Blueprint for the 21st Century
Innovation Management

The Organization for Economic Co-operation and Development (OECD)

The OECD has produced a series of reports that have provided both leadership and direction on the topics of human capital, learning and society, national systems of innovation, and, most recently, the knowledge-based economy. A bi-monthly OECD Observer features the most recent thinking and research results.

The April/May 1995 issue addressed the topic of measuring human capital. Riel Miller and Gregory Wurzburg describe how the contribution of human capital goes largely unreflected on the balance sheets because no one knows how to define and evaluate it. They describe how national accounts and economic analysis treat labor as a homogeneous input; but the differentiated skills and expertise of workers are even more important as countries move away from goods toward services and other knowledge- and information-intensive outputs.

Because of these shifts, and the more competitive climate in which economic activity takes place, the economic survival of enterprises, and the employability and earning power of individuals, depend more on learning as the basis for agile adaptation. But the tools available to measure and attach economic value to human capital, and the investment in upgrading it, have not kept up with these changes (Miller and Wurzburg, 1995, p. 16).

They identify at least three barriers:

  1. The lack of transparency in the costs of labor and, particularly, of upgrading the qualifications of experienced workers.
  2. The difficulty in measuring the productive capacity (i.e., the knowledge, skills and abilities) that workers acquire through further training and/or learning on the job.
  3. Problems in reflecting the realistic economic value for qualifications and carrying them forward on the balance sheet.

This, they conclude, "distorts the rate-of-return analysis by which investment choices (tangible vs. intangible) might be evaluated" (Miller and Wurzburg, 1995, p. 18).

The June/July 1996 issue featured an editorial by Jean-Claude Paye, Secretary-General, OECE, on the rationale for national innovation systems:

Performance in the knowledge-based economy depends to a large extent on the functioning of such national innovation systems, particularly the ability to distribute knowledge and technology to a wide range of economic actors… Coherent policies for the knowledge-based economy must therefore create incentives for expanded investment in human resources, technology, innovation and information networks (Paye, 1996).

In the same issue, Candice Stevens outlines how knowledge is now recognized as the driver of productivity and economic growth, leading to a new focus on the roles of information, technology and learning in economic performance. The article calls for more emphasis on research and innovation in addition to more flexible work structures.

The diffusion of knowledge is as important for economic performance as the creation of new knowledge… The rise of knowledge networks has changed economists’ ideas about the process of innovation. Traditionally, it was seen as a discovery procedure that proceeded along a fixed and linear sequence of phases… Innovation stems largely from the feedback loops or the continuing interactions which exist between science, engineering, product development, manufacturing and marketing.

Economists’ ideas on innovation are changing. Intangibles such as knowledge stocks and flows, knowledge distribution and the relationship between the creation of knowledge and economic growth (are) still virtually unmapped… The first task is to improve indicators of inputs… And in view of the importance of tacit as well as codified knowledge, indicators are required to track the flow of ideas (Stevens, 1996).

Stevens describes the emerging patterns of technology-related interactions in a national economy and how they are combining to form national innovation systems composed of the contacts and flows between industry, government and academia. These systems are increasingly extending beyond national boundaries.

The OECD publishes a variety of monographs and research reports that often represent multi-country studies. For three in particular, the insights seem to be leading to similar conclusions. Highlights from each provide sample insights:

One way of forging the analytical tools needed to understand human capital and information systems is to examine the theoretical and practical aspects of knowledge production, diffusion and consumption… Embracing a pragmatic approach, the policy directions suggested here build on the emerging new standards and institutions (Miller, 1996, pp. 8-9).

Country experiences show a strong interdependence between the efforts to improve the incentives for individuals and firms to invest in new skills and reforms to facilitate human capital measurement, accounting and market recognition. These concertinos point to the need for all three sets of economic agents – individuals, firms and governments – to have both the capacity and motivation to use the new signals (Miller, 1996, p. 16).

How best to exploit the new economic environment based upon knowledge? The best way of exploiting the new economic environment is to strengthen the capacity of firms and labor markets to adjust to change, improve their productivity and capitalize upon innovation (OECD, 1994). But this capacity depends first and foremost on the knowledge and skills of the population. People are the key resource and their level of literacy is the powerful determinant of a country’s innovative and adaptive capacity (OECD, 1995).

Three main aspects of industrial innovation deserve to be mentioned. First, technological change impinges on codified and tacit knowledge. Second, the sources of innovation may be either internal or external to the firm. Third, innovations can either be embodied in capital goods and products or disembodied (OECD, 1996).

These interdependencies in purpose may be a result of the cross-divisional activity within the OECD. Then again, it may be that the time has come to step back from the details of current analysis and see the entire picture.