South African Research units and funding scenarios

I have been holding back on this post for a while, because it touches on a very sensitive situation here in South Africa regarding the student protests about university fees (see #feesmustfall). In South Africa, many of our research and technology development units that are publicly funded are hosted by universities. These centres depend on students and particularly post graduate students to deliver services to industry. At the same time these centres depend on industry to commission research, prototypes and to also take up the graduates. With the massive shortage of funding in the education sector, many of these centres and their hosting universities are starved of funding.

In August, I was helping a leadership team think through their industry strategy. I realised that their strategy was dependent on two implicit assumptions. Firstly, that the student unrest about the fees would be contained and short lived, with government miraculously finding funding from somewhere to relieve the pressure in the system. Secondly, they assumed that the private sector would somehow remain keen to invest in R & D, problem solving and prototyping despite the political uncertainty and adverse business conditions that we have in South Africa at the moment.

I helped the team to develop a set of scenarios, and this is what this post is about. It was a spur of the moment idea at the end of a meeting.

A simple way to develop scenarios would be to take the two assumptions (we usually use uncertainties) and to construct a simple 2 x 2 matrix. I know a 2 x 2 matrix has many shortcomings, but this simple matrix was to allow a team to explore several topics they have been hesitant to consider collectively. This was about helping a group make sense so that they could develop some actions together. With the leadership team, we wrote an assumption about the stability at the university on the horizontal axis. On the left we have a stable political environment at the university, with some high uncertainty about how long the peace would last and how much public funding will be available. On the right hand side we wrote that the situation becomes both unstable and uncertain. This axis is all about the stability of the hosting university.

On the vertical axis we wrote at the top that business people remain optimistic and continues to draw on the facilities and the services of the research centres, while at the bottom we formulated the opposite.

This simple matrix gave us four quadrants which we numbered 1 to 4 clockwise.

Scenario_Matrix

The instruction to the team was to think of each of the quadrants in the extreme of the two assumptions of the quadrant if they both played out. I won’t repeat all that was said here, but will just briefly capture some ideas. In quadrant 1, the situation at the university was stable, while business people continued to draw on their resources. The group agreed that this was the preferred quadrant!

Then they consider quadrant two, where the university was in chaos, and industry had to find alternatives for their services, or they were stuck. Trust relations developed with industry over many years were harmed (again).

In the 3rd quadrant, industry is depressed or paralysed, while the university is unstable. Everybody loses. Good graduates can’t find work, good researchers and lecturers lose hope and possibly leave the system, while business slowly but surely falls behind because the instability is very local. Globally competitors are investing, expanding and growing because the world goes on.

In the 4th quadrant the industry is depressed, meaning that demand from industry is possibly suppressed. The stability at the university is uncertain, meaning little investment takes place. The university does not have the resources to build capability or offers that helps industry, while industry does not have the resources to expand their investment. The whole system just hangs there waiting for something to give.

Now I know that this little scenario exercise was done very fast (we spent an hour on this), and yes, I know it does not address the fundamental issues that the university and government (and politicians) have to sort out. But the leaders quickly realised that their whole strategy was based on a quadrant 1 scenario. In fact, the very academics that always complains about the short term focus of the private sector were now trapped in a short term survival mode themselves. No industry or society can increase its wealth, prospects or competitiveness by waiting, especially when global competitors are at the door, looking for opportunities! This quick exercise helped the team to realise they needed to expand their offerings to be ready for the very likely other quadrants. They also realised that they had to think of ways of adapting their strategy so that the small steps they could take with their existing resources would lay “platforms” or stepping stones for an as diverse as possible range of future alternatives. For instance, one of the technology centres decided to shift its focus from a product development to a process enhancement focus, because there was a strong interest from industry to find ways of improving operations, cutting costs and improving flexibility.

The scenario dialogue enabled several follow up meetings  where the team could draw in more people and together re-imagine their future alternatives. Everybody was relieved that they had some options, where before this meeting they felt trapped without many options.

What I tried to illustrate in this post is that a simple scenario exercise could be a great instrument to help a team realise that despite almost certain disruptions, they could still think in the short term and the longer term. They had some options, they could even create more. By anticipating the future they also felt more ready for the disruptions that we are all waiting for.

