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Silicon Valley and Finland 61that ICTs can yield their full potential (Brynjolfsson and Hitt, 2000). For a fulldiscussion of the analysis of productivity growth and its relationship to informationtechnology, see chapter 6 of this volume.Both productivity and competitiveness are key indicators of performancefor business firms. At the macro level, it is only under conditions of sustained,high productivity growth that a given economy can experience high growthand high employment with low inflation. At the micro level, it is the productivity-basedcompetitiveness of firms (as well as of regions and countries) thatensures a dynamic presence in global markets, the source of wealth in ourtime.But where does this growth in productivity and enhanced competitivenesscome from? Building on case studies from Silicon Valley and on a review ofthe literature, we hypothesize that innovation is the most important source ofboth productivity and competitiveness at the level of the firm (Castells, 2001).In figure 2.6 we represent the process that links innovation to the performanceof firms, as well as the sources of innovation, in the specific case of SiliconValley. Let us comment briefly on the process charted in this figure.Innovation operates in three dimensions: technology, process, and product.By process, we mean organizational networking, both intra-firm and in therelationships with other firms, providers, and clients. Technology refers tomicroelectronics-based information and communication technologies. Productinnovation refers to the specific production line of each firm. We contend that,for innovation to enhance productivity and competitiveness, the three dimensionsof innovation must proceed together, and interact in a positive feedbackloop. The question then becomes: what are the sources of innovation?EntrepreneurialismWith reference to Silicon Valley firms, the first condition is entrepreneurship;that is, the transforming of a business project into business practice. The developmentof a business firm requires an entrepreneur (individual or collective)who brings together specific knowledge and talented labor. And for entrepreneursto exist, an entrepreneurial culture is needed, as well as a supportiveentrepreneurial institutional environment. A strong entrepreneurial culture isthe element that distinguishes the Silicon Valley model most clearly from othermodels.Although the big companies dominate the Silicon Valley economy, theessence of Silicon Valley consists in new start-ups that grow big fast. In manyEuropean countries, the main innovators in information technology industriesare often large companies with a history going back more than a hundredyears. Silicon Valley constantly creates new companies that become worldleaders, such as Intel in semiconductors in the 1960s, Apple in computers inthe 1970s, Sun and Cisco in networking in the 1980s, and Netscape, Yahoo!,