value insights

Knowledge Exploitation path to Innovation- Valutrics

Knowledge exploitation is the process of transforming, combining and reshaping knowledge in the form of research, science and technology into a tradable commodity. It is the general capacity to use knowledge commercially and extract value from it. This is often the most visible form of innovation, particularly at a policy level, and is a more direct form of value extraction often linked to the process of knowledge creation. As knowledge-based competition becomes globalized, firms cannot afford to remain stationary with their existing products and processes; they must acquire knowledge, create new ideas and translate them into commercial products. Although knowledge production and learning is undertaken by many organizations, such as universities, the onus to exploit this knowledge still largely falls on the business sector. Therefore, it is critical that regions understand the capacity of their business communities to exploit knowledge.

As a means of effectively capturing and  measuring the most important aspects related  to regional knowledge exploitation, we draw  together a range of metrics concerning the  levels of innovation occurring within businesses  across the regions, as well as the scope for  financially supporting these activities and the  extent to which value is created through the  exportable sale of knowledge-based services.
The indicators we use to measure knowledge  exploitation capacity are as follows:

  • Innovation active enterprises – this indicates the potential propensity of  businesses to exploit their knowledge.
  • Process innovations new to industry – this indicates the exploitation of knowledge to create novel innovation.
  • Product innovations new to market– this indicates the exploitation of knowledge to commercialize new or improved products.
  • Early-stage private equity investment – this indicates a demand for finance to exploit and commercialize knowledge.
  • Exports of knowledge services – this indicates the output of the commercialization  of knowledge.

Business innovation through the exploitation of knowledge is important to regional competitiveness. Business innovation activity not only includes the introduction of new products and processes, but also major changes in management practices, business structure, organisation or marketing strategies, and investments in the implementation or development of future products or processes

The intensity of regional innovation can be furthered measured by the proportion of firms introducing process innovation new to the industry within which they operate. Process innovations consist of significant changes in the way that goods or services are produced or provided. New to industry innovation represents completely novel innovations as opposed to those that are new only to the innovating firm. Processes of extracting and combining knowledge for exploitation often require particularly intensive interactions among a firm’s employees. Transferring and combining knowledge within a firm is not a costless and spontaneous process, and firms need to devise and manage the process of knowledge transfer and combination effectively if they are to make the best use of their knowledge. Even in markets where steep learning curves and economies of scale help incumbents to fend off competition, new entrants with novel processes and products may surpass them as market leaders.

Access to finance is an important factor determining whether new knowledge is successfully commercialized and exploited. Such finance is often provided by venture capitalists through private equity capital investments, and what is termed seed or early- stage capital. Early-stage or seed funding is required when a project has demonstrated its ability, within a research setting, to meet a well-defined challenge. At this point, the project requires funding to demonstrate its commercial viability. Early-stage financing is a step on the funding ladder designed to bridge a gap between pure research and product development. It provides investigators and entrepreneurs with sufficient resources to develop their ideas to a stage where they can approach venture capitalists or other finance institutions for further funding.

The regional exploitation of knowledge requires outputs and commodities to be tradable in external markets. In a knowledge-based economic environment, it is fair to say that trade in knowledge-based activities is a primary measure of a region’s capacity successfully to commercialise and market its knowledge and innovation.

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