For me it was also important to see how this team realised that their clients (industry) also faced huge uncertainties, and that if the research centre could offer services that reduce risks and costs while at the same time creating alternatives for market and technological development. Somehow shifting the focus from their own survival (and fears) towards the needs of industry and graduates looking to complete their research helped them move forward. Thus I could help the team consider how they could ensure their clients continue to innovate, which in turn helped the leadership to better understand how they themselves then have to be innovative.

Innovation was instigated!

 

 

 

How difficult it is to change an organization around a simple insight

In the last few months I have been going back to my change and organizational development roots. I have been on a journey to reconnect my more recent insights on systemic change and innovation systems with my earlier experience in process consulting, supporting organizations to change. I have rediscovered many old ideas that are still extremely valid and useful. I even have to wonder how I forgot some things that once were so important to me. Also, some things that did not seem all that important 10 years ago now seems far more important, but I digress.

Let me share an example of how a more recent insight about innovation became more powerful when I looked at it from an organizational development perspective. In my training work on innovation systems, I often lay a foundation with some simple concepts. One such building block is the idea that there are three kinds of innovation: product, process and business model. Product innovation is the easiest (you need to mainly be creative, know something about either a key technology or a key market), with process and business model innovation often being more difficult because you might need more abstract thinking capability, technical and others skills from beyond your organizations as well as a creative imagination. Easy enough, all the participants nod their heads in agreement and indicate that I can move on. Yet, back at the office this was not so simple.

I noticed that a few of my favorite technology and R & D centres here in South Africa were struggling with this very simple idea. They were mainly focused on product innovation, arguing that their behavior is shaped by the incentives created by public grants that supported them to develop products for wanna-be entrepreneurs (I wrote about the importance of technological capability here). It was convenient to blame the public grants for this incentive, and everybody knew that the results less than ideal (many of these wanna-be entrepreneurs did not stand a chance in the market as they lack technological capability and or business experience). Thus the Status Quo was maintained with everybody talking about changing but not really making the shift.  Until the easy funding became less easy. It was at this point that some management teams realized just how entrenched the culture of product innovation was, and how dependent these organizations have become on public grants.

So I had the task of coaching a team to think through this change process, to reduce their dependence on public funding by helping their team to shift to process innovation from a mainly product innovation focus. This meant that instead of designing, prototyping and manufacturing a particular product for a wanna-be entrepreneur, they shift their attention to helping existing companies or entrepreneurs with a track record improve, enhance or expand their process technologies so that they can themselves develop, prototype and manufacture new products.

Interestingly enough, the technological capabilities for product innovation and process innovation for this particular engineering group have a lot in common. It is mainly the internal processes, arrangements of teams, self assessment criteria (are we making progress?) and the identity of the organization that had to change to make this shift. This in itself meant some business model innovation was required. They also had to become better in forming partnerships with other technology providers. In complexity thinking language, the physical technologies and entrepreneurial technologies will remain largely the same, but many additional or different social technologies would be needed. For instance, some additional skillsets are needed that are more expensive and not typical to technology centre at universities. Lastly, this process focus shift would require far more work on the premises of the client, and also working with many other unknown technologies and sectoral requirements, which meant that concepts such as self-management, temporary work teams and many parallel projects also had to be tried out. It started sounding more and more like a completely new organization and a major disruption that this client could not afford. Starting over was simply not an option. And the individuals in the current team was a real asset.  If this team could not make this shift then very few would be able to make it.

It was agreed that we needed an adaptive process, a series of small experiments that allowed them to try some process innovation applications. The horizons of innovation provided a useful framework (Tim Kastelle inspired me about this model, recently Ralph-Christian took it further). We captured their current technological and market capabilities and agreed that this focus had to be maintained while we find ways to explore the adjacent technological and market spaces without breaking the bank. Tim Kastelle always say 70% of the focus should be on the current block (horizon 1). We did this by first looking which process innovations would be interesting to some of their existing markets (we found a few). The we looked at where their current technological capability could be used in new markets, but in a process innovation way. This could be done by investigating some economic sectors a little deeper.  Thus most of the energy of management remains on the current technological base and markets, with an additional focus on process innovations in an adjacent markets and technologies. We were all surprised that these ideas required very little additional funding (at first), with more specialized equipment and skills required if any of these ideas took hold.

The moral of the story is this. It sounds simple to say “shift attention from product innovation to process innovation”. People might actually agree this is important. But to make this shift requires many internal changes. A process of exploration and mental simulation using a simple framework was all it took to identify some areas where the current management team with its current resources could try several new ideas, without much change to the business plan or operations of the organization. I am very pleased with this outcome.

