Regional Centre for Electronics Technologies (ReCET) Electronics Applications Investigation

Regional Centre for ElectronicsTechnologies (ReCET)

Electronics ApplicationsInvestigation

A report from the Centre for Urban andRegional Development Studies

Final report December 2001

David Charles

Paul Benneworth

Centre for Urban and Regional Development StudiesUniversity of Newcastle Upon Tyne

NE1 7RU, UKTel. +44(0)191 222 8016

Fax. +44 (0)191 232 9259Email [email protected]

Web: http://www.ncl.ac.uk/curds

ReCET 2001 Electronics Applications Cluster Investigation

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Contents1. PREAMBLE ......................................................................................................... 4

2. INTRODUCTION ............................................................................................... 5

2.1. THE ELECTRONICS INDUSTRY AND REGIONAL SUCCESS.................................. 52.2. THE PURPOSE AND CONTEXT OF THE STUDY.................................................... 5

3. MAPPING THE ELECTRONICS SECTOR IN THE NORTH EAST OFENGLAND ................................................................................................................... 8

3.1. A OVERVIEW OF THE SECTOR.......................................................................... 83.1.1. Electronics antecedents in the North East of England 1945-1975........ 83.1.2. The shift towards inwards investment 1975-1990................................. 93.1.3. Global uncertainty, local stability: electronics SMEs 1990-present... 10

3.2. INTO THE FUTURE: FORESIGHT IN THE NORTH EAST..................................... 113.3. CLUSTERING FOR ADDED VALUE................................................................... 133.4. TOWARDS AN ELECTRONICS APPLICATIONS MAP.......................................... 15

4. THE STUDY METHODOLOGY .................................................................... 17

4.1. AN INTRODUCTION TO THE INNOVATION MODEL........................................... 174.1.1. Firm selection and interviews.............................................................. 184.1.2. Approach to analysis........................................................................... 19

4.2. THE KEY RESEARCH QUESTIONS.................................................................... 20

5. IDENTIFYING THE SOPHISTICATION LEVELS .................................... 22

5.1. A FIRST CUT ANALYSIS: SOPHISTICATION PHENOTYPES................................ 225.1.1. A characterisation of the four sophistication levels............................ 245.1.2. A first cut analysis: how sophisticated were the sample firms?.......... 245.1.3. “Routine services” — a framework for targeting innovation support.27

6. THE INNOVATION PROBLEMS EXPERIENCED BY NORTHEASTERN ELECTRONICS APPLICATIONS FIRMS ....................................... 32

6.1. INTRODUCTION............................................................................................. 326.2. FROM NOVICE TO INTERMEDIATE................................................................. 33

6.2.1. Common problems experienced in innovation.................................... 336.2.2. The barriers underlying the innovation problems............................... 346.2.3. Strategies for becoming intermediate.................................................. 35

6.3. FROM INTERMEDIATE TO EXPERIENCED....................................................... 406.3.1. Common problems experienced in innovation.................................... 406.3.2. The barriers underlying the innovation problems............................... 416.3.3. Strategies for becoming experienced................................................... 42

6.4. FROM EXPERIENCED TO EXPERT................................................................... 476.4.1. Common problems experienced in innovation.................................... 476.4.2. The barriers underlying the innovation problems............................... 496.4.3. Strategies for becoming an expert innovator...................................... 50

6.5. IMPROVING EXPERTS: ENVIRONMENTAL SUPPORT........................................ 546.5.1. The problems experienced by expert innovators................................. 546.5.2. Improving the performance of expert innovators................................ 556.5.3. The regional benefits of improving experts......................................... 56


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7. THE NEXT STEPS — ENGAGING BUSINESS NEEDS WITHTARGETED SUPPORT........................................................................................... 58

7.1. COMMERCIALISATION OF INNOVATION AS THE KEY DRIVER......................... 587.2. LEARNING FROM THE COSTLY MISTAKES OF OTHERS.................................... 597.3. IDENTIFYING THE LOCAL CO-OPERATIVE OPPORTUNITIES............................. 62

8. THE ELECTRONICS APPLICATIONS CLUSTER — WHAT HAVE WELEARNED? ................................................................................................................ 66

9. BIBLIOGRAPHY .............................................................................................. 74

A list of tables in the report

Table 1 Firm sample by industrial sector.................................................................... 19

Table 2 A preliminary classification of the sample according to innovationsophistication maturity level................................................................................ 25

Table 3 The key features of interviewed firms by sophistication level....................... 26

Table 4 Technical development needs of novice firms in the innovation process...... 28

Table 5 Technical development needs of intermediate firms in the innovation process.............................................................................................................................. 29

Table 6 Technical development needs of experienced firms in the innovation process.............................................................................................................................. 30

Table 7 Technical development needs of expert firms in the innovation process....... 31

Table 8 The symptoms, barriers and potential solutions for firms attempting toimprove from novice to intermediate sophistication level.................................. 38

Table 9 The symptoms, barriers and solutions experienced and adopted by firmsseeking to move from intermediate to experienced............................................. 45

Table 10 The symptoms, barriers and strategies exhibited by firms attempting toimprove from experienced to expert.................................................................... 52


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1. PreambleIn February 2001, the Regional Centre for Electronics Technologies (ReCET) askedCURDS to examine the scope for enhancing business competitiveness and innovationin the electronics applications sector in the North East of England. This document isthe final report of this project. In this report, we develop an argument that businesssupport for innovation in the North East needs to be much more sharply segmented.The research suggests a need for agencies to target their work around particulargroups of clients with common fundamental needs, and we come some way toclassifying how this segmentation of clients may be performed.

The focus of the work is on the electronics sector, and in this report we have adoptedwhat we believe is an innovative approach to the definition of the electronics sector.In contrast to many of the business support agencies in the North East of England,ReCET are concerned to know about those firms that have the potential to benefitfrom the application of electronics to their business. This contrasts with the rathermore traditional definition of the sector which concerns solely those firms involved inelectronics manufacturing. From the point of view of the North East, this hasimportant implications. Electronics manufacturing is dominated by a number of largebranch-plants, whilst the electronics applications sector has a far greater proportion ofinnovative and high growth Small and Medium-Sized Enterprises (SMEs).

In this report, we begin by offering some context to the research activity. We beginwith a short review of the evolution of the sector in this region, in which we explainwhy, in understanding innovation support, it is rational to use a broader definition ofthe electronics sector than is customarily adopted. We then turn to outline theapproach used in the research, an overview of the sample and the key questions weaddress in this report. The main body of the findings emphasises the key barrierswhich firms experience in seeking to improve their innovative performance on thebasis of company’s own responses to the sample. This analysis of the firms’ ownresponses suggests that the current approach to the provision of support for innovativeSMEs firms in the region could be improved by organising agency-based focusedpackages of support targeted at key client groups.


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2. Introduction

2.1. The electronics industry and regional success

The electronics sector as a set of high technology industries has long been associatedwith economically successful regions. Silicon Valley exemplifies this, with its highlydynamic ICT and high-technology services economy. It is therefore natural perhapsfor agencies interested in revitalising the economies of more fragile regions toconclude that the electronics sector is a solid foundation upon whichunder-performing economies can be revived. This is borne out to a degree in the UKby the case of Scotland, where the electronics cluster known as ‘Silicon Glen’ hasachieved critical mass and survived waves of recession and disinvestment relativelyintact.

Yet there is something deeply unsatisfactory with the assumption that the electronicssector is necessarily a precursor of economic development. It is true that in thoseregions where there are key management, R&D and design activities that theelectronics sector is highly innovative. However, the experience of more peripheralregions has been that branch-plants (even in the electronics sector) on which largenumber of jobs have been dependent have been highly transient, prone to closure andwith a relatively limited potential for spin-off. Locally-owned large firms have beenprone to take-over, and gone through reorganisation and rationalisation which has inthe main undermined their capacity to innovate and grow.

These factors acting in concert have served to limit the benefits which regions candraw from electronics employment in large, externally-owned branch-plants. It is truethat the employment they create is important, and this has led an Irish commentator toterm these branch-plants as a ‘second-best’ form of investment. They are good in thatthey create jobs and pay wages, but weak in that they add little to the dynamism ofregional economies. They certainly do not lead to the key activities of significanttechnological and entrepreneurial spin-off activities identified in exemplar electronicseconomic complexes. Policy-makers are somewhat belatedly beginning to catch upwith the problems raised by an excessive concentration on policies of inwardinvestment to drive local economic development.

Consequently, we have rooted this report in the belief that it is preferable to use adefinition of electronics which captures the innovative and dynamic elements of thesector which really have the potential to drive economic development. The corollaryof that is that it is necessary to move beyond those more routine andtechnologically-mature elements (such as passive component or domestic appliancemanufacture) which are traditionally the preserve of branch plants. The definition wehave used is thus in some ways much broader, encompassing mechanical, electrical,software and chemical fields (cf. section 2). What is most important is the potentialfor electronics-based innovation in these firms.

2.2. The purpose and context of the study

There are clear policy implications which arise from a shift towards anapplications-based approach to sectoral definitions. Although some recent successfulregions have had strong electronics sectors, electronics per se is not necessarily abeneficial activity. What is beneficial is that particular kinds of electronics firms tend


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to engage in high value-added activities. The economic development literature is veryclear on the kinds of firms which have regional benefits: those engaged in competitiveactivities which pursue a competition strategy based upon delivering high-qualityand innovative products1.

The main implication of this is that there should be a switch in the emphasis ofbusiness support, from creating and supporting particular sectors towards supportingand encouraging particular activities (e.g. from electronics to innovation). This inturn requires a reappraisal of the priorities around which particular activities arejudged. The emphasis has hitherto been placed upon the delivery of particularvolumetric outputs. Regional Selective Assistance2, for example, is evaluated interms of the numbers of jobs created or safeguarded.

Under the old approach, ‘jobs created in the electronics sector’ would certainly beseen as a priority, regardless of the kinds of activities actually undertaken. Given anincreased emphasis on the innovative and value-adding elements of production(including R&D and design activities), a more rational approach might be toreappraise those sectors which should be supported. In particular, this wouldnecessitate examining existing sectoral definitions (for sectors in the North East) toexamine why support is regarded as desirable, and re-evaluate those activities ofwhich the sectors are comprised. This would fit well with the clusters approachadopted in the North East, because a key element of clusters is the degree to which thecritical transactions take place across traditional definitional boundaries.

This rebalancing of the kind of activities which are funded and prioritised by thepublic sector could conceivably include a switch away from low-level training,infrastructure provision and investment support towards supporting R&D, high-levelqualifications, technology transfer and innovation. However, these programme-basedchanges can all be classified within a wider shift in the policy paradigm. This shiftconcerns finding policy mechanisms for assisting firms involved with innovation,which is a highly uncertain activity3. It is difficult for firms to quantify certainoutcomes at the start of the intervention, which has hitherto meant that support forinnovation has been controlled through highly bureaucratic guidelines which providethe appropriate safeguards for the public expenditure.

The purpose of this report is to provide a firm evidence base for the discussionscurrently taking place in the North East of England around the provision of supportfor innovative activities and sectors. All the material presented from Chapter 3

1 The importance of quality and innovation are that they are features of bespoke products, which arethose products which can command premium prices and fund investment in future quality andinnovation. By contrast, competing on price is the hallmark of a commodity product in which allsurplus profits are eliminated through the competitive process, eliminating the possibility of investingin R&D activity.2 The main form of Government support for capital investment, although that investment need not havea technological/ developmental dimension with millions committed in recent years to food processing,metal manufacturing and clothing investments. Because of European Commission rules on state aids toindustries, RSA is the main incentive the UK Government has to offer in negotiation with current andfuture investors over their plant location, expansion and closure decisions.3 This marks a shift in the means by which public funds are accountable: because of the inherentuncertainty of innovation, recipients might behave perfectly properly and yet fail to realise the benefitswhich the opportunities appear to offer.


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onwards is based upon the evidence presented by firms in the course of the researchinterviews.

In this report, our definition of the ‘electronics applications sector’ begins with thekey activities in which we are interested, innovation and R&D, and extends acrossinnovative firms who use electronics in some way as part of their innovation process.The aim of the research is to provide a practical evidence base to assist businesssupport organisations offering technological and technical services in the North Eastof England.

The first-line client for this research is the Regional Centre for ElectronicsTechnologies (ReCET), a project within Durham University which encompasses bothtechnology transfer and business development activity “to assist and support thegrowth of the electronics sector within the North East of England, and assist theRegion's companies to become world class suppliers in a global marketplace”. Theirinterest is in understanding more closely the needs of their clients (innovative SMEs)and more effectively targeting their services. However, this report is intended to bedistributed more broadly than ReCET, because, as the research demonstrates, firmsrequire complex combinations of support services beyond those which an individualagency can typically provide ReCET would therefore need to collaborate with otheragencies to provide comprehensive business support across this spectrum. Thus, thisreport is intended for all business support agencies in the North East of England whoare working to support innovative SMEs.


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3. Mapping the electronics sector in the North East ofEngland

3.1. A overview of the sector

The electronics sector is not entirely new to the North East of England. The popularstory is that the decline and collapse of coal, steel and shipbuilding left the regionwithout any competitive business activities, and so inward investors were activelypursued to modernise and overhaul the regional economy. This thesis, referred to bysome as the ‘Upas Tree’4 argument, is a convenient shorthand for policymakers tovery quickly summarise a set of economic changes, but does mask a more complexand evolving situation. The electronics applications sector in the region is intimatelyconnected to the history of its firms, and to both justify and contextualise thedefinition of the sector we adopt in this report, we offer an outline history of thesector, with its key drivers, competitive pressures and changes. The three mainfeatures of the definition of the electronics applications sector are derived from thishistorical analysis, viz.:-

• The diversity of the sector, including a range of end-user groups,

• The continuity in the industry is provided by sequences of innovators, and

• The boundaries of the sector are uncertain, because they depend on the wayinnovators adopt electronic technologies for their own uses.

3.1.1. Electronics antecedents in the North East of England 1945-1975

The electronics industry in the North East did not experience the rapid post-wargrowth experienced by southern and midlands regions. The region was systematicallydisadvantaged by spatial planning policies which encouraged the location ofelectronics manufacturing in the North East (and other peripheral regions) whilstconcentrating R&D activities around London. However in this period, the‘electronics industry’ did experience perhaps more growth, and indeed moresustainable growth, than might have otherwise been expected given the absence ofstrong drivers of electronics growth. Even by the 1950s, ‘electronics’ was not awell-formed discipline, but a set of technologies which were changing the basis of arange of hitherto electrically and electro-mechanically oriented sectors.

Consequently, a range of activities found themselves moving into the field ofelectronics simply because this was the direction of the development of the scientific/technological state-of-the-art. A number of new electronics firms were formed as ‘oldeconomy’ firms attempted to respond to the challenges of electronics. Parsons5, for

4 This metaphor was originally offered by Checkland (1976). The Upas Tree is a large Australian treewhich casts a very heavy shadow preventing anything from growing underneath. If the tree dies or isfelled, the absence of undergrowth is exposed, and so the local ecology can be severely damaged. Ithas been argued that shipbuilding played a similarly dominant and suffocating role on the Clyde, sothat when shipbuilding declined, there were no other industries positioned to replace it. The metaphoris frequently translated across to other old industrial regions.5 The naming of a company in this report should not be used to infer that it has participated in this orany other research in which the authors have been involved.


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example, established a number of joint venture activities (including SystemsComputers and International Research & Development) moving them away fromoptical and electrical engineering towards electronics and computing. The mining andsteel industries both stimulated innovation in their suppliers, although this wasundermined to a degree by their nationalisation. Towards the end of this period,electronics became a part of the ship design industry, as computers became morecommon in marine research and design.

Another key driver of electronics innovation in the region in this period were thestate-owned utilities, which on account of their regionalised organisational structures,tended to have a dispersed management and R&D base. The North East hostedengineering and research establishments for the electricity, gas and water boards, andagain, their development activities became increasingly influenced by the broaderevolution of electronics. A third set of firms active in electronics were thosegenuinely local entrepreneurial companies which either evolved into electronicsbusinesses, or were formed to exploit new opportunities in and around electronics.

The key point is that electronics in the North East has never been a neatly-boundedsector or a limited number of supply chains. Rather, the industry in the region hasevolved as a rather fissiparous sector, a set of industries who have all adoptedelectronics technologies for their own needs, to deliver client functionality, withoutnecessarily being themselves classified as “electronics” firms. Thus, despite a lateremphasis on “electronics” meaning a limited set of supply chains, as we argue, theelectronics sector has long best been characterised as this applications sector we haveadopted in this report.

3.1.2. The shift towards inwards investment 1975-1990

Post-war regional policy had led to the creation of an “electronics” sector of sorts inthe region, but it was comprised mainly of factories assembling more mature itemssome way removed from the technological state-of-the-art. The GEC factory atNewton Aycliffe exemplified these investments and their transience; althoughmanufacturing for the telecommunications sector, its main product was telephonehandsets, a product which GEC discontinued in the face of low cost overseascompetition following liberalisation of the domestic telecommunications market.CURDS’ own research in the 1980s identified that in the decade 1975-1985, some22,000 electronics sector jobs were lost in high profile rationalisation and closures ofthese plants (cf. Williams & Charles, 1985).

It was however in this period that electronics became most closely identified with alimited number of supply chains: British firms entered a period of rationalisation,sub-contracting and closure, which meant that foreign investment and ownershipbecame important, and also highly visible. However, even in this period, a number ofnew electronics firms were formed that were not totally focused on manufacturingrather than R&D, and a number of extant electronics firms reoriented their activitiesto ensure their survival as innovative businesses. In some cases, however, large plantssurvived in some form by continually changing their business to ensure they retaineda unique innovative place within their parent companies, in particular WelwynComponents and Burgess Microswitch.

The closures of large plants were in some cases a mixed blessing, as some formerowners sold the assets to local managers and entrepreneurs; although these successorfirms rarely employed as many as the large firms, they tended to have a much greater


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volume and higher level of innovation, leaving them less susceptible to closure.There were also a number of firms which sold products such as instrumentation andcontrol systems. In many cases, their founders came from outside electronicsengineering backgrounds, and were active in the supply chains of other sectors(especially pharmaceutical and offshore engineering). Both these groups of firmswere far more at risk from takeover by large multi-nationals and subsequentrationalisation and closure of their innovative activities than of actual closure.

The lesson for regional economic development from this period is that those firmswhich have a durability over time are those with innovative capacity. Rather thanelectronics having an intrinsic capacity for improving economic development, it is theinnovation which electronics has encouraged which improves regional performance.It is not merely SMEs which innovated in this period, and those larger firms whichsucceeded and survived the double-dip recession of the mid-1980s were those whichhad, despite their position within a corporate hierarchy, been able to develop a uniquelocal base for innovative activity.

3.1.3. Global uncertainty, local stability: electronics SMEs 1990-present

The North East has not been at the heart of more recent developments in electronics,in particular the electronics which have provided the underpinning infrastructure forthe recent exponential growth of electronics communications and networking. Wherefirms in the region have been involved, it has been purely in a manufacturingcapacity, implementing designs from corporate R&D centres elsewhere within Europeor globally, with limited capacity for local value adding. Even the region’smicro-electronics base, whilst ostensibly more high-technology, proved to be just asexternally oriented and closure-prone with the (temporary) closure of both of theregions’ micro-electronics fabs in 1999.

