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Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself. Innovation differs from improvement in that innovation refers to the notion of doing something different (Lat. innovare: "to change") rather than doing the same thing better.
The word innovation derives from the Latin word innovatus, which is the noun form of innovare "to renew or change," stemming from in—"into" + novus—"new". Diffusion of innovation research was first started in 1903 by seminal researcher Gabriel Tarde, who first plotted the S-shaped diffusion curve. Tarde (1903) defined the innovation-decision process as a series of steps that includes:[1]
- First knowledge
- Forming an attitude
- A decision to adopt or reject
- Implementation and use
- Confirmation of the decision
Ever since the invention of innovation the number of definitions of innovation seems to grow even faster than the number of researchers and practitioners in innovation. What is more, the term innovation seems to refer to fundamentally different matters sometimes, which is the case if one colleague calls a new product an innovation while the other two consider an innovation either the process that leads to the new product or the products market diffusion.
Starting with the above mentioned minimal consensus on the elective affinity of the concept of innovation and the concept of the new, we will indeed soon find that new refers not only to time, but also to the object dimension (new compared to what?) and the social dimension (new for whom?):[2]
If we are interested in the object dimension of innovation, then we focus on the added values of certain products, processes or services. Innovation is always expressed by better technological solution accepted by society. Novelty is just a consequence of innovations' practical implementation. Innovation is always novel. But the key parameter of innovation is an added value for the user.
When examining the time dimension of innovation, we are no longer interested in new objects new but rather in new processes (that might also lead to new objects). In this context, innovation means refers to transformations, to diffusions and ultimately to change.
In its social dimension, innovation refers to the creation of new forms of advantage in terms of innovative address management (e.g. the use of preferable new or attractive signs in order to stand out from the crowd) or of the realization of advances.
Creativity has been studied using many different approaches.
Due to its widespread effect, innovation is an important topic in the study of economics, business, entrepreneurship, design, technology, sociology, and engineering. In society, innovation aids in comfort, convenience, and efficiency in everyday life. For instance, the benchmarks in railroad equipment and infrastructure added to greater safety, maintenance, speed, and weight capacity for passenger services. These innovations included wood to steel cars, iron to steel rails, stove-heated to steam-heated cars, gas lighting to electric lighting, diesel-powered to electric-diesel locomotives. By mid-20th century, trains were making longer, more comfortable, and faster trips at lower costs for passengers.[3] Other areas that add to everyday quality of life include: the innovations to the light bulb from incandescent to compact fluorescent and LEDs which offer longer-lasting, less energy-intensive, brighter technology; adoption of modems to cellular phones, paving the way to smartphones which meets anyone’s internet needs at any time or place; cathode-ray tube to flat-screen LCD televisions and others.
In business and economics, innovation is the catalyst to growth. With rapid advancements in transportation and communications over the past few decades, the old world concepts of factor endowments and comparative advantage which focused on an area’s unique inputs are outmoded for today’s global economy. Economist Joseph Schumpeter, who contributed greatly to the study of innovation, argued that industries must incessantly revolutionize the economic structure from within, that is innovate with better or more effective processes and products, such as the shift from the craft shop to factory. He famously asserted that “creative destruction is the essential fact about capitalism.”[4] In addition, entrepreneurs continuously look for better ways to satisfy their consumer base with improved quality, durability, service, and price which come to fruition in innovation with advanced technologies and organizational strategies.[5]
One prime example is the explosive boom of Silicon startups out of the Stanford Industrial Park. In 1957, dissatisfied employees of Shockley Semiconductor, the company of Nobel laureate and co-inventor of the transistor William Shockley, left to form an independent firm, Fairchild Semiconductor. After several years, Fairchild developed into a formidable presence in the sector. Eventually, these founders left to start their own companies based on their own, unique, latest ideas, and then leading employees started their own firms. Over the next 20 years, this snowball process launched the momentous startup company explosion of information technology firms. Essentially, Silicon Valley began as 65 new enterprises born out of Shockley’s eight former employees.[6]
In the organizational context, innovation may be linked to positive changes in efficiency, productivity, quality, competitiveness, market share, and others. All organizations can innovate, including for example hospitals,[7] universities, and local governments. For instance, former Mayor Martin O’Malley pushed the City of Baltimore to use CitiStat, a performance-measurement data and management system that allows city officials to maintain statistics on crime trends to condition of potholes. This system aids in better evaluation of policies and procedures with accountability and efficiency in terms of time and money. In its first year, CitiStat saved the city $13.2 million.[8] Even mass transit systems have innovated with hybrid bus fleets to real-time tracking at bus stands. In addition, the growing use of mobile data terminals in vehicles that serves as communication hubs between vehicles and control center automatically send data on location, passenger counts, engine performance, mileage and other information. This tool helps to deliver and manage transportation systems.[9]
Still other innovative strategies include hospitals digitizing medical information in electronic medical records; HUD’s HOPE VI initiatives to eradicate city’s severely distressed public housing to revitalized, mixed income environments; the Harlem Children’s Zone that uses a community-based approach to educate local area children; and EPA’s brownfield grants that aids in turning over brownfields for environmental protection, green spaces, community and commercial development.
