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Is Innovation Theory Yet CatchingUp with Policy Practice?

Erik Arnold

Six Countries Programme

25th Anniversary Conference

Stockholm 15 - 16 January 2001

Technopolis 2

Tell them what you’re going to say. Say it. Then tell them what you said …

• Theoretical developments

• Policy trends

• Who’s winning?

• What do we do next?

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It must be easier in physics. In economics, the facts keep changing …

• Firm behaviour is changing• Outsourcing

• Networking

• Externalisation and internationalisation of innovative activities

• Changes in industrial structure• Primaries to secondaries to tertiaries

• Shifts in branch composition within these

• Changes in spatial relationships • Transport (some of which may be environmentally unsustainable)

• Telepresence, tele-X …

• Technology an important factor enabling such changes in ‘facts’

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Innovation used to be such a simple process …

Manufacturing EngineeringBasic Science Marketing Sales

Market NeedsDevelopmentManufacturingSales

Technology Push

Needs Pull

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Then it got more complex … and we almost began to notice stocks as well as flows of knowledge

Marketing and Sales

ManufacturingPrototype

ProductionDevelopment

Market Place

Idea Generation

New Ideas

New Technology

Needs of Society and the Market Place

State of the Art in Technology and Production

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The firm has been reinvented - from rational robot to an institution containing people

• Bounded rationality

• Learning and ‘intellectual capital’

• Capabilities

• Path dependence and technological trajectories

• Interdependence of internal capabilities, external networks, infrastructures and history

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Moving the focus from the market to the system changes rationales for policy

• Market failure - mostly about basic research

• Indivisibility

• Inappropriability

• Uncertainty

• Systems failure - mostly about inadequate performance

• Failures in infrastructural provision and investment

• Transition failures

• Lock-in failures

• Institutional failures

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The New Production of Knowledge has given us a less ahistorical account of knowledge production and the knowledge society than the Endless Frontier ...

Distinctions Between Modes 1 and 2

Problems set and solved in the context of the (academic) concerns of the research community

Disciplinary

Homogeneous

Hierarchical, tending to preserve existing forms of organisation

Internal quality control

Problems set and solved in the context of application

Transdisciplinary

Heterogeneous

Heterarchical, involving more transient forms of organisation

Quality control is more socially accountable

Mode 1 Mode 2

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Of course, reality is not binary - welcome to Modes 1.2 and 1.8!!

AdtranzRailway Technology

Transport & Traffic Planning

SJ

Banverket

KFB

Light Weight Construction

Sound and Vibration

Electrical Machines Drives

JVG

‘80% Mode 2’ Mode 2

‘80% Mode 1’

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Descriptively, the National Innovation System is a huge leap forward, though there is a lot to do to make it more predictive

Framework ConditionsFinancial environment Taxation and incentivesPropensity to innovation and entrepreneurship Mobility ...

Education and Research System

Professional education and training

Higher education and research

Public sector research

Company System

Large companies

Mature SMEs

New, Technology- Based Firms

IntermediariesResearch InstitutesBrokers

Consumers (final demand)Producers (intermediate demand)

Demand

Banking, venture capital IPR and information systems

Innovation and business support system

Standards and normsInfrastructure

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Innovation theory and policy alike have been getting increasingly complex ...

1950s 1980s 1990s1970s1960s

Build up Universities, RIs, RAs

Economic, military competition

Collaborative programmes

Commercialise RIs, RAs

University reformsFunding reforms

New programme formsForesight

Big Cos, National Champions SMEs, Tax Incentives

Technology Push

Needs Pull

1

2

Coupling, Complex Systems 3 5 4

Subsidy Focus

Theory

Policy

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Since Vietnam, science has become repoliticised under the banner of ‘relevance’

• From science policy to innovation policy

• Programmes

• Explicit links to social needs - foresight, consensus conferencing, societal (especially industrial) representation in the governance of science and innovation

• New Public Management

• Evaluation

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Under New Public Management, stakeholders should be better connected to those who execute policy

Electorate

Parliament

Government

Ministries

Programme managers

Projects or actions

Delegated Authority

Responsibility

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The links are formed as a series of contracts

Decide portfolio of policies and allocate resources Define programme rationale Receive reports on programme progress and performance

Manage and allocate programme resources Assess projects: appraise; monitor; evaluate Report progress and results

Manage projects and project resources Report progress and results

Policy

Programme

Projects

Agree programme objectives

Agree project goals and plans

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And a programme management process allowing monitoring and learning

Design, Refresh

Strategy and Workplan

Monitor andManage Projects

Set Rules-of-the-Game

AcquireProjects

Establish and

Monitor Rationale

Design Strategy and

WorkplanExecute Projects

Policy

Programme

Projects

PerformanceContract

PerformanceContract

ObjectivesProgress and Results

ObjectivesProgress and

Results

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Innovation policy has focused strongly on linkage ...

