The Issues of Management and Regulation of Innovation Activities in Modern Firms’ Management

L. Chagelishvili, Doctor of Economic Sciences, Professor

“Innovation” is a result of the process of obtaining of a new or improved product, production order and selling on the domestic or foreign market.

It is a final stage of the creative process from the viewpoint of its implementation in practice and is considered as translation into reality of scientific and technological advance in the form of products and technologies. If creative work implies of something new, the content of innovation implies its using in practice. That is why it, as a final result of the research-and-production cycle, is considered inseparably from innovation processes.
“Innovation process” is a process of transformation of scientific knowledge into innovation, it is considered as an activity that provides for permanent search for new opportunities for solving of the set tasks; search for sources of various resources, attraction and inclusion in the process of economic reproduction; production of science intensive and competitive output by means of new techniques and technologies. “Innovation activity” is directed to processing and use of the results of scientific research, obtaining of new or improved products, rules of their production with the purpose of effective selling on the foreign market. Innovation activity is crucial for increasing of the level of technological production and products’ competitive ability.
Constant bringing to market of new and improved products in the country is possible by means of comprehensive development of scientific and technological advance and innovation processes. The market and scientific and technological advance are closely interrelated. The market is a consumer of new products, and scientific and technological advance – producer. Their interrelation is stipulated by competition. That is why there will be a single sycle: market ’‡competition ’!scientific and technological advance ’‡new product ’‡market. The driving force of this process is competition.
Interrelation of competition and scientific and technological advance is shown in picture 1
C – competition
M – market
F – firm
STA – scientific and technological advance
NP – new, modernized product
As it can be seen in the picture, the demand for a new or improved product on the market is a result of competition. In its turn, the firm gets information from the market concerning the nomenclature of products and quality with the purpose of creation of new types of products in future. The firm makes orders for new kinds products in research-design institutes and departments which will work out the designs and models of new kinds of products, and will hand them over to firms. The firm makes products according to a new project and brings it to the market. Bringing the new product to the market the firm meets the market’s demand and retains its segment. That is why the firms comes out victor in its competition with rivals, extends the segment of its activities and receives additional profit. In conditions of free economy, when all enterprises face the issue of securing of reproduction and achieving of high economic indicators, more importance is attached to STA. It becomes more closely interrelated with innovation activities, and their differentiation in modern conditions is impossible.
Innovation is the main link of marketing activities, which, first of all implies search for an idea and the process of creation of new goods (services).
Inculcation of progressive methods of management and new technologies in all spheres of Georgian economy took place during the period of transition to market economy.
In spite of high rates of this process, Georgian science intensive technologies occupy an insignificant place on the world market – 0.5%. From this point of view, there is no partner cooperation between the state and the private sector, while in the developed countries of the world the state annually allocates 3% of the budget to the private sector for research work. As to the funds allocated by the state (2001) for research works, they can be presented as follows: in the US 51% of the national spending falls on the state, in Japan – 53%, in France -19%, in the UK – 40%, while in Germany – 37%. The situation in the CIS countries is just the opposite. Innovation activity here is very low and does not exceed 12%. The rate of equipment outage passes ahead of the rate of its renewing by 4 times.1
Georgian enterprise are also characterized by low rates of renewal of techniques and technologies, where the main factors inhibiting implementation of innovations are: scantiness of government financing, lack of internal funds at the enterprises, absence of the system of innovations’ planning and management.
Thus, even the above-stated is enough to clearly understand the necessity of carrying out of an the innovation policy with the purpose of increasing of the country’s competitive ability and provision for economic security in globalization conditions. Innovational activity is crucial from the viewpoint of increasing of production’s technological level and competitive ability of products. Innovation potential consolidates different resources participating in innovation activities.
Production, financial, technological, management and institutional potential can be referred to the main resources of innovation potential’s development.
From our point of view, management potential is important in the appraisal of innovation activities. Competitive ability of enterprises is stipulated not only by new technologies, but also by management efficiency. Use of advanced technologies gives significant advantages for a short period of time since some time later they may fall into competitors’ hands. Technical superiority only is not enough for successful competition. The growing demand of customers for quality and nomenclature of products requires permanent renewal of management methods and using of advanced technical superiorities. The latter to a greater extent determines efficiency and quality of management decisions, that is production and financial results of the enterprise.
The current institutional structure seriously impedes innovation activities Decreasing of social status of scientists and engineers, high incomes of criminal commerce and “shadow economy” and brain drain are observed in the brunches. Solving of problems related to protection of intellectual property is a pressing necessity. From our point of view, the atmosphere awakening the interest of innovative products’ makers, inventors, innovators and companies should be created. In spite of the country’s financial situation, degradation of its scientific and technological base is impossible.
It is expedient to take the following measures in order to improve the current situation:
– Elaboration of STA strategy, its phased and complete fulfillment using the instruments of state regulation;
– Determination of STA’s priority directions, strict protection of financial resources’ provision and strengthening of the state’s role in the innovation policy;
– Reconstruction and re-equipment of science intensive production, increasing of production of highly effective and competitive output;
– Systematization of scientific and technological reserves, projects, licenses, patents, discoveries and other investments in accordance with their novelty importance and commercialization;
– Development of competition in the innovation sphere;
– Perfection of leasing and using of preferential crediting for purchasing of progressive techniques;
– Support of small business at the expense of budgetary funds;
– Protection of intellectual property and its circulation in the economic turnover, elaboration and support of innovation stimulation mechanisms;
– Extension of the state’s participation and realization of the results of fundamental scientific research;
– Creation of a preferential credit system for highly effective innovation projects, reduction of interest rates.
State innovation policy is an integral part of the social-economic policy that determines the state’s regulatory function in the sphere of innovations, the authority’s objectives, directions and methods. At the current stage the task of the innovation policy is creation of a system that will make it possible to use the achievements of the national intellectual potential and current technology for production of competitive output.
For any state, the country’s prosperity is the objective of the innovation activity. It is based on progressive development of science, technologies and industry and wide use of the obtained results in all spheres of life.2
Inculcation and development of international integrated innovation technologies management systems will largely contribute to the extension of innovation activity. Implementation of the above-mentioned is impossible without creation and development of communication technologies.
Creation of stable and effectively functioning innovation infrastructure in the form of energy, communication, construction and transport should be characterized by rapid rates.
Successful implementation of innovation policy requires consolidation of interests of the state and the private sector. Special structures existing in this sector should create a solid base of innovation industry’s development with highly skilled personnel. For this purpose we consider it expedient to create special “scientific centers” that will non-governmental organizations running on a self-supporting basis. From our point of view, the state should provide for financing of this kind of centers at the initial stage, and then, after selling of its products, the center will return financial means to the state. In its structure the center should have processing, testing and inculcation departments which will carry out work in close cooperation production.
We fully share the opinion that if a firm does not carry out design works and gets them from outside sources, it may fall behind in innovation processes, lose control over their development and become fully dependent on an outside supplier.3
From this point of view, it is expedient to create innovation-technical and innovation-production centers that will create conditions for realization of the matter mentioned by us at the beginning.
With the purpose of implementation of innovation policy based on international economic cooperation, development of industrial cooperation is rather profitable, which can be presented in three forms: scientific-technical, industrial and scientific-industrial. Complex implementation of all of them will contribute to quick realization of innovation policy in the country.
We can present implementation of innovation policy in the developing world in two stages, the second stage of which is related to tolling relations and development of innovation incubators. As to provision of innovation activity with financial resources, here, besides the above-mentioned, rapid inculcation and development of venture funds is necessary.