Innovation measurement

We apply a broad definition of innovation，encompassing both“frontier”and“incremental”innovation.We define frontier innovation as the implementation of substantially new products，processes，or business models to solve problems for customers and create new value，while incremental innovation refers to smaller improvements.In developing economies，there are also catch-up activities，which involve the absorption and adoption of existing technologies or approaches for local applications—such as adapting cars or mobile phones to meet the needs of consumers in emerging markets.To assess the impact of innovation，we look at both national and firm-level data.At the national level，we use multifactor productivity as a proxy for innovation.Multifactor productivity measures the growth of the economy that is not explained by the addition of more inputs.It is often the result of the new technologies，better processes，and greater know-how associated with innovation.We assess innovation at the firm level by looking at such metrics as a share of global industry revenue，profits，and exports.We believe these metrics capture the impact of innovation；ultimately，the proof of successful innovation is the ability of companies to expand revenue and raise profits with new products and services and with improvements in design，manufacturing，or business models.Competitiveness of companies can be affected by noninnovation factors such as industry structure and factor costs，but we believe innovation is a primary contributor to revenue and profit growth.