With the emergence of a knowledge-based society, innovation has become an increasingly important factor in the competitiveness of firms, the prosperity of nations and dynamic world growth. Innovation uses scientific progress to meet the changing needs of society and is thus one of the keys to sustainable development. Promoting innovation is now a high priority in most OECD countries. However, the pursuit of this objective is often hampered by an inadequate understanding of the extent to which the mechanisms of innovation are being transformed by globalisation, the development of information and communications technologies and the expanding scientific knowledge base. Drawing on new empirical data, this book analyses the fundamental changes in the linkages between industry and the science system as well as in the nature of the competencies required for firms to innovate. The changes which are transforming the respective roles of competition and co-operation in stimulating innovation and which are enabling enterprise creation and SMIs to play an increasingly active role in innovation are also examined. This book shows that innovation performance depends on the way in which the different components of the "innovation system" -- businesses, universities and other research bodies - interact with one another at the local, national and international levels, and concludes that the public authorities must change their approach to the promotion of innovation. This study defines the aims and tools of this new innovation policy and identifies examples of good policy practice recently implemented in OECD countries.