It examines how governance arrangements and policy practices have changed over the past two decades, and which challenges have been emerging, both as a result of processes such as globalisation and regionalisation, and new developments and innovations in the organisation of government and policy design and delivery. Key areas in which governance needs to be improved are discussed, including mobilising actors and resources for innovation, improving co-ordination and coherence of policies and different layers of government, addressing worldwide the great societal challenges that need to be faced on a global scale, setting priorities in resource allocation accordingly, and improving the measurement of innovation. This includes creating and maintaining favourable framework conditions for - and removing barriers to - innovation, as well as dedicated policies to foster innovation on a broad base: enhancing technology absorption and capacity building, notably in SMEs, fostering networking and clustering, and leveraging research and development (R&D) in various ways.