Functionality of innovation systems as a rationale for and guide to innovation policy

This chapter discusses an approach to the rationale and operations of innovation policy from a 'systems' perspective, focusing on functions performed by an innovation system. The systems approach stems from a key insight of innovation studies, which is that innovation by firms cannot be understood purely in terms of independent decisionmaking at the level of the firm. Firms' strategies are central to innovation, but strategic options are shaped and constrained by environmental factors such as collaborative patterns, regularory systems and customary practices which persist in systemic ways and which influence how innovation may occur. These environmental conditions are often specific to technological, regional or national contexts, but they are also dynamic: their forms of operation change with political conditions, changing technological opportunities, economic integration processes and so on.