There are several sources of innovation. According to the Peter F. Drucker the general sources of innovations are different changes in industry structure, in market structure, in local and global demographics, in human perception, mood and meaning, in the amount of already available scientific knowledge, etc. Also, internet research, developing of people skills, language development, cultural background, skype, facebook, etc. In the simplest linear model of innovation the traditionally recognized source is manufacturer innovation. This is where an agent (person or business) innovates in order to sell the innovation. Another source of innovation, only now becoming widely recognized, is end-user innovation. This is where an agent (person or company) develops an innovation for their own (personal or in-house) use because existing products do not meet their needs. MIT economist Eric von Hippel has identified end-user innovation as, by far, the most important and critical in his classic book on the subject, Sources of Innovation.[10] In addition, the famous robotics engineer Joseph F. Engelberger asserts that innovations require only three things: 1. A recognized need, 2. Competent people with relevant technology, and 3. Financial support.[11] The Kline Chain-linked model of innovation[12] places emphasis on potential market needs as drivers of the innovation process, and describes the complex and often iterative feedback loops between marketing, design, manufacturing, and R&D.
Innovation by businesses is achieved in many ways, with much attention now given to formal research and development (R&D) for "breakthrough innovations." R&D help spur on patents and other scientific innovations that leads to productive growth in such areas as industry, medicine, engineering, and government.[13] Yet, innovations can be developed by less formal on-the-job modifications of practice, through exchange and combination of professional experience and by many other routes. The more radical and revolutionary innovations tend to emerge from R&D, while more incremental innovations may emerge from practice – but there are many exceptions to each of these trends.
An important innovation factor includes customers buying products or using services. As a result, firms may incorporate users in focus groups (user centred approach), work closely with so called lead users (lead user approach) or users might adapt their products themselves. U-STIR, a project to innovate Europe’s surface transportation system, employs such workshops.[14] Regarding this user innovation, a great deal of innovation is done by those actually implementing and using technologies and products as part of their normal activities. In most of the times user innovators have some personal record motivating them. Sometimes user-innovators may become entrepreneurs, selling their product, they may choose to trade their innovation in exchange for other innovations, or they may be adopted by their suppliers. Nowadays, they may also choose to freely reveal their innovations, using methods like open source. In such networks of innovation the users or communities of users can further develop technologies and reinvent their social meaning.[15][16]
When an innovative idea requires a better business model, or radically redesigns the delivery of value to focus on the customer, a real world experimentation approach increases the chances of market success. Potentially innovative business models and customer experiences can't be tested through traditional market research methods. Pilot programs for new innovations set the path in stone too early thus increasing the costs of failure. On the other hand, the good news is that recent years have seen considerable progress in identifying important key factors/principles or variables that affect the probability of success in innovation. Of course, building successful businesses is such a complicated process, involving subtle interdependencies among so many variables in dynamic systems, that it is unlikely to ever be made perfectly predictable. But the more business can master the variables and experiment, the more they will be able to create new companies, products, processes and services that achieve what they hope to achieve.[17][18]
Programs of organizational innovation are typically tightly linked to organizational goals and objectives, to the business plan, and to market competitive positioning. One driver for innovation programs in corporations is to achieve growth objectives. As Davila et al. (2006) notes, "Companies cannot grow through cost reduction and reengineering alone... Innovation is the key element in providing aggressive top-line growth, and for increasing bottom-line results." [19]
One survey across a large number of manufacturing and services organizations found, ranked in decreasing order of popularity, that systematic programs of organizational innovation are most frequently driven by: Improved quality, Creation of new markets, Extension of the product, range, Reduced labor costs, Improved production processes, Reduced materials, Reduced environmental damage, Replacement of products/services, Reduced energy consumption, Conformance to regulations.[19]
