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Planning for technological innovation part I. Investment in technology
40
Long Range Planning Vol. 10
December 1977
Planning for Technological Innovation Part I. Investment in Technology @wzG.
Cox”
In the modern industrial age, investment can no longer be seen purely in terms of expenditure on hardware or ‘tangible’ investment; the knowledge content or ‘intangible’ investment is equally important. Of course, intangible investment was always a feature of the manufacturing business but in earlier times the additional effort was mostly supplied by the entrepreneur. The complexity of modern technology, the multidisciplinary skills required and the sheer speed of change have altered this; except possibly in the new venture companies. It follows that a full understanding of the effects of technological change on industry can only be obtained if all aspects of investment are identified and measured. It is then possible to determine how much of its resources any particular industry is allocating to its promotion of products for the future, and whether this has changed significantly over time. This paper therefore is concerned with the totality of investment, its size, content and economic importance.
Measurement
and Analysis
Tangible investment in fixed assets is familiar, precisely surveyed and scrutinized-but it remains only part of the resources devoted to future outputs. Intangible investment is a less familiar concept but no less important. It encompasses R & D, licensing, final product and design engineering, new product marketing, patent work, tooling and industrial engineering, manufacturing start-up and the fmance and organization that accompanies such investment activities. (See definitions.) Of the varied activities that make up intangible investment only one, research and development (R & D) is closely studied,’ though data are available on payments for overseas technological royalties. Thus while information is available on the costs of obtaining the technical knowledge (R & D), very little is known of the costs of activities that go to transform the invention or technique into a process acceptable to the shop floorthat is technological innovation. ‘The author, now a Fellow at the University of Essex, was, until recently, at the Department of Industry concerned with the economics of technological change in manufacturing industry.
The question arises, ‘Why, when research and development has been so closely watched and measured since 1955, has so little attention been paid to the later stages of innovation?’ There are two reasons. First the application of science to industry has been seen mainly in terms of new knowledge rather than in the application of known scientific principles or techniques to industrial processes and second, outside the laboratories, the effort is often merged with those activities concerned with current outputs, and so tends to be overlooked. For instance, the final product and design engineering that follow market surveys will be carried out in the drawing of&e; and the same design engineers may also be responsible for satisfying the day-to-day requirements of production. It follows that the dividing line between the effort for current outputs and that for future outputs is less clear to the observer and may not be budgeted and costed separately. It follows that a full analysis of the costs of technological change in relation to economic performance must start by making a clear distinction between activities for current output and those funded for future outputs. Mr. B. M. Rooney in a paper given at a Conference held by The Institute of Management Science in 19692 includes an important diagram which, with his permission is reproduced here. The activities for future outputs-research, planning and implementation-and those for current outputs are distinguished and the relationship between them are shown very clearly. Thus the first step in any comprehensive study of the economics of an industry must be to identify the costs of current outputs (or line operations as in Figure 1) and then to look at the funds for all stages of investment. The first official government study of the costs of technological innovation was undertaken by Statistics Canada; and the report is published in Selected statistics of technological innovation in industry.3 The results show that, when R & D and innovation are looked upon as a continuous activity, the ratio of the total cost attributed to R & D falls as the technology becomes established. For example R & D is 77 per cent of total costs in the
Planning for Technological
Future
Outputs
I
Innovation-Investment
Current
in Technology
41
Outputs
Top Management
I I
I
1 Line
c-m--
-
Internal
Monitoring
Facilities
Staff
Data Authority Hierarchy
4
Increasing
Time
Future Time
N
Figure 1. Functions in Time Authority
Time
Present
Hierarchy
Matrix
electrical industry, compared with 21 per cent in ‘woodbased’ industry. For fixed assets the converse is true; in the Canadian survey the proportion of expenditure on fixed capital was highest in food and wood-based timber; lowest in electrical engineering.
correct for this, an attempt is made to estimate the costs that have been missing from previous assessments, that is to say how much of company or national resources have been diverted to preparing for the products of the future.
