Innovation in the Czech Republic

Methodology

Contents

METHODOLOGICAL GUIDELINES

General background of innovation survey

The term innovation comes from latin word „innovare“ – recover. From its meaning it is clear, that it means novelty, newness or renewal in human activity, and from this reason is innovation necessary part of the human´s being. In this meaning we will not focus on the general human activity, but on activity that is connected with improving and developing of production goods and services, production process and economic potential of the enterprises. Whilst in the past prevailed innovations based on experiences from practice, these days prevail innovations obtained by application of scientific and technological knowledge. Innovations in their widest meaning go beyond abilities of quantitative statistical survey, they present improvement in quality of progress of production, ecological and social spheres of the life. In the survey that was carried out in the Czech Statistical Office, we concentrated on the narrow meaning of innovations, on so called technical innovations, it means on the creation of new or improving of existing products and services, production technologies and processes. Innovation in this meaning therefore means process of carrying out continual changes
(in technical layout of the product, production technologii, used materials etc.), marketing and organizational innovations.

Research, development and support of innovation environment are one of the most important means for rising competitive advantage of products and services. Assuring of functional environment in this field is therefore naturally comprehended as crucial presumption of country´s economic prosperity. Rising quality of scientific and development base and ensuring its innovation function leads to increasing interest for investment into perspective branches. Increasing costs and risks connected with innovation creation cause, that private economic subjects invest into this sphere less than it is socially desirable. From those and also many other reasons is the innovation field of the entrepreneurship a part of support and focus of economic policy of the government. It is concerned mainly of assuring enough risk
and developing capital, qualified labour force, research background and availability of information sources. Measures focusing on support of innovative entrepreneurial environment include list of regulation tools that positively affect entrepreneurs´ behaviour, their willingness to take necessary risk. Innovative entrepreneurial environment is determined mainly by stable macroeconomic policy, favourable and transparent legislative. Innovation policy is however significantly different from traditional economic policy, because of it concentrates mainly on rising quality and competitive strength of products and services through innovations. Owing to innovations evolves many of new branches, like information technologies, biotechnology, nanotechnology and other. Exactly these branches are becoming these days significant factor of structural changes and modernizing economy.

The term „innovation“ has revealed already in the beginning of 20th century and the author who was intensively dealing with this term was Austrian economist Joseph A. Schumpeter (1883-1950). Under the term innovation included he:
- getting a new market
- production of completely new product or existing product in a new quality
- implementing of a new production process into the production
- using of new, until now not known source of material or intermediate products
- creation of a new production organization.
In our country is a beginning and development of the innovation theory connected mainly with the name of already dead Mr. František Valenta, PhD., who has been working since 60th on the University of Economics in Prague and was dealing mainly with changing products generations at the level of the enterprise and classification of innovation ranks.
Following table shows today used classifications of these innovation ranks.

Tab. Classification of innovation ranks



Main types of innovations

According to the new conception of innovation we have four main types of innovations: product innovations, process innovations, marketing innovations and organizational innovations. This classification keeps the highest possible degree of continuity with the previous definition of technical product and process innovation used in the previous second edition of the Oslo manual. Product and process innovations are closely related to the concept of technical product and process innovations. Marketing and organizational innovations compared with the previous definition extend range of innovations covered by the Manual.

Product innovation means implementation of goods or services that are new or significantly improved with regard to their characteristics or intended use. It covers important improvements in technical specifications, components and materials, software, user friendliness or other functional characteristics.

Product innovations can utilise new knowledge or technologies, or can be based on new uses or combinations of existing knowledge or technologies. The term “product” is used to cover both goods and services. Product innovations include both the introduction of new goods and services and significant improvements in the functional or user characteristics of existing goods and services.

New products are goods and services that differ significantly in their characteristics or intended uses from products previously produced by the firm.

Significant improvements to existing products can occur through changes in materials, components and other characteristics that enhance performance.

Product innovations in services can include significant improvements in how they are provided (for example, in terms of their efficiency or speed), the addition of new functions or characteristics to existing services, or the introduction of entirely new services.

A 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.

Process innovations include new or significantly improved methods for the creation and provision of services. They can involve significant changes in the equipment and software used in services-oriented firms or in the procedures or techniques that are employed to deliver services.

A marketing innovation is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing.

Marketing innovations are aimed at better addressing customer needs, opening up new markets, or newly positioning a firm’s product on the market, with the objective of increasing the firm’s sales.

The distinguishing feature of a marketing innovation compared to other changes in a firm's marketing instruments is the implementation of a marketing method not previously used by the firm. It must be part of a new marketing concept or strategy that represents a significant departure from the firm’s existing marketing methods. The new marketing method can either be developed by the innovating firm or adopted from other firms or organisations. New marketing methods can be implemented for both new and existing products.

