R&D is not innovation

AI has made experimentation easier. It has also made an old distinction harder to see.

An AI lab, a research programme and a hospital testing a language model can all be described as “innovation”. The word tells us very little about what is happening. Is someone trying to produce knowledge that did not exist before? Is an organisation changing the way it works? Or is it still exploring whether either is possible?

The OECD uses separate frameworks for research and development and for innovation. The distinction is more useful than it may sound. R&D is defined by the nature of the investigation. Innovation is defined by a significant change that has been introduced or put into use.

Where is the uncertainty?

Imagine an engineer working on an early steam locomotive. A larger boiler might produce more power but make the locomotive too heavy. Higher pressure might create other problems. The engineer has an idea, but does not know whether it will work. He builds prototypes, measures the results and changes the design. The work is organised to resolve a technical uncertainty and produce knowledge that others could potentially use.

Now imagine a railway company buying locomotives, laying track, introducing timetables and changing how passengers and goods move. It may be transforming transport without discovering anything new about steam propulsion. Its achievement lies in putting the technology to work.

The Frascati Manual gives R&D five criteria: the work must be novel, creative, uncertain, systematic, and transferable or reproducible. A project can be difficult, costly and full of risk without meeting those criteria. Installing a technology in a complicated organisation may require many experiments, but difficulty alone does not turn implementation into research.

That does not make the implementation less valuable. The Oslo Manual allows something to count as an innovation when it differs significantly from an organisation’s previous product or process and has been introduced or brought into use. It need not be new to the world. The railway company did not have to invent the locomotive to change transport.

What has entered use?

This distinction matters again with AI. A hospital might spend months testing an existing language model for administrative work. Staff have to assess its errors, address privacy concerns and redesign a process around its limitations. If the resulting process differs significantly from what the hospital did before and is brought into use, that can be an innovation. The hospital has not necessarily conducted R&D.

Another team might investigate a new method for making language models work reliably with complex clinical evidence. If it is addressing a genuine technical uncertainty through systematic work that produces transferable knowledge, some of that work may qualify as R&D. The two teams could even be part of the same organisation.

There is a further distinction that gets lost when every pilot is called an innovation. Testing a promising approach can be an innovation activity without yet resulting in an innovation. The Oslo Manual recognises work that is ongoing, postponed or abandoned before implementation. Equally, R&D does not stop being R&D because its results never become a successful product. The categories describe different things; neither is a prize awarded to the project that worked out best.

The boundary is not always simple, particularly in software. In 2025, the OECD published additional guidance on applying its R&D criteria to software development, including machine learning projects. An AI project may contain routine development, organisational experimentation and genuine R&D. Calling the entire project one thing can conceal the work being done inside it.

Two questions worth keeping apart

When we say that a company or a country needs more innovation, we may mean that it needs to create new knowledge. We may mean that it needs to turn existing knowledge into products and practices people can use. Often it needs both, but they call for different capabilities.

A laboratory can expand what we know without changing how a hospital works. A hospital can make a significant change using technology developed elsewhere. Describing the first as R&D and the second as innovation gives each achievement its due. It also lets us see more clearly where progress has stalled: in discovering what might be possible, or in making use of what we already know.