External ownership has not entirely been a problem for all electronics firms in theregion, and a number of sites within the region have been able to establish themselvesas corporate centres of excellence within large multi-national and conglomeratedivisions of labour. All these firms meet with the characterisation of deliveringfunctionality through electronics rather than providing the components of electronicsinfrastructure. All the successful and surviving components firms have shifted awayfrom mass component manufacturing to what has been termed systems delivery. Thathas at its core the production of an electronic sub-assembly which fits into a clients’product, eliminating the need for the client to have comprehensive electronicsknowledge, and moving those firms away from low volume manufacturing andassembly.

One of the features of this period has been the growth of a number of mechanicalengineering groups in the North East. Although most of these firms (includingExpress and GT Group) were formed in the 1970s they have gone through prolificgrowth in the 1990s. These firms are characterised by their growth through‘intrapreneurship’ as well as acquisition; new firms are formed within the group toexploit new technological avenues, and some of these new firms have beenpredominantly electronics-oriented. Indeed, in Express, a number of the firms movedso far over towards electronics applications that the management decided to spin offthose firms into an entirely new group separate from its erstwhile parent (TanfieldGroup).


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Again, this stresses the point that there is only a limited intersection between thosefirms in the electronics sector as traditionally-defined, and those firms (and indeedactivities) in the electronics applications sector with which we are concerned. Thepoint is clear that there is a huge and diverse number of firms who could useelectronics to improve their functionality, and which do not yet choose so to do. Asthe electronics state-of-the-art itself advances, that group of firms will increase innumber, as electronics solutions become preferable to mechanical or even manualapproaches to products. Thus, there is a degree of uncertainty to the boundaries of theelectronics applications sector; they are drawn around those firms which we haveidentified as using electronics to enhance their product functionality, but they arecontinually being redrawn by innovation.

3.2. Into the future: Foresight in the North East

This review of the industry in the North East raises the question of the future directionof the evolution of electronics firms. It is intuitive to consider the region within thecontext of the UK industry as a whole, although the opportunities open to the NorthEast are a fraction of those available nationally. The current national policyframework guiding investment in science and technology is provided by the Foresightprogramme (originally Technology Foresight).

The principle underlying Foresight is the premise that the UK’s central weakness isthe commercialisation of otherwise outstanding research, and the mechanism toimproving that is through setting out long term road maps for the evolution ofproduction and service markets (covering ten and twenty year periods). Research canthen address those fundamental technical and technological problems necessary tobring those products to market; when aggregated, this provides a framework toallocate public resources to both industry/ academic collaborative research andindustrial R&D projects. Foresight operates on a five year period; Foresight isdivided into a number of sectoral panels (16 in 1994-99, 10 in the current round)which produce the technology road maps, the market analyses, funding priorities andscience and technology policy imperatives.

The Foresight ITEC report6 begins from the premise that the UK has a strong assetbase in ITEC, in part through the exemplary quality of academic research, and in partinherited from a strong legacy industry. The argument is that both these strengthsneed to be preserved, consolidated and extended if the UK is to retain existing anddevelop new commercial advantages in ITEC. The report argues that ITEC can becategorised into three main technological areas, basic technologies (scientificadvances), functional (applied) technologies and framework technologies(infrastructure, e.g. e-commerce, virtual environments).

In 3.1 above, we argued that if the electronics sector was bounded along traditionallines (particular manufacturing supply chains), then the electronics sector in theregion is mature and non-innovating. However, using the language of Foresight, it isclear that where the region has strengths in electronics, they are in functionalelectronics across a wide range of end-user markets, including medical imaging,

6 In the previous Foresight round (1995-99), ITEC had its own panel; for the purposes of the 1999-2003round, ITEC is part of the Information, Communications & Media panel; however, its differentiationwithin that panel signifies the importance of the hardware and the systems which provide theinfrastructure for information, communications and media.


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utilities control systems, defence, aerospace and industrial automation. The Foresightreport uses the idea that in order for the UK to be competitive in electronics, it has todevelop niches in which it can succeed.

In consumer electronics, for example, it identifies that UK firms lag overseascompetitors, and so it will take revolutionary products to overtake established volumeproducers. There are unlikely to be many UK firms that are able to devise andproduce those kinds of products. Where there will be more commercial success is infirms that succeed in a particular niche; the examples of computer games and mobilecommunications are cited as examples where UK firms have provided the intellectualproperty necessary for their operation in the form of software.

The North East does not have the research infrastructure in place for significantdevelopment of ITEC framework technologies, and so it is unlikely that they will be amajor driver of regional growth in the future7. The research base for basic research isslightly stronger in the region, and there has recently been some successfulcommercialisation of basic academic research strengths — these new companies mayyet go on to prove highly successful, although they have not yet demonstrated theyhave overcome the traditional British weaknesses of failing to deliver their fullcommercial potential. The Foresight analysis suggests that the area where the regionreally has the potential to grow through successful ITEC activities, firms and productsis in the area of functional technologies, even when these functional technologiesform part of a non-electronics supply chain.

The concept of niche positioning is very important, because, as the report highlights,new ITEC technologies are generating a huge amount of data, and the assembling ofthat data into information, and the analysis of that data into knowledge are two areaswith huge growth potential. In information handling and intelligent systems, the‘domain’ knowledge is as important as the ITEC knowledge8, and given thediversified nature of the North Eastern economy, it is clear there is a great deal ofpotential for new firms to compete successfully through generating new functionalapplications.

This is what those ‘intrapreneurial’ mechanical engineering firms have done (cf.3.1.3), using electronics as a new means of delivering the same basic functionality, aprecision engineered component or assembly which meets a particular set of clients’needs. If electronics as a sector is to receive coherent support there is an imperative toregard electronics to be defined as widely as possible. The North East does have

7 However, it is worth noting the emergence of IMP in Consett, which developed a highly fault-tolerantcomputer for the communications industry, which in turn brought it to the attention of Sun, whoultimately bought the firm out. The point is not that firms in framework technology areas will notdevelop and grow, but they are likely to be less significant than in functional technologies. This is ofcourse reinforced by the concentration of the majority of the established manufacturers’ British R&Dactivities in the M4 corridor.8 Domain knowledge is the set of scientific principles governing the field to which the technology isapplied, e.g. in medical imaging is about generating a set of visual inputs to which is then applied a setof clinical decision rules. Producing the image requires solving one set of engineering problems, butanalysing those images and producing a diagnosis requires the solution of an set of entirely different,medical, problems, and potentially indeed the application of common sense or intuition. Theengineering skills comprise the basic knowledge, and the medical skills the functional or domainknowledge.


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competitive firms in a wide range of areas, none of them in core or frameworkelectronics technologies.

The key opportunities for commercial exploitation of electronics in accordancewith the priorities and the language of the Foresight programme are throughfunctional applications (rather than core or framework areas).

3.3. Clustering for added value

Given the diversity of activities which comprise electronics in the North East, thisraises a set of questions about their coherence into what we have hitherto referred toas a sector. An alternative way of thinking about those electronics applicationsactivities is their potential to be regarded as a ‘cluster’. The notion of clusters derivesfrom thinking on systems of innovation (common routines, practises and institutionswhich promote particular forms of innovation). A cluster of firms can be defined as agroup of firms whose co-location yields significant positive competitive benefits forall the contributing members. This can take place at a range of geographical scalesand cover a wide variety of interactions.

The idea of a cluster came into fashion as a way of describing the way nationsevolved their competitive advantages, and at a national level was closely associatedwith the work of Michael Porter. This was because competitiveness was dependenton a number of factors including environmental conditions, and there were muchgreater differences in industrial policy terms between states than within states.However, the idea of a cluster has since more recently been extended to include anyarrangement of firms where their proximity constitutes a competitive advantagethrough inducing, supporting and encouraging innovation, from very local groupingsto national organisations.

The other important feature of clusters is the nature of the interactions between thefirms within the cluster. The most tangible form of interaction is necessarilycommercial transactions, and so input/ output analysis has been commonly used as ameans of delineating clusters and describing their dynamics. Other transaction-basedrelationships which have been used include quantifying licensing agreements andmembership of collaborative organisations which provide collective goods.

However, other analyses have indicated that non-material transactions are equallyimportant, “untraded interdepencies” such as an appropriately skilled workforce,supportive financial institutions and common production techniques. Even lesstangibly, some research has focused on the importance of a common collectiveculture, encouraging competitive co-operation whilst permitting flexibility andinnovation.

The table below sets out a map of the different types of clusters around two axes,firstly their spatial scope from the local to the national, and secondly, the degree ofinteraction from the tight/ formal to the loose/ informal. The electronics applicationssector in the North East represents a fairly loose and informal cluster at a regionalscale; there are far more informal relationships between the members of the putativeclusters than formal transactions.


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Figure 1 Geographical scope and intensity of interaction

National Danish smallscale clusters

Finnish telecomscluster

Danish mega-clusters

Japanese –stylesupply chains

Scottish Enterpriseclusters

Motor sport Valley(UK)

Northern OffshoreFederation (NEEngland)

Silicon Valley,California

Local

Micro-clusters orcompanynetworks

Flanders languageValley

Cambridge biotechcluster

Tight Interaction Looseagglomeration

Source: Benneworth & Charles, 2001.

A cluster perspective on the electronics applications sector in the North East mightregard the cluster being comprised of those firms which have the capacity to benefitfrom those advantages which accrue from the existing regional activities. A summaryof those features from which benefits are derived is given below, which reinforces thepoint about the breadth of activities which form ‘electronics applications’

• Workforce :- highly skilled development engineers and scientists, withparticular expertise in both low-volume and process technologies,instrumentation, industrial applications.

• Functional technology base:- state-of-the-art and competitive firms in marinedesign and engineering, precision engineering, engineering consultancy,electronics sub-assemblies, utilities infrastructure.

• Supply chains:- a number of discrete groups of firms who repeatedlycollectively collaborate around commercially-focused innovation projectswithout undergoing organisational fusion. Different companies providedifferent elements of the new product development.

• Policy framework:- a historical emphasis on the attraction of electronics’inward investors, who created pools of engineering talent; more recent focuson support for cluster development and cluster activities.

It is also possible to see how some of the approaches to clusters currently in use in theregion map onto this arrangement. A cluster approach highlights the need forinclusivity by policy makers and support services. Parts of the electronicsapplications sector almost certainly fall into life sciences (especially medicalimaging). Staff, technologies finance and orders (sourced from within the region) are


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drawn very broadly, but all contribute to the cluster dynamics in terms of supportingthe competitive advantage of those electronics applications firms.

3.4. Towards an electronics applications map

The previous three sections make the point quite clearly that the electronicsapplications sector is a very diverse set of activities, which does not correspond neatlyto pre-existing sectoral or cluster definitions. This is important because if businesssupport is to target the cluster as a whole, it is important that support be offeredbroadly to ensure that all those with the potential to benefit from it are included. Tobriefly summarise the key features which any sector map must cover:-

• The diversity of the sector, which covers firms in a range of supply chains inwhich electronics augment their main functional technologies, covering arange of end-user groups,

• The importance of innovative firms and innovators to providing stability andcontinuity to the industry in the region,

• The uncertainty of the boundaries of the sector, because they depend on theway innovators adopt electronic technologies for their own uses i.e. currentnon-electronics firms may become electronics adopters in the future,

• There are lots of opportunities for appropriately-positioned businesses toexploit small technological niches in which there is not significant large firmcompetition, and

• The variety of inter-relations between firms in the sector which traditionalvalue chain or transaction approaches do not cover.

One NorthEast define the electronics sector in the North East as being composed ofconsumer electronics, contract sub-assembly, computer components, IT hardware andopto-electronics. If we take a cluster approach, and look at those firms which useelectronics in their end products, this definition overlooks two sectors of someimportance to the North East, both capital goods (industrial controls and robotics) andinstrumentation firms. Firms in the region are making products in which theirexpertise is not necessarily in the electronics, but in the product functionality, such asin cytogenetic analysis, gas detection or in making a conveyor system to a customer’sspecific requirements.

It is artificial to delineate these high-technology innovative firms from other similarfirms on the basis of the supply chain in which they are involved. Throughout thissection we have argued that local firms across a range of manufacturing and servicesectors have the potential to embody electronics applications capacity in theirproducts. This increases their own competitiveness by creating or increasing thefunctionality they offer to their clients.

In this study, we have deliberately used a very broad definition of the electronicssector, in order to capture all those activities in which electronics-led innovation isimproving the competitiveness and performance of those firms. The research quiteexplicitly is not looking at a specific sector in the North East, but is concerned with allcompanies with the potential to innovate by incorporating electronicsapplications capacity in their products and processes. On the basis of past research,and as a consequence of the work undertaken for this project, it is clear that as a


16

minimum, the electronics applications sector should be taken to include the followingactivities:-

Figure 2 A map of the electronics applications sector in the North East of England(technology level vs. employment)

10,000

Emptnos.

(log)

Domestic electricalsPassive

Components

PCB manufacturing Activecomponents

1,000 Sub-contractassembly

Precisionengineering IT hardware

Industrial capitalgoods

Hardwareconsultancy

OffshoreInfrastructure

100 Process controlinstruments

Medicalinstrumentation

Optoelectronics

10

Low

Technology level

Medium High State-of-the-art

Source: authors’ own estimates

There are a number of dynamics which drive economic changes over time. Undercurrent economic conditions, there are two main change trends: firstly thatemployment in lower technology industries is continually falling, and the intentionbehind policy intervention ought to be in promoting growth which raises employmentin high and state-of-the-art technology industries. Secondly, as technology changes,so what is regarded as state-of-the-art also changes, and so whilst active componentsand semi-conductors are still dependent on very sophisticated technologies, they arealso quite a mature sector under considerable competitive pressures.

There are three challenges which must be addressed to maintain the electronicsapplications sector in the North East on a sustainable and upwards growth trajectory:-

• Managing the decline of mature electronics segments, promoting innovation inmass production activities and retaining regional benefits after closure,

• Promoting employment growth in higher technology segments, by raising thecapacity of those firms to commercialise their innovations, and

• Sustaining the technological advantages of higher technology segmentsensuring that they do not mature and fall prey to pressures of mass-marketcompetition.


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4. The study methodology

4.1. An introduction to the innovation model

The fundamental research question we have sought to address in this research washow do firms in the North East seeking to innovate on the basis of electronicstechnologies enhance their capacity and propensity to be successful in that objective.In order to do this, it is necessary to have a model of the innovation process againstwhich to compare the empirical findings. Different types of firm mean very differentthings when they talk about the innovation process. Thus, a methodology which isheavily dependent on survey-based fieldwork will necessarily encounter problems ofrobustness, in particular with the response categories adopted. We have adopted amodel which takes account of the differential sophistication of firms’ innovationpractises, observed in other studies in the North East (cf. Charles et al., 1998;Benneworth & Charles, 2001).

There are a variety of ways by which the innovation process can be modelled. Acommon approach is to model the development of a particular technology, from itsputative ‘source’ in ‘hard science’ to its eventual application in an embodiedtechnology. The weakness of this ‘linear’ approach lies in the fact that the progress ofa technology is rarely as simple as that model would suggest. Critics of this approachargue the linear ‘model’ is more an ex post facto rationalisation than a fair model ofthe uncertainty, risk, and deliberative decisions which more anthropologicalapproaches have revealed as an inherent part of the innovation process.

The approach which we use is to focus on the organisational approach adopted withinthe firm to the management of particular innovation projects and to compare the firmsto a stylised model we have developed over a sequence of research projects (cf.Benneworth & Charles, 2001). In essence, we adopt an accepted approach to thefirm-based innovation process, that is the firm has a set of people, routines, andresources which turn ideas into problems; the solution of these problems leads to theinnovation.

The basic process which firms attempt to master is:-

Innovative Concept Generation Æ Project Scoping and Definition Æ Product designand development Æ product launch and review.

However, besides these four stages, it is possible to identify at least three otherfirm-based characteristics which affect the firm-based innovation process:-

• Corporate culture: management attitudes to innovation and willingness todelegate innovative responsibility downwards, alongside the particular mix ofincentives and flexibility employees are given to exploit their creativity andlearning through innovation,

• Planning for innovation: the degree of importance of innovation to the overallbusiness plan in the company, and

• Systems and tools: to guide new product development, both formal controlsystems, and particular electronic tools/ modelling techniques which speedinnovation.


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In going through the four stage sequence, firms encounter a range of differentproblems relating to each stage which they need to overcome to turn an idea into aproject, or to complete a project and arrive at a product. An important feature of thisapproach is that the ‘product’ is by no means decided upon at the start of the process;ideas may be rejected, market research may be discouraging, technological barriersmay be insurmountable and sales conditions unfavourable. Firms build on their pastexperiences of project failure in deciding how to proceed, and build on pastunsuccessful or partially-successful developments to expedite current innovation.

The basis for this research is the firm . From a firm’s perspective, the essentialprocess which they are attempting to master is to deliver an idea to exploit a marketopportunity. This process involves progression between the different stages of theprocess and dealing with the issues that arise; mastering this process means increasingcompetence in dealing with problems arising in the progression of ideas through thepipeline. Many firms use external assistance to deal with problems as they arise;however, besides these technical services which affect the progress of a single project,firms are also engaged (and similarly take external assistance) in improving theirbusiness practises and processes so that future projects progress more smoothly.

In this project we are concerned with understanding how business supportorganisations can tailor their support services to best meet the needs of innovativefirms. In this project, we focus on two separate areas of business support whichsuccessful innovative firms may use in bringing a good idea to market as acompetitive and innovative product:-

• “Routine” services which help the firm bring one idea closer to market(technology transfer, market research, rapid prototyping), and

• “improvement” services which assist firms to improve their innovationmanagement performance (ISO9001, CAD consultancy, empowermentfacilitation)

4.1.1. Firm selection and interviews

In our past experience, firms who are not innovating have very little of interest to sayabout innovation, not least in part because many have not thought through the issueswhich we wish to address, and so have difficulty articulating their thoughts9. Thus, inthis project we have concentrated our efforts on firms already innovating, and so haveaddressed some of the service capacity and process management problems in whichwe are interested. The geographical scope for the project was defined as the NorthEast of England (Northumberland, Tyne & Wear, Durham and Tees Valley) and so allthe firms interviewed were located in these regions.

A total of 38 companies with innovation activities located in the region wereinterviewed. Selection of the companies was based upon three sources, which weretaken as proxies for interest in innovation, and therefore having at least begun to cometo terms with the issues addressed through the course of the research. The first proxy

9 Obviously, there is a third class of firm, who have historically innovated and then ceased innovation.In those rare cases, what often happens is the individuals associated with the innovation leave, and sothe firm loses the expertise in innovation, and those managers who remain do have difficulties inarticulating their attitudes towards innovation. Indeed, the decision by a firm to cease innovation isoften associated with hostile spin-offs by those innovators who wish to continue the developments.


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was involvement with ReCET. The second proxy was having won a (prestige or cash)award, including Millennium Award, Design Council Award, Queen’s Award (forinnovation) or a Smart award. The third proxy was involvement with a clustering orinnovative club institution ; two particular institutions were used to exemplify this, theRegional Service for Clustering and RTC North. The strength of these as proxies forinnovative capacity was dually borne out, firstly by the fact the majority of the firmsfulfilled more than one of the proxy conditions, and secondly by the innovativeactivities reported in the course of the interviews.

In order to contextualise what follows, it is perhaps worth setting out some briefdetails of the companies. Around 80% of the companies was locally owned (ormanaged in the case of plcs), and 75% were SMEs (not part of a larger parentcompany, less than 200 employees); all those non-local firms were part of multi-siteoperations, but had some considerable local responsibility for their own new productdevelopment. Table 1 below sets out a analysis of the firms on the basis of theindustrial sector under which they would traditionally be classified.