• Institutional linkage• Science parks

• Technology Bridges

• Industrial Liaison

• ‘Competence centres’

• R&D linkage• Collaborative R&D

• Link programmes

• Network R&D

• Innovation linkage• Developmental procurement

• ‘Demand management’

• Supplier development

• Network and cluster programmes

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Policy makers have begun to reintegrate our understanding of ‘technology’ ...

• Away from a narrow focus on hardware and software

• Towards “the scientific study of the practical or industrial arts”

• Starting to heal the rift between engineering and management in the 1920s

• Learning from the example of the ‘soft’ production technologies imported from Japan

• Putting in place a policy practice that (re)integrates engineering and business

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Policy makers have got to grips with company capabilities in rather more specific way than the theoreticians

ResearchPerformers

Technological Competents

Minimum-Capability Companies

Low-Technology SMEs

Research department or equivalent Able to take long run view of

technological capabilities

Multiple engineers Some budgetary discretion Able to participate in technology networks

One engineer Able to adopt/adapt packaged solutions May need implementation help

No meaningful technological capabilityNo perceived need for thisMay be no actual need

Hierarchy of Technological Capabilities

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And developed a wide repertoire of policy instruments to develop capabilities

External Capabilities (Networking)

Access external knowledge• Innovation ‘cheques’ or credits• Science parks • Technology centres• Research institutes and associations• Technology development networks• Technology transfer programmes and brokerage• University ILOs • Faculty placements• Subsidy to university/industry R&D collaborations• Information • Metrology

Manage producer/user relations• Procurement programmes

- State procurement- Company supplier development

Access partners with needed complementary assets• Partner-search programmes• Inter-company network programmes

Internal Capabilities

Manage tangible technology base• Product development assistance• R&D tax breaks• State-subsidised R&D programmes• Manufacturing consultancy

Develop and manage appropriate intangible resources

• Quality programmes• Placements of qualified personnel, eg engineering

graduates• Loans of research personnel• Training needs analysis and training programmes

Create needed organisation• Technology management courses

Strategic Capabilities• Business capability development, especially marketing• Business and technology audits; mentoring• Awareness programmes, including visits, comparisons • Feasibility assessments

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OECD countries increasingly use mechanisms for user-direction of state R&D

AUS CA NZ IRL S SF NL GB D F EU1 Steering mechanisms 1.1 Technology Foresight X X X X X X X X1.2 Customer-contractor X X X1.3 RTO commercialisation X X X X X1.4 Stakeholder guidance X X X X X

2 Financial incentives to R&D2.1 R&D tax credits X X (X) X X2.2 In-company innovation X X X X X X X X X X2.3 ŌChequesÕ for R&D X X

3 Intermediary institutions 3.1 Research Associations etc X X X X X X X X3.2 Industry Research Centres X X X X X X in Universities

4 Linkage programmes 4.1 Collaborative R&D X X X X X X X X X X4.2 State/industry funds- X X X X X matching of university RTD

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So who’s winning - innovation theoreticians or policymakers?

• Policy seems to have been theory- and ideology-led in the post-War period

• Policy makers drew ahead in the 70s and 80s• Partly out of a determination to make the linear model work (eg science parks)

• Partly through imitation of catch-up tactics from Japan

• NIS thinking starts to ‘explain’ why many recent policy actions make sense

• Spill-overs now happening, eg to funding for development

• ‘Rebalancing’ of basic science funding taking place without theoretical basis

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What’s missing?

• Moving from description to prediction

• Moving from an indicators-based approach (CIS, etc) to explain the innovation-performance link at the micro level, to generate more concrete policy recommendations

• Articulating the meaning of the NIS in contexts - branches, stages of catch-up and development

• Conceptualising the ‘stock’ of knowledge, as against the flow

• Operationalising the opportunity to do kan-ban on the NIS