Thanks to the team for trusting me to facilitate this process. You know who you are!

New series: Organisational knowledge and innovation

In the next few posts I will elaborate on the role of knowledge in enabling learning organisations. In a previous post (here), I have concentrated mainly on how knowledge for innovation is generated in organisations. The response from readers was very positive, and as I worked with management teams to strengthen their innovative culture I realised that there are some further concepts that I must elaborate on. It is not only about what workers do, it is also about the environment created by leaders.

The first post in this series will look at the difference between tacit and explicit knowledge, and how both are formed. The second post explores why explicit knowledge dominates organisations. The third post will discuss how leaders can embrace tacit knowledge and encourage their teams to create new knowledge together.

“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.” 
― Confucius

Unlocking knowledge in organisations

A favorite topic that I love to talk, think and write about is the knowledge that is lurking around in organisations, often untapped.

Last week, the University of Stellenbosch Business School, where I am a member of faculty in the Executive Development programme, published an article I wrote in its thought leader newsletter. It is titled “Unlocking knowledge in organisations to enable innovation”. What started off as a 1200 word article was reduced to 700 words by Linton Davies, the wordsmith that always helps me to better express my ideas when I write formal publications. I think this article as it stands now must be the most I have ever said in only 700 words!

I am really proud of this article in its current short form. It started off many years ago as a much a more complicated module in my innovation systems training session. Now it is a practical workshop format that I use often in organisations supporting innovation, but increasingly in businesses, government programmes and even NGOs.

It is informed by evolutionary and complexity thinking, and is thus in line with my current research and the principles that I now pursue and value. Of course, a lot of extremely important theory is left out in this form, but by helping managers become more aware of how the inhibit or promote knowledge generation in their organisations is for me already a great start.

 

Instigating innovation in traditional industries

The average manufacturer in a developing country grapples with the notion of innovation. That is why they are often called “traditional”, although almost each industry would have one or two outliers. While governments, like South Africa, offers incentives to stimulate innovation, most manufacturers do not identify with the term the way the governments use it. For instance, when governments use the word “innovation” they often mean “invention“, in other words something that can be protected, copyrighted and owned (more about the differences between innovation and invention here). While I understand the argument for patenting and protection I think this narrow definition of innovation is inhibiting many industries from increasing their productivity and competitiveness by copying what works from elsewhere (catching up). It also fails to recognize that in many value chains the manufacturers themselves make components or sub-systems that goes into overarching architectures (defined by standards, compliance, specifications), so their design authority is limited in scope.

Innovation_invention

Herewith a list of synonyms from thesaurus.com for innovation that I have assessed to see how enterprises might understand or respond to these words:

  • Modernization – lots of enterprises dream about this but often do not have the many nor the organizational capability to pull it off (one day, next time)
  • contraption – many innovations and most inventions result in one of these. You can see them standing in the corners in most factories
  • Mutation, addition, alteration, modification – this is what most innovations in traditional industry would look like. They are doing this all the time as their machines gets older, but this behavior is mostly not recognized nor accelerated
  • newness, departure, deviation – the bolder enterprises with more financial and organizational capability might try these, but it takes capital to maintain.

Most people understand innovation as an outcome, but the word itself is a noun that implies change and novelty. It is about a shift, even if it is often incremental. The reason why so many of our enterprises here in South Africa are not deemed to be innovative is because they struggle (or perhaps do not have the organizational capability) to manage several simultaneous change processes. As Tim Kastelle posted some years ago, change is simple but not easy. Although this is often described as a technology problem it is really a management problem (see some older posts here). I would go even further and state that in many industries the margins are so thin that even those enterprises that have a reasonable management structure would struggle to finance many innovations at the same time.

However, in my experience of visiting more than 50 manufacturers every year I am always stunned and awed by how ingenious these companies are. They keep old machines running, often modifying them on the fly. They operate with fluctuating and unreliable electricity, inconsistent water pressure and often hardly any specialist support. What policy makers often do not recognize is that in developing countries it takes a lot of management time and capacity just to keep the throughput going. The time and effort to go explore “change” beyond what is necessary in the short to medium term is very expensive. The costs of evaluation new ideas, new technologies, new markets and better suppliers are all far more expensive in developing countries than elsewhere. Yet, at the heart of innovation is the ability to combine different inputs, different knowledge pools, different supporting capabilities with different market possibilities.

There are two implications for innovation promotion practitioners.