Table 1 Firm sample by industrial sector

Industrial Sector FirmsElectronics 11Instrumentation 7Utilities 5Mechanical engineering 5Capital goods 4Construction 4Food, Drink & Tobacco 1Software 1Total 38

Source: Authors’ interviews

4.1.2. Approach to analysis

The analysis in this report is based upon identifying the innovation problemshighlighted by firms, and in particular the way in which firms reported they usedparticular support services to overcome the their new product development problems.A key feature is that the recommendations made are based on the strategies adoptedby those firms who have already overcome the problems.

The analysis in this report takes the material from the (confidential and anonymous)interviews and presents it within the innovation framework. In the interviews, firmswere asked a set of questions about their own innovation processes. The questionsaddressed both firms’ own current practises, but also how they had improved theirpractises, why they had decided to improve, and the barriers they faced in overcomingthe problems.

This provides a basis for splitting the analysis of the use of support services into thetwo categories outlined above (cf. 4.1.1). “Routine” services were those that assistedfirms in bringing new products to market, whilst “improvement” services were thoseused when firms had deliberately decided that their current practises were unsuitableand needed to be improved. Past research suggests that innovative firms can becategorised according to a series of sophistication levels, and for the purpose of thisreport, we adopt four levels (cf. 5.1). Thus, in this report we have produced two


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separate analyses of firms’ needs, for routine and improvement services respectively.Each is based on two dimensions, the first being the stage in the innovation process(e.g. “company culture”, “project scoping and definition”), and secondly, on howgood the firm is at innovating (the sophistication level (qv) ).

An example can be provided from “project scoping and definition”; a very weakinnovator might not be able to tease out the repeatable elements of particular bespokeitems made for a single customer, and so support for that firm could focus on goingthrough past projects, and helping the firm to identify particular repeatable elements10.A stronger innovator might have two separate teams, doing contract and off-linedevelopment respectively, and might need help to explain a new idea to its contractprojects teams. An exemplar innovator would not have problems in this area, butwould benefit from its suppliers improving their own innovation process.

The second area of analysis is analysing how firms have improved their performance.One of the firms interviewed decided to improve their re-use of ideas; they weredriven by customer demand for bespoke electronic products, and as a consequencewere really selling a design service rather than electronic products. To positionthemselves more strongly as a manufacturing company, they looked back through pastprojects to determine if there was a single product they could sell again. Havingfound that (more a concept than a product, innovative control interfaces), they wereable to reorient the company towards the design and manufacturing of that product.

As well as looking for a partner to develop innovative interfaces, they were able to bemore selective about the contracts they chased, as they checked all new contracts wereevaluated against their contribution towards their competency in innovative interfacedesign and manufacturing. The real problem that these firms had faced (andovercome) was that they were hitherto chasing orders of any kind. By being moreselective about the orders they undertook, they were able to improve their overallbusiness performance.

In the second analysis, we therefore analyse both the symptoms and the underlyingproblems that firms face in improving their innovation, and suggest improvementswhich others firms have made to address similar problems. The key benefit of thisapproach is that it provides a link between the different sophistication levels, so thatrecommendations are made to firms on the basis of the successes of other firms in theNorth East. This reinforces the evidence base of the report, as all the strategies whichare reported are those which have been themselves reported to the researchers.

4.2. The key research questions

From this analysis of how firms innovate, it is possible to articulate the key researchquestions that this report will address. The critical elements of the research relate tothe evolutionary dynamic of the companies in the region, in particular, the barriersthat they face, the strategies they adopt in response, and the most appropriate kinds ofbusiness support for their needs.

10 This might also cover other elements of modularisation; a firm might have particular hardwaremodules pre-approved to meet standards approvals, with auditors and customers, whilst software mightbe stored in a series of libraries. This might have the tangential benefit of improving the prototypestage, because if you write a specification in a modular way, the first cut prototype is basically whatone firm called a “lash-up” of the appropriate hardware and software modules, ready for test, removingone stage of the innovation process.


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For firms to have the potential to use electronics applications to add value, firms mustmake use of the functionality in those applications, possibly incorporating them as‘black-box’ objects into new products, or developing a new product which allows anovel service to be offered to a client. However, those firms must have the capacityto identify the need for those electronics technologies, the skill to locate appropriateproviders, and then be able to transfer and implement those electronics technologieswithin the company.

The key determinant of this process is neither the technological orientation of thecompany towards electronics nor the particular functional areas in which they areworking (providing they have the potential to use the applications). Rather, the keyconstraint on the effective uptake of those technologies as a means of businessimprovement is their overall innovative capacity, and how they will be able to use theelectronics technologies to add value, and compete more effectively on productquality and specification. On the basis of a set of interviews, we have categorised thefirms into these maturity levels, how firms improve their performance, and how theyhave dealt with the barriers they experience in improving their performance.

We then identify the key barriers firms in the region face in improving theirperformance, the strategies they adopt to overcome those barriers, and the conceivableinterventions the regional providers can make in support of these improvements. Wehave adopted a three stage process for this analysis, and the key research questions arederived from those three stages:-

• What are the symptoms that firms report when they are having problemsinnovating?

• What are the causes of those problems i.e. what are the underlying reasons forthese symptoms to emerge?

• What solutions have more sophisticated firms adopted to improve theirapproach to innovation and become more commercially successful?

A final level analysis links the findings to the services provided by the businesssupport community. In some cases, firms may be able to address the problems aloneor with their strategic partners, but in other cases, there may be a need for businesssupport organisations to support those firms. Particular areas where it is envisagedthe business support community might make contributions include:-

• How do firms approach the process of sourcing new electronics products orsub-systems when the operation of those sub-systems may be outside their field ofexpertise?

• How do firms express their requirements to their electronics suppliers, especiallysuppliers in the bespoke/ one-off markets?

• How do firms assess the changes in functionality which new electronics systemsmight offer their products, and how do their calculate them into R&D and marketresearch evaluations? and

• How do firms price new electronics innovations and how sophisticated are they atrationally adopting those new innovations, mediating between suppliers andend-client?


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5. Identifying the sophistication levelsFor the purpose of analysis, it is necessary to have a framework to categorise firms onthe basis of how they perform across the full range of elements of the innovationprocess. This is particularly important given the brief to develop a framework fortargeting innovation support; it is necessary to have a means of segmenting businessesby performance and practise as the basis for the delivery of business support services.

We have elsewhere developed a four-fold classification of innovation sophisticationwhich we have adopted for use in this project. The classification is based on thefirm’s expertise in innovation management; this is represented pictorially below infigure 3.

In this model, we decompose a spectrum of firm behaviour into four sophisticationlevels, novice, inexperienced, experienced and expert. At each level of sophistication,firms have a very different capacity to absorb innovation support services, because oftheir differential capacities to manage knowledge flows. Part of the learning processwhereby less sophisticated firms improve their sophistication in innovationmanagement is actually learning how to learn, the skills of seeking, evaluating, andultimately accepting or rejecting advice from bodies with potentially quite contrastinginterests.

5.1. A first cut analysis: sophistication phenotypes

The basis for the sophistication approach is that it is reasonable to group firmstogether on the basis of the how well they innovate. For the purposes of analysis, it isclear that there are three sets of characteristic which need to be evaluated in order tocharacterise the firms by sophistication level:-

• Performance:- how well the firm actually performs in delivering newinnovative products that are commercially successful and reinforce the growthtrajectory of the firm,

• Practise:- the systems and organisations that the firm has in place to deal withthe randomnity and serendipity inherent in an R&D project, as much tomitigate adversity as to expedite project development, and

• Reflexivity/ self-awareness:- the degree of realism of the management’sperception of the company, its technological position, and the effectiveness ofits systems, practises and culture.

Our past research has shown that there is a close correlation between these threefactors. Although some firms may initially succeed commercially despite the absenceof management systems or self-awareness, these types of firms do suffer fromexposure to difficulties when adversity arises. Similarly, although well-managed andnetworked firms may experience bad luck in the short-term, if they manage to survivethey tend to be in far stronger positions to exploit their innovations. As a example,managers in well-run companies have more time to concentrate on their particularactivities, and income streams are often invested far more strategically in new R&Dprojects.


Figure 3 A classification of firms into sophistication levels by knowledge flows and networking within the innovation process.

NoviceLead

innovator

Firm

Personal contacts Standard literature

Intermediate

Developmentteam

Firm

Engineering

Sales & Marketing

Production

Management

Design Consultancy Technology club

Engineering

Management

Production

Sales &Marketing

ProductDevelopment

Team

Firm

Suppliers Clients End-users

Experienced

(Inter)national partners Regulatory bodies

Firm

Technological/ scientific community

Cross-functionaldesign team

Firm

Supply chain and user community

Expert

Key Knowledge inputStrong boundaryFuzzy boundary


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5.1.1. A characterisation of the four sophistication levels

Novice firms are firms who are innovating, but typically have no conception of theinnovation process and how it relates to their other activities. They tend to be highlyreactive to customers orders, but with no attempt to systematise the innovationprocess. Often, innovation can be the responsibility of a single individual, making thefirm highly dependent upon them. If markets move against these firms, they may feelforced to develop new products, but lacking systems, any attempts to bring somethingnew to market will typically either fail, or work but be extremely wasteful.

Many intermediate firms have been novice firms who have had bad experiences withinformal and unsystematic innovation, and have introduced quality systems toimprove future results. However, innovation in these firms is typically seen as ‘newproduct development’ divorced from both production and customers, and so althoughthere may be a set of formal design methods, typically these may encompass theengineering department and setting up a manufacturing ‘first-run’.

The difference between experienced and intermediate firms is the extent to which theinnovation process is embedded across the whole of the company. Experienced firmsgenerate ideas in both sales/ marketing and manufacturing functions, and all parts ofthe company are involved as an idea is formed into a product. This in turn requiresmore formal relations with knowledge stakeholders in the company, such asdistributors, end-users and suppliers. Typically in each part of the company, therewill be people whose main role in the firm is to maintain contacts with those peoplewho provide useful feedback during the innovation process.

Expert innovators are distinguished by their culture(-s) of innovation across the firm;the expectation of innovation suffuses all occupations, and formal systems havebecome adapted (within the bounds of certification) to the particular needs of the firm.The firm is also expert at working with external sources of knowledge, and candifferentiate the management of these external relations, so collaborators on oneproject can be competitors on another without detracting from overall innovationperformance. Often, the limiting factor on the innovation performance of theseexemplars is the degree to which external collaborators have the capacity to meet theproduct development and innovation needs of the firm. Expert firms are expertswithin particular markets under particular conditions, and maintaining this strongposition requires continual change and development.

5.1.2. A first cut analysis: how sophisticated were the sample firms?

It is our intention throughout this report to present material related as directly aspossible to what the firms have said. The sophistication framework is the mainconceptual framework we adopt (alongside the innovation pipeline model), and so itis necessary to first examine how closely firms’ own experiences map to this four-foldclassification, as an indicator of the robustness of the framework. Of the 38 firms, 34of those could be unambiguously assigned to one of the four levels according to allthree sets of criteria. For the remaining four firms, it was necessary to exercise somedegree of judgement in fitting them to a maturity level, although in each case therewas a strong correspondence to one particular level.


25

The empirical work also validated the assumption that it is possible to group firmsaccording to their performance, practise and self-awareness. In particular, thequalitative relationship between practise and performance was very strong; firmslacking innovation systems were fundamentally incapable of a managed growthprocess, whilst those with highly-developed systems tailored to the particular firmcontext were those that had been able to succeed as companies. In order to furtherdescribe the sample, table 2 below sets out how the sample performed according tosophistication level, and the number of these firms that were locally owned andSMEs.

Table 2 A preliminary classification of the sample according to innovationsophistication maturity level

Maturity level Firms Locally-owned/ run SMENovice 13 13 100% 13 100%Intermediate 13 12 92% 10 77%Experienced 9 5 56% 5 56%Expert 3 1 33% 011 0%Total 38 31 82% 28 74%

Source: authors’ interviews and calculations

On the basis of the sophistication framework, it is possible to validate thecharacteristics chosen upon which to segment the different sophistication levels, andtable 3 below reworks the sophistication level descriptions. The first difference is thatrather than a broad description, the analysis differentiates between performance,practise and reflexivity characteristics. The second difference is that this synthesis isbased upon the empirical work undertaken for this project, to give an overview andcontext to the more detailed presentations.

11 This should not be given to imply that locally-owned SMEs cannot be expert innovators. In the 1998project, three of the four expert firms were precisely that (Charles et al., 1998), although one has sincegrown to no longer be an SME.


26

Table 3 The key features of interviewed firms by sophistication level

Practise Performance Reflexivity

Novice Absence of innovationmanagement systems.

Innovation is implicit andlimited to very fewindividuals in the firm.

Weak and poorly handledlinkages with externalpartners and contractors.

Innovation performance isout of control, with veryrapid growth leading topotential overtrading andjeopardising the basis ofthe company.

Cash may be generatedbut very little kudos ormarket leverage isconsolidated from this.

Unawareness that thecompany is innovating.

Unawareness that thecompany looks bad incomparison with its peers.

Underestimating the effortinvolved in systematisingthe approach toinnovation.

Intermediate Basic/ generic qualitysystems, but still highlyreliant on key individuals.

Some strategic newproduct developmentplanning.

No managing of thedrivers of R&D projects;customer-oriented firmsover-reliant on firms,R&D teams too divorcedfrom applications andmarketing work.

Vulnerability to externalshocks; too muchvolatility to reallyconsolidate seamlessly.

Good sales not alwaysconverted intoprofitability because ofthe R&D overhead.

Firm begins to winoutside recognition as agood company, and onethat others can work with.

Aware of needs forsystems but unaware ofnuances of differentapproaches.

Unsophisticatedconsumers of novel ideasoutside main area oforganisationalcompetence, especiallymanagement thinking.

Experienced Sensitive managementand systems; functionaldifferentiation of R&Dteams.

Delegation ofresponsibility alongsidework elements indevelopmentprogrammes.

Broad staff involvementin strategic planning

Good understanding ofpositions in corporate,supply, technologicalhierarchies.

Problems in maximisingthe opportunities to beexploited by theirtechnological andorganisational asset base,gives steady state growth.

Hiccups (e.g. flooding,market movement)mitigated by systems andstrategies (disasterrecovery).

Seen as a sophisticatedclient for other firms’ owninnovation activities.

Individuals managed on apersonal basis to get thebest out of them;awareness thatmanagement needs grassroots knowledge.

Good at understandingsuppliers innovationprocesses and shapingthem for their bestadvantage.

Belief that own systemsarriving at best practise.

Expert Use of technologyroadmaps in businessplanning so NPD totallyfocused on business goals.

NPD process totally undercontrol, world classperformance.

Corporate structureseffectively allocateresources to NPD.

Firm is recognised leaderin innovation.

Firm is seen as a goodpartner to work with

Other firms benefit fromtheir association with thefirm.

Sustainable and profitablegrowth.

Willingness to acceptdecisions can be totallywrong or wrong forcurrent context.

Adoption of continuousimprovement to ensureown systems remain up todate and to preventcomplacency.

Able to mentor suppliers.

Source: authors’ own analysis; interview data


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5.1.3. “Routine services” — a framework for targeting innovation support.

The categorisation of firms by their sophistication level provides the basis for twosubsequent and successive stages of analysis. The first is a categorisation of the typesof routine services that firms need at that particular stage of maturity when they areinvolved in innovating (this section). Some of the services are common between thematurity levels, whilst others are particular to the level, because improvement ofinnovation sophistication would render those services unnecessary. The second stageof analysis is identifying the improvement services already used by firms which havesuccessfully improved their innovation performance which can then be applied backto would-be improving firms (cf. 6).

As well as the four main elements of the innovation process, we include three areaswhich are not directly related to the innovation process, but are ‘environmental’factors, those company-specific features which affect the innovation process. Thesethree areas are ‘Company culture’, ‘Systems and tools for NPD’ and ‘Organisationand planning for NPD’ (cf. 4.1). What is presented is what the needs of the firms areat that particular stage in their life cycle; some are recurrent needs, whilst others relateonly to that maturity level, because improving their innovative performance wouldrender those services unnecessary.

Tables 4 to 7 below outline the typical services (“technical development” or “routine”services) required by firms as they carry out innovation in their firms. Broadlyspeaking, a service is something which facilitates the innovation process.

Taking one example for intermediate firms under product development and design,“Specific technical consultancy services, including technology transfer, rapidprototyping, moulding”, in this particular case, prototypes can be sent to customersfor their approval, models can be given to sales teams to prepare them for productlaunch, and moulds & tooling can be prepared to translate the product from laboratoryto shop floor. Each of these activities helps the company prepare for the launch andreview of the product/ project. This is true for all the elements of the innovationprocess; the services support the current development projects; company culture is aninitiator of innovative ideas prior to regarding an idea as with potential for a project,whilst systems & tools and organisation & planning each support existing projects.


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Table 4 Technical development needs of novice firms in the innovation process.

CompanyCulture

• Market research into the potential for new product ideas.

• Recruitment of new staff.

• Identifying existing elements of good practise in the firm’sbehaviour, to ensure they portray themselves well to potentialpartners and customers.

Generatinginnovativeproductconcepts

• Identifying good recurrent sources of income such as a “baseload” product or big project to free up resources to develop a newproduct.

• Assistance in evaluating whether or not a particular idea is good ornot.

• Identifying commonalities in customers’ requests to build up aportfolio of what the firm does.

Projectscoping anddefinition

• Risk evaluation, whether following some technical interest willproduce a useful end-product.

• Writing an idea up to show it to a third party or potential customerwithout necessarily making a disclosure.

Productdevelopmentand design

• Assistance with formal management needs because the keyindividual will be distracted from normal work whilst working onthe development project.

• Procuring particular services from specialist providers, with theknowledge to use those services to the benefit of the business.

Productlaunch andreview

• Assistance (technical, organisational, financial) with attendingtrade shows and exhibitions to launch a product at the usual timefor the industry.

• Identifying what the natural evolution of the project is, andwhether the current sales model remains appropriate.

Systems andtools forNPD

• Evaluation mechanisms for product requests outside themainstream of what the firm does.

• Technical quality/ standards consultancy, advice, information andassurance (because of the lack of internal quality systems).

Organisationand planningfor NPD

• Taking a range of products and identifying what the commonthemes are, marketing assistance.

• Distinguishing different families of products, possibly fordifferent markets.

• Making sure that what new product development the firm does isproperly represented and written into the business plan.


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Table 5 Technical development needs of intermediate firms in the innovation process.

CompanyCulture

• Functional skills in R&D, manufacturing, and their ability to dealwith formal development processes and standards.

• Measurement/ management information systems to generatebaseline information for performance indicators.

• New types of staff/ associates for the company e.g. consultants,academic advisors, TCSs.


• Market research into possible new technical avenues (new for thecompany).

• Building up non-functional (network) relations with potentialsuppliers and customers e.g. attending exhibitions.

• Evaluating particular new product ideas against the company’svision.


• Assistance with the process of post hoc accreditation of formalproject management techniques.

• Identifying reusable project modules at the start of the project, toincrease generic content and portability.

• Pricing risk of development project and associated ‘game play’ toretain competitiveness whilst taking opportunities.


• Specific technical consultancy services, including technologytransfer, rapid prototyping, moulding.


• Systematic customer feedback to eliminate biases in feedbacksamples and provide basis for next NPD phase.

• Measurement and analysis of key performance indicators toevaluate the success of a particular project against quantitative(profit, time) and qualitative (strategic) targets and objectives.


• Assistance with ISO accreditation and HR support for the culturalchange involved in introducing NPD systems.

• Specific technical services supporting new modelling tools andtechniques, and optimising off-the-shelf systems to the firm.

• Awards which bring the firm into contact with other innovativepeople and businesses.