Initially the Canadians were concerned that their results showed such marked differences in the relationship between research and development and the costs of technological innovation in various products. Later it was recognized that in the well established technologies the costs of activities beyond R & D are likely to be as important, if not more important than the R & D phase, though the information to be used is enshrined in a design sheet or in manuals and it may not be necessary to perform R & D; the main technical task is to produce engineering solutions for available alternatives. On the other hand in the advancing technologies, the R & D phase is dominant; companies are ‘research intensive’ and there is a natural progression of the state of the art from early research and development through to an established technology. It is possibly fair to say that the longer lived the technology the smaller the proportion of investment activities that will be funded as research and development.
An assessment of the activities that link the R & D stage and the purchase of fixed assets has been made by using the results of the Canadian survey of technological innovation. The work was done in collaboration with Humphrey Stead, who was responsible for the Canadian studies and subsequent report.
The Canadian results are valuable in two other respects : (i) they reveal the complexity and extent of the process of technological innovation (ii) they allow rough estimates to be made of the total funds that are being used for investment activities in British industry. Underestimation of Investment
The result of omitting innovation costs has been a substantial under-estimation of expenditure on technological change-both companywise and nationally. To
The patterns of investment that emerged from this exercise are shown in Figure 2. As the costs of innovation attributed to each product are estimated on the basis of Canadian data the proportions are highly approximate but the general pattern is clear and the contrasts very marked. In this assessment all fixed assets, that is plant bought for modernization and replacement as well as for the final stage of new product innovation, are included. In engineering, licensing is also important. Figure 2 shows that R & D may be as high as 60 per cent of total investment costs or as low as 2 per cent. The proportion on fixed assets can be up to 90 per cent in an established technology such as timber and furniture or around 20 per cent in electronics. Thus in order to make a true comparison of industrial investment, both tangible and intangible elements should always be shown together.
Investment
in Relation
to Cash Flow
Having studied the patterns of investment there is also interest in how these costs relate to other economic variables. The next step therefore is to study expenditure
42
December
Long Range Planning Vol. 10
1977 Patterns of Investment
Per Cent
0
10
20
30
40
50
1968 60
70
90
90
100
Electronics Pharmaceuticals Instrument Chemicals Products
Engineering and Allied
Pumps, Valves and Compressors All Mechanical Engineering Non-Ferrous
Metals
Food Textiles Timber, Furniture Paper and Printing
Fixed Assets(Gross)
Figure 2
on the totality of investment in relation of total cash receipts and those other macro-economic variables within the industrial environment. To present the results, an analytical technique first used by the European Industrial Research Managers Association (EIRMA) is adopted and modified for the purpose of the study.4 The model presents a synthesis of relevant data from the Census of Production, the national accounts, company finance and surveys of research and development. Expressed in percentage terms, it shows the relationship between sales and work done and the expenditures associated with the line operations and with future outputs. The model can also be used to demonstrate the proportion of sales exported, the incidence of government funding, or the proportion of value added that is returned to the government as corporate or personal taxes or national insurance. Figure 3 presents the data in this form. The technique can be illustrated by using data for all manufacturing industry. Figure 3 shows that half of the cash receipts go to pay for components and materials used in line operations. From the other half, payments to outside organizations, wages and salaries costs of the production and sales workers, national insurance, rent, rates, taxes and interest must be met. In 1972 costs of current outputs amounted to two-thirds of cash receipts from sales. Finally the disposable funds divide half for distribution to working proprietors, directors, shareholders and reserves; and the remainder, an estimated A4OOOm for tangible and intangible investment. Apart from the intrinsic value of displaying the absolute amounts invested by manufacturing industry, there is considerable interest in seeing the difference between industries. Figure 4 compares non-ferrous metals with general engineering.
