Technovation 26 (2006) 1222–1232 Innovation process. Make sense using systems thinking Kostas Galanakis à University of Warwick, Warwick Manufacturing Group, CV4 7AL Coventry, UK Abstract Several theories have been developed and try to communicate to managers how innovation occurs in a firm and which factors affect the outcome of this process. These theories come from different perspectives that either focus on management, economic or social sciences and create a complex net. This complexity often makes managers take a decision, the outcome of which contradicts their original aims. The objectives of this paper are to communicate innovation theory to the different actors in the system under a common perspective and to reveal the complexity of innovation systems. The new concept has at its centre the firm, which is the generator and promoter of innovations in the market, the industrial sector and the nation. The model’s main focus is the Knowledge Creation from public or industrial research; the New Product Design and Development process, and the Product Success in the market. This process is affected by other internal factors of the firm as well as by the National Innovation Environment. This innovation system has been codified, under a system dynamics approach, to create a model, the ‘Creative Factory’ that includes all the aspects that academia, a firm or the policy making bodies need to consider around innovation activity. r 2005 Elsevier Ltd. All rights reserved. Keywords: Innovation systems; System dynamics; Creative factory 1. Introduction During the last decades, Innovation has been identified by several nations or intra-nation organisa- tions as the major factor of economic growth and wealth (EU, 1995; OECD, 1997a, b). The term innovation has been used in the literature to describe both the process that uses new knowledge, technologies and processes to generate new products as well as the new or improved products themselves (Porter, 1990). Innovation is dis- tinguished from the term invention as innovation also involves the factor of commercialisation. Porter identi- fies innovation as (1990, p. 780): ‘a new way of doing things (termed an invention by some authors) that is commercialised’. Freeman and Soete mention (1997, p. 6): ‘an innovation in the economic sense is accomplished only with the first commercial transaction involving the new product, process system or device, although the word is used also to describe the whole process. Of course, further inventions often take place during the innovation process and still more inventions and innovations may be made during the diffusion process’. Edquist (1997, p. 9) quotes Schumpeter’s definition for innovation identifying it as one of the broadest definitions in the literature: ‘the setting up of a new production function. This covers the case of a new commodity as well as those of a new form of organisation such as a merger, of the opening up of new markets and so on. Recalling that production in the economic sense is nothing but combining productive services, we may express the same thing by saying that innovation combines factors in a new way, or that it consists in carrying out New Combinations’. Edquist mentions that Schumpeter uses the term ‘new commodities’ for what we could call new technologies or product innovations, adding that within the term ‘the setting up of a new production function’ Schumpeter considers new organisational and technological processes as well as innovations. Moreover, he observes that the term innovation is used ARTICLE IN PRESS www.elsevier.com/locate/technovation 0166-4972/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.technovation.2005.07.002 à Present address: Science & Technology Park of Crete, P.O. Box 1447, 71110, Heraklion, Crete, Greece. Tel.: +30 2810 391907; fax: +30 2810 391906. E-mail address: kgal@stepc.gr.