Generation and diffusion of innovation

Abstract

Generation and diffusion of innovation are two distinct processes that are interlinked in several ways. First, innovation efforts of firms are stimulated by the diffusion of innovation ideas. Second, the market penetration of successful product innovations diffuse to user firms and consumers, providing users opportunities to adopt novel routines and to imitate new designs. Third, creative destruction develops when a novel product finds its way to customers and replaces earlier product vintages, and this phenomenon has the nature of a substitution process. All these processes are supported by knowledge flows which vary in intensity and diversity across the innovation milieu of functional regions. It is concluded that the milieu characteristics which stimulate innovation also stimulate adoption of novelties.