All Manufactunng
Industry:
Cost of Technological
1972
Change
in Relations
to Sales and Work
Done
f 60,OOOm
From U.K. Suppliers or Imports _
E25.000
m Payment
for Services
--T-l
For Current
Outputs
For Future (Investment), Proprietors,
Outputs Working Shareholders
Figure 3
The comparison of the two models reveals that each industry has a characteristic pattern of resource allocation or ‘thumb print’. In 1972 in general engineering 38 per cent of cash receipts are paid out for materials and components and a similar proportion goes to the ‘line’
Planning for Technological
Innovation-Investment
in Technology
43
Costs of Technological Change% Relation to Sales and Work Done 1972
Non-Ferrous Metals
General Engineering El.
-
Cl745 m-100
rports
-Materials Purchased for Production
In= loo
1
‘Materials Purchased for Production
---_+ -Payment for Services
lome ,ales
R _ Production etc. Labour Costs -Margin Added to Materials
Interest Z---a Taxes
Home Sales
-
R and D lnnovatior
-
-
Funds
-Payment for Services Production etc. - Labour Costs P and D Interest lnnovatiot iIaxes Licencing --Fixed -\ Assets ‘1. 6 \ Disposable Funds
Figure 4 wages and salary and other employment costs. This is characteristic of an industry where there is a considerable input of skill at craft, technical and professional level, reflecting custom-built equipment and short production runs. In contrast, the non-ferrous metal industry spends two-thirds of its cash receipts on materials and a sixth on employment costs. Thus these analytical models demonstrate for each industry the pattern imposed upon cash flow by its technology and by its capital structure. They largely explain the differences observed in the ratio of R & D as a percentage of turnover and show that the influences are as much technological as economic. Other Uses of the ModeI
As the model shows the inter-relationships between the economic variables in each industry, it can also be used to demonstrate visually the options open if c/lunges occur, for instance a 20 per cent increase in the price of materials, or a similar increase in wages and salaries with no improvement in sales. In either instance there would be a downward pressure on disposable funds. Again it can be seen that the ‘share out’ of these funds between investment on the one hand and working proprietors, directors, shareholders on the other could be a critical decision. Further it demonstrates the direct effect of recession on investment, where expenditure is discretionary. It implies that investment expenditure will expand only when (i) cash receipts increase (ii) productivity improvements reduce costs or (iii) the company can obtain additional money from bank loans, from the government or the capital market. Terleckyj has attempted to correlate R &D spend and the technology embodied in capital assets with productivityS and includes in his assessment the input
into an industry from an ‘embodied technology’. But the technique described here is more direct in its approach; the same information can be conveyed more simply through a cash flow model as it can indicate the amount of R & D that is ‘embodied’ in the materials or components ‘inputs’ in the first column. In other words this analytical technique can be used in the manner indicated by OECD in their study of the allocation of resources to R & D-a systemic approach.6
Technological
Forecasting
Technological forecasting is concerned with investment. From the macro models the investment capability (and its constraints) for each branch of industry can be seena capability which is governed on the one hand by the size of cash flow and on the other by its current technology. Micro models are equally effective. It is the profits in the system, generated by past technical progress, that finances future investment; but pressures from external factors on these margins can easily close the gap. In companies in fast growing areas there is an apparent tendency for companies’ investment (privately financed) to level out at or a little above 20 per cent of margin added; while the more traditional industries achieve much less, 10-15per cent. When these matters are better understood, a series of observations by industry and by size of enterprise could provide a useful indicator of the likely expenditure in companies-given the level of sales and employment costs. They would provide a guide to the technology that could be taken up with a given cash flow and so would be a sound basis for monitoring technology transfer to industry. The absorption of new technology by companies depends on the private finance available (or accessible). Thus technological forecasting must be carried out with reference to the money likely to be available and/or of
44
Long Range Planning Vol. 10
December
the services in’kind (co-operative research or task forces) made available by government. The model system described in this paper displays the parameters and takes ir;to account all relevant economic variables. Technological forecasting then becomes a marriage between economic possibilities and technological foresight. Dejinitions for Technological Innovation Technological innovation covers the work necessary to carry a product or process from the end of the R & D phase to successful production and sales. It also includes a few activities which may have taken place during the R & D phase but which are directly related to the decision to innovate. New product marketing is the set of activities necessary to the success&l introduction of a new or improved product (process) into the market. Its costs compnse those of market research, the non-recurring costs of establishing distribution and sales channels, and advertising system, as well as the initial advertising expenditures. Final product or design engineering is the further modification of a product (process) after the R & D phase is completed in recognition of market or manufacturing requirements. For instance it includes the costs of modifying part lists, materials, specifications and drawings. Tooling and industrial engineering covers all changes in production machinery and tools, in procedures, methods and standards to be used in manufacturing the new product or using the new process. Manufacturing start-up includes the costs of retraining personnel in the new techniques or in the use of new
1977 machinery, trial production runs and the costs of items damaged because of faulty equipment, procedures and operators’ errors. Patent work is the filing of patent applications and searches for prior patents in connection with the product or process being introduced or improved.