These goals vary between improvements to products, processes and services and dispel a popular myth that innovation deals mainly with new product development. Most of the goals could apply to any organisation be it a manufacturing facility, marketing firm, hospital or local government. Whether innovation goals are successfully achieved or otherwise depends greatly on the environment prevailing in the firm.[20]
Conversely, failure can develop in programs of innovations. The causes of failure have been widely researched and can vary considerably. Some causes will be external to the organization and outside its influence of control. Others will be internal and ultimately within the control of the organization. Internal causes of failure can be divided into causes associated with the cultural infrastructure and causes associated with the innovation process itself. Common causes of failure within the innovation process in most organisations can be distilled into five types: Poor goal definition, Poor alignment of actions to goals, Poor participation in teams, Poor monitoring of results, Poor communication and access to information.[21]
Once innovation occurs, innovations may be spread from the innovator to other individuals and groups. This process has been proposed that the life cycle of innovations can be described using the 's-curve' or diffusion curve. The s-curve maps growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point customers begin to demand and the product growth increases more rapidly. New incremental innovations or changes to the product allow growth to continue. Towards the end of its life cycle growth slows and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return.
The s-curve derives from an assumption that new products are likely to have "product life". i.e. a start-up phase, a rapid increase in revenue and eventual decline. In fact the great majority of innovations never get off the bottom of the curve, and never produce normal returns.
Innovative companies will typically be working on new innovations that will eventually replace older ones. Successive s-curves will come along to replace older ones and continue to drive growth upwards. In the figure above the first curve shows a current technology. The second shows an emerging technology that currently yields lower growth but will eventually overtake current technology and lead to even greater levels of growth. The length of life will depend on many factors.[22]
There are two fundamentally different types of measures for innovation: the organizational level and the political level.
The measure of innovation at the organizational level relates to individuals, team-level assessments, and private companies from the smallest to the largest. Measure of innovation for organizations can be conducted by surveys, workshops, consultants or internal benchmarking. There is today no established general way to measure organizational innovation. Corporate measurements are generally structured around balanced scorecards which cover several aspects of innovation such as business measures related to finances, innovation process efficiency, employees' contribution and motivation, as well benefits for customers. Measured values will vary widely between businesses, covering for example new product revenue, spending in R&D, time to market, customer and employee perception & satisfaction, number of patents, additional sales resulting from past innovations.[23]
For the political level, measures of innovation are more focused on a country or region competitive advantage through innovation. In this context, organizational capabilities can be evaluated through various evaluation frameworks, such as those of the European Foundation for Quality Management. The OECD Oslo Manual (1995) suggests standard guidelines on measuring technological product and process innovation. Some people consider the Oslo Manual complementary to the Frascati Manual from 1963. The new Oslo manual from 2005 takes a wider perspective to innovation, and includes marketing and organizational innovation. These standards are used for example in the European Community Innovation Surveys.[24]
Other ways of measuring innovation have traditionally been expenditure, for example, investment in R&D (Research and Development) as percentage of GNP (Gross National Product). Whether this is a good measurement of innovation has been widely discussed and the Oslo Manual has incorporated some of the critique against earlier methods of measuring. The traditional methods of measuring still inform many policy decisions. The EU Lisbon Strategy has set as a goal that their average expenditure on R&D should be 3% of GDP.[25]
Many scholars claim that there is a great bias towards the "science and technology mode" (S&T-mode or STI-mode), while the "learning by doing, using and interacting mode" (DUI-mode) is widely ignored. For an example, that means you can have the better high tech or software, but there are also crucial learning tasks important for innovation. But these measurements and research are rarely done.