  1. The process of instigating innovation must start with recognizing how companies are innovating NOW. How are they modifying their processes (and products), and how much does it cost? What are the risks that are keeping them from introducing more novelty? Perhaps use the Horizons of Innovation (my next post) to create a portfolio of innovation (change) activities that can be identified at the enterprise or industry levels.
  2. It is hard if not impossible for different manufacturers in most countries to figure out what others are struggling to change at a technological level. Use your ability to move between enterprises to identify opportunities to turn individual company costs into public costs (this is often cheaper). Do not take the innovation away from enterprises, but use your meso level technology institutions to try and accelerate the learning or to reduce the costs of trying various alternatives. Be very open with the results to enable learning and dissemination of ideas.

The process of instigating innovation must start with recognizing where manufacturers are naturally trying to change, just like a change process in an organization must start with understanding current behaviour, culture and context. Somehow innovation have become so associated with a contraptions and narrow views on technology that the organizational development body of knowledge and management of change have been left behind.

If the culture cannot change then the business cannot change

I received many comments and tweets about the previous post. Thank you for ideas and comments

Some agreed that innovation is the result of culture. Some said that culture is not only created by management, but also by staff. For instance, the admin pool in a traditional engineering company can be very innovative (and creative) even if the rest of the business is stuck in the 1980s.

Somebody told me that creating an innovative culture is in itself a chicken-egg (low equilibrium) situation, because for a leader to create (or enable) an innovative culture takes innovation in itself. You can see where this is going.

Then I discovered a recent cartoon in my inbox by Hugh Macleod of Gapingvoid fame. This cartoon says it all.

An organization that cannot change its culture (due to too rigid systems, due to lack of management capability, due to its people) has become trapped in time. While some organizations may exist like this due to sheer momentum, due to protection (by law), by continuous funding, or for whatever reason, will struggle to adapt to external change. These organizations are not resilient and they are at the mercy of external supporters (a.k.a clients, benefactors, funders or shareholders).

I was also asked how some organizations can still innovative despite a poor innovation culture. Again, it is of course possible to replace a machine, or for a few people in an organization to design something brilliant, or for a new process to emerge. Of course it is possible. But it takes much more energy, determination of a few, and some really tenacity to be innovative in an un-innovative (what is the right word here?) culture.

I am sure more comments will come.

Cheers, Shawn

I appreciated the comments received by e-mail, but wonder why people are not posting comments to this article? Is the WordPress registration process to difficult? Please let me know. And keep those comments coming!

Innovation as cultural as opposed to innovation as a technique or function

Reflecting on the correspondence I have received after my previous post and recent training sessions with manufacturers, I realize that people are looking for tools and tricks to “fix” innovation. Sometimes it is actually not even about innovation, but about making up for past decisions like not investing in technology or market development when they should have. Others think of innovation as a function, or as a management tool that can be standardized into a job description or an area of responsibility. While this is possible in some contexts, I don’t find this approach to innovation so useful in the smaller and medium sized manufacturing firms and the research/technology institution space where I am working in.

For me, innovation is firstly a value, perspective on how organizations should be. When management says “we are an innovative organization” or “we want an innovative culture” or “our reputation is that we are innovative” then we can move to tools, portfolios, tricks, and tweaks (those things that people in innovation functions must attend to). Many textbooks, articles and blog sites on innovation and technology management are then useful. Actually the challenge is to decide which of the bucketloads of advice to use, and consultants like me typically help organizations to choose a few tools and to then use them consistently and fully. I would dare to say that it is relatively easy to help companies that are already innovative to become more innovative.

The area that I am really intrigued by, are those organizations that are not innovative, or that would not describe themselves as having an innovative culture. Maybe they used to be innovative. Maybe they are innovative in some areas, but not in others. Maybe they had one or two tricks in the past that have now become old. These could be extremely competent organizations, like a research programme, a manufacturer of highly specialized industrial equipment, or an organization that simply design and manufacturers what their customers expressively tell them to make. Even if the outputs of these organizations can be described as “innovative”, these organizations themselves do not necessarily have innovative cultures that constantly are creating novel ideas, processes and markets. In my experience these organizations have technically brilliant people, but management is often not able to harness the genius, experience or creativity of their people. The main reason for this is not a lack of technique, tools or tricks. It is because of a lack of an innovative culture, leading to a lack of innovative purpose. These organizations are trapped. They are equipped for the past, but they are paralyzed by all the choices they have to make about the future. For management, it feels like everything that they have in place are inadequate and need equal attention, ranging from attracting staff with better (or different) qualifications to finding new markets, developing new technological capability, sorting out cash flow and capital expenditure, addressing succession planning, etc.