study described here, was formulated and Six Countries Programme on aspects of government policies towards technological innovation in industry-under the chairmanship of Walter Zegveld, Director St&Group Strategic Surveys, TNO, Netherlands.
Acknowledgment-The
developed within an international forum-the
References (1)
‘FRASCATI’ Manual DAS/SPR/70.40-Directorate for Scientific Affairs-The Measurement of Scientific and Technical Activities. Proposed Standard Pr tice for Surveys of Research and Experimental Development, ?c1970 yd 1975.
(2)
Adaptivity and Human Organisatior+@‘M. Rooney, InterBank Research Qrganization. Manpower and Management Science. The’ English Univer#ies Press Ltd. (1970).
(3) Selected Statistics on l’echnological lnnovatik
in Industry,
Statistics Canada. Catalogue 13-555.
(4) The Allocation
of Research Resources, European Industrial Research Management, Association, Working Group No. 12 (1974).
(5) Effects of R & D on the Productivity Growth of Industries. An exp/oratorv Studv, Nestor E. Terleckvi. National Planning Association, deport No. 140 (1974). ._
(5) The Slowdown
in R 8 D Expenditure and the Scientific and Technical System, Allocation of Resources to R 8 D-a systemic approach-OECD Secretariat SPT (74) 1.
Long Range Planning Vol. 10
December 1977
Planning for Technological Innovation Part I. Investment in Technology @wzG.
Cox”
In the modern industrial age, investment can no longer be seen purely in terms of expenditure on hardware or ‘tangible’ investment; the knowledge content or ‘intangible’ investment is equally important. Of course, intangible investment was always a feature of the manufacturing business but in earlier times the additional effort was mostly supplied by the entrepreneur. The complexity of modern technology, the multidisciplinary skills required and the sheer speed of change have altered this; except possibly in the new venture companies. It follows that a full understanding of the effects of technological change on industry can only be obtained if all aspects of investment are identified and measured. It is then possible to determine how much of its resources any particular industry is allocating to its promotion of products for the future, and whether this has changed significantly over time. This paper therefore is concerned with the totality of investment, its size, content and economic importance.
Measurement
and Analysis
Tangible investment in fixed assets is familiar, precisely surveyed and scrutinized-but it remains only part of the resources devoted to future outputs. Intangible investment is a less familiar concept but no less important. It encompasses R & D, licensing, final product and design engineering, new product marketing, patent work, tooling and industrial engineering, manufacturing start-up and the fmance and organization that accompanies such investment activities. (See definitions.) Of the varied activities that make up intangible investment only one, research and development (R & D) is closely studied,’ though data are available on payments for overseas technological royalties. Thus while information is available on the costs of obtaining the technical knowledge (R & D), very little is known of the costs of activities that go to transform the invention or technique into a process acceptable to the shop floorthat is technological innovation. ‘The author, now a Fellow at the University of Essex, was, until recently, at the Department of Industry concerned with the economics of technological change in manufacturing industry.
