Microsoft Word bal paper with addendum doc

1.6 What do we mean by Innovation? 

There is a tradition to refer to Schumpeter when defining innovation. Innovation can be seen as 

‘new combinations’, it can be separated from invention as something brought to the market by the 

entrepreneur and it can be specified as respectively new products, new processes, new raw 

materials, new forms of organisation and new markets. I do not find the last listing very useful 

because it mixes different categories that it is useful to keep separate.  

To distinguish between technical change and organisational change is often difficult in real life but I 

find this analytical distinction important and useful for two reasons. First the way the economy and 

the firm is organised will have a major impact on how innovation takes place.  Second the 

distinction makes it possible to link technical innovation to economic performance. We have 

pursued a series of empirical studies demonstrating that a key to transform technical innovation into 

economic results is training and  organisational change..  

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In the context of new growth theory Paul Romer has proposed the distinction between respectively 

hardware, software and ‘wetware’ where the last category refers to what human beings know and 

know how to do. I am not enthusiastic for the ‘wetware’ term since it reificates human beings but 

despite that I will build upon his handy conceptual scheme in what follows. I propose to add 

‘orgware’ and ‘socware’ as referring to how people relate to each other within and across 

organisational borders. Innovation is about discontinuities in the technical characteristics of 

hardware and soft-ware. But the impact of innovation on economic performance will typically 

depend upon changes in ‘wetware’, ‘orgware’ and ‘socware’. To avoid confusion I would prefer not 

to refer to changes in these dimensions as innovations. 

It is well known that technical innovation is a cumulative and path-dependent process. Often it is 

not possible to distinguish the innovation as an event from its diffusion and use. New products and 

new processes will have to go through a process of broader use in order to be made attractive and 

more widely used. On this basis I prefer to define innovation as a process encompassing: 

1.  The discontinuity in the technical characteristics or in the use of a new product or process. 

2.  The introduction, diffusion and adaptation of the new artefact. 

In order to understand the economics of innovation it is necessary to relate innovation to changes in 

the wetware, orgware and socware either triggered by the development, diffusion and adaptation of 

the new artefact or constituting prerequisites for these processes.