Improving the innovation culture of an organization is a complex issue. It is not about tasks, functions or tools, but about changing relations between people, within and beyond the boundaries of the organization.

When working with organizations that must improve their innovative culture, motivational speeches, optimistic visions of the future, etc, are not useful and could in fact deepen the crises facing management. Instruments such as scenario planning, roadmaps, foresight techniques, or interventions like starting a R&D unit, a lean exercise to reduce waste, are all addressing the wrong issues and distract management from confronting the real issue that are stifling the organization. It narrows the ability of management and specialists to scan within and beyond the organisation for opportunities that could be used to change the way people work together, think together, solve problems together. The typical employee in a manufacturing or technical environment loves solving problems, love tinkering with novelty. But often management becomes so performance or target obsessed (lean?) that they don’t tap into the latent potential of their people.

Improving the innovation culture process starts with connecting management back with their people. It starts in the present, the now, not the future scenarios, not with using innovation techniques, better analytical tools, and in most cases not with some or other management fad. It goes beyond trying to improve products, processes or business areas, beyond gaps in the management capability. It must look at the relations between people, between what people know and can do now (or in the recent past), and the potential the people see to make small improvements.

When management has the courage to decide to improve their innovative culture it starts a process that cannot be described as incremental improvement, as that sounds too directed. It is rather like a deepening, or an awakening where employees are inspired to contribute, and management is more aware what they can do to enable their employees to become more innovative on all fronts. Of course, management also face the risk that outdated management approaches that does not seek to empower employees to be creative will be exposed, and some tough decisions will have to be made.

For me the most promising approach to improving innovation in an organization is a organization development approach (not limited to design, not based on technical innovation instruments) based on complexity thinking, like our Systemic Insight approach. We are using instruments such as Sensemaker developed by Cognitive Edge to find areas for improvement, areas where relations between knowledge objects (knowledge, artificats, heuristics, etc) and people can be improved, starting from where the system is and then probing to understand what the immediate potential is for improvement. It allows people to take many small steps in parallel to improve the system and to push back the boundaries that have constrained the creativity in the organization.

In my view, building an innovation culture goes far beyond establishing or refining innovation management functions. It is a strategic issue that is initiated by top management, but that will soon spill over into every area of the organization, hence it cannot be driven from a management function like “innovation”.

Instigating innovation: Where to start

I am currently focused on strengthening the manufacturing sector. Increasingly I am speaking at meetings, events, in boardrooms and in front of post graduate students about innovation. In this more engineering-minded world people are asking me the whole time for a few tips to get innovation going.

  • “How about an idea box?”
  • “How about canvassing ideas for a new product design from our customers?”
  • “How about rewarding our engineers with a profit share if they design a new product?”

The truth is, many manufacturing enterprises, especially the smaller ones, are too sliced into specific functions. Design designs, manufacturing manufacturers, salesmen become creative about delivery dates, and accounts, well, they count costs. This hierarchy makes information flows about potential improvements, new market opportunities and some old tricks that could become useful again very difficult. The cost of coordination in these enterprises are very high. In these silo-based organizations the costs of finding information, new signals and new ideas from outside the organizations is extremely high, and in general, these organizations struggle to learn.

A second problem is that most smaller manufacturers are mainly focused on product innovation. Which does not mean being focused on knocking the socks of their customers with frequent improvements or brilliant designs. Unfortunately many of the more traditional manufacturers are focused on how to get the price down or how to sort our quality issues. Which is actually a kind of process improvement, except that it is a very narrow kind of process improvement. The challenge with this incremental approach is that you can at most only grow and develop as fast as your customers can articulate what they want. Competitors or substitutes can also upset market relations by coming up with novel solutions that an incremental approach struggles to generate.

A third problem is that innovation is only done when customers demand it. It is passive. It lives in bursts to get things right, and then it settles into a problem solving mode until a next customer makes some unreasonable demands.

What many manufacturers lack, especially those in the more traditional sectors like metals and engineering, is a focused effort by top management to build an innovative culture that is actively trying to find product, process and business model improvements. It must be focused internally, in order to constantly rethink the business and its core processes, and it must be focused externally, to what customers and competitors are doing. The really good companies are also looking beyond current markets and competitors to new technologies and how they might shape the future.