The question arises, ‘Why, when research and development has been so closely watched and measured since 1955, has so little attention been paid to the later stages of innovation?’ There are two reasons. First the application of science to industry has been seen mainly in terms of new knowledge rather than in the application of known scientific principles or techniques to industrial processes and second, outside the laboratories, the effort is often merged with those activities concerned with current outputs, and so tends to be overlooked. For instance, the final product and design engineering that follow market surveys will be carried out in the drawing of&e; and the same design engineers may also be responsible for satisfying the day-to-day requirements of production. It follows that the dividing line between the effort for current outputs and that for future outputs is less clear to the observer and may not be budgeted and costed separately. It follows that a full analysis of the costs of technological change in relation to economic performance must start by making a clear distinction between activities for current output and those funded for future outputs. Mr. B. M. Rooney in a paper given at a Conference held by The Institute of Management Science in 19692 includes an important diagram which, with his permission is reproduced here. The activities for future outputs-research, planning and implementation-and those for current outputs are distinguished and the relationship between them are shown very clearly. Thus the first step in any comprehensive study of the economics of an industry must be to identify the costs of current outputs (or line operations as in Figure 1) and then to look at the funds for all stages of investment. The first official government study of the costs of technological innovation was undertaken by Statistics Canada; and the report is published in Selected statistics of technological innovation in industry.3 The results show that, when R & D and innovation are looked upon as a continuous activity, the ratio of the total cost attributed to R & D falls as the technology becomes established. For example R & D is 77 per cent of total costs in the
Planning for Technological
Future
Outputs
I
Innovation-Investment
Current
in Technology
41
Outputs
Top Management
I I
I
1 Line
c-m--
-
Internal
Monitoring
Facilities
Staff
Data Authority Hierarchy
4
Increasing
Time
Future Time
N
Figure 1. Functions in Time Authority
Time
Present
Hierarchy
Matrix
electrical industry, compared with 21 per cent in ‘woodbased’ industry. For fixed assets the converse is true; in the Canadian survey the proportion of expenditure on fixed capital was highest in food and wood-based timber; lowest in electrical engineering.
correct for this, an attempt is made to estimate the costs that have been missing from previous assessments, that is to say how much of company or national resources have been diverted to preparing for the products of the future.
Initially the Canadians were concerned that their results showed such marked differences in the relationship between research and development and the costs of technological innovation in various products. Later it was recognized that in the well established technologies the costs of activities beyond R & D are likely to be as important, if not more important than the R & D phase, though the information to be used is enshrined in a design sheet or in manuals and it may not be necessary to perform R & D; the main technical task is to produce engineering solutions for available alternatives. On the other hand in the advancing technologies, the R & D phase is dominant; companies are ‘research intensive’ and there is a natural progression of the state of the art from early research and development through to an established technology. It is possibly fair to say that the longer lived the technology the smaller the proportion of investment activities that will be funded as research and development.
An assessment of the activities that link the R & D stage and the purchase of fixed assets has been made by using the results of the Canadian survey of technological innovation. The work was done in collaboration with Humphrey Stead, who was responsible for the Canadian studies and subsequent report.
The Canadian results are valuable in two other respects : (i) they reveal the complexity and extent of the process of technological innovation (ii) they allow rough estimates to be made of the total funds that are being used for investment activities in British industry. Underestimation of Investment
The result of omitting innovation costs has been a substantial under-estimation of expenditure on technological change-both companywise and nationally. To
The patterns of investment that emerged from this exercise are shown in Figure 2. As the costs of innovation attributed to each product are estimated on the basis of Canadian data the proportions are highly approximate but the general pattern is clear and the contrasts very marked. In this assessment all fixed assets, that is plant bought for modernization and replacement as well as for the final stage of new product innovation, are included. In engineering, licensing is also important. Figure 2 shows that R & D may be as high as 60 per cent of total investment costs or as low as 2 per cent. The proportion on fixed assets can be up to 90 per cent in an established technology such as timber and furniture or around 20 per cent in electronics. Thus in order to make a true comparison of industrial investment, both tangible and intangible elements should always be shown together.