A common industry view (unsupported by empirical evidence) is that comparative cost-effectiveness research (CER) is a form of price control which, by reducing returns to industry, limits R&D expenditure, stifles future innovation and compromises new products access to markets.[26] Some academics claim the CER is a valuable value-based measure of innovation which accords truly significant advances in therapy (those that provide 'health gain') higher prices than free market mechanisms.[27] Such value-based pricing has been viewed as a means of indicating to industry the type of innovation that should be rewarded from the public purse.[28] The Australian academic Thomas Alured Faunce has developed the case that national comparative cost-effectiveness assessment systems should be viewed as measuring 'health innovation' as an evidence-based concept distinct from valuing innovation through the operation of competitive markets (a method which requires strong anti-trust laws to be effective) on the basis that both methods of assessing innovation in pharmaceuticals are mentioned in annex 2C.1 of the AUSFTA.[29][30][31]
Several indexes exist that attempt to measure innovation include:
- The Innovation Index, developed by the Indiana Business Research Center, to measure innovation capacity at the county or regional level in the U.S.[32]
- The State Technology and Science Index, developed by the Milken Institute is a U.S. wide benchmark to measure the science and technology capabilities that furnish high paying jobs based around key components.
- The Oslo Manual is focused on North America, Europe, and other rich economies.
- The Bogota Manual, similar to the above, focuses on Latin America and the Caribbean countries.
- The Creative Class developed by Richard Florida
- The Innovation Capacity Index (ICI) published by a large number of international professors working in a collaborative fashion. The top scorers of ICI 2009–2010 being: 1. Sweden 82.2; 2. Finland 77.8; and 3. United States 77.5.
- The Global Innovation Index is a global index measuring the level of innovation of a country, produced jointly by The Boston Consulting Group (BCG), the National Association of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM's nonpartisan research affiliate. NAM describes it as the "largest and most comprehensive global index of its kind".
- The INSEAD Global Innovation Index
- The INSEAD Innovation Efficacy Index
Innovation indices are sometimes criticized for having too strong a focus on the economic and technological dimensions of innovation, thus ignoring the larger part of intangible or social drivers of innovation.[33]
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This international innovation index is one of many research studies that try to build a ranking of countries related to innovation. Other indexes are the Innovations Indikator, Innovation Union Scoreboard, EIU Innovation Ranking, BCG International Innovation Index, Global Competitiveness Report, World Competitiveness Scoreboard, ITIF Index. The top 3 countries among all these different indexes are Switzerland, Sweden and Singapur.[34]
The global innovation index looks at both the business outcomes of innovation and government's ability to encourage and support innovation through public policy. The study comprised a survey of more than 1,000 senior executives from NAM member companies across all industries; in-depth interviews with 30 of the executives; and a comparison of the "innovation friendliness" of 110 countries and all 50 U.S. states. The findings are published in the report, "The Innovation Imperative in Manufacturing: How the United States Can Restore Its Edge."[35]
The report discusses not only country performance but also what companies are doing and should be doing to spur innovation. It looks at new policy indicators for innovation, including tax incentives and policies for immigration, education and intellectual property.