This far I have addressed a business perspective. But research organizations, technology transfer centres and industry support centres can also get trapped in a low innovation culture.

I am now working with a few industry groups and research and technology centres to find out how these organizations can move beyond “catching up” and responding to change towards anticipating what is next. It sounds really simple, but by simply mobilizing more and more people in the organization to start searching for what’s next has already yielded amazing results in a short time. Maybe I am over optimistic, but already I can sense the innovation cultures change in these organizations as more and more people become involved in searching for possibility.

A quote that is attributed to William Gibson goes “The future is already here – it’s just not evenly distributed”. Step one is get more people involved in searching for what is already here, it is just not recognized inside the firm or industry.

New series: Instigating Innovation

I have been developing a new capacity building method and training approach that brings together my work in innovation systems promotion  and my work on improving technology and innovation management. I call it “Instigating Innovation”.

I chose “instigating” because it has a more positive ring to it than provocation or incitement. While it is a noun with mainly a positive tone, it is a bit more aggressive than support, enable or encourage or even stimulating. I have been referred to in my past as an instigator of change so I thought this was a good idea.

Why was this effort firstly necessary and secondary so rewarding?

My work on innovation systems is mainly aimed at assisting meso-organizations such as technology transfer centres, research centres and universities to be more responsive to the needs of the private sector. While it only takes a few interviews by a senior decision maker from one of these institutions to a few leading enterprises to get the organization to improve its offering to the private sector, it does not solve the problem that these institutions often needs a continuous process of innovation itself. So while they can respond to the needs of the enterprises (for instance by launching a new service, or making a key technology available, etc), they often are not able to innovate constantly in order to anticipate what they private sector might need in the future.

With my other hat on, working in the private sector to improve the management of technology and innovation is focused on helping individual and on rare occasions, groups or networks of enterprises to formalize or improve their management of innovation. Here my challenge is that most enterprises innovate by accident, or have elements of an innovation management approach in place without knowing it. But it is not systematic nor is it consistent.

So both supporting institutions and enterprises lack some very basic frameworks to focus their existing development and learning processes to ensure not only short term results (new products & services, process improvements, cost reduction, etc) but to also ensure longer term success (playing in the right markets, selecting the right technologies, investing in the right kind of knowledge, partnering with the right people, etc). Furthermore, most enterprises and supporting institutions have something else in common: they often face resource constraints with the most versatile of their staff being involved in problem solving and not thinking about the future and what may be possible sometime down the line.

I set aside most of March and had great fun reading through my collection of articles, books, reports of past missions, and speaking to entrepreneurs and development practitioners I trust. Based on this investigation I decided on the following criteria for instruments to include in the Instigating Innovation module:

  1. Each instrument or concept must be relevant to both enterprises and meso-level organizations05 building innovative capacity small
  2. Each instrument must provide a very simple framework that can be illustrated on a flipchart
  3. The simple framework must be usable as a workshop format that allows people to reorganize or explore their current and future practices
  4. The frameworks must be scalable, both in depth (allowing pointers for a deep dive into an issue) and in width (useable for a product, issue, portfolio or the strategy of the organization as a whole).
  5. Lastly, I did not want to be the consultant with a project, I want to be the facilitator that enables change and that builds long term sustainability into the organizations that I work with.

This was a very rewarding exercise. Not only do I love reading about innovation, change and technology, I love finding better ways to explain these concepts. It was also great to find a way to connect my work on innovation systems, which often seems abstract, with the tough decisions that the enterprises that I work with must confront and address. I tend to work in the more technical domains dominated by academics, engineers, scientists and manufacturers, so finding a simple yet convincing way to add value to what these clever people do was important.

I will in the next few posts reveal a little bit more of the tools I selected and how it can be used.

Thank you for the EDA team in Bosnia and Herzegovina who motivated me to turn this idea into a capacity building format and who agreed that I try “Instigating Innovation” on their team during my visit to Banja Luka in May 2015!