Investment
in Relation
to Cash Flow
Having studied the patterns of investment there is also interest in how these costs relate to other economic variables. The next step therefore is to study expenditure
42
December
Long Range Planning Vol. 10
1977 Patterns of Investment
Per Cent
0
10
20
30
40
50
1968 60
70
90
90
100
Electronics Pharmaceuticals Instrument Chemicals Products
Engineering and Allied
Pumps, Valves and Compressors All Mechanical Engineering Non-Ferrous
Metals
Food Textiles Timber, Furniture Paper and Printing
Fixed Assets(Gross)
Figure 2
on the totality of investment in relation of total cash receipts and those other macro-economic variables within the industrial environment. To present the results, an analytical technique first used by the European Industrial Research Managers Association (EIRMA) is adopted and modified for the purpose of the study.4 The model presents a synthesis of relevant data from the Census of Production, the national accounts, company finance and surveys of research and development. Expressed in percentage terms, it shows the relationship between sales and work done and the expenditures associated with the line operations and with future outputs. The model can also be used to demonstrate the proportion of sales exported, the incidence of government funding, or the proportion of value added that is returned to the government as corporate or personal taxes or national insurance. Figure 3 presents the data in this form. The technique can be illustrated by using data for all manufacturing industry. Figure 3 shows that half of the cash receipts go to pay for components and materials used in line operations. From the other half, payments to outside organizations, wages and salaries costs of the production and sales workers, national insurance, rent, rates, taxes and interest must be met. In 1972 costs of current outputs amounted to two-thirds of cash receipts from sales. Finally the disposable funds divide half for distribution to working proprietors, directors, shareholders and reserves; and the remainder, an estimated A4OOOm for tangible and intangible investment. Apart from the intrinsic value of displaying the absolute amounts invested by manufacturing industry, there is considerable interest in seeing the difference between industries. Figure 4 compares non-ferrous metals with general engineering.
All Manufactunng
Industry:
Cost of Technological
1972
Change
in Relations
to Sales and Work
Done
f 60,OOOm
From U.K. Suppliers or Imports _
E25.000
m Payment
for Services
--T-l
For Current
Outputs
For Future (Investment), Proprietors,
Outputs Working Shareholders
Figure 3
The comparison of the two models reveals that each industry has a characteristic pattern of resource allocation or ‘thumb print’. In 1972 in general engineering 38 per cent of cash receipts are paid out for materials and components and a similar proportion goes to the ‘line’
Planning for Technological
Innovation-Investment
in Technology
43
Costs of Technological Change% Relation to Sales and Work Done 1972
Non-Ferrous Metals
General Engineering El.
-
Cl745 m-100
rports
-Materials Purchased for Production
In= loo
1
‘Materials Purchased for Production
---_+ -Payment for Services
lome ,ales
R _ Production etc. Labour Costs -Margin Added to Materials
Interest Z---a Taxes
Home Sales
-
R and D lnnovatior
-
-
Funds
-Payment for Services Production etc. - Labour Costs P and D Interest lnnovatiot iIaxes Licencing --Fixed -\ Assets ‘1. 6 \ Disposable Funds
Figure 4 wages and salary and other employment costs. This is characteristic of an industry where there is a considerable input of skill at craft, technical and professional level, reflecting custom-built equipment and short production runs. In contrast, the non-ferrous metal industry spends two-thirds of its cash receipts on materials and a sixth on employment costs. Thus these analytical models demonstrate for each industry the pattern imposed upon cash flow by its technology and by its capital structure. They largely explain the differences observed in the ratio of R & D as a percentage of turnover and show that the influences are as much technological as economic. Other Uses of the ModeI
As the model shows the inter-relationships between the economic variables in each industry, it can also be used to demonstrate visually the options open if c/lunges occur, for instance a 20 per cent increase in the price of materials, or a similar increase in wages and salaries with no improvement in sales. In either instance there would be a downward pressure on disposable funds. Again it can be seen that the ‘share out’ of these funds between investment on the one hand and working proprietors, directors, shareholders on the other could be a critical decision. Further it demonstrates the direct effect of recession on investment, where expenditure is discretionary. It implies that investment expenditure will expand only when (i) cash receipts increase (ii) productivity improvements reduce costs or (iii) the company can obtain additional money from bank loans, from the government or the capital market. Terleckyj has attempted to correlate R &D spend and the technology embodied in capital assets with productivityS and includes in his assessment the input
