The impact of innovation on the economy

About Innovation - May 2018

Innovation is often touted as the main driving force behind economic growth for much of the developed world. But how exactly does innovation contribute to economic prosperity? In this article, we’ll look at the fundamental reasons why innovation is important for economic growth and we’ll also look at three ways it can be promoted to help ensure we maintain a healthy innovative economy in the future.

 

impact of economic growth

 

What counts as innovation?

Before we move on it’s probably a good idea to establish what we mean by innovation. Fortunately, the European Central Bank (ECB) makes this easy for us. The ECB defines innovation as “the development and application of technologies to improve goods and services or make their production more efficient.”

A good example of innovation from history would be the development of the steam engine by James Watt. Watt didn’t invent the steam engine, he merely improved on the design of Thomas Newcomen’s 1712 device. Watt’s improvements allowed steam engines to become more efficient and cost-effective to run, thereby paving the way for the industrial revolution that would transform the British economy and much of the developed world over the next half-century.

A more contemporary example is the invention of the smartphone by Apple. This device created a whole new industry, which according to data from Statista, is now worth around $478 billion and growing at a rate of 9.4% each year. Smartphones also spawned several other industries including the app and mobile game development industry which is currently worth around $77 billion a year.

But innovation is not limited to big-ticket items such as smartphones or steam engines, they can be small and seemingly insignificant, but can still lead to productivity gains and new markets being developed. A good example would be the Post-it note, developed by Arthur Fry to help him find key pages in his hymn book.

Fry used a glue developed by his colleague Spencer Silver at 3M. Upon its development, no application could be found for the glue which sticks to any surface but doesn’t bond with it. That was until Arthur Fry used it for his easy use hymn book page marking system. Now Post-it notes are sold in over 100 countries around the world with over 50 billion of them made each year.

 

example innovation drives the economy

Why is innovation important?

The innovations mentioned above help explain why innovation is an important aspect of a modern developed economy. One of the biggest benefits of innovation is that it can lead to higher productivity in the workplace. So for every input, there is a greater output as more goods and services are produced, this leads to growth in the underlying economy and allows new markets to be created to replace old ones.

These are the three steps to the innovation cycle:

Innovation

– New ideas are developed which create new products or services that lead to efficiency gains or new markets being explored.

Productivity

– Increased efficiency allows companies to generate greater output for the same input. For example; an innovation allows a baker to produce 12 loaves of bread instead of 10 for the same number of hours worked. This innovation has therefore led to a 20% gain in productivity.

Growth

– Increased productivity means increased profits for the company which can then be reinvested to provide further growth, explore new markets or develop further innovations to provide more growth.

How does innovation take effect?

Innovation usually starts small, think about Arthur Fry and his Post-it notes. The first company to benefit from the innovation is the company that created it or was the first to spot the opportunity and apply it. But if an innovation is to affect the economy of a large developed country, it has to spread across companies of all sizes and sectors, economists call this process the diffusion of innovation (DOI).

The diffusion of innovation consists of four stages; the creation of the innovation, communication channels, time, and social influence. The most important part of this process is time, the DOI does not happen simultaneously, it follows a process of adopters from early adopters to laggards. Early adopters are those that are keen to try new things and often display different characteristics to later adopters, such as a willingness to take risks and embracing change. Early adopters are key to the DOI process, without them it is unlikely any innovation would leave the shed where it was created.

 

 The four stages of adoption are:

Early adopters

– Usually risk-takers who are keen to try new things and are seen as leaders in their industry.

Early majority

– These people adopt new innovations before the average person but usually require evidence of benefits before making a decision.

Late majority

– Skeptical by nature, they require innovations to be adopted by the vast majority before committing. When an innovation has progressed to the late majority it is said to have reached critical mass and will be adopted by the vast majority of people.

Laggards –

Very conservative and skeptical of change, laggards are the last to adopt innovations and will do so only when it becomes obvious that not using the innovation will cause their business to be left behind.

The degree to which a company or industry adopts a new innovation and the speed this happens is dependent on the number of productivity benefits the innovation brings and the ease with which it can be used. An innovation that offers clear productivity benefits while being easy to use will be adopted at a faster rate by the early majority, who are key if an innovation is to progress along the DOI path.

 How can innovations be promoted in the economy?

Now we know that maintaining an innovative edge is key if the economy is to continue growing in the future, it is important that we know how to incubate and promote innovations successfully so that the broader economy can benefit from them. There are three key areas that need to be explored including: improved education, increased spending on research and development and improved access to funding for entrepreneurs to bring innovations to market.

At F.Initiatives, we can help with the latter, by helping to fund innovation through the management of R&D tax incentives. Our team of R&D Tax Credit consultants have the technical and financial expertise, combined with years of experience and a proven methodology, to help fund your next great innovation. Contact one of our UK based consultants today to see how we can help.

 

R&D Tax Credits Advisors. R&D Tax Credits Experts.