• Establishing a product cycle, distinguishing between similarproducts in families, identifying those families, and writingtechnological succession strategies into business planningdocuments.

• Financial support for new product developments to maximise thedegree of generic content produced; supporting developments nonspecifically related to individual customer orders/ contracts.


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Table 6 Technical development needs of experienced firms in the innovation process.

CompanyCulture

• Empowerment training to support all employee involvement in theNPD process.

• Preparing reports on the company’s situation to communicate iteffectively back to employees.

• Technical systems to support employee communications,including intranets.

• Financial advice on rewarding innovation and fundingentrepreneurial activity.


• Benchmarking new product ideas against current products,industry standards and best practise.

• Identifying new strategic technologies with the potential tosignificantly effect the delivery of product functionality.

• Managing the in-flow of new ideas into the company to avoidemployee resistance.


• Developing common project management systems and toolsacross strategic suppliers and customers.

• Market research-based risk assessment for strategic evaluation ofnecessary resource allocations to cost a desirable newdevelopment against a particular customer order.


• Technical consultancy predominantly focused on interface areaswhere firm knowledge is not as extensive as elsewhere.

• Ad hoc problem solving skills for when products put intounfamiliar contexts have unexpected outcomes.


• Launch strategy consultancy to maximise the impact of the launchprocess e.g. at an industry event or exhibition.

• Evaluating the performance of the project against internalexpectations and external benchmarks (industry norms and bestpractises).

• End of project techniques, producing libraries and modules forreuse, and identifying techniques either successful or unsuccessfulin solving particular problems.


• Assistance with identification of areas for improvement in thedevelopment process.

• Identifying potential quality and standards systems above ISO9001 more relevant to their culture and their markets.


• Keeping up-to-date business plan, stating NPD importance.

• Foresighting activity to draw up a technological road map for thebusiness e.g. with 1, 2 and 5 year trajectories with diminishinglevels of certainty.


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Table 7 Technical development needs of expert firms in the innovation process.

CompanyCulture

• Recruiting staff with the appropriate skills and attitude to fit inwith the future status of the company if significant employment orturn-over growth is likely.

• A strong management culture with the stability to avoid short-termfads and shareholder pressure.

• Having a differentiated culture for different types of productwhere the firm has very different market positions (e.g. dominantvs. niche or quality vs. cost).


• Encouraging their suppliers to be more forthcoming about theirown technological development trajectories (so their new ideas fitwith their needs).

• Finding new market areas where their solution set can effectivelybe applied.

• Identifying world-class customers with the sophisticated demandsto condition the market to accept the new innovations.


• Developing radically new products in new business units toassemble dynamic new teams to avoid political problems;supporting corporate “intrapreneurship”.


• Supporting local suppliers to work with the lead expert companyto build up an innovative regional value chain.

• Being incorporated into regional activities, Foresight, TechnologyTransfer Centres, University & research centres, to diffuse theirexpertise back into the regional economy and to identify newpotential regional collaborators.


• Identification and support of move into new geographical markets.

• Rapid prototyping and modelling to help non-technical employeesand customers develop an intuitive feel for products beingdeveloped in an engineering style on high technology systems(e.g. 3D CAD).


• Directing small firms to appropriate sources of Governmenttechnological support to fund new developments.

• Stabilisation of NPD systems in the longer-term.

• Quickly abandoning systems which are introduced but which haveperverse or unhelpful results.


• Managing the business growth process and dealing with success.

• Supporting finding new sources of finance for new productdevelopment.

• Balancing the imperatives of continual improvement with the needfor organisational stability.


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6. The innovation problems experienced by NorthEastern electronics applications firms

The next section of the report moves from looking at the way business supportorganisations(BSOs) assist business to carry out their current innovation activities tothe role they may play in assisting the firms to upgrade their processes andperformance. This builds on the distinction we have already drawn in this reportbetween routine and improvement services. In the previous chapter, we examined theroutine services used by firms in delivering the current innovation process. In thischapter, we look at how and why firms source and use improvement services. Weagain present evidence reported to us by firms in the course of the research tohighlight bundles of services used by firms of a similar sophistication level.

6.1. Introduction

Improvement services are those services that help the firm to progress to a higherlevel of sophistication in innovation management. The justification for the provisionof public funds to support improvement services is that the more sophisticated a firmis, the greater the economic benefits that firm will bring to the region. By increasingthe stocks of more sophisticated innovative firms in a region, the intention is toimprove the regional occupational distribution, ensuring the benefits of economicgrowth are as widely disseminated through the region as is possible.

In the sophistication model presented above, firms at a particular level ofsophistication tend to innovate in a similar way. In novice firms, a single innovatortends to do all the activity themselves, whilst more sophisticated firms havemechanisms for allowing a range of other agents (staff in other departments,institutions or organisations) to make a controlled contribution: the mechanismbalances the benefit of the contribution against its potentially disruptive effect. In theinterviews, all but the novice firms were asked what problems they had experienced ininnovation, what had made them decide to address the problems, the strategies theyhad adopted and the barriers they experienced.

Just as similarly sophisticated firms have similar needs in the innovation process, theyencounter similar problems in the innovation process. Therefore, a key element ofour argument is that it is possible to target improvement support to help firms learnthe lessons of those firms which have already overcome these problems. The greatadvantage for firms is that it eliminates a lot of the costs of learning to becomesophisticated; for most of the firms, the decision to improve their sophistication wastaken because their current practises and performance were wasteful. The intention isthat BSOs will be able to encourage firms to improve their practises before they havewasted their funds, inexpensively learning from the bad experiences of other firmswho have been in similar positions.

We have categorised these problems in two dimensions, by the experience level of thefirm and by the stage they occur in the innovation process. These problems are asymptom of an underlying barrier to innovation, and the approach that we take is toidentify the symptom, analyse the root cause (what we term a barrier toimprovement), and examine the different strategies which firms have used to addressthose problem, leading to a solution.


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The process we offer is therefore based on this “symptom :�EDUULHU�:� VWUDWHJ\�:

success” approach (cf. 4.2): the scope of this project as a piece of independentresearch does not extend into analysis of success, although something is said aboutsuccess in chapter 7.

In the remainder of this section, we turn to look at each of the sophistication levels inturn, give a brief description of the symptoms they tend to exhibit, the underlyingproblems from whence the problems are derived, and some strategies which havesuccessfully been adopted for their solution by more sophisticated firms. The focusfor this chapter is the process of movement between the levels — the material isderived from the firms which have already solved those problems. The novice sectionbelow, for example, deals with the problems faced by novice firms, but draws on theinterviews with (mainly) intermediate firms who have addressed the problems andhave an understanding of what it was needed to be achieved.

6.2. From Novice to Intermediate

The novice firms in the sample represented a very diverse range of companies, fromthose early in their lifecycle who were trying to bring their first product to market toestablished companies who were beginning to question long-held assumptions aboutbusiness practise in response to their historically-poor commercial performances.They had a range of backgrounds; some were companies set up for the purpose ofexploiting a particular invention, others were more oriented towards designconsultancy work, and had been so doing for a period of years. What all the firms hadin common was that they experienced great difficulties in the processes of change,and so were all extremely vulnerable to external shocks, and so frequently felt thatimprovements had to be made for the business to be sustainable in the long run.

6.2.1. Common problems experienced in innovation

The novice firms were perhaps the most diverse of the maturity levels in terms of theproblems experienced, the company characteristics and their approach to theinnovative process. As an initial observation, very few of the problems that novicefirms experienced directly concerned the innovation process per se. Many of theproblems arose because the firms did not appreciate the difficulties and uncertaintiesinvolved in innovation, and so did not take the appropriate precautions to minimiserisks. The novice firms were all solid commercial operations, but tended to havedifficulties in actually ensuring that that they profited from their innovation.

One set of problems concerned the time available to managers to run the business aswell as to innovate, and the tensions between routine business and new productdevelopment. In some cases, the managers had what they believed was a good idea,but did not have the time to translate it into a product, because of time pressures ofmore routine business. Related to that, in a number of firms, particularly thoseinvolved in bespoke or consultancy work, there were also tensions between meetingexisting orders and generating the new work which was the stimulus to innovate.

In some cases, the owners were working unsustainably long hours, without eitherquestioning the need for that work or looking for ways to delegate and manage theirtime. A rather morbid extension of this was that there appeared to be adisproportionately high level of health problems which affected the operation of thebusinesses (and which were rarely mitigated by sensible disaster recovery planning).


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A second set of problems related to the financial resources available within thecompany, and the competing demands for investment in manufacturing, businessdevelopment and new product development. In some companies, new technologicalavenues were blocked to them because they lacked manufacturing capacity: theyrelied on new customers to give them ideas for new products, and so capacityproblems were a clear burden. Some firms believed there was a real “chicken andegg” situation for financing growth, requiring funds to recruit new staff and invest incapacity, but only generating those funds through new product development. Finally,a number of firms reported that because development work was so time-consumingand reduced the firm’s manufacturing capacity that necessary new productdevelopment had to be done as cheaply as possible.

Third were those problems which arose when the firms attempted to developcollaborative linkages, with suppliers or customers, or to network more informallywith local and sectoral peers. Some firms had previously been badly gouged in thetendering process, when they had over-delivered and solved some of the problems forthe client, who had then asked their preferred supplier to deliver to that newspecification. Consequently, they were reluctant to move into areas where that couldhappen again, and so tended to overlook business development work for new clientsin favour of repeat work. The other problem was that some of the firms had lost workbecause they lacked the appropriate systems, not because the absence of the systemwas a material problem, but it symbolised to potential customers that the firm was insome way deficient.

The final set of problems related to the way the firms were able to deal with newideas, and especially linking them together into a commercial sequence. The mostfrequently experienced problem was in the reuse of ideas between projects; somefirms realised that they “basically knew what to do”, but there was a gulf between thatand delivering a profitable product on time. In some cases, a previous owner haddecided to sell the business at which point innovation funds had stopped (to improvethe balance sheet) and the new owners had real difficulties in restarting the process,contacting old customers and selling them new products. Finally, some firms hadentered a major crisis, where a product had simply ceased to sell, and so they neededto develop something very quickly, and had real difficulties in doing that.

6.2.2. The barriers underlying the innovation problems

The most striking feature of the barriers causing the problems experienced by thesefirms was their diversity. As we will argue, the very different symptoms all stemmedfrom a comparatively limited number of causal factors. Underlying them all was theproblem that the firms (and their management) tended not to view their innovationprocess as a set of steps to bring a product to market, itself embedded within asequence of successive innovations by which long term sustainable commercialsuccess could be achieved. Some of the firms regarded themselves as trying to bringa single product to market, at which point they hoped they would revert to simplybeing manufacturing companies, whilst others were happy to treat each piece ofconsultancy as a discrete piece of work with no accretion of knowledge betweenprojects within the business.

The main underlying problem was inevitably the reliance of the company on a verylimited number of people, either a single MD or a number of partners. This made itparticularly difficult for the management to delegate tasks and gain time for


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themselves. It also made it extremely difficult to take strategic decisions, becauseeither the MD was swamped with work, or with more partners or joint owners, it washard to build a consensus for the kind of far-reaching structural change which couldimprove the company’s fortunes.

The second problem was the absence of any kind of control over the products thatwere being developed. Control tended to be lacking both in the sense of shapingdevelopments effectively in response to identified drivers, but also in understandingtheir performance in the market and how to ensure products were managed acrosstheir lifecycle through to obsolescence. Important within that was in ensuring thatobsolescence did not represent a loss of expertise and knowledge within the company.An absence of control also manifested itself in excessive disruption when problemsdid arise, and many of the companies used the term “firefighting”. This neatlyencapsulates the problem, to follow the analogy, because fire damages the business,and fighting it is an activity which detracts from more commercially useful work andcan cause significant collateral damage (e.g. with water in fire extinguishers orpanicky changes to prototypes).

The third problem was the lack of linkages between successive products, and nounderstanding of the need to link new product development both to changes in themarket, and also to the technological vision for the firm. A number of the firmsargued that they wanted to change from doing sub-contract design work to protectingand selling IP. The problem they faced was they could not see a clear base from theirpast contracts which gave them something tangible to exploit. In many of the casestime was a problem, reducing the opportunity for more speculative and innovativethinking. However, a fundamental problem was the frequent absence of a commercialstrategy to ensure that in fulfilling orders, the work was contributing to developing atangible technical base for the company.

Related to this was the fourth of the fundamental problems, a lack of entrepreneurialskills in the sense of assembling existing elements and producing something entirelynew. Reusing ideas is a perfect example of this kind of entrepreneurship, because thisgives an off-the-shelf solution, which can be sold at a price reflecting the first timedevelopment cost, but incurring none of those charges. However, re-using ideas ishighly complex because their use is dependent on the context in which they wereproduced, and so for there to be a significant degree of re-usability (without extensivepost hoc reworking) reusability has to be an initial intention.

The problem experienced by the novices was that their intentions were purely to bringa product to market, rather than ensuring that their approach to new productdevelopment supported the commercial exploitation of that idea. All of the novicefirms had an abundance of both technical inventiveness and commercial nous, butwhat was regularly missing was an understanding of how inventiveness could becommercialised. Contracts were fulfilled, but the opportunities for innovation theyoffered were not exploited to the maximum extent. This situation arises fromshortcomings in management approaches (which manifested themselves as shortagesof time, resources, and ideas).

6.2.3. Strategies for becoming intermediate

There are a number of means by which the more experienced firms we interviewedhave already addressed these problems to progress to the next level of sophistication.Not all of them are areas in which it is possible for business support organisations to


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directly intervene, but it is common practise for business mentoring and incubatingorganisations to mention the possibilities for these changes to potentially intermediatefirms.

The first and most obvious change is a change of ownership, especially a dilution ofcontrol to bring in fresh ideas and new talented individuals with the autonomy to takeresponsibility for making cultural changes. A complete change allows the newmanagement to redirect the company and rewrite the business strategy, but can losethe tacit knowledge and experience of former owners. An alternative is dilution ofequity, enabling delegation of power; this has the further advantage of providing someresource for business development besides the division of labour argument. Problemscan arise if the new investor has very different goals for the company, whether a newdirector is insufficiently skilled or an institutional investor favours profit-taking overR&D. Help was seen as most useful in suggesting appropriate types of investor, andthen in screening and selecting potential new investors.

Another strategy is in the recruitment of staff who have the necessary entrepreneurialskills to help the company develop. This tends to be very difficult to achieve for avariety of reasons, principally that the owner managers do not recognise the need andpotential for employees to develop and benefit the company, and so tend tounder-specify their employment requirements. Typically, managers believed theywanted administrators or clerical/ marketing staff rather than more strategic managersand directors, and there is a role in questioning whether it might not be preferable tofund a more technically-oriented individual. Those firms which were successful werethose who tailored the job to the individual and gave incentives and opportunities forthe new employee to make a significant impact on the business.

A third approach was to develop a sales and marketing strategy which brought inbespoke contracts which could be turned into IP at the end of the project, or at leasttook the firm closer to owning some IP. Key customers could be large firms whichthey could use as reference sites, OEMs or firms in a common technological area.Successful firms reported they needed a fairly detailed understanding of their owntechnological and organisational strengths as well as substantial market research.There is a clear role for support in assisting firms to both be ambitious about whatthey can achieve but also realistic about the effort they need to put in to achieve it.

It was clear that novice firms are very weak consumers of innovation services, andthere is a real problem for support providers. Novice firms tend to believe that theirproblems are superficial and so attempt to solve them by buying in services which areeasy to buy, such as management systems, development tools, patenting consultancyor technology transfer. In many cases, the firms were perfectly competent in each ofthose areas. What was lacking was more problematic for the firms to identify as itwas the structures and attitudes necessary to bring together those elements and tradesuccessfully as an innovative company.

However, in coming to business support organisations, the firms are at leastacknowledging that they realise they cannot do everything, and the contact providesthe opportunity to diagnose the problems the firms face. In table 3, we identify threecharacteristics which describe the self-awareness of novice firms:-

• Unawareness that the company is innovating.

• Unawareness that the company looks bad in comparison with its peers.


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• Underestimating the effort involved in systematising the approach toinnovation.

For many of the more experienced firms, the BSOs had ‘revealed’ to them that theywere much weaker than they had thought, and this had provided the stimulus for thefirm to improve its innovation performance. Those firms which had made thetransition were all those willing to acknowledge their own weaknesses, and thissuggests a methodology for identifying potential improvers. Although care has to betaken not to antagonise firms, BSOs could give novice firms evidence that theirperformance can be improved (e.g. benchmarking data). If the firms recognise andaccept their weaknesses, then this degree of self-awareness suggests those are suitablysophisticated to begin to absorb assistance to improve their innovation practises.

ReCET 2001 Electronics Applications Investigation

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Table 8 The symptoms, barriers and potential solutions for firms attempting to improve from novice to intermediate sophistication level

Companyculture

Generatinginnovationproducts andconcepts

Project scopinganddevelopment

Product designanddevelopment

Product launchand review

Systems andtools for newproductdevelopment

Organisationand planningfor new productdevelopment

Symptom

Ownership problems

Staff not like beingmanaged

Time taken up byconsultancy

All skills are in oneperson’s head

Difficult to identifythe skills newrecruits need

Bad at takingprofessional advice

Difficult to formgood relations withacademics

Cash shortages slowprojects

Bad customers cancut profits

Difficult to traveland raise profile

Difficult to fundR&D in smallcompany

Limited fundsavailable fordevelopment

Have been stung bybad specifications

Demanding markets

Have to give a lot towin small contracts

Unwillingness toplan fully

Ad hoc design isdifficult to capture

Vulnerable tosupplier shifts,

ISO makes themoverspecify work

Suppliers areunwilling to supplysmall runs for testing

Difficult to showideas to large firmswithout disclosure

Only get negativefeedback fromcompanies

Limitedopportunities forrepeat orders andreusability

Hard to measure ifsmall changes arecost effective

Lack of accreditationleads to lost work

Formal accreditationis expensive

Difficult to build asales, supportinfrastructure togenerate sales ofappropriateinnovative products

Absence ofsuccession planning

Difficult to retainIPR

Business in suboptimal equilibrium

Hard to enforcepatents

Weak marketingcauses problems

Business is spiky andhard to control

Hard for the MD tofind time to innovate

Underlyingproblems

Absence of wellformed view ofinnovation system

Lack of systematisedinnovation culturewithin firm

Reliance on limitednumber of people,difficult to get wellrounded strategy

No view of what thepoint of newproducts are for thefirm

Over-identificationof products withpeople underminesrational evaluation

Ideas driven by timeand interest not sales

Tend to be driven bycustomer needs toostrongly

Developmentprojects are not wellset out so there ismuch uncertaintyabout what a goodresult for thecompany might looklike

Absence of controlundermines whatdone within thecompany

Over-reliance on“firefighting” – seeas good/ excitingthing

Haste of projects anddifficulties withdelivering projectson time tocustomers’ needs

No formal ex postproject evaluation

No sequence ofdevelopment withlinkages betweenprojects

Difficult to evaluatewhether project hasbeen good for thefirm

No consolidation ofcustomer outputsinto knowledge or IP

Misuse and mis-purchase of tools andsystems, becausefirm does not realisewhat they want to dowith the tools

Lack of time tochange the companymeans that systemsare not wellintroduced so thebenefits are lost

Lack of direction

Strategic thinkinglimited to keyindividuals, oftenoutside thedepartments with theknowledge ofstrategic industrialchanges

Lack ofunderstanding ofcommercialisation,because developmentnot under control


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CC GIPC PSD PDD PLR S&TNPD O&PNPD

Improvementstrategies

Change ofownership:

• dilution of control

• new directors withexpertise

• sale to nextgeneration of staff

• Management buy-in.

