Innovation in firms

As the firm is the central mechanism for converting innovation into economic action, this paper argues that economists and economic policy-makers need to understand how and why firms innovate. This is challenging because innovation manifests itself in a wide range of forms and results from diverse organizational processes. The paper discusses a number of the practices supporting innovation in firms, including positioning, connecting, protecting, organizing, and measuring. A number of theories explaining innovation in firms are discussed. The paper concludes that the determination of the most effective policy levers for encouraging innovation requires staying abreast of current and emerging innovation practices in firms.