 

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Privacy PolicyScope

This policy applies to F. Initiatives and My R&D Claim™ which are both trading names of F. Initiatives Ltd, a company registered in England under number 09899833 whose registered office is at 10 John Street, London, United Kingdom, WC1N 2EB. The privacy policy explains how we use any personal information we collect about you when you use this website and our wider services.

What is personal data?

Personal data relates to any information about a natural person that makes you identifiable which may include (but is not limited to):

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What is sensitive personal data?

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What is a Data Controller?

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The data controller is F. Initiatives Ltd, 10 John Street, London, United Kingdom, WC1N 2EB. The data protection officer is Solenne Desprez Braun, who can be contacted at F. Initiatives Ltd, Albert Buildings, 49 Queen Victoria Street, London, EC4N 4SA or on personaldata@f-initiatives.co.uk  or by calling 0207 653 1921.

Our Full Data Governance Policy can be found here.

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What is Data Processing?

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What do we mean by Business to Consumer?

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What information do we collect about you and how?

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How will we use the information about you and why?

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Our work for you may require us to pass your information to our third-party service providers, agents, subcontractors and other associated organisations for the purposes of completing tasks and providing the Services to you on our behalf.  However, when we use third party service providers, we disclose only the personal information that is necessary to deliver the Services and we have contracts in place that requires them to keep your information secure and not to use it for their own direct marketing purposes.

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If you use our services while you are outside the EU, your information may be transferred outside the EU to give you those services.

Security precautions in place about data collected

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Non-sensitive details (your email address etc.) are sent normally over the Internet, and this can never be guaranteed to be 100% secure. As a result, while we strive to protect your personal information, we cannot guarantee the security of any information you transmit to us, and you do so at your own risk. Once we receive your information, we make our best effort to ensure its security on our systems. Where we have given (or where you have chosen) a password which enables you to access certain parts of our websites, you are responsible for keeping this password confidential. We ask you not to share your password with anyone.

Profiling

We may analyse your personal information to create a profile of your interests and preferences so that we can contact you with information relevant to you. We may make use of extra information about you when it is available from external sources to help us do this effectively. We may also use your personal information to detect and cut fraud and credit risk.

Marketing

We would like to send you information about our services which may be of interest to you.  If you have consented to receive marketing, you may opt out at any point as set out below.

You have a right at any time to stop us from contacting you for marketing purposes.  To opt out please email: contact@f-initiatives.co.uk.

How long will we hold your data for?

  • Marketing: We will hold your data for a period of 6 years with a review every 3 years.  You will have the opportunity to opt out or update or delete data at any point should you need to do so and details are set out in this policy as to how to do that.

  • Contracted Services: We will hold your data for 7 years in line with our regulatory requirements.


Access to your information, correction, portability and deletion

What is a Subject Access Request?

This is your right to request a copy of the information that we hold about you.  If you would like a copy of some or all your personal information, please email or write to us at the following address: Antoine Abbatucci, Managing Director - UK, F. Initiatives Ltd, Albert Buildings, 49 Queen Victoria Street, London, EC4N 4SA. We will respond to your request within one month of receipt of the request.

We want to make sure your personal information is accurate and up to date.  You may ask us to correct or remove information you think is inaccurate by emailing contact@f-initiatives.co.uk or writing to the above address.

Objections to processing of personal data

It is your right to lodge an objection to the processing of your personal data if you feel the “ground relating to your particular situation” apply.  The only reasons we will be able to deny your request is if we can show compelling legitimate grounds for the processing, which override your interest, rights and freedoms, or the processing is for the establishment, exercise or defence of a legal claims.

Data Portability

It is also your right to receive the personal data which you have given to us, in a structured, commonly used and machine-readable format and have the right to transmit that data to another controller without delay from the current controller if:

(a)    The processing is based on consent or on a contract, and

(b)    The processing is carried out by automated means.

Your Right to be Forgotten

Should you wish for us to completely delete all information that we hold about you:

  • Email: contact@f-initiatives.co.uk or

  • In Writing to: Antoine Abbatucci, Managing Director - UK, F. Initiatives Ltd, Albert Buildings, 49 Queen Victoria Street, London, EC4N 4SA.


Other websites

Our website contains links to other websites.  This privacy policy only applies to this website so when you link to other websites you should read their own privacy policies.

Complaints

If you feel that your personal data has been processed in a way that does not meet the GDPR, you have a specific right to lodge a complaint with the relevant supervisory authority.   The supervisory authority will then tell you of the progress and outcome of your complaint.  The supervisory authority in the UK is the Information Commissioner’s Office.

Changes to our Privacy Policy

We keep our privacy policy under regular review and we will place any updates on this web page.  This privacy policy was last updated on 03 January 2019 and the Version number is 1.2 in line with the new GDPR guidelines.

How to contact us

Please contact us if you have any questions about our privacy policy or information we hold about you:

  • By email: contact@f-initiatives.co.uk

  • Or write to us: Antoine Abbatucci, Managing Director - UK, F. Initiatives Ltd, Albert Buildings, 49 Queen Victoria Street, London, EC4N 4SA.


 

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