average of 5.3%.
- We see a much lower ranking here than we do for percentage of firms that have created a new product or process, which may imply either that our new products are less valuable than in other countries, or more likely that most of our innovation is through processes.
This metric is gathered through a variety of surveys across the OECD. Firms are asked what portion of their profits in the given year have come from new products. 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. Turnover is the amount of revenue produced in the year in question. The statistic is then the portion of turnover made from products that are considered new or improved.
The primary drawback of this metric is that it ignores process innovation; it is extremely difficult, however, to measure how valuable a process has been. Another major issue is 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.