The latest index was published in March 2009.[36] To rank the countries, the study measured both innovation inputs and outputs. Innovation inputs included government and fiscal policy, education policy and the innovation environment. Outputs included patents, technology transfer, and other R&D results; business performance, such as labor productivity and total shareholder returns; and the impact of innovation on business migration and economic growth. The following is a list of the twenty largest countries (as measured by GDP) by the International Innovation Index:
Given the noticeable effects on efficiency, quality of life, and productive growth, innovation is a key factor in society and economy. Consequently, policymakers are working to develop environments that will foster innovation and its resulting positive benefits. For instance, experts are advocating that the U.S. federal government launch a National Infrastructure Foundation, a nimble, collaborative strategic intervention organization that will house innovations programs from fragmented silos under one entity, inform federal officials on innovation performance metrics, strengthen industry-university partnerships, and support innovation economic development initiatives, especially to strengthen regional clusters. Because clusters are the geographic incubators of innovative products and processes, a cluster development grant program would also be targeted for implementation. By focusing on innovating in such areas as precision manufacturing, information technology, and clean energy, other areas of national concern would be tackled including government debt, carbon footprint, and oil dependence.[13] The U.S. Economic Development Administration understand this reality in their continued Regional Innovation Clusters initiative.[37] In addition, federal grants in R&D, a crucial driver of innovation and productive growth, should be expanded to levels similar to Japan, Finland, South Korea, and Switzerland in order to stay globally competitive. Also, such grants should be better procured to metropolitan areas, the essential engines of the American economy.[13]
Many countries recognize the importance of research and development as well as innovation including Japan’s Ministry of Education, Culture, Sports, Science and Technology (MEXT);[38] Germany’s Federal Ministry of Education and Research;[39] and the Ministry of Science and Technology in the People’s Republic of China [1]. Furthermore, Russia’s innovation programme is the Medvedev modernisation programme which aims at creating a diversified economy based on high technology and innovation. Also, the Government of Western Australia has established a number of innovation incentives for government departments. Landgate was the first Western Australian government agency to establish its Innovation Program.[40] The Cairns Region established the Tropical Innovation Awards in 2010 open to all businesses in Australia.[41] The 2011 Awards were extended to include participants from all Tropical Zone Countries.
- ^ Tarde, G. (1903). The laws of imitation (E. Clews Parsons, Trans.). New York: H. Holt & Co.
- ^ Roth, S. (2009) ‘New for whom? Initial images from the social dimension of innovation‘, International Journal of Innovation and Sustainable Development 4(4), pp. 231-252. Available for "download"
- ^ EuDaly, K, Schafer, M, Boyd, Jim, Jessup, S, McBridge, A, Glischinksi, S. (2009). The Complete Book of North American Railroading. Voyageur Press. 1-352 pgs.
- ^ Schumpeter, J. A. (1943). Capitalism, Socialism, and Democracy (6 ed.). Routledge. pp. 81–84. ISBN 0-415-10762-8.
- ^ Heyne, P., Boettke, P. J., and Prychitko, D. L. (2010). The Economic Way of Thinking. Prentice Hall, 12th ed. Pp. 163, 317–318.
- ^ Gregory Gromov (2011). Silicon Valley History. http://www.netvalley.com/svhistory.html
- ^ Salge, T.O. & Vera, A. 2009, Hospital innovativeness and organizational performance, Health Care Management Review, Vol. 34, Issue 1, pp. 54-67.
- ^ Perez, T. and Rushing R. (2007). The CitiStat Model: How Data-Driven Government Can Increase Efficiency and Effectiveness. Center for American Progress Report. Pp. 1–18.
- ^ Transportation Research Board. (2007). Transit Cooperative Research Program (TCRP) Synthesis 70: Mobile Data Terminals. Pp. 1–5. http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_syn_70.pdf
- ^ Von Hippel, E. (1988). Sources of Innovation. Oxford University Press. The Sources of Innovation
- ^ Engelberger, J. F. (1982). Robotics in practice: Future capabilities. Electronic Servicing & Technology magazine.
- ^ Kline (1985). Research, Invention, Innovation and Production: Models and Reality, Report INN-1, March 1985, Mechanical Engineering Department, Stanford University.
- ^ a b c Mark, M., Katz, B., Rahman, S., and Warren, D. (2008) MetroPolicy: Shaping A New Federal Partnership for a Metropolitan Nation. Brookings Institution: Metropolitan Policy Program Report. Pp. 4-103.
- ^ "U-STIR". U-stir.eu. http://www.u-stir.eu/index.phtml?id=2537&ID1=2537&sprache=en. Retrieved 2011-09-07.
- ^ Tuomi, I. (2002). Networks of Innovation. Oxford University Press. Networks of Innovation
- ^ Siltala, R. (2010). Innovativity and cooperative learning in business life and teaching. University of Turku.
- ^ Christensen, C. (2002). "The Rules of Innovation". Technology Review 105 (5): 32–38.
- ^ Thomke, S. H. (2003). "Experimentation Matters: Unlocking the Potential of New Technologies for Innovation". Harvard Business School Press.