Instigating Innovation in Banja Luka with the team from EDA
Instigating Innovation in Banja Luka with the team from EDA

Building institutions that supports knowledge flows to industry

It sounds like a cliche to state that manufacturing has changed a lot in the last 30 years. Yet people often say this without thinking of how it has changed. It is not just about the size of our manufacturers, or the increased competition from Asia or elsewhere. It is also not about the sophisticated equipment and the tremendous range of products that are now available to consumers. An important aspect of manufacturing change is the dependence on knowledge from internal and external experts, or Knowledge Intensive Business Services (KIBS). These knowledge experts include engineers, product developers, process experts, industry experts or logistical experts. While in a country like Germany, there are many public, academic and private specialists to go around and assist manufacturers to tweak their processes or solve specific problems, in developing countries we have a bigger challenge. Knowledge intensive services are prone to several market failures, and therefore it is important that we consider the role, importance and challenges that these knowledge services have.

Let me just state upfront that despite my PhD research focusing on the importance of knowledge services in the manufacturing sector, I am hesitant to treat the “knowledge economy” as something separate as it is often done in the South. The increasing importance of many different kinds of knowledge throughout the economy is pervasive. Just ask a commercial farmer in Africa how they have had to change their farming practices in the last 3 decades. It is almost unthinkable that 30 years ago a person could start commercial farming without a tertiary education or at least one highly experienced supervisor. The same goes for manufacturing.

There is a big difference between generic Business Development Services (BDS) and Knowledge Intensive Services. While with BDS our problem is to get good all-rounders to provide services to enterprises where it is very hard to determine the real value of the service offering, in Knowledge Intensive Services the service is very specific to a certain (technical) problem, it is deep knowledge and the value (and cost) is usually very clear. Firms that know what they are doing need knowledge intensive service providers to fill in the gaps where deep knowledge is needed, a BDS provider is typically out of their depth with a manufacturing enterprise that are trying to be competitive.

  • The first challenge we have with intensive or specific knowledge is scale. When just a few manufacturers use more advanced equipment in a country there is a good chance that few service providers, experts or technicians will be available. In market failure terms, this is called an indivisibility (you cant divide the cost of the expert easily between different enterprises, or just take a small piece of the expert). It could also be about scale (not enough business to justify the emergence of a specialized service provider). It is often difficult for manufacturers to coordinate their use of expert service providers, or to coordinate the procurement of similar equipment that makes the development of a pool of service providers possible. This is called a coordination failure and it is pervasive in our developing economies.
  • A second challenge is that many manufacturers are hesitant to search outside their firm. This is often due to costs (which includes the time spent to find the right expert), but also because for so long manufacturers had everything they needed in-house. In South Africa, many of our older firms are hesitant to use “consultants” because they don’t trust them. This could be described as a market failure around asymmetrical information or adverse selection.

One way to increase the availability of knowledge intensive service provision in a developing country is through the connection between academic institutions, public funded industry support programmes and industries themselves. This requires that technical or knowledge experts are able to be released from certain teaching or research duties to work with firms. This is often very difficult due to the high student load in many of our African universities. I am often astounded by the world class research capacity and expertise that are hidden inside universities that are desperately needed in industry. This failure has many names, but in market failure terms it is called a public goods failure, in other words, public funds are not used to overcome persistent market failures in industry.

A second and parallel strategy should be to make sure that the Meso level organizations (which include universities and higher education institutions) are concentrating on overcoming the market failures in industries and in firms. In developing countries these Meso organizations, meant to address specific performance issues at firm or industry level, are more focused on securing and spending national (or international) funding than to become valuable and responsive to the needs of industry. To get the Meso organizations focused on the plight of firms requires an industrial and modernization policy that is focused on building the right economic and industry supporting institutions – this cannot be done just by merely implementing projects or programmes – it must be systemic. With right I mean relevant and equipped with high level experts that understand and can relate to the issues in industry.

This phenomena of the disconnect between public knowledge services and the need of industry is more widespread than you would think in our developing countries. It is a public good failure that undermines the well being of our economies. I believe this is also an ideological failure, because governments tries to use their funds to provide incentives or prioritize certain kinds of behavior both in the public sector and in the private sector. Instead of responding to what is emerging or what is needed in the private sector, the public sector tries to prioritize what it believes to be ideal. The result is that the firms that are most able to create jobs and wealth are left without public support.

In Mesopartner we will be working on consolidating our experience in bottom up industrial policy. We will work closely with research organizations and development partners around the world to strengthen and develop a body of knowledge on how some of these issues can be addressed in the developing world. We do this by developing a theme where instruments, concepts, theories and practice can be integrated. If you are interested in participating in this process, or have experience to share, please give us a shout.

I have previously written about this some years ago in the post about the service sector  and about the increased importance of knowledge intensity here.