Recruitment of staffwith appropriateinnovation skills

Identifying the keyproducts the firmmakes to helpevaluate strategicallynew ideas

Writing a marketingstrategy to identifythe ideal customer,potential partners,and a means ofgetting to work withthem

Looking back overpast projects aswriting a post hoc setof rules of thumb tocover the scoping ofas many of theprojects as possible

Selling highlyspeculative anduncertaindevelopment workon cost for time basisto large firm betterplaced to hedge therisk

Use of basic controltechniques and toolsto establish ifdevelopment projectsare under control

Using a developmentproject asopportunity todevelop firm profile,going on visits withclients, attendingfairs with them etc

Use of critical/ keycustomers to boostkudos, fromreference sites toname dropping

Post hoc evaluationof project andproblems to see howthe firm would dothe same projectagain differently

Looking at how aproject has changedthe balance of thecompany’s expertise

Identifying peoplewho can evaluate theneeds of thecompany andrecommendappropriate systemsand tools providersfor the firm

Getting freeconsultancy from thesales engineers

Create generalmanager position togive MD time to dostrategic thinking

Recruitment ofsuitable staff to beable to receivedelegated knowledgeof systems

Bus mentoring forsenior managers bypeople with smallbusiness growthexperience

Use of consultantsand non-executivedirectors to bring inad hoc expertise


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6.3. From Intermediate to Experienced

Intermediate firms are a somewhat more homogenous group than novice firms, havingcome some way to systematising their innovation activities. The firms were typicallylong-established, a number of them having engaged in innovation in the past without areal appreciation of its impacts on the business. Other firms were created morerecently, often to bring a particular product to market, in which they had succeeded,and sought a successor product to ensure continued growth. All of the firmsexperienced difficulties particularly in developments which took them into newmarkets or technology areas, because they raised issues with which the firms wereill-equipped to deal.


Unlike the novice firms, the problems experienced by intermediate firms are far moreobviously problems with new product development and innovation, and to a degreethe firms and their managers appreciate this difference. However, as intermediatefirms, they still lack the meta-knowledge to address the problems, and perversely canactually be less keen to buy support services because they realise that successfullyusing those services is quite difficult. In contrast, novice firms tend to buy innovationservices in a rather enthusiastic (if haphazard) way so that they only really benefitfrom them if they are lucky, or if they buy from a benevolent and sophisticatedsupplier. The problems to which intermediate firms are prone can be segmented intofour main groups, relating to the company culture, the management style, commercialproblems and corporate knowledge flow.

Given that the main difference between novice and intermediate firms is thatintermediate firms have a dedicated design team, forming these teams raised problemsfor improving firms. The main problem was that the small size of the developmentteam meant that there were few career prospects for new recruits in the firm, whichundermined continuity and the development of core professional capacities in thedevelopment team. In some companies, improvement of innovation managementremoved the thrill of firefighting, and so key staff left feeling the real challenge ofinnovation was no longer present. Finally, project management systems frequentlyoverlooked the important human dimension to management, so strengths such asinformality and flexibility were suppressed rather than controlled and channelled forthe corporate good.

The second set of problems experienced related to the approaches to management inthe companies: whilst novice firms typically lacked appropriate management tools,intermediate firms had difficulties using those tools and systems effectively.Frequently, rapid commercial change undermined the rationale of business plans, andupdating those plans was a time-consuming process, often hindered by an absence ofappropriate management information. In a number of cases, products were managedup to launch or the first review, and then were left in the catalogue without being laterreviewed and ultimately obsolesced. This meant that orders could be received forproducts which in fact were extremely disruptive or costly to manufacture.

A variant of this problem was that NPD stopped at launch, and new customerrequirements were always responded to with a new development project, rather thanattempting to rework or reengineer an existing product to meet their needs. Finally, inthose firms where a change of ownership had led to an improvement in innovation


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sophistication, new managers often took systems at face value, and failed to reallyexamine whether they delivered what they were intended to.

Problems with the commercial culture manifest themselves in a variety of differentways. Naivety can lead to excessive amounts of time and effort being devoted torather speculative but attractive prospects. A number of firms commented thatchasing large contracts which had never materialised had undermined their coredevelopment activities. If growth has been financed by investors, then they cansometimes have an uneasy relationship with the firm, particularly for the R&D staffwho may be spending significant sums of money. Although investors need to be ableto track their investment, if R&D staff are over-monitored then it can underminecreativity in the firm.

Intermediate firms tend to be weak at judging novel commercial risks, and so eitherover- or under-cost projects in new areas, rendering them uncompetitive orloss-making. A final commercial problem is that an over-reliance on sub-contractwork undermines the development of own-name branding, which can be a powerfulmeans of expanding into new markets.

The final set of problems were in knowledge flow, both into business and between theemployees in the firm. Many firms devoted a great deal of their development effort toproposals for both clients and internal NPD activities, but had not really made muchprogress in systematising the process. Another problem came with codifying ideasinto intellectual property; very few firms were aware of the risks they ran bydisclosing ideas to customers, whilst those with IP policies tended to over-defendtheir ideas and so get less out of their relationships with customers. Those firms at thecutting edge faced the additional problem that it was hard to define the limits of theirproducts and hence potential applications, because of an absence of supporting testinfrastructure, including instrumentation, test rigs, and widely-accepted test protocolsand procedures.


As with novice firms, there are a comparatively limited number of fundamentalproblems from which the symptoms spring. The first of these is in the expansion ofthe development responsibility from the individual/ owner to a design team, the ownerhas in effect created a new type of occupational role within the company, andproblems emerge if the company structures do not reflect these new roles. Prior to theexpansion, the only person interested in new product development tended to be theowner, who had commercial incentives to perform well, and as owner had thenecessary freedom to structure their work to maximise creativity12.

Although intermediate firms tended to have a dedicated R&D team, they tended not tobe well integrated into the firm, and specifically to other functions with usefulinformation to shape the product development. Whilst novice firms needed to givetheir development teams flexibility, intermediate firms are limited by the fact that thefreedom leaves the team detached from the rest of the company, so innovations andnew products do not fit well with what the firm can make or sell.

12 The other class of individual in the firm are workers, who manufacture and run the company, whocan be subject to Taylorist work specification and control, and have no control over the conception ofthe tasks that comprise their work.


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The second set of problems are problems which arise when a firm introduces a systemto control new product development, but the system is not adopted by the staff. Theintermediate firms tended to believe that possessing a system was sufficient tosucceed, whilst better performers realised that merely having the documentation didnot guarantee delivery of the supposed outcomes.

One of the expert firms had had to fundamentally change its approach to the qualitysystem to ensure this occurred. After the quality system was initially introduced inthis firm, responsibility for its upkeep was passed to a quality department, who lostsight of product quality and focused entirely on the “system”. They developed aByzantine set of procedures which was entirely self-consistent, but an excessiveburden on staff, who just ignored the system. To solve this problem, managementclosed the quality department and devolved responsibility for quality systemconstruction and maintenance back to the teams. This ensured that the system was assimple as possible and effective at delivering the firm’s intentions.

The third set of problems arose when firms have difficulty in dealing with theuncertainties raised by new product development. Big orders, new markets, andunsolved problems all have a great deal of inherent ill-definition in them; intermediatefirms tend to adopt two strategies to deal with those uncertainties. The first is thatconcern over the uncertainty dominates behaviour, so good commercial opportunitiesare lost through timidity. The second is that the uncertainty is ignored, (potentiallythe more damaging of the two) because although the opportunity will be exploited, itcan carry potentially serious consequences if the project goes awry.

The final set of problems come from management of the knowledge flow, and from acertain naivety on behalf of the innovators on their relationship with their customers.Intermediate innovators often fail to realise that their innovations are to a degreeshaping their customers’ needs and interests, and so they fail effectively to conditionand shape their end users. Although a lot of firms superficially recognise this withplatitudes of offering “customer solutions”, intermediate firms fail to really appreciatethat in many cases, their customers can lack critical knowledge of the area, and areactually willing to buy products which are more in line with the technologicaltrajectory the firms wishes to pursue.

6.3.3. Strategies for becoming experienced

Although dealing with the problems that intermediate firms face may seem like alarge task, one characteristic of an intermediate firm is a willingness to at leastrecognise and address weaknesses (i.e. some self-awareness and reflexivity).Therefore although the problems might be wide ranging, they are actually much moretrivial than the fundamental changes needed to improve the performance andprospects of novice innovators, which really requires a degree of intrinsicsophistication and a willingness to take criticism constructively.

The first set of strategies were those which dealt with the problems of detachment ofR&D teams, which necessitated breaking down the barriers between (often whitecollar engineering) R&D teams and the other (blue collar and service-based) functionsin the firm. A very formal approach to this was to set up project steering groups withrepresentatives from all the different functions, who could comment and ultimatelyobject if they felt developments were diverging from what the firm ought to be doing.However, the important issue was more about communications than control, so many


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of the more experienced firms gave staff in other functions the opportunity tocomment on designs and developments as they evolved.

This requires a culture in the firm which accepts comments constructively, and also inwhich the R&D team are no longer seen as solely responsible for project progress,which can be quite a change for those electronics firms with strong white/ blue collaroccupational demarcations. If effectively implemented, this can help to resolve arange of knowledge control issues, although if badly enacted, it can leave theinnovators feeling powerless and reactive to the divergent demands of suppliers,customers and company management.

One of the companies (which made electrical control systems for hazardousenvironments) was having problems in that a lot of the designs were being rejected inthe market, and engineers responded in two ways. They either decided to begin a newproject, and to scrap the existing designs, or were unwilling to accept that the designswere flawed in some way. The management realised that the engineers wereover-identified with the designs, and so introduced a system that meant that a numberof people would have responsibility for a design over its life cycle. In particular, theydecided to put a lot of effort into post-design cost reduction and value engineering; theengineering director took two of the control systems they offered, and significantlycut their costs whilst demonstrating the product was improved by the changes. Thismade engineers more willing to accept that designs could always be improved, butalso suggested that faults in the design process were inevitable but had to beaddressed before the control systems would be commercially viable.

The second strategy adopted by a number of firms used was “modularisation”; theprinciple is that to introduce some certainty into development, a limited number ofpart-finished assemblies are developed which are then tailored to particularcustomers’ needs. Meeting customer orders for innovative or bespoke productsbecomes a much more certain, defined and controllable process of assembling thesemodules in line with their needs and, rather than a project being entirely uncertain, itis only the 10% of bespoke work which is risky for the firm to undertake. The exactbenefits vary with the complexity of device. The approach has significantimplications for firm culture, as it implies an occupational separation between off-linedevelopers (high prestige) and customer service engineers (lower prestige).

In the main, it was instrument and capital goods firms who were most able to benefitfrom modularisation, because the instruments and machines tended not to varysignificantly between customers, and differences tended to be in controls or displaysrather than within the core functionality of the device. For other firms making a muchwider range of products, modularisation tended to be a cost measure, so by increasingthe numbers of common components (particularly esoteric controllers orpotentiometers) they were able to reduce their financial vulnerability in holdinggreater stocks of those devices.

Related to this is a further strategy used by a number of more experienced firms,particularly those involved in making large capital goods and instruments. Because ofthe large size of the product they made, producing a prototype became extremelyexpensive. This denied these firms the opportunity to get customer feedback on anapproximation of the final product. What they did in one firm was to use productsthey had already made (but not shipped) as prototypes to show off and get feedbackon incremental improvements from their customers (e.g. new control panels oranalysis functions). Customers could visit and see the machine in action, and give


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them feedback and validation. The improvements were then stripped off the product(which was then packaged and shipped to customers) and the improvements could belater bolted onto another model of the same product they knew they had the capacityto manufacture.

The fourth strategy to overcome these problems is to continually review the qualitysystems and to continually ensure that they are sensible in the light of the evolvingcontext of the company. This means those systems need to be placed at the heart ofthe business planning process, rather than merely overseen and maintained by aquality department. In one case, the firm actually abandoned formal quality systemsbecause the main customers had changed from the rail industry (demanding of proofof quality) to domestic electronics (demanding of quality).

There is also a need for the systems to reflect the contexts in which the firm isdeveloping the product, and in particular, the certainty the developers have from theoutset. If the main customers or markets shift, then the quality systems have to bechanged to reflect the new situation:-

• If customers each specify a functional envelope, then the system needs tomake sure the product lies within those parameters, (the most certain)

• If customers are reliant on the supplier to help them understand the problem,then the system has to begin by sharpening up a deliverable specification, or

• If the product is to meet needs identified in market research, then the systemhas to ensure that the product is marketable, manufacturable and competitive(least certain).


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Table 9 The symptoms, barriers and solutions experienced and adopted by firms seeking to move from intermediate to experienced

Companyculture







Symptom

Getting MD to tellR&D team thebusiness plan

Customer drivenactivities obscurecore issues for firm

Growth disbenefits

No positions topromote staff into

Easy for SMT to loseway

SMT can be averseto rational decisions

Developing a brandname with kudos

Reactivity stops longterm trajectory

Engineers unwillingto take outside help

Averse to openingcompany up tooutsiders

SMT aloof anduncommunicative

Roles in companyneed reshaping

Reliant on suppliersresponding well

Taking on employeesneeds wages

Project overruns espwithout client canadd huge costs

If staff are dispersedmeetings can beprocedural andunhelpful

People identify tooclosely with ‘their’projects

Inadequate internalknowledge base

Backwardscompatibilityespecially for largebespoke goods

Absence of test kitmeans proof ofconcept is hard

Changes in systemsmust retainengineering culture

Risk of favouringimitation

Ignoring potential ofmaintenancecontracts to get goodfeedback

Need to cut efforts togenerate quality forsafety in aerospaceetc

Firms may seeproducts and not givefeedback becausethey are going toimitate instead

A quality systemmay be wrong forcustomer/ markets

External investorsneed managing

IP needs owning

Bad systems givebad outcomes

Small firms alwayssuffer cash flowproblems whenchanging

No knowledgemanagement

Get distracted byspeculative orders

Failure to understandchange drivers

If succeed, thencome to attention ofcompetitors

Long R&D projectshave depression atthe end

Change needs thenecessary skills

Underlyingproblems

Problems inchanging the roles ofnon R&D staff toembrace innovation

Control ofinnovation in handsof limited number ofstaff

Weakness inbringing new ideasinto the company,because of lack ofcapacity to evaluateknowledge and shapesearch activities

Weak managementof uncertainty, salesover promise andengineering tend tofollow interestingroutes

No integrated projectspec to ensure firm’saims are delivered inproject; driven byproblem notcompany needs

Uncertaintydominates scopingdocument; hard tosay if project is incontrol, or whetherjust lucky because ofuncertainty margins

Product developmentis staged withdifferent criteria ateach stage; criteriadriven by differentdepartments so losesight of customerneeds, and trade-offstaken by exigenciesof moment ratherthan rationalevaluation of clientneeds

Product developmenthindered by differingdevelopmentattitudes betweendifferent functions

Sales want stable‘product’ to launchand sell, R&D teamwant to solveproblems and tinker

No capacity tomanage late stage ofR&D projects

No systems in placeto deal with humanresourcemanagement

Knowledge and IPmanaged in codifiedform, weakmanagement ofhuman capital

Misunderstanding ofcompany needs leadto misapplication ofsystems so companytaken in wrongstrategic directions

Failure to engage andshape the productenvironment, weakinstitutional andmarket linkages, tendto get informationfrom customers only


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Adoption ofoccupationalflexibility so jobsmore aboutdelivering corporatevision than aparticular set of tasks

Appropriate HRMsystems e.g.individualperformance targetsoutwith dailyproduction systemse.g. learning a newskill and evaluatingits relevance to thebusiness

Offeringopportunities to keyemployees to controlknowledge inflowthrough high leveleducation as rewardfor staying in thecompany

Drawing up portfolioof product modulesand evaluating newideas on the basis oftheir portfolio fit

Identifying the rightproblem solution,existing product, newproduct, obsoleteproduct, or systemsintegration

Setting out a processfor developinggeneric modules thentailoring them to thecustomer

Modularity as a wayof thinking for thefirm

Separating differentelements so if riskyprojects fail then atleast have base linesolution suitable forcustomer

Evaluating new ideasagainst past (good/bad) projects to see ifcompany already hassolution

Staging the productdevelopment, so anew module isdeveloped andreintegrated into oldproducts as stabilisedmodule

Depoliticisingproduct review andevaluation with anabstract evaluationmatrix and then ameeting to approvethe matrices notproducts or teams

Use existingproducts aslaboratories todevelop and test newideas to ensurecross-range inter-operability

Feeding back latestage applicationsdevelopment ideasinto the GIPCproduct to shape thestrategic technicaldevelopment of thecompany andidentify new sectoraldrivers

Separation ofcustomer needsstatements frommodule development

Limiting customerinvolvement to earlystage and then latestage applicationswork

Creation of formaldesign rules forcertain stable productenvelopes

Systems overseenand championed atthe highest level sono qualitydepartment

Innovation planningintegrated withbusiness planningbecause critical to it

Strategic avenues fortechnicaldevelopment informbusiness planningbut are also shapedby where thecompany wants to be

Innovation and R&Dstaff involved instrategic planning toexplain likely futuredrivers


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6.4. From Experienced to Expert

The most porous of the boundaries we have defined is between intermediate andexperienced firms, and the difference between them turns on cultural rather thansystemic factors. Both intermediate and experienced firms manage the innovationprocess, both strategically and routinely, and have a degree of awareness about whatthey are doing in product development. However, the difference is the degree towhich innovation is integrated within the firm. In intermediate firms, innovation is aseparate activity which takes deliberative effort, whilst in more experienced firms,innovation is a seamless element of business practise within the framework of thecorporate strategy.

Although both types of firms tend to have strategies stressing the corporate emphasison innovation, experienced firms are characterised by managers’ good intentionsbeing carried forward into the working culture. In the last section, we reported thatintermediate firms often saw ‘systems’ (such as ISO9001 or TQM) as beingimportant; by contrast, experienced firms ensure that systems work for the overallbenefit of the firm. A further aside is that there may be resistance to innovation andchange by some staff members in experienced companies, but a sign of managers’reflexivity, maturity and flexibility is they deal with and co-opt that resistance so itdoes not directly conflict with innovation.


As experienced innovators, the problems that the firms reported in innovation fell intotwo main areas, firstly those when they tried to do something new, and secondly,those which had been present for a long period of time, but which the firm had onlyrecently accepted as problematic. The bulk of the problems were in the operation ofthe systems in place to ensure that innovation flowed smoothly. As firms becamemore aware of what they were doing, they were also increasingly aware of the effectsof shocks in unrelated areas, such as changes in component prices or strategicpartners’ attitudes. It is also worth pointing out that the problems are not necessarilyin bringing products to market, but are more wide-ranging, in developing thenecessary systems and culture to maximise growth and competitiveness.

The first set of problems come with the continuing development of systems within thecompany. Because all of the simple problems have already been solved, with a highsuccess rate, a number of the firms reported that in attempting to become world class,they came across intractable systems problems, and also had to deal with the effects offailures in systems change. Several firms had introduced ideas which weresupposedly world class, but had perverse outcomes for the firm.

One firm introduced an employee reward scheme which discouraged team work, byoffering payments for registered patents (which they saw as an individual rather than ateam activity). A second firm (in a mature market sector) focused so strongly on newproduct development that it prevented engineers looking back and improving pastdesigns. Dealing with this class of problem requires the management to accept that itwas wrong to introduce the changes, which can be a very difficult step for anotherwise successful management team to make.