Marketing innovations include significant changes in product design that are part of a new marketing concept. Product design changes here refer to changes in product form and appearance that do not alter the product’s functional or user characteristics. They also include changes in the packaging of products such as foods, beverages and detergents, where packaging is the main determinant of the product’s appearance. An example of a marketing innovation in product design is the implementation of a significant change in the design of
a furniture line to give it a new look and broaden its appeal. Innovations in product design can also include the introduction of significant changes in the form, appearance or taste of food or beverage products, such as the introduction of new flavours for a food product in order to target a new customer segment. An example of a marketing innovation in packaging is the use of a fundamentally new bottle design for a body lotion, which is intended to give the product a distinctive look and appeal to a new market segment.

New marketing methods in product placement primarily involve the introduction of new sales channels. Sales channels here refer to the methods used to sell goods and services to customers, and not logistics methods (transport, storing and handling of products) which deal mainly with efficiency.

New marketing methods in product promotion involve the use of new concepts for promoting a firm’s goods and services.

Innovations in pricing involve the use of new pricing strategies to market the firm’s goods or services.

Seasonal, regular and other routine changes in marketing instruments are generally not marketing innovations. For such changes to be marketing innovations, they must involve marketing methods not previously used by the firm.

An organisational innovation is the implementation of a new organisational method in the firm’s business practices, workplace organisation or external relations.

The distinguishing features of an organisational innovation compared to other organisational changes in a firm is the implementation of an organisational method (in business practices, workplace organisation or external relations) that has not been used before in the firm and is the result of strategic decisions taken by management.

Organisational innovations in business practices involve the implementation of new methods for organising routines and procedures for the conduct of work. These include, for example, the implementation of new practices to improve learning and knowledge sharing within the firm.

Innovations in workplace organisation involve the implementation of new methods for distributing responsibilities and decision making among employees for the division of work within and between firm activities (and organisational units), as well as new concepts for the structuring of activities, such as the integration of different business activities.

New organisational methods in a firm's external relations involve the implementation of new ways of organising relations with other firms or public institutions, such as the establishment of new types of collaborations with research organisations or customers, new methods of integration with suppliers, and the outsourcing or subcontracting for the first time of business activities in production, procuring, distribution, recruiting and ancillary services.

Changes in business practices, workplace organisation or external relations that are based on organisational methods already in use in the firm are not organisational innovations. Nor is the formulation of managerial strategies in itself an innovation.

Mergers with, or the acquisition of, other firms are not considered organisational innovations, even if a firm merges with or acquires other firms for the first time.

Coverage

To the data collection we used harmonized questionnaire of the EU Member States for the 4th innovation survey CIS 4 (Community innovation survey). The survey was carried out on the basis of the Commission Regulation No. 1450/2004 from 13th August 2004, by which is carried out the Decision of the European Parliament and the Council No. 1608/2003/EC about creation and development of the Community statistics in the field of innovation. Under this Regulation we carried out the third innovation survey in the Czech Republic with the observation period 2003-2005. We used the sample survey taking into account regional dimension and by the innovation questionnaire TI 2005 we addressed 8370 reporting units of the business enterprise sector from the selected fields of manufacturing and services (financial and non-financial sectors) having at least 10 employees. These were economic subjects that according to their prevailing activity belong to the following NACE rev.1:

10-14 Mining and quarrying
Manufacturing (15-37)
15-16 Food, beverages and tobacco
17-19 Textile and leather
20-22 Wood, pulp and printing
23-24 Coke and chemicals
25-26 Rubber and other non-metallic
27-28 Basic and fabricated metals
29 Machinery and equipment
30-33 Electrical and optical equipment
30-34 Transport equipment NEC
36-37 Manufacturing NEC and recycling

40-41 Electricity, gas and water supply
45 Construction
Services (50-52, 55, 60-67, 70-74)
50 Retail, repairs of motor vehicles, retail sale of fuel
51 Wholesale trade (excluding vehicles)
52 Retail excluding vehicles, repairs of products for self consumption and mainly for households
60-64 Transport, storage and communication
65-67 Financial intermediation
72 Computer and related activities
73 Research and development
74 Other business activities

Sample of the reporting units was extracted from the Czech Business Register by combination of census and stratified sampling in the particular sectors. Their responding duty is under the law.

Data published in this publication were obtained on the basis of 71% response rate;
(8370 questionnaires were sent out, 61800 questionnaires were collected); final results from the sample were calculated on the basic population using mathematical-statistical methods. Data mentioned above are published broken down by NACE rev.1 and three size classes according to the number of employees. These size classes are:
- small enterprises with 10-49 employees,
- medium enterprises with 50-249 employees,
- large enterprises with more than 250 employees.