**4. Corporate innovation**

Innovation is the key to firm survival, the study of processes that support innovation is of great interest to practitioner and researchers. Organization for Economic Co-operation and Development (OECD) reports that innovation can influence long-term economic growth. There have been many innovation surveys (most of them are done in 2003) in different sectors both public and private, but there is no international standard providing definitions that apply in these sectors. This is a substantial gap, which prevents the analysis and understanding of innovation in the whole economy and how innovation in one sector is influenced by activities in others. Therefore, the benefit of using a general definition of innovation is that innovation can be measured in a consistent way in all sectors. These indicators can be used to inform policy development and for monitoring and evaluation of existing policy.

Later, the 2018 Oslo Manual [28] is rewritten to provide new definition of innovation, which facilitates international comparability and provides a platform for research and development on innovation measurement. The general concept of innovation is the implementation of something new to meet a given objective. Innovation can commonly refer to either the notion of process of innovation (what is done by a subject) or the notion of outcome (what comes out). In this 2018 manual, both must be relevant and are able to be measured. While the process view conceptualized as innovation activities, the outcome view conceptualized as innovations. Therefore, it is important to have the international standard definitions of innovation because the common definitions must be applicable to every sector and employed by every potential user. Using the same definitions in all sectors would support coherence of data and consistency of analysis. However, to quantify, measure innovation, and make comparison across sectors are still difficult to do. Next section discusses how to measure or quantify corporate innovation.

#### **4.1 Measures of corporate innovation**

Innovation can create the economic and social impacts of inventions and their ideas depend on the diffusion and uptake of related innovations. Its measurement implies commensurability and innovation requires implementation, either by being put into active use or by being made available for use by other parties, firms, individuals, or organizations. Meaning that there would be at least some levels of the innovation that are qualitatively similar so we can try to quantify them and make comparison. Moreover, innovation is a dynamic and pervasive activity that occurs in all sectors of an economy. These dynamic and complex activities and relationships represent significant challenges for measurement. Precise definitions of innovation and innovation activities are required to measure innovation and its subsequent economic outcomes. In fact, and unfortunately, it is not easy to quantify and to measure because for some aspects of innovation, its characteristics cannot do the exact measurement of key innovation process and outputs. Smith [11] suggests that innovation measurement should be primarily derived from the management and economics disciplines. Management perspectives on innovation cover how innovation can change a firm's position in the market and how to generate ideas for innovation. Economic perspectives examine why organizations innovate, the forces that drive innovation, the factors that hinder it, and the macroeconomic effects of innovation on an industry, market, or economy. Current major established indicators used for innovation analysis fall into three board areas of indicator use in science, technology,

#### *Perspective Chapter: Sustainability and Corporate Innovation DOI: http://dx.doi.org/10.5772/intechopen.108457*

and innovation (STI) analysis. Innovation indicators are Research and Development (R&D), Patent Application, and bibliometric data. In addition to those three classes of indicators, there are additional indicators other researchers have used. For example, Saviotto [29] and Saviotti [30] use techno metric indicators exploring the technical performance characteristics of products. In 2003 World Economic Forum, many consultants developed synthetic indicators of innovation for scoreboard purposes. Nevertheless, the following discussion focuses on research and development (R&D) and patents using the OECD's Frascati Manual [31] since bibliometric data are related primarily to scientific publication and citation rather than innovation.

Even though R&D expenditure and patent tend to be common innovation proxies, both of these measures are still subject to serious limitations when we use them as proxies for corporate innovation. First, although the number of patents is commonly used by a large number of scholars because it has the advantage of being easy to quantify, some of the innovation outputs are not patentable [9–11]. Examples of innovations that are not patentable are improved production processes, new marketing techniques, and improved service. Thus, it fails to capture all the corporate innovation output. On the other hand, R&D expenditure is seen as input of innovation, but it fails to capture the quantity and quality of innovation output [8]. This is because some innovation projects may fail and do not contribute to firm innovation. So, in order to clearly overcome these limitations and problems for R&D expenditure and patent, many researchers have attempted to find new indicators to measure corporate innovation such as innovation survey or texted-based innovation index, etc. Next sections discuss innovation proxies from commonly used one to new innovation measurements.