A related problem is in taking advice on improving business practises; becausebusiness models for world-class performance are heavily dependent on exemplar


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firms, contextual differences may make particular approaches irrelevant for firms, andnumber of firms dallied with bad advice, lacking the self-confidence to reject it out ofhand. TQM models which culminated in automation were a little inappropriate forcapital goods and instrumentation firms, because the key drivers for commercialsuccess were not stable across projects. Finally, some firms introduced good systemsthen evaluated them badly, particularly with short-term cost and profit considerationsrather than looking at the longer term impacts of quality practise on performance.

The second set of problems were those which arose when changes were introduced inthe firm which introduced new barriers to knowledge flow. “Modularity” as aconcept becomes problematic if every new product has to be defined in terms either ofa set of modules to be assembled or a new project. The approach directs responsesalong two mutually opposing paths. Some firms realised that if this happens then theycan end up rejecting anything which cannot be described either in terms of existingmodules or as a new project. Key staff in these firms often realise the weakness of thesystem and develop work-around methods which undermine the genuine systembenefits. Firms’ development teams freeze their technological competency at somepoint in time, and tend to reject new ideas for product developments that lie outsidetheir mainstream interest.

In response to this, different markets may need different approaches to new productdevelopment in different contexts that avoid creating new barriers whilst others aredissolved. Firms manufacturing for both sale and rental need to devise products withsimilar functionality, but very different reliability, robustness, and cost for each of thetwo areas. Some firms responded to the need for different products for differentgeographical markets with a geographical separation of their development teams, butagain, in some cases this created a barrier within a team that had hitherto beenindivisible.

The third set of problems are those that arise from the way that the firm deals withexternal agents. In some cases, firms who have adopted “account managers” as acentral point handling all relations with key customers end up disrupting developmentteams with comparatively trivial pieces of work to avoid risking upsetting the keycustomer. The other extreme is merely to reject small pieces of work because of theadministrative implications of establishing the supporting paperwork for a newproject. Bad customers are a big problem for all companies, but in particular forexperienced firms, a number made the assumption on particular projects that theircustomers were more sophisticated than was actually the case, and so when problemsemerged, it was the customer rather than the product which was difficult to sort out.

The final set of problems are those corporate and commercial problems whichunbalance development projects within the firm. In some cases, corporate politics ledto good projects being shelved or underfunded to subsidise less profitable parts of thebusiness or parent company. Shifting relationships with both clients and supplierscould be extremely disruptive. Large components suppliers were often unwilling tosupply low volumes of older products when new larger markets offered them muchgreater potential rewards. Firms then faced the difficulty of updating in some hastedesigns which evolved incrementally over long periods, which often put quality andrationality of design in conflict with the project urgency.

Some firms felt they were a little naïve in their dealing with potential collaborativepartners, and so were vulnerable to exploitation by more aggressive firms. A numberof firms reported that their customers tended to tell them they were key clients at


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particular times in the procurement cycle, when they wanted help or co-operation, andat other times would demand significant cost reductions from them without offeringmuch support to achieve the necessary engineering changes. Part of becoming anexpert firm was in handling the dynamics of these relationships, and ensuring that thefirm retained a position of strength in negotiation with partner firms throughout theprocurement cycle.


These fairly diverse symptoms point to a number of more underlying problems withinthe companies. As we noted in 6.4.1 above, these are not really problems in thedevelopment process itself, rather they are more contextual problems affecting thelonger-term sustainability and prospects for the firm. The first problem is an over-systematisation, and a regard for systems as ends in themselves rather than means ofexerting control. It is highly significant that of the exemplar firms, an important partof their skill is in managing the in-flow of external ideas, so that the boundariesbetween firms, customers and other companies are genuinely dissolved. A real risk isthat systems are changed to remove barriers, which in turn erects new barriers (e.g.geographical or organisational), but these new barriers are accepted as a corollary ofthe solution, with all the negative consequences that barriers bring.

This relates to the second problem, which is complacency. It is a cliché that continualimprovement is necessary to ensure continued quality, but in the sample of firms, itwas clear that strategy (from which systems, quality, direction and ultimately successflowed) is highly dependent on a number of contextual factors, including markets. Ifthose conditions change even slightly, then the appropriateness of different businessstrategies changes, which can have very large impacts on the utility of particularsystems.

In experienced companies, although they tend to have moved away from promotingspecific initiatives to try to effect change, the continual improvement culture is oftenabsent or only partial. In one firm (a traffic management system company), itsattention was brought to the problem because a customer declared its products were acommodity, and would no longer fund R&D costs for products. This meant theirapproach to customer relations became inappropriate, because it was based onopen-book costing and close customer inter-relations. They changed their system sothat they negotiated aggressively with the OEM from an early stage, so their newproduct functionality was part of the package the OEM sold to the client. This meantthe OEMs also had to accept the novelty of the firm’s products and by implication topay for some of the R&D work. They also moved out of one market area where itwas not possible to get the OEM to work more equally with themselves.

The third problem is that despite management appreciating the importance ofinnovation to the success of the firm, it is still not regarded as intrinsic. Rather,innovation’s position has to be continually reaffirmed by having budgets justified anddefended, often in competition with other commercial demands. Typically, even inexperienced firms, there are a number of processes within the business that serve toundermine the centrality of innovation to the overall business approach. The effectthese processes have is that they increase uncertainty and vulnerability of innovationwithout really being an outcome of the way the firm performs innovation. Someexamples fom firms in the survey are reported below:-


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• Innovation is dependent on the outcome of internal political processesdetached from commercial and technical realities, and departure or promotionof key actor shifts the emphasis on innovation.

• Multi-site plants have a fixed R&D budget which has to be negotiated andallocated between the different sites, so rather than the amount being setaccording to the justifying business case, there is an artificial ceilingdetermined by the internal financial process.

• The importance of a plant to a multi-site firm may shift unrelated to itspotential for innovation — cash problems may force the holding company tocut costs (innovation is a soft target), or the firm may impose a centralisingR&D strategy (relocating key personnel to other sites).

The decisions are not always negative, it is just that the consequences of thosedecisions are disruptive. The parent companies for a number of the firms decided tobecome more innovative and to increase the resources available to the firms. Theproblems they faced was that the decision to increase innovation was unrelated to theinnovative capacity of the factory in the North East (apart from it being part of acorporate technology portfolio).

Finally, the internal occupational hierarchy within the firm may in some cases notreflect the needs of the business, and may instead reflect historical patterns. Inparticular, the occupation “designer” has become recently a great deal more integratedinto other areas of business, and plays much less of a role in controlling the flow ofideas into new products. However, in some firms, an isolationist “design office”mentality was historically the norm, which led to over-elegant and under-functionaldesigns. In other cases, expansion had moved engineers into managerial positionsremoving their contribution to projects which they naturally should have led, whichboth annoyed the individuals concerned and undermined the efficiency of the designwork.

6.4.3. Strategies for becoming an expert innovator

By their very nature, addressing these problems is a lengthy and difficult process, and,it is true to say, an ongoing one. It has been noted that so much of the appropriatenessof practise is highly dependent on the firm’s own context, so as contexts change, thefirm needs to be in a position to appreciate and respond effectively to those changes.The cliché of the cliché of continuous improvement has already been invoked above,but it is continuous improvement which firms need to achieve in order to overcomethese problems, which will further reduce the commercial uncertainty and hencevulnerability involved in innovation.

As a methodological aside, it is worth noting that a number of the experienced firmshad made some steps towards being expert, and had reaped the benefits. These resultsare related here, because the boundary between experienced and expert is quite astrong one. Our belief is that it is worth restricting the expert designation to thosefirms who practises, performance and self-awareness are such that they are allunambiguously successful and mutually-reinforcing. However, because experiencedfirms are self-aware and successful, we have reported some of their successfulchanges as potential strategies towards achieving an expert classification.

One strategy is for the firm to concentrate more on the evaluation of the R&D, i.e. tosub-contract and purchase R&D rather than actually performing it. This approach has


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historically been very popular with companies under intense financial pressures,because of the large up-front costs it immediately removes. However, there are manyrisks with being reliant buying in new technologies, particularly when there aresignificant shifts in underlying technologies and the firms lacks the capacity to absorbradically new ideas. A further problem is that the firm becomes heavily reliant on itstechnology providers. This means staff in the firm lose sight of the evolution of thetechnology, and lack the understandings of the experiments and part-solutions throughwhich the technologies they have purchased have proceeded, which facilitateunderstanding the product.

The firms that successfully implemented this strategy were those that funded a rangeof activities rather than simply attempting to buy complete off-the-shelf technologies,and concentrated on commercialisation. The corollary of this is that researchmanagement has to be networked into the senior management of the firm, in order thatresearch can be commissioned to address interesting questions rather than merelyselling near-to-market problems13.

A second strategy which firms adopt (sometimes in parallel with the first approach) isbuilding long-term relationships, to ensure that they are aware of developments whichare changing their operating environment. The best firms will actively attempt toshape their environment, and engage with standards organisations and committees, toensure that changes do not systematically disadvantage them. All three of the expertfirms had quite intricate relationships with local universities, on a range of levels,transcending the common service provision model of technology transfer. Althoughnot active in shaping the scientific state-of-the-art, more important was the capacity tobe aware of scientific developments, and reflect on their potential longer-termbusiness impacts.

A third strategy involves giving strategic oversight or even control over the progressof particular projects to individuals from areas outside the main innovation focus.Although cross-functional design teams are a common feature of experiencedinnovators, in some cases, performance can be improved by allowing non-innovatorsto control projects. In part, this is because of the alternative perspective on productsthey can provide.

However, another important element of this is that it initiates a process of reflection,in which innovators have to justify their practises and approaches. If handled badly,this approach can be disastrous, but when successful, it can improve dialogue betweenfunctions at an operational as well as managerial level. In a similar vein, one of thecompanies reported that when they have a particularly novel product for a customer,they encourage the customer to come and speak to their operators, because it gives theoperators a sense of the personality behind the product.

13 This is in a sense a more extreme version of partnership working, where each company focuses on itscore area, and the project manager integrates all the sub-assemblies into a product which delivers clientfunctionality. Its does have rather extreme implications for the firm’s asset base, and so needs to beintroduced in a thoughtful manner with the appreciation that it is likely to actually prove moreexpensive in the long run.


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Table 10 The symptoms, barriers and strategies exhibited by firms attempting to improve from experienced to expert

Companyculture







Symptom

Over reliance oncustomer requestshides vision

Need to retainflexibility

Different marketsmay need difficultwork cultures

Easy problems allsolved, so only hardproblems remain

Attitude ofcomplacency,problems easilysolved

Modularisation hidesthe real technologytrajectory Absence ofintegrated strategicreviews

Hard not to overdeliver for customer

Can take on projectsto please customers,and lose money andgoodwill

Technology strategydoes not helpdecision making

Need to ensurecontinued ideasinflow

Bad at solvingproblems not set bycustomer

No time to take onlarge projects

Customers give apoor specification

Manufacturing notgood at makingprototypes for furtherexperiments

Hard to use goodproduct to get ontopreferred supplierslists

Absence ofinfrastructure foreffective feedback

Remoteness frommarkets can be abarrier

Marketing can bedifficult if an overlyspecialised company

People resistant todetailed planning

Need to avoidcomplex paper work

Organisationalresistance to change

Need a short circuitfor small/ easyprojects

Tools no substitutefor good designprocesses andemployees

Corporate hierarchycan have perverseeffects on firms

Difficult to talkopenly withcustomers because ofneed to protect IPand patent rights

R&D staff get drawninto crisisfirefighting

Need to manage aswell as control theinnovation process

Underlyingproblems

Culture ofcomplacencybecause all problemssolved easily,because of failure todeal with the difficultproblems

Strategic relationsare insufficientlyfluid, so tend to goback to existingknowledge supplierseven when notnecessarilyappropriate sources

Overformal idea ofwhat the firm ‘does’,resistant to newforms of solution inthe sector, so tend tonot be able to makeradical shifts

Tend to rely oncustomers to validateradical thinkingrather than ownknowledge ascomplementary waysof validating thesame ideas

Tendency to solveradical new problemswith new teamseparate from themain business. Ifthis takes off,difficult toreintegrate new teaminto old business, sohave to sell off, sonot really very goodat absorbing strategicnew knowledge intothe firm

Company designstend to be fixed;vulnerable to smallshifts in assumptions,e.g. component pricechanges

Failure to maintaindesign rules, soeasier to invent newthan to incrementallychange firm’sassumptions;significant disruptiveeffect of paradigmshifts

Over politicisation ofcommunicationmeans that launchprocess isundermined

Projects closed andknowledge codified,black boxes closed,so personaldimension/ tacitknowledge lost atproject ends

Difficult to manage anetwork of suppliersand clients that havewidely differingquality systems andstandards, so nicheknowledge lost

Inability to developsystems which buildon staff skills andpersonalities;irritation at inabilityto solve identified‘problem’

Bad at taking advicein peripheral fields,because good atcome competency, soadvice seen as wasteof resources

Changes can createnew barriers toknowledge flowwithin the company,but because seen aspart of a ‘solution’managementunwilling to addressthe problems


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Creation ofexpectation ofchange with clearcorporatecommitment thendelivery againstsentiments

Use of long termrelations with othercompanies andinstitutions to shapetheir operatingenvironment soaware of changedrivers and able tocontrol their impacton the company

If expertise is in theevaluation of newideas, thenconcentrate onfunding new ideasand shaping themthroughdevelopment, thenbuying them whenthey are complete

Building speculativeand long termrelations withuniversities, so notjust buying intechnical activitiesfrom them, andaware of thescientificstate-of-the-art, andhave understandingof its implications

Giving junior staffcontrol overdevelopment projectsto spread awarenessand responsibilitythrough the company

Setting up radicalchange with lowprofile so not seen asdifferent

New experts broughtinto the existingteams, so wellintegrated even if theintention is for themto take the companyin a radical newdirection

Use of continualbriefing process withmeetings andfeedback soeveryone has theopportunity tocomment on thedevelopment process

Risk minimisation byworking with keysuppliers, and usingtheir developmentprojects asopportunities to driveown internalprocesses of changee.g. supplierobsolescence

High degree ofreflexivity; alwayslooking at the needsare, s people at alllevels have theability to review theirtasks

Having a post launchproduct developmentstrategy so new ideasare kept up to date,and relationsmaintained

Separation of auditand improvementsystems elements;audit accountabilityseparate fromdelegated control andinitiative

Creating theinfrastructure for testsystems in house sohave knowledgeabout testingproducts and whenthey are stableenough for routineproduction

Need culture willingto pursue multipletechnologicalavenues, so not witha functionalrelationship withtechnology, ratheruse it to havemultiple futureopportunities

Need R&D expertiseat highest level socontinually reflectingon the implicationsof the R&D activityfor company’sstrategic direction

Speculative problemsolving R&D hasautonomous anddelegated budget socan pursue sufficientmultiple lines ofenquiry


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6.5. Improving experts: environmental support

In 5.1.1, we have already highlighted that the main constraints on expert innovatorsare external to their organisation. Although less experienced firms are all also tosome degree affected by outside events over which they have no control, for expertfirms, the difference is that the majority of their vulnerabilities and weaknesses areexternal. Consequently, in the analysis of the problems affecting expert firms, wehave used a slightly different framework to the preceding three sections to reflect this.An additional feature is that it is hard to use the exemplar framework that has beenadopted in the three preceding sections, because there are not a class of firms that aremore sophisticated than the experts, and who have reported the problems they facealong with the solutions they have adopted. Therefore, in this section we take aslightly different emphasis and approach to examining the issue of expert firms.

Some of the problems expert firms face are internal: it is not always a simple task, tomaintain their expert performance in the face of a changing environment.Historically, there have been many firms in the North East and beyond who havetemporarily mastered their environment to become expert innovators, and then laterregressed in the face of external shocks. An important dimension to this are theproblems which dealing with naïve or overenthusiastic firms can produce. Just asintermediate firms can have problems if they are approached by a sophisticatedinnovator, making them losing sight of commercial imperatives, expert firms can takenovice firms’ claims at face value and find themselves undermined when those firmsexperience problems arising from over-optimism.

6.5.1. The problems experienced by expert innovators

Expert firms do experience problems whilst innovating, principally because theirexpertise is a product of their current activities; systems are perfected only in terms ofhow well they deliver current products for existing customers. If their activities(including products and services offered) change, their organisational effectivenesscan change considerably. A number of expert firms stated that it was their intentionto move into new markets, for example, and this can produce its own problems.Moving into new geographical markets is not necessarily a smooth process: onecompany reported that they were surprised at the gulf between their Japanese-inspiredquality systems and the actual levels of quality demanded by their Japanese clients.

A further problem was that when firms expanded through takeover, rationalisation ofthe acquired R&D assets was a problem. Firstly, managers had to spend their timemerging the assets, and this frequently disrupted their central innovation effort. Whenthe development teams were maintained in the acquired firm, acquisition led to theemergence of new barriers within the firm (between old and new R&D elements).Acquisition of new technologies through takeover, particularly in new geographicalmarkets was a complex process, and impacted upon the R&D performance of thecompany. Even firms expert in UK markets found that in order to manage innovationeffectively in other locations acquired through takeover, they were to a degree relianton the staff of the new firm, which meant that the firm, brand and staff had had to beretained and rationalisation taken more gradually.

The other main set of problems that expert firms suffered from related to weaknessesin dealing with less sophisticated innovators. One of the problems was the foregoneopportunities that these represented when less expert innovators were unable to


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impress the expert firms when they had a genuinely exciting innovation, because theexpert firms were used to dealing with similarly skilful firms. Obviously, this is itselfa weakness, but some expert innovators found themselves reliant on a few largetechnology providers, unable to bring new less-expert innovators into their sphere in asystematic way. This is particularly problematic for those firms which havedeliberately sub-contracted out as much R&D as possible, and have developeddependencies on particular providers.

A second problem was that when expert firms used less sophisticated innovators assuppliers, the less expert firms often did not fully appreciate their role in thedevelopment process. Many product markets have lengthy design and procurementcycles, and to be involved with an OEM in anything other than a superficial andtangential way requires a commitment to co-operation through the lifetime of theproject. Many of the less sophisticated firms found it hard to make such acommitment, because often their interests were more in short-term consultancy tofund commercialisation of an existing product. A number of intermediate firms, forexample, reported that they lacked the patience necessary for long-term collaborationwith more expert firms, and so tended to be consulted only very late in the processwhen designs were formalised.

Related to this was a third problem, which was when less sophisticated firms wereautomatically rejected by expert firms as potential collaborators because of systemicrather than real deficiencies (such as absence of ISO9001 accreditation, even whenthe firm had appropriate quality systems in place). Again, this is a problem for expertfirms, because although they are expert, they do not have unbounded knowledge, andit has already been noted that technological and technical competence can be veryhigh in even the most naïve innovator. Thus, by failing to work with these firms,expert firms are losing potential development trajectories and access to newfunctionality which is by no means certain to otherwise emerge.

6.5.2. Improving the performance of expert innovators

Some of these problems can be directly addressed by those expert innovators, and thatdoes return to the need for an awareness of and adherence to continual improvementto ensure the firm is consistently delivering to the requirements of the market. Themajority of process improvements that expert firms make come about through theinteraction of the expert innovator with less experienced firms from whom the expertcan derive a direct benefit by dealing with them. A few of the means by which thiscan be achieved are listed below. We have categorised them into three main areas,increasing the capacity of those less sophisticated local firms to innovate, acting asdemanding consumers of the products, and building a range of linkages between thefirms:-

Increasing innovation capacity of less sophisticated partners

• Involving the partner in tangential and more speculative projects, to build up arelationship with them and ensure their quality standards are suitable,

• Giving them consultancy work to answer technical problems rather thandeliver a final product,

• Providing them with in-kind assistance and support, particularly for the costlyelements of accreditation such as EMC testing, and


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• Providing them with free advice and (low-level) consultancy, from the firm’sown experts

Sophisticated users of the products

• Supporting development and applications work on the site after a product hasbeen installed, bringing staff from a less sophisticated partner organisation towork in the firm and learn about the final product, and

• Providing a reference site for the supplier’s own product or service, (whichmay have symbolic as well as technical value).

