employing less than 1,000; small firms 

 (those with less than 100 employees and 

 those with 100-999 employees) produced 

 more innovations per unit sales than larger 

 firms throughout the period. 



D The largest percentage of the sample of 

 technological innovations produced during 

 the 1953-73 period represented im- 

 provements in existing technology (41 

 percent), followed by those representing 

 major technological advances (32 percent) 

 and radical breakthroughs (27 percent); the 

 fraction of radical innovations declined 50 

 percent between 1953-59 and 1967-73, 

 while those rated as major technological 

 advances increased proportionately. 



D The most frequently cited sources of the 

 underlying technology for the major in- 

 novations were research (applied and basic), 

 followed by the transfer of technology from 

 existing product lines of the innovating firm, 

 licensing, and the purchase of technical 

 "know-how" from other firms. 



D Basic research was more often involved in 

 product innovations characterized as radical 

 breakthroughs (68 percent) than in those 

 rated as major technological advances (48 

 percent) or improvements in existing 

 technology (45 percent); applied research 

 occurred with nearly equal frequency in all 

 categories of the innovations studied. 



Research and development is increasingly the 

 basis and impetus for technological innovation in 

 industry. The results of innovation are new and 

 improved products, processes, and services. 

 These are the elements of technological 

 progress, through which many of the advances 

 in the Nation's productivity, economic status 

 (domestic and foreign), and standard of living 

 take place. 



While R&D is increasingly important in 

 innovation, it is not sufficient by itself. Innova- 

 tion is a complex process which occurs within a 

 broad economic and social context, and which 

 requires successful efforts in areas such as 

 product design, engineering, manufacturing, 

 and marketing. Although the innovation process 

 is complex, expensive, and risky, the failure of a 

 firm or an industry to be innovative may mean 

 failure of the firm or industry itself, with 

 consequent implications for the general 

 economy. 



As an activity, industrial R&D ranges from 

 basic research, consisting of original in- 

 vestigations for the acquisition of scientific 

 knowledge — to development, which attempts to 

 translate acquired knowledge into new and 

 improved products and processes. The character 

 and extent of industrial R&D activity vary 

 considerably, both in terms of the industry and 

 size of the company involved. In general, R&D is 

 viewed as an investment which competes for 

 funds and other resources with alternative 

 investments. For many firms, R&D is regarded 

 as a necessary investment whose returns are 



believed to be competitive with those from other 

 areas of potential resource allocation. 



Indicators of the state of industrial R&D and 

 innovation presented in this chapter consist of 

 selected financial and human resources invested 

 in R&D and measures of the outputs from such 

 investment. The "input" indicators deal primari- 

 ly with expenditures and scientific and engineer- 

 ing personnel involved in R&D, including trends 

 in the R&D intensity of particular industries. 

 "Output" indicators include measures of patents 

 and technological innovations produced by 

 R&D-performing industries, as well as factors 

 which influence these activities. These 

 measures, combined with R&D intensity and 

 other characteristics, provide indicators of the 

 relative inventiveness and innovativeness of 

 different industries. The chapter concludes with 

 a summary of the major findings from studies of 

 the relationship of R&D and innovation to 

 productivity and economic growth. 



The present set of indicators provides a more 

 comprehensive description of the state of 

 industrial R&D than was provided by the first 

 report in this series. The indicators, however, 

 are still deficient in several respects, as discussed 

 in later sections of this chapter. 



RESOURCES FOR INDUSTRIAL R&D 



Financial and human resources directed to 

 industrial R&D represent principal "inputs" to 

 R&D as well as approximate indicators of the 



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