Innovation is about more than turning opportunity or need into new products and services which are commercially exploited. It is about stepping out of line and is closely related to both entrepreneurship and creativity.

Innovation is not just about R&D in large companies, nor is it just about new products and services. It is about solving problems within businesses, introducing new processes and business formats which improve efficiency as businesses grow and change.

Innovation involves new combinations of knowledge, sometimes combining old and new knowledge, or crossing boundaries between areas of expertise or between sectors. However, it takes imagination to see beyond those boundaries to the wide range of possibilities they bring. It also requires knowledge of what has gone before and the ability to learn from it, as well as an appreciation of the present, to understand the available choices.

Innovation is an evolutionary process with the discontinuities typically coming from the boundary-crossing, which leads to new combinations. It is less about having access to alternative bodies of knowledge per se than having the imagination to combine skills and expertise from one area to alter another fundamentally. Imagination can transform the shadow of the past into an inspiration for the future.

Innovation involves seeing what everybody else has seen, but thinking about it and interpreting it with originality. Creativity alone does not lead to commercialised innovations, and it is here that the link with entrepreneurship becomes crucial.

Entrepreneurship involves the recognition and assessment of opportunities and is often the bridge between creativity and innovation. This is because the entrepreneur is involved in what can be described as the dance of two questions – what is needed and what is possible – and the interplay of these two questions is an ongoing process. Responses are shaped by changing knowledge of the external environment, by social and business networks, by changes in the legal system, by changes in the competitive environment and by market forces.

Innovation is crucially linked to personal networks and the exchange of knowledge, rather than to lone inventors. Through these networks, technology, products, processes and businesses develop in a path-dependent manner. Products, machinery and business practice are shaped by past skills and the transfer of knowledge within industrial and commercial communities.

The research within this theme makes a major contribution to the development of unique capabilities which will contribute to the sustainable competitive advantage of British business. Resources alone are no guarantee of successful knowledge transfer, and the work being done assesses how, given a history of distance between higher education and business in the UK, the flow of knowledge may be improved.