A range of personal links between the companies

• Inviting the staff to participate in the evaluative process, bringing them ontoan innovative advisory panel,

• Involving them with larger visits to conferences and exhibitions (which hasthe added benefit of expanding the firm’s own profile),

• Passing them work which they have no expertise in, but are known for becausethey have bought in the R&D expertise,

• Participating in local business networking clubs and providing informal adviceand mentoring, and

• An ex gratia payment to support the work in recognition of its potential tobenefit the firm.

6.5.3. The regional benefits of improving experts

The list above makes the point that there are a range of ways in which expert firms actto raise the performance of those less sophisticated companies with which they havedealings. It is widely recognised that particular key innovating firms can play adisproportionately beneficial role in supporting innovative activities in their hostregions. Large firm innovation becomes a mechanism for improving innovationsophistication and performance in a range of actors, including local/ small firms aswell as universities, so even if the sophisticated innovator closes or relocates from theregion, some longer-term benefits of the innovation remain.

The direct mechanism by which expert firms (and expert innovators) influenceregional innovation is through the supply chain, encouraging less expert firms toimprove their own performance and hence to improve the competitiveness of bothfirms. All of the expert firms had a local supply chain, and working on local supplychain development was an important means of raising innovative potential andcapacity. In a region such as the North East, where stocks of innovative andtechnology-based firms are comparatively low, raising the stocks by encouragingnon-innovators to improve is an important means of increasing the overall volume ofinnovative activity.

Secondly, the benefits of increased networking between expert and other firmsincreases the degree to which these expert firms are embedded within the region, andhence how willing they are to build up common knowledge assets from which otherscan also benefit. The greater the reliance of expert firms on the region (and its firms)for their innovation process, the less likely the firm is to relocate and so the regionaleconomy benefits from increased stability and certainty, and when there are economic


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downturns, the region does not lose those activities entirely through plant closure.This certainty is of immediate relevance to those who supply into the expert firms,allowing them to plan their own new product horizons and roadmaps with morecertainty.

Thirdly, the expert firms are a means of bringing new ideas into the region, or moreparticularly, in having employees working with knowledge producers outside theregion14. This brings those less sophisticated firms in contact with those ideas in thefirst instance, and that has its own benefits. What is more exciting from an innovationpoint of view are those firms that take their local partners with them when they meetwith their collaborators from other regions. This has the benefit of increasing theawareness of the local firms, and helps them to become more reflexive andself-aware. We have identified self-awareness (and a willingness to acceptconstructive and critical advice) as the main constraint on firms moving from beingweak to competent innovators, and so there are clear benefits in providing local firmswith the basis to compare and benchmark themselves against knowledge providers inother regions.

A final contribution made by expert firms is in when they expand into new productareas by setting up new businesses. Two of the three expert firms (and one borderlineexperienced/ expert) had set up new business units within their companies, and then(in response to a variety of pressures) sold them off as free-standing (and innovativeunits). The benefits of this process over time can be seen in that the spin-off firmscontribute to the dynamism and diversity of the regional electronics applicationscluster: a number of the less expert firms interviewed were themselves spin-offs fromexpert innovators in the region. In some cases, the benefits of the spin-out can outlivethe presence of the parent. The less experienced firms interviewed themselves hadtheir origins as being established to support large sophisticated innovators in theregion, which (such as GEC, Plessey and British Gas On-Line Inspection) have sinceclosed their activities in the region (in response to external shocks and managementdecisions).

“Intrapreneurship” is a well-documented phenomenon, and a number of companieshave had big economic impacts by setting up multiple free-standing units to pursuenew technological avenues (cf. Moncada-Paterno-Castello et al., 1999). Becauseintrapreneurship is a sophisticated strategy for managing a range of factors such asrisk, technology transfer, engineering temperament and firm vulnerability, it isparticularly associated with firms who are themselves expert innovators. Obviously,sophisticated innovators are not the only source of spin-out company, but they tend tooffer more durability, and successive sets of spin-out, as well as employing peoplewho get involve in less formal start-up activities (i.e. without the support of the parentcompany).

14 This was not a benefit unique to local innovators; a number of firms supplied into systems integratorswho (for some of the development project) brought them into contact with their other suppliers.However, the benefits are made much more accessible for local and small firms, because they do notnecessarily have to have the human resources to allow their whole design team to go visiting for aweek, but they can meet the experts and their partners more regularly and with less burden onthemselves.


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7. The next steps — engaging business needs withtargeted support

The analysis in chapter 6 goes in some detail through the strategies which firms adoptin order to improve their innovation process, in terms of both performance andpractise. From this it is possible to see the principles around which successfulbusiness support needs to be organised on the basis of the firms’ arguments. Fromwhat the firms told us, we suggest that there are at least four recurrent themes whichcould usefully guide whatever support is provided:-

• Business support should be segmented and targeted according to thesophistication of the client,

• The support augments the firm’s own business and innovation strategies toovercome the particular barrier faced,

• Support organisations acknowledge that their clients are not always aware ofwhat the outcome will be, and this process of discovery within the interventionis an important element of the benefits offered by the intervention, and

• The support organisation is confident that the firm is sufficiently reflexive totake the advice and the capacity to absorb the services offered.

Within these underlying principles, there are a number of elements around whichbusiness support could be organised. Figure 3 suggests that part of improvingsophistication is developing relationships with other organisations to help control theflow of products through the innovation pipeline and to minimise external disruptions.In this chapter, we separate three different types of relationship, firstly the way thefirm and their innovation relate to the market, secondly, how the firm relates to itsenvironment and peer group, and thirdly, how the firm relates to potentialcollaborators.

7.1. Commercialisation of innovation as the key driver

One of the key relationships in making innovation profitable is to get an idea into themarket successfully, and there is a role for business support organisations (BSOs) inassisting firms to achieve that. It is clear from the firms’ evidence that the key issue isneither the commercial nor technological performance of the firm, but is the way thatthose two are brought together to meet a market opportunity. That opportunity willnot always be obvious or certain at the start, and we appreciate the problems that thisraises for BSOs and their own performance and evaluation systems: a BSO may makea faultless intervention with the appropriate procedures and yet nothing may come ofit because of decisions taken by the supported firm. In order to effectively supportthis process of commercialisation in a firm-centred way, the evidence from the firmssuggests four main themes.

Firstly, capitalising on innovation is by no means straightforward, and can beunrelated or tangential to the performance of research and development activity. Forthe intermediate firms, for example, the main difficulty they faced was managing theconnections between successive developments; although reusing ideas does requiresignificant changes in the firm’s organisation of innovation, if ideas are to be reused,designs have to identify reusability at the outset, with modules, assemblies, and


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circuits designed specifically to be reused. This is a particular case of the fact thatthere are a complex set of inter-relations which have to be managed to ensure thatideas are profitable. Making money from ideas requires reusability, manufacturabilityand marketability, and making these connections is one area where the firmsappreciated assistance.

Secondly, firms change and evolve in response to the directions in which theirinnovations take them, as well as in response to meeting the needs of the market.Innovation may require changes in the systems the firm uses to meet its customerneeds. A clear example of this was in those firms who changed from performingsub-contract design work to manufacturing complete units for their customers. Whilstdesigns merely have to be proven manufacturable and safe, products have actually tobe manufactured and accredited, which requires a raft of other skills, not necessarilyin the field of innovation or R&D, but in production and quality engineering.Similarly, firms moving from making one-off to mass-market products need to changetheir QA systems to reflect the fact that the starting point in design changes from aneatly drawn specification from a well-informed customer to an educated guess aboutwhat the ‘market wants’.

Thirdly, not all changes are necessarily beneficial for the firm, and so not all changeought to be encouraged. For the less expert firm, this often manifested itself inseeking easy solutions to quite complex problems, such as the firm that arranged sometechnical consultancy to address long-term problems in launching the problem intothe market; technically, the product was fine, but there was no real commercialstrategy in place (which was the main problem). For more sophisticated firms,problems arise when exemplary practises are adopted without sensitivity to thecontext of the firm, in which the harm done seriously outweighs the benefits broughtby the changes (cf. the patent reward scheme which undermined team work). Anumber of firms demonstrated that misapplied innovation can actually undermine thebusiness performance, particularly where simplicity, elegance or safety are keyproduct characteristics.

Finally, learning is a vital component of the innovation process, because there are notnecessarily automatic connections between interventions and successful outcomes.For BSOs dependent on provable output measures, this can be difficult tooperationalise, but a number of the businesses benefited indirectly from theopportunity to talk to specialist service providers which informed their later businesschoices without necessarily resulting in a service sale for the initial provider. Anumber of the firms also used BSOs in unpredictable ways — rather than buying aservice or generalist advice, one firm asked BSOs to participate in brainstormingactivities with its own engineers and university staff. The entrepreneurs in the samplewere often strong personalities and were unwilling to take direct business advice fromBSOs (we deal with this at more length in the next section) but used the meetings as away of clarifying their own thoughts on the business.

7.2. Learning from the costly mistakes of others

One notable area where many of the firms had suffered was in the high cost oflearning from their mistakes. Many of the changes and improvements to theirsophistication were stimulated by their past failures, in many cases which had beenextremely damaging to the business. A few of these problems are detailed below:-


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• Failure to invest in R&D had led one instruments company to liquidation,dismemberment and takeover,

• One firm’s managers worked double hours (i.e. eighty-plus per week) forseveral months because they quoted for a fixed cost contract which took sixtimes the budgeted resources to complete,

• One firm set up a collaborative partnership with a university to tender forsome work and were written out of the bid by the lead partner (the university)just before it was submitted,

• One firm brainstormed ideas with potential customers who took the ideas totheir preferred suppliers to develop, and

• One firm was underwritten by an ERDF contract, and the managingorganisation did not apply for continuation funding, so the firm had very littlewarning their main revenue stream would dry up overnight.

In all cases these were extremely costly to the business in both professional andpersonal terms, and there is clearly an opportunity for BSOs to assist firms to avoidthose types of disastrous situations entirely. However, we remarked above that theentrepreneurs we interviewed were reluctant to take advice from BSOs, founded on ageneral mistrust of their reasons for providing the service, particularly where theservice was publicly subsidised. In this study, the firms were clear that they wouldlike assistance to learn from each others’ mistakes, but they needed to be in control ofthe way that advice was provided, in order to ensure that it delivered their goals.

In many cases, this meant BSOs were restricted to providing “routine” services whichare easily contractually controlled by the firms. However, there were a few examplesof cases where firms had worked successfully with BSOs to improve their innovationsophistication. We give the example above where one firm invited a number of BSOsto attend an informal brainstorming panel to help generate sensible new product ideasin collaboration with their in-house ‘concept validation’ team. At least two of thefirms have long term linkages with the Electronic Engineering department of a localuniversity, which they specifically do not use for short-run consultancy, but insteaddiscuss longer term technological developments, to inform their technologicalroad-map. The relationship between firm and BSO unfolds over time as both work toassist the firms to deal with the uncertainties of new product development withoutfalling foul of the catastrophic problems outlined above.

These relationships are potentially fraught with a number of tensions, especially interms of helping firms to learn from the past mistakes of other firms, because itquestions the role of the BSO as an “honest broker”. On the one hand, there aredifficulties in that BSOs have to respect the confidentiality requirements of their pastcustomers, and so should not discuss with current customers the full context which ledto others having past problems.

Because the strategies firms adopt are strongly dependent on circumstance, if BSOsabstract the problem and/or solution then the approach loses its analytic power. In thecase of the instrument company which under-invested in R&D, for example, the causeof this was ambiguities in the articles of association of the company, which gave onedirector the incentive to take a huge dividend. Although the problem was the under-investment, given the huge dividend taken by one director the firm did not have theoption to invest in R&D, and liquidation was a means of breaking the hold of that


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individual over the company. Subsequently, the other director established anotherfirm which continued (and expanded) its innovative activity. One of the teams fromthe first business made redundant in the liquidation also set themselves up andcontinued to innovate. Without this contextual detail, the bald anecdote above is notreally particularly useful for BSOs to assist their clients, so it is clear that theexamples need to be specific without compromising past clients’ needs forconfidentiality and anonymity.

BSOs need to have a well thought–out understanding of the reasons for adoptingparticular solutions without necessarily divulging particular past case details to theclient. On the other hand, clients need to appreciate at each stage that their dignitywill be respected by the BSOs, and trust the BSO not to view the firm as anexperiment to test risky ideas and build the BSO’s own experiences. This suggeststhat firms’ own perceptions are important at every stage of the process, and if theBSOs are able to relate back to their clients in terms of how past clients haveevaluated particular courses of action, this will assist firms to make the appropriatestrategic business decisions and make the best use of the assistance.

This raises two main issues for the management of BSOs to maximise theappropriateness of the support offered. The first is the fact that improvement servicesare best delivered as one-off packages, highly tailored to the needs of the recipient,because there are comparatively few economies of scale or scope. When deliveringimprovement services, BSOs represent sources of knowledge and expertise to firms,and where they are successful they interact and work with the firms to achieve acommon set of goals. Part of this expertise resides in the employees of the BSO, andcannot be fully codified into programmes or assistance. Programmes are an effectiveway of delivering routine services, but tend to lack the flexibility necessary to deliverimprovement services. This can make improvement services seem like a veryhigh-cost approach in terms of outcomes per unit of expenditure. However, focusingon cost alone drives towards the delivery of generalist services, and really overlooksthe potential BSOs have for saving firms potentially significant sums of money byavoiding future mismanagement problems in innovation.

The second issue is that the BSOs themselves have to be reflexive and self-aware inorder to effectively deliver these highly tailored packages for firms which improvetheir sophistication whilst avoiding the heaviest costs of internalised learning. Thereare a number of situations where interventions that are intrinsically bad are generallyregarded as successful by the BSO. This is a very dangerous situation for BSOsseeking to build long term relationships with their clients, because bad interventionsare unpopular with clients. Examples of factors leading BSOs to misperceive badprojects as good could be if a successful company participates (value-added?) oralternatively if some particular project generated high revenues for the BSO (whosebenefit?). As a heuristic, it should be possible to ask a series of questions about howsuccessful the intervention was to the client which assists the BSO to learn about whatclients really need:-

• What barrier was the client seeking to overcome?

• What were the critical elements of the intervention that overcame the barrier?

• Did the BSO anticipate correctly how the client would use the service, andwhat elements would be most helpful?

• Are there elements which could be re-used to assist other firms?


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• What are the limitations to the re-use of the idea — how dependent was thesuccess of the intervention on the context of the particular client?

If BSO operational staff have a working understanding of the answers to thesequestions for their main types of intervention, this provides the basis for a workingdialogue with the client to identify their needs, and to inform their eventual choice ofaction.

7.3. Identifying the local co-operative opportunities

It is a truism that collaboration and co-operation is an effective way of improvingperformance, but the research has shown that there are particular forms of localcollaboration which help to raise firms’ innovation sophistication. A number of thefirms interviewed were able to increase their opportunities by successfully workingwith a large end-user which then became a reference site to win further business; inmany of the cases, this large user was neither local nor an electronics firm, so thesituation regarding co-operation is more complex than might immediately seemevident. There are implications for BSOs in the approaches they adopt to assist firmsbuild inter-relationships which will raise the innovative capacity and deliversuccessful economic outcomes.

The first is that the barriers to collaboration are not necessarily straightforward tounderstand and overcome. A number of small technology-based firms reported thatthey were individually able to deal with larger firms, but the difficulty they had wasensuring this work contributed to their growth and development strategies. Largerfirms are necessarily complex organisations, and so the points of contact they offer forlocal firms are not always immediately obvious; small firms reported that they dealvariously with commercial, purchasing, production, engineering, technical andmanaging staff in the course of straightforward collaborations.

The principal problem for them was the identification of people in these large firmswho were interested in collaboration. The contacts were rarely badged as R&D staff.More often they were staff in more routine occupations facing intractable problemswhich meant they were prepared to consider more experimental solutions (whichperfectly describes many of the large firm-small firm collaborative partnerships).

BSOs often face their own version of this problem when establishing technologyforums to bridge between large and small firms and focus on a single industrial sector.Staff in large firms able to attend these meetings are often those who are not directlyrelated to making the decisions which will allow small firms to work with them. Thisundermines their networking opportunity they potentially offer, particularly for smallfirms. There appears to be a need for BSOs to ensure that meetings which areintended to facilitate inter-firm collaboration attract an audience with the potential towork together. This indicates a need to separate strategic meetings intended to mapout and plan for the sector, and those intended to directly facilitate co-operation.

A second observation concerns the relationships between BSOs in the region intent onstimulating innovation. A heuristic regularly offered for business support is that it is aframework offering a range of services, and by adequately signposting those services,businesses can be directed to the provider best positioned to deliver those services.This assumes that the process of hand-over of firm between service providers iseffortless and does not incur costs for the firms. As improvement services have to be


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negotiated between firm and BSO to be effective, this means that their effectiveness isdependent on how well they communicate with each other.

There appears to be a role for BSOs in helping firms to work with other BSOs, andthis necessitates a degree of co-operation. Relationships between BSOs are not animmediately straightforward matter, because the need is not just for the provision ofparticular services, but offering services which particular types of firms are able to useeffectively. This means that there are a number of factors which affect the types ofBSO provision needed in a region like the North East of England to support theelectronics cluster:-

• There is a need for some complementarity between BSOs, but

• BSOs may offer similar services to one another (especially where the servicesare related to BSO expertise rather than the availability of external funding),

• The reason that a firm chooses one BSO over another is based on the firm’sown capacity to appreciate the services and relationships with BSO staff, and

• Although there will be acknowledged regional leaders in support fields,appropriateness of a BSO to a particular firm is based on more than thetechnical ability to deliver a particular service.

It is appealing for policy-makers to attempt to develop a balanced score-card approachto technology and innovation support provision at a regional scale in order to ensureefficiency and minimising wastage of public funds. It is likewise appealing to haveone organisation with sole regional responsibility for a service, so if any company‘needs’ a service they can be ‘signposted’ to that particular BSO. However,signposting is a great deal more difficult for development services than technicalservices. A key part of the value that BSOs add arises from their capacity to workwith the firm, because the firms shape the services to ensure they assist the companyin achieving the corporate goals. Mapping gaps in service provision therefore needsto look at firms which have barriers which cannot be overcome by BSOs in theregion.

A final problem of mapping technological support provision in one region is that anumber of different organisations can typically offer similar services, especially forthe most simple services. Because business support is a negotiated process, it isreliant on the skills and expertise of those providing that support. Often, BSOs mayoffer a range of services drawing on their main expertise, but which cover a degree ofexpertise levels. Very different BSOs may therefore be able to offer equally goodgeneralist services, for example in writing business plans, but their expertise maydiverge with complex services.

Mapping provision is fraught because it depends on the expertise level of services;this is illustrated with figure 4 below. This figure shows the types of services whichtwo complementary model (i.e. not real) BSOs, ‘A’ and ‘B’ offer. Both offer a rangeof generalist services, and both offer assistance with writing business plans, whilst ‘A’offers book keeping consultancy and ‘B’ assistance with incorporation andemployment law. What the overlap and provision of basic services overlooks is thefact that both ‘A’ and ‘B’ offer world-class services in very different professionalservice fields; ‘A’ could be a group of business angels interested in working withinnovative businesses, whilst ‘B’ could be an IP legal specialist running their ownconsultancy business.


