From idea to innovation

“Prosperity: the condition of being successful or thriving; especially: economic well-being” The reason to depart with a definition of prosperity1 is that throughout history economic growth and well-being has become the focus of most nations as it affects every single one of us. Not only when considering leisure and luxury yet also when thinking about health and other basic human needs. Yet, what is of greatest importance and what we should remember here is that innovation and economic growth is mainly determined by the share of R&D and more specifically by the productivity of employees working in R&D (Romer, 1990). From the preceding it is taken as self evident that the most important component of economic growth and well-being is innovative activity. The aim of this thesis is to look at the origins of innovative activity and its determinants i.e. on individual and firm level in the current era. Directing towards the objectives of this work the question is where does this innovative activity takes place and more important what are its determinants. Answering the first part of the question, the locus of innovative activity in this thesis will be Small and Medium sized Enterprises (SMEs) which is sustained by the shift from the “managed” to the “entrepreneurial economy” as elucidated by Audretsch and Thurik (2004). “While small business was a follower in the managed economy, it has emerged as the engine of growth in the entrepreneurial economy”(Audretsch and Thurik, 2004, p. 13). The choice to conduct research on innovative activity within SMEs is further backed up by the fact that they do innovate with great efficiency and score high on the commercialization process (Van Praag and Versloot, 2007) and with this SMEs are boosting employment, economic growth and dynamics (Baumol, 1990). Numerous studies have done research on the innovative activities within firms in general both on its determinants and importance. In today’s ever changing world and economies where one product, technology or innovation follows the other at an increasingly growing pace the ability to adapt is crucial for a firms’ survival. Innovation is considered to be a key driver for the long term prosperity of a firm as organizations in today’s competitive markets with the competencies to innovate will be capable to react better and faster to their changing environment (Wolfe, 1994; Baumol, 2002). 1 Definition