The Handbook of Technology and Innovation Management

16.2. The Contribution of Public Entities to the Supply of Ideas

Public entities contribute to the supply of ideas through the funding of research and development activities and the performance of research. As expected, private firms are the largest providers of R&D funding, totaling about 200 billion dollars in the US in 2004 (National Science Board, 2006, pp. 4–10, table 4.1). Most of this funding is for in-house R&D but an increased share is for strategic alliances involving external partners. Universities and government labs are important external partners that provide access to complementary knowledge that may extend both the exploratory capability as well as the capacity of the firm to exploit commercial opportunity (Leonard-Barton, 1995).

Private R&D funding is typically oriented towards activities that will be rewarded by the market. In contrast, government funds basic research that asks fundamental questions, without direct concern about practical applications, and is more experimental and theoretical. Applied research focuses on specific applications with a direct concern for using the results. Applied R&D may advance the findings of basic research towards some commercial object. Basic research funded by public entities is typically conceptualized at the earliest stage of knowledge creation and upstream from firms' more applied R&D. Yet, in practice, basic research may have practical implications for current commercial products and the most fruitful innovation may be ...