- ^ a b Davila, T., Epstein, M. J., and Shelton, R. (2006). "Making Innovation Work: How to Manage It, Measure It, and Profit from It. " Upper Saddle River: Wharton School Publishing.
- ^ Khan, A. M (1989). Innovative and Noninnovative Small Firms: Types and Characteristics. Management Science, Vol. 35, no. 5. Pp. 597–606.
- ^ O'Sullivan, David (2002). "Framework for Managing Development in the Networked Organisations". Journal of Computers in Industry 47 (1): 77–88.
- ^ Rogers, E. M. (1962). Diffusion of Innovation. New York, NY: Free Press.
- ^ Davila, Tony; Marc J. Epstein and Robert Shelton (2006). Making Innovation Work: How to Manage It, Measure It, and Profit from It. Upper Saddle River: Wharton School Publishing
- ^ OECD The Measurement of Scientific and Technological Activities. Proposed Guidelines for Collecting and Interpreting Technological Innovation Data. Oslo Manual. 2nd edition, DSTI, OECD / European Commission Eurostat, Paris 31 Dec 1995.
- ^ "Industrial innovation – Enterprise and Industry". Ec.europa.eu. http://ec.europa.eu/enterprise/policies/innovation/. Retrieved 2011-09-07.
- ^ Chalkidou K, Tunis S, Lopert R, Rochaix L, Sawicki PT, Nasser M, Xerri B. Comparative Effectiveness research and Evidence-Based Health Policy: Experience from Four Countries. The Milbank Quarterly 2009; 87(2): 339–367 at 362–363.
- ^ Roughead E, Lopert R and Sansom L. Prices for innovative pharmaceutical products that provide health gain: a comparison between Australia and the United States Value in Health 2007;10:514–20
- ^ Hughes B. Payers Growing Influence on R&D Decision Making. Nature Reviews Drugs Discovery 2008; 7: 876–78.
- ^ Faunce T, Bai J and Nguyen D. Impact of the Australia-US Free Trade Agreement on Australian medicines regulation and prices. Journal of Generic Medicines 2010; 7(1): 18-29
- ^ Faunce TA. Global intellectual property protection of “innovative” pharmaceuticals:Challenges for bioethics and health law in B Bennett and G Tomossy (eds) Globalization and Health Springer 2006 http://law.anu.edu.au/StaffUploads/236-Ch%20Globalisation%20and%20Health%20Fau.pdf . Retrieved 18 June 2009.
- ^ Faunce TA. Reference pricing for pharmaceuticals: is the Australia-United States Free Trade Agreement affecting Australia's Pharmaceutical Benefits Scheme? Medical Journal of Australia. 2007 Aug 20;187(4):240–2.
- ^ "Tools". Statsamerica.org. http://www.statsamerica.org/innovation/data.html. Retrieved 2011-09-07.
- ^ Roth, S., R. Wetzel and K. Müller (2010). "Going Beyond the Hard Core of Innovation: Non-Technological and Non-Economic Dimensions of Innovation Systems". International Journal of Innovation and Regional Development 3(1), pp. 1-11. http://steffen-roth.ch/publications/editons-and-special-issues/.
- ^ "Innovation Indicator 2011". 2011. http://www.innovationsindikator.de/der-innovationsindikator/english-summary/. Retrieved 2012-05-27.
- ^ "U.S. Ranks #8 In Global Innovation Index". Industryweek.com. 2009-03-10. http://www.industryweek.com/articles/u-s-_ranks_8_in_global_innovation_index_18638.aspx. Retrieved 2009-08-28.
- ^ "The Innovation Imperative in Manufacturing: How the United States Can Restore Its Edge" (PDF). http://www.nam.org/innovationreport.pdf. Retrieved 2009-08-28.
- ^ http://www.eda.gov/PDF/EDA_FY_2010_Annual_Report.pdf
- ^ "Science and Technology". MEXT. http://www.mext.go.jp/english/a06.htm. Retrieved 2011-09-07.
- ^ "BMBF " Ministry". Bmbf.de. http://www.bmbf.de/en/Ministry.php. Retrieved 2011-09-07.
- ^ http://www.landgate.wa.gov.au/innovation
- ^ http://www.tropicalinnovationawards.com
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