into an industry from an ‘embodied technology’. But the technique described here is more direct in its approach; the same information can be conveyed more simply through a cash flow model as it can indicate the amount of R & D that is ‘embodied’ in the materials or components ‘inputs’ in the first column. In other words this analytical technique can be used in the manner indicated by OECD in their study of the allocation of resources to R & D-a systemic approach.6
Technological
Forecasting
Technological forecasting is concerned with investment. From the macro models the investment capability (and its constraints) for each branch of industry can be seena capability which is governed on the one hand by the size of cash flow and on the other by its current technology. Micro models are equally effective. It is the profits in the system, generated by past technical progress, that finances future investment; but pressures from external factors on these margins can easily close the gap. In companies in fast growing areas there is an apparent tendency for companies’ investment (privately financed) to level out at or a little above 20 per cent of margin added; while the more traditional industries achieve much less, 10-15per cent. When these matters are better understood, a series of observations by industry and by size of enterprise could provide a useful indicator of the likely expenditure in companies-given the level of sales and employment costs. They would provide a guide to the technology that could be taken up with a given cash flow and so would be a sound basis for monitoring technology transfer to industry. The absorption of new technology by companies depends on the private finance available (or accessible). Thus technological forecasting must be carried out with reference to the money likely to be available and/or of
44
Long Range Planning Vol. 10
December
the services in’kind (co-operative research or task forces) made available by government. The model system described in this paper displays the parameters and takes ir;to account all relevant economic variables. Technological forecasting then becomes a marriage between economic possibilities and technological foresight. Dejinitions for Technological Innovation Technological innovation covers the work necessary to carry a product or process from the end of the R & D phase to successful production and sales. It also includes a few activities which may have taken place during the R & D phase but which are directly related to the decision to innovate. New product marketing is the set of activities necessary to the success&l introduction of a new or improved product (process) into the market. Its costs compnse those of market research, the non-recurring costs of establishing distribution and sales channels, and advertising system, as well as the initial advertising expenditures. Final product or design engineering is the further modification of a product (process) after the R & D phase is completed in recognition of market or manufacturing requirements. For instance it includes the costs of modifying part lists, materials, specifications and drawings. Tooling and industrial engineering covers all changes in production machinery and tools, in procedures, methods and standards to be used in manufacturing the new product or using the new process. Manufacturing start-up includes the costs of retraining personnel in the new techniques or in the use of new
1977 machinery, trial production runs and the costs of items damaged because of faulty equipment, procedures and operators’ errors. Patent work is the filing of patent applications and searches for prior patents in connection with the product or process being introduced or improved.
study described here, was formulated and Six Countries Programme on aspects of government policies towards technological innovation in industry-under the chairmanship of Walter Zegveld, Director St&Group Strategic Surveys, TNO, Netherlands.
Acknowledgment-The
developed within an international forum-the
References (1)
‘FRASCATI’ Manual DAS/SPR/70.40-Directorate for Scientific Affairs-The Measurement of Scientific and Technical Activities. Proposed Standard Pr tice for Surveys of Research and Experimental Development, ?c1970 yd 1975.
(2)
Adaptivity and Human Organisatior+@‘M. Rooney, InterBank Research Qrganization. Manpower and Management Science. The’ English Univer#ies Press Ltd. (1970).
(3) Selected Statistics on l’echnological lnnovatik
in Industry,
Statistics Canada. Catalogue 13-555.
(4) The Allocation
of Research Resources, European Industrial Research Management, Association, Working Group No. 12 (1974).
(5) Effects of R & D on the Productivity Growth of Industries. An exp/oratorv Studv, Nestor E. Terleckvi. National Planning Association, deport No. 140 (1974). ._
(5) The Slowdown
in R 8 D Expenditure and the Scientific and Technical System, Allocation of Resources to R 8 D-a systemic approach-OECD Secretariat SPT (74) 1.