Formally, innovation is considered to be the successful development and application of new knowledge. As such, it is distinct from invention. In practice, it is convenient to view innovation as a process ranging from initial research (R&D) through to the development of prototypes and the registration of inventions (patents) and eventual commercial applications. This strict definition emphasises that innovation requires much more than greater R&D inputs into the research process.

Fixed capital investments are often necessary to be able to produce and utilise new products and processes, as are workforce training and organisational restructuring. Moreover, many ideas may not come to fruition. Commercial innovations can also include other measures, such as designs and trademarks, that are not recorded in patents and R&D statistics.

The high cost of innovation is the most frequently quoted obstacle to innovation by firms in manufacturing (about 25%) and services (20%) sectors. The other major obstacles, in decreasing order of importance, are economic risk, lack of financing, and a lack of qualified personnel. Rigid regulations and standards are also the huge obstacle in this regard.

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