#### **4.2 Research and development (R&D) indicators**

The commonly used proxies of corporate innovation are research and development expenditures (R&D) [4, 5]. *The Frascati Manual* 2015 is the key OECD document for the collection of R&D statistics known as *the Standard Practice for Surveys of Research and Experiment Development*. The institutional classification in the Frascati Manual 2015 is also recommended for innovation data for international comparison purposes. This OECD's Frascati Manual is one of a range of activities that can generate innovations, or through which useful knowledge for innovation including creative and systematic work undertaken in order to increase the stock of knowledge and to devise new applications of available knowledge. R&D activities must meet five criteria, which are novel, creative, address an uncertain outcome, systematic, and transferable and/or reproducible. R&D comprises basic research, applied research toward a specific practical objective, and experimental development to produce new products or processes or to improve existing products or process. By definition, Research and Development (R&D) is an innovation activity, and there is an intention for innovation. That is, all types of R&D investments that are carried out or paid for by business enterprises are considered by definition as innovation activities of those firms. R&D expenditure data can be collected as the intramural and extramural R&D expenditures. Intramural R&D expenditures are all current expenditures plus gross fixed capital expenditures for R&D excluding depreciation costs on capitalized R&D or physical assets used in R&D. Extramural R&D expenditures cover the purchase of R&D services from other parties. The OECD Frascati Manual attempts to discover a way for measuring one key dimension of science, technology, and innovation (STI) so that R&D investment is systematically encouraged and monitored around the world.

However, policymaking nowadays is still largely focused on what is easier to measure. There is, therefore, an urgent need to capture how ideas are developed and how they can become the tools that transform organizations, local markets, countries, the global economy, and the society.

Although many indicators of innovation exist, R&D is still widely considered to be the main key driver of innovation. However, with a strong highlight on R&D, a firm ignores the great variety of other available methods of innovation. Arundel et al. [32] emphasize on that the capacity for innovation of manufacturing firms with little or no R&D activities is likely to be systematically underestimated. That is, those firms do not possess any or few R&D investments, the lack of R&D resources can be easily considered a firm's weakness regarding these firms' capacity for innovation. Santamaría et al. [33], Barge-Gil et al. [34]; Kirner et al. [35] show that non-R&Dintensive firms are not less innovative or competitive per se compared with their R&D-intensive counterparts. Kirner et al. [35] and Som [36] document that those firms simply do not often pursue a first-mover strategy, and they tend to focus to a greater extent on customer- and market-driven innovations.

#### **4.3 Patent data**

Besides using R&D expenditure as a proxy for corporate innovation, another commonly used innovation proxy is patent activities [4, 5]. Iversen [37] defines patent as a public contract between an inventor and a government that grants time-limited monopoly rights to the applicant for the use of technical invention. The OECD Patent Statistics Manual [38] defines the characteristics of patented inventions as well as is periodically revised to take into account new challenges and developments. Its method is to identify the technical expertise in emerging technologies and analyses publicly available patent application data containing information on the technological fields of relevance to the invention as well as unstructured information on the nature of the claims. In general, the patent system gathers information about new technologies into a protracted public record of inventive activity, which provides striking advantages as an innovation indicator. Examples are patents granted for inventive technologies with commercial promise. The major sources of paten data are the records of the US Patent Office and the European Patent Office. Patents also have weaknesses since they are an indicator of invention rather than innovation. They spot the emergence of new technical principle, not a commercial innovation. In addition, it is obvious that the patent indicator misses many non-patented inventions and innovations. Some types of technology are not patentable. Example is when new business formulae on the internet. Can we consider this new business model is able to be patented? Therefore, the understanding is that not all technological development activities result in patentable inventions, and firms do not seek patent protection for all of their inventions.
