How do you measure levels of innocation, asks Ray Farrelly, head of R&D policy with Ibec.

Ireland has launched head-long into becoming a "knowledge economy". We have committed to pouring huge resources into science and innovation through the Strategy for Science, Technology and Innovation (SSTI). However, there are a number of questions that remain unanswered. Is it money well spent? Do we have a system for measuring innovation and the quality of research? We all agree on the need to become a high technology, innovative and value-added economy. However, have we the systems in place to achieve this goal?

Innovation is held up as the beacon that will guide Ireland into the new globalised economy to take its place among the knowledge economies of the world. The SSTI itself reiterates the vision that "Ireland by 2013 will be internationally renowned for the excellence of its research and will be at the forefront in generating and using new knowledge for economic and social progress with innovation as a driver".

This is a worthy and laudable aspiration. However, there is a potential flaw. There is no definition of innovation that fully encapsulates what it actually is, how it differs from or affects productivity, whether it is separate from invention, or even if innovation is based on business inputs or outputs.

As the largest spender on R&D in the world, the US has a long history in pushing the boundaries in sciences and technology. However, the largest research economy in the world is currently gathering 15 of the country's greatest minds to deal with one single issue - defining innovation. The key question that this group is addressing is how the US government can develop a measurement for innovation in order to encourage greater investment and engender a higher level of competitiveness in the US economy. We should be having this debate in Ireland.

For many, innovation and invention are the same thing. There is quite a narrow view of innovation that generally only recognises it when it applies to new product development. Services innovation is rarely, if ever, mentioned.

According to the Forfás report on Services Innovation, between 1995 and 2004, employment in the service sector increased by 58 per cent compared to 5.6 per cent in the manufacturing sector. At the same time, the importance of Ireland's services sector is further enhanced by its share of global services trade, running at 2.5 per cent in 2006 compared to its overall share of the world economy which stands at just 0.32 per cent.

The services sector now employs roughly two-thirds of the Irish workforce and constitutes almost 40 per cent of our exports, having grown by 12.8 per cent in the last year alone. This is all the more remarkable when you consider that as recently as 2000, services exports were less than 20 per cent of Ireland's total exports.

Despite the burgeoning growth of the sector, we do not have a national services strategy, let alone a strategy to support innovation in the sector.

The future competitiveness of our economy will rely largely on our services sector, particularly those companies that are competing internationally and survive by continuing to be innovative in the services they offer their customers. It is vital that we develop new ways of embracing innovation across the economy to drive future economic growth. We have done this before in developing an environment that is favourable to internationally traded services. Now, we must do it again to further enhance and secure our standing as a location of choice for those services.

Michael Schrage, a research associate at Massachusetts Institute of Technology's (MIT) Media Lab, and one of the foremost authorities on innovation, warns that R&D spending - whether in euros, dollars or as a percentage of sales - is an input, not a measure of efficiency, effectiveness or productivity. Ingenuity, invention and innovation are rarely a direct consequence of budgetary investment. He believes that there is a destructive, perpetuating myth that the economic health of a country can be measured by how much it spends on R&D.

Innovation is critical for the future competitiveness and economic health of our country. To reflect the importance of innovation, we must develop a National Services Innovation Strategy, in the spirit of the Forfás report on Services Innovation.

Countries that achieve long-term competitiveness have high levels of investment in research and world-class research institutions. However, a broader definition of innovation, which extends beyond scientific R&D is required if this investment is to be translated into world-class companies, products and services.