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If regional provision is mapped in terms of very complex services (Map ‘1’) thenthere are likely to be huge gaps, and the support infrastructure will be seen asdeficient, despite the fact that the market for these expert services are likely to beinternational, and it is of great benefit to the region that there are any of these expertservices present. Similarly, if generalist provision is mapped (Map ‘3’), then it is alltoo easy to conclude that there is overprovision and redundancy in this area, whichoverlooks the fact that much of the provision comes from support organisations withcapacity to deliver complex support services. Finally, if a middle level is chosen, andthe map shows that there is coverage without duplication, then the value of the maphas to be questioned, because of its validity only for a particular type of services.

It is not a problem from the perspective of a firm if two or more different agencieshave the capacity to deliver particular improvement services. Indeed, in terms ofbuilding up pools of local expertise in the most sophisticated support services, it isintuitively part of a mature economy that there is a degree of overlap and redundancyacross service providers. This is only problematic if multiple provision is confusingfor the recipients, but the firms interviewed reported that it was much easier to build arelationship with a single BSO and to get several services from them, than to identifya number of ‘ideal’ suppliers, and have to establish a new set of relationships eachtime.

The problem is much worse if those BSOs compete with each other to sell the sameservice into particular firms. In intermediate firms, for example, their naturalreluctance to buy improvement services (because of difficulties in using themsuccessfully) was strengthened in those cases where they believed BSOs wereundermining each other. For those firms, developing a good relationship with oneBSO was an essential part of learning to use those services; this also laid thefoundation for trusting the ‘idea’ of business support, and made them more discerningconsumers, of benefit to both them and the BSO.

A final problem about trying to rationalise and streamline provision is that it actuallyreconstitutes the very barriers which businesses find difficult; by introducing thefeeling that only one provider can give a service, this makes BSOs very protective oftheir service provision and anything which might undermine that status as privilegedprovider. Thus, opportunities for co-operation between BSOs are diminished, evenwhere there are rational grounds for such collaboration.


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Figure 4 Mapping business support provision according to generality or specificity ofservices provided

Expertise

Theme

Specific

General

BSO ‘A’ BSO ‘B’

Map ‘3’

Map ‘2’

Map ‘1’

Big gaps

Just right!

Redundancy


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8. The electronics applications cluster — what havewe learned?

In this report, we have worked towards a framework for targeting business support forinnovation according to the sophistication of the recipient firms. This has been rootedin an analysis of what a group of 38 innovative firms told us about how theyinnovated. The rationale for this is to improve the targeting of innovation support tofirms in a position to make best use of that support. The argument has beenpredicated upon the notion that it makes sense to separate discrete technical supporttasks (‘routine services’) from those more complex interventions which actually assistthe firm to do the innovation process better (‘improvement services’). Theseimprovement services assist firms to overcome the barriers they face, which hasattendant regional economic benefits which justifies the particular interventions.

In this report, all the analysis has been based upon what we were told by the 38 firmswe interviewed; however, by chapter 7, we appreciate that some of the empiricalflavour has been obscured through the successive process of synthesis necessary inorder to provide a framework. It may well be useful for users of this report to be ableto identify the particular empirical material used in advancing the steps of theargument. Therefore in this final chapter, we reprise the narrative of the argumentpresented in the bulk of the text (chapters 3 to 7) to identify what are the key pointswe make and where the empirical material in support of those points can be found.

In this section, we outline the narrative within this report alongside the material thatsupports the assertion. The basic narrative the report makes is:-

“Electronics is a key enabling technology, but the firm-based innovation process isimportant to using the technologies. BSOs can help firms, by actually doing one ormore of these steps, or making them better at performing and organising theinnovation process by helping them to overcome the barriers they face in innovation.This needs different responses from the business support community as well asoverall co-ordination and integration, which has more general regional economicbenefits!”

In the remainder of this section, we break down this narrative into its components andidentify what evidence we use to make these assertions. What follows beneathenables readers to identify a part of the argument in which they are interested. Theheadings of the paragraphs refer to the sections of the report, so the first point isdrawn from section 3.1.

Electronics is a key enabling technology but the firm-based innovation process isimportant to using the technologies. BSOs can help firms, by actually doing one ormore of these steps, or making them better at performing and organising theinnovation process by helping them to overcome the barriers they face in innovation.This needs different responses from the business support community as well asoverall co-ordination and integration, which has more general regional economicbenefits!

3.1 Although electronics has been regarded as a key driver of successful economicregions, the problem faced by the North East of England is that much of thecore electronics supply chain related to high technology developments isabsent. Instead, the bulk of electronics employment is concentrated in inward


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investments, which as the case of Siemens showed, are prone to suddenclosure. However, the region does have technological strengths in a range ofrelated areas, including the utilities and engineering where electronics hasbeen successfully and strategically adopted by regional firms as part of theircompetitive advantage.

3.2 As the current structure of electronics employment in the region and UKsuggests, the North East is unlikely to see the emergence of firms whose keyexpertise is in core or platform technologies. The region is unlikely then todevelop strengths in innovation in the bulk of what is habitually regarded aselectronics, including telecommunications and domestic electronics. Thissuggests that any plan for innovation-based development of the electronicssector which builds on existing strengths in the North East of England mustencompass a broader set of activities than electronics strictu sensu. We usethe term electronics applications sector to refer to this electronics sector in abroader sense.

3.3 Given the current interest of the Department of Trade & Industry and regionaldevelopment agencies in clusters and clustering, it is possible to regard thisbroader electronics applications sector as a form of cluster. Although thereare not the dense networks of linkages which characterise clusters such asSilicon Valley or Cambridge, there are small pockets of activity in the NorthEast which resemble, at a much smaller scale, clusters which boost innovation.By examining the firms and the way they interact, it is possible to see thatthese micro-clusters have a coherence and dynamic of value to the regionaleconomy. If those micro-clusters in the region could be supported andjoined-up, this would create innovation benefits for many firms not currentlyinnovative or in receipt of interventions.


3.4 What characterises all these electronics applications firms is that they areinnovative, and enhance competitiveness by creatively embodying electronicsexpertise within their products. The focus for the study is solely on innovativefirms in the North East of England who are using electronics as part of theircompetitive strategy based upon innovation and quality rather than costcompetition.

4.1 Innovating firms go through a series of steps in order to bring a product tomarket, which is the basis of the innovation model we adopt. Although invery naïve and novice innovators, these steps will be neither explicit norobvious, as a heuristic, the process can be divided into steps. Ideas aregenerated, scoped into potential projects, projects designed in order to developthe products, the projects run and products prototyped and delivered, then theproduct is launched into the market. These steps are affected by three sets ofcontextual condition for each of the firms, the company culture, the way they


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organise and plan for innovation, and the infrastructure of systems and tools tosupport the innovation process.

5.1.1 Firms can be categorised according to their sophistication in innovation, whichwe do into four classes, novice, intermediate, experienced and expert. There isalso a fifth class, non-innovators, but these firms have deliberately beenexcluded from the study. We use the way the firms organise their knowledgeflow as the key classification principle, and classify firms according to threeareas:- their innovation performance, their practise and their self-awareness.The idea underpinning the report is that different sophistication levels havedifferent needs, and so by identifying how sophisticated an innovator a firm is,this will assist the BSO to identify whether particular services are appropriatefor the client.

Electronics is a key enabling technology, but the firm-based innovation process isimportant to using the technologies and BSOs can help firms, by actually doing oneor more of these steps, or making them better at performing and organising theinnovation process by helping them to overcome the barriers they face in innovation.This needs different responses from the business support community as well asoverall co-ordination and integration, which has more general regional economicbenefits!

4.1 Separation of the innovation process into discrete stepwise elements providesa mechanism for explicating how business support assists innovating firms. Ifyou want to help a firm, there are two directions that assistance can betargeted:-

• ‘Routine’ services assist with the flow of the product through theprocess, and

• ‘Improvement’ services help the firm to perform innovation better.

5.1.1 The interviews suggested that the preliminary classification suggested in 5.1.1was reasonably coherent. Table 3 provides a detailed breakdown of theparticular characteristics associated with the four different sophisticationlevels; there was a good coherence between the levels in the sample, andindividual firms tended to have similar sophistication levels of performance,practise and self-awareness.

5.1.3 Routine services tend to be much simpler in their delivery, and much moretechnical in nature. They can be delivered as transactions, and generally donot require a lot of negotiation. The outputs of the intervention from thedelivery are simple and easily identified, and can be easily delivered inpackages of support to a number of firms in largely unaltered form. Thebenefits tend to be proportional to the costs, and the benefits tend to be limitedto the lifetime of that particular product, although there may be someassociated learning within the company from the assistance. Tables 4-7summarise the different types of routine services which firms need accordingto their individual sophistication level.


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Electronics is a key enabling technology, but the firm-based innovation process isimportant to using the technologies. BSOs can help firms, by actually doing one ormore of these steps, or making them better at performing and organising theinnovation process by helping them to overcome the barriers they face in innovation.This needs different responses from the business support community as well asoverall co-ordination and integration, which has more general regional economicbenefits!

4.1.2 The essence of improvement services is that they assist the firms to improvetheir innovation performance, improving the ease by which knowledge flowswithin the company and by which ideas are turned into commercially viableproducts (Figure 3). They are complex services to deliver, and have to benegotiated with the recipient company; they are heavily dependent oninter-personal relationships for their successful delivery. If improvementservices are successful they can have huge benefits for the firm. However,improvement services may also fail despite the best intentions of both firm andBSO, e.g. a key individual leaves, if business ownership changes or there areother weaknesses in the company’s fundamentals.

A problem for BSOs is that they can be asked to provide inappropriateservices, particularly for more intermediate firms, who can request a particularsolution on the basis of limited and partial knowledge of the availableservices. If the BSO fulfils the request, they can fail to address thefundamental problem underpinning the symptom affecting the firm.Assistance has to be targeted at the underlying barriers which the firms face,and firmly rooted in strategies which other more successful firms haveadopted. The basis for the report is that we have identified where moresophisticated firms have improved their innovation performance, why theychose so to do, and what barriers they themselves faced. This provides a clearrationale for firms to use particular business services, because they have beentailored to meeting the needs of past firms, and have a clear business rationale.

6.1 One way of looking at this is that BSOs are acting as an ‘honest broker’ tofacilitate other firms learning from better practise of more experienced firms.Especially for less experienced firms, their reason for having deliberatelyimproved their performance is often the huge costs they have incurred when aparticular new product development project has failed badly and left themexposed to unanticipated problems. By learning from the mistakes of otherswithout having to bear those costs, firms can reduce the overall cost oflearning from the experience. The study does not delve too deeply into thespecific benefits which improving innovation performance brings to particularfirms, because these tend to be very specific to the context of the intervention,so these are more a matter for business support organisations.


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Electronics is a key enabling technology, but the firm-based innovation process isimportant to using the technologies. BSOs can help firms, by actually doing one ormore of these steps, or making them better at performing and organising theinnovation process by helping them to overcome the barriers they face ininnovation. This needs different responses from the business support community aswell as overall co-ordination and integration, which has more general regionaleconomic benefits!

The full set of barriers, classified by experience level and stage of the innovationprocess are presented in tables 8 to 11. The range of problems can be reduced to anumber of thematic factors which have to be addressed before the firm can improveits innovation performance (on the basis of the experiences of the interviewed firms).

6.2 Novice firms (Æ intermediate)

• Reliance on a limited number of innovators in the company (often theMD and technical director) with other staff discouraged from anyparticipation,

• Absence of formal control mechanisms and procedures to ensure theflow of products through the cycle and to ensure that the commercialviability of new developments is assured,

• The lack of a sense that innovations add up to give a coherent portfolioand technological pathway for the firm into the future, and

• A lack of understanding of how to make innovation pay.

6.2 Intermediate firms (Æ experienced)

• An R&D team that is weakly integrated into the business and so doesnot listen to other functions with pertinent knowledge (e.g. sales,marketing, production),

• Systems have been introduced before staff have been prepared forthem by making cultural changes, which assumes the staff will fit intothe system, and that introducing a system makes it work in the bestinterests of the firm,

• An inability to deal with uncertainty in new product developmentprojects, not hedging the risk effectively, and rejecting risky projects ortaking them on without adequate contingency planning, protection orinsurance, and

• An inability to modularise development projects:- to work out how tosell the customer something which gives the firm some intellectualproperty which they can recycle to profitably resell elsewhere, withoutincurring all the initial costs.

6.2 Experienced firms(Æ expert)

• A reliance on systems to deliver particular outcomes, withoutappreciating the delicate ecology of personal relationships whichunderpin those systems,


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• Complacency: because many the easy barriers to innovation have beenovercome, there is a belief they have perfected the innovation process,and so fail to address more fundamental problems,

• R&D and innovation remains a separate activity within the company,rather than being central to business planning activities, and

• The internal hierarchy within the company works against theinnovation process, creating artificial occupational and prestigebarriers which impede the flow of knowledge and products through thecompany and innovation process.

6.2 Expert firms (with the supply chain)

The main difference between expert firms and other innovators is that expertfirms tend to have achieved a stable and effective innovation process. Themain weaknesses arise when this stability is threatened, when suppliers fail tosupport their innovation, when market conditions change the most appropriateform of innovation, and if staff with particular essential knowledge leave thecompany. Expert firms’ barriers to innovation are therefore quite different tothose of the other types of firms, in being external to the firm in the main.

• A need to increase the innovative capacity of their less sophisticatedpartners, so that they can benefit from the specialised innovationswhich their partners can produce,

• A need to act as sophisticated users of others’ products, so that theyprovide a high value opportunity for local firms to sell into, and actingas an incentive to innovation, and

• Developing interpersonal linkages with less sophisticated innovators,so that they are positioned to encourage innovations from these firmsultimately to their benefit, and giving credibility to innovationchampions in these less experienced and innovative firms.


6.1 There needs to be a strategic approach to intervention, with particular forms ofintervention only targeted at those firms which need it. There are a range ofjustifications for this including but by no means limited to value for money.Badly targeted intervention can also have the penalty of dissuading innovativefirms from working with business support agencies in the future. In particular,for the delivery of complex improvement services to novice and intermediatecompanies, building the necessary level of trust and understanding betweenfirm and support organisation is as important and difficult as delivering theservice.

7.1 A vital feature which business support provides is in the expertise necessary tosuccessfully commercialise innovation. Just because a new product can


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effectively be developed does not mean it makes commercial sense for thefirm to develop the product. BSOs assist firms by giving them strategies toevaluate and judge new product ideas, helping them to deal with theuncertainty inherent in innovation. Thus the cost-effectiveness for a firm of aparticular course of action has to be judged in terms of the business’s overallgoals. BSOs have to be aware that part of their function is to provide a degreeof reflexivity, continually challenging the company to prove to themselves thatits decisions are in line with their strategic corporate goals.

7.2 BSOs need to develop a way of building their own stock of expertise andknowledge so that they can offer firms solutions to their problems alongside areasoned business case based upon the experiences of other firms. This cancreate quandries, because each client is not only being assisted, but faces beingan example of good or bad practise for a later client. This requires a goodrelationship between firm and BSO, but also attention to avoid makingdisclosures or breaching confidentiality which might undermine the client’sbelief that the BSO has their best interests at heart.


7.3 ´ ´ It is almost impossible to centrally plan the delivery of improvement servicesat a regional scale between diverse service providers because of the degree towhich the services have to be negotiated with the clients. They depend on theway in which the BSO’s own expertise can be applied to the company, and onthe effectiveness of the relationships which can be build between client andprovider. Any kind of central planning runs the risk of creating extra barriersto the building up of relationships. In particular, target led/volumetric outputprogramme approaches are very poor frameworks for improvement servicesbecause they are incapable of dealing with the inherent uncertainty.

Competition between service providers is particularly negative, and canundermine the user’s confidence in the integrity of the support system. In anykind of co-operative framework for service provision, individual BSOs shouldnot be under an obligation to pass clients over to other providers unless bothBSO and firm agree it is in the firms’ interest so to do. The value of agatekeeper is quite high, particularly for novice innovators, but this has to bedistinguished from signposting; a signposter directs them to other serviceproviders, a gatekeeper helps them to arrange the whole service purchaseprocess.

Co-ordination and integration should not be synonymous with planning,mapping, rationalisation and streamlining. It is the sign of a mature economywith world-class business support services that there will be some overlap,particularly in the provision of generalist services. If gaps in world-classbusiness support (such as high-level consultancy provided by governmentresearch centres, international consultants or universities) are identified, thencreating that provision will necessarily create overlaps in generalist provision.


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A new high-level service provider will have knowledge overspill effects thatcan be harnessed by even comparatively unsophisticated firms.


3.1 The North East of England as a regional economy can be characterised bypoor overall performance in terms of innovation. There are two causes of this;the first is the historical absence of large numbers of high technology firmswith R&D activities in the North East of England, and the second areproblems specific to the region that innovative firms face, such as lownumbers of skilled innovation staff and low levels of expenditure in R&D.

5.1 The main benefit of improvement services is that their successful provisionincreases the stock of innovative firms, which in turn leads to a dynamic of itsown, as innovative firms employ innovative people who may (and indeed do)proceed to establish their own businesses. If the net effect of this is to increasethe number of people in the region employed in high-value added occupations,this increases the overall competitiveness of the region. These positive effectshelp to sustain activities in the region in the longer term and provide a regionaltechnological pathway less vulnerable to recessions.

5.5 There does not appear to be a good case for supporting expert firms toinnovate. However, BSOs may to work with expert firms to identify lessexperienced local firms who could benefit from assistance, thereby increasingthe innovative performance of their own suppliers. This can have the effect ofdiffusing good practise through other regional innovative firms. If less expertfirms are made better innovators, they will be more able to explain to theexperts what benefits their innovations offer and help the expert firms toincorporate those features in their own designs. Thus, although the expertfirms are not directly assisted, their innovation is more effective, and regionalfirms also benefit from contact with experts. This contact is useful for firmsseeking to export their products from their region, because it can provide areference site in a highly respected company.

7.3 This report has focused very much on the electronics dimension of innovationand especially business support for innovation. However, just as it is clearthat the electronics applications sector is loosely bounded, the electronicsbusiness support sector is equally loosely bounded. There is no reason whyBSOs involved in innovation will necessarily limit themselves to support inthe area of electronics applications, and the principles articulated for a rationalBSO framework in the region apply beyond electronic applications to allinnovative businesses facing similar challenges.


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9. BibliographyBenneworth, P. S. & Charles, D. R. (2001) ‘Towards a policy for high tech smallfirms in peripheral regions’ Paper presented to 9th Annual High Technology SmallFirms Conference, 31st May-1st June 2001, Manchester Business School, UK

Charles, D. R., Benneworth, P. S. & Haydon, G. (1998) “Developing new productsand processes” Competitiveness Project Working Paper, Newcastle-upon-Tyne,Northern Development Company.

Checkland, S.G. (1976) The Upas tree: Glasgow 1875-1975, Glasgow: University ofGlasgow Press.

Moncada-Paterno-Castello, P., Tübke, A., Howells, J. & Carbone, M. (1999) “Theimpact of corporate spin-offs on competitiveness and employment in the EU: a firststudy” IPTS Technical Report Series, Luxembourg: OOPEC.

Williams, H. & Charles, D.R. (1986) ‘Electronics in the North East of England:growth or decline,’ Northern Economic Review 13 pp 29-38

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Regional Centre for Electronics Technologies (ReCET) Electronics Applications Investigation

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