Innovation is not linear

You would think that everyone would know this by now.

You are wrong.

Frequently, policy makers, universities and technological supporting institutions erroneously describe innovation according to a linear model that assumes that innovation is applied science. It is assumed to be ‘linear[1]‘ because it is believed that there are a series of well-defined stages that innovations go through, starting with research (science), followed by development and then finally production and marketing. In this linear model scientific research is deemed to be the most important step as it is the first step in the process. Although there are some cases that have followed this route, they are in the minority.

A softer version of the linear process of innovation is where it is assumed that the knowledgeable people are in the academia or business support structures, and that the task of policy makers is to devise ways to transfer the knowledge flows from universities and supporting structures to businesses. The main perceived limitation is the inability of business people to learn by themselves or to absorb knowledge from the system around them.

In the real world, innovation is dynamic and it is complex. It sometimes starts with a clever idea by an entrepreneur about an unmet need in the market. At other times it starts with a customer complaining to a service technician. Often it starts with a problem or obstacles, and in a few cases it is the result of brainstorming. Wherever it starts, innovation is definitely not neat and tidy. In fact, it is quite chaotic.

But there are elements of the innovation process that may appear linear, like a product development process (product innovation). But this scarce and mainly happens in professionally run firms. For most of us, innovation is not a structured process.

Again, it is important to understand that innovation in a systemic context often arise due to the interaction between different social actors like enterprises, technical specialists, suppliers, customers and maybe the odd academic.

Notes:

[1] The ‘linear’ innovation process was first criticised by KLINE, S. & ROSENBURG, N. 1986.  An overview of innovation. In The positive sum strategy: harnessing technology for economic growth. Landau, R. & Rosenburg, N. (Eds.), Washington, DC: National Academies Press, pp. 275-305.


The difference between invention and innovation

This post is copied from a chapter in a book that I am working on about the fundamentals of innovation systems. I am responsible for the thematic area of innovation systems within the knowledge consultancy mesopartner that I am a partner of. If you want to stay abreast of the work I am doing on this topic then I urge you to subscribe to my blogsite so that you can receive an e-mail every time I add some content (click on the sign me up button on the top right).

We often find that development practitioners, business people and policy makers are not clear about the distinctions between innovation and invention.

A widely accepted distinction between invention and innovation is provided by Fagerberg et al. (2005:4). According to Fagerberg et al., invention is the first occurrence of an idea for a new product or process (first to the world), while innovation is the first attempt to carry it out in practice within a specific context (by, for instance, introducing a machine from another country into a local manufacturing process). Thus invention and innovation could be closely linked, although in most cases they are separated in time (sometimes decades or centuries), place and organisation. However, the fact that innovation typically emerges within a complex system is often overlooked. For instance, as Schumpeter (1964/1911) explained, the innovator who invented the steam engine still had to wait for others to develop the different aspects of the rail system before it could be commercially viable. The steam engine was initially invented in a completely different context, again illustrating how inventions are dependent on the context in which they arise.

While many innovations can be linked to well-funded research programmes, funding is not a pre-condition for innovation. In fact, in many cases a lack of resources could stimulate people to innovate. Firms usually innovate because they believe there is a commercial benefit to the effort and costs involved in innovating. This commercial benefit could be measured in terms of return on investment or profits, but it could also be about cost saving, resource optimisation, solving a recurring problem or responding to the demands of a customer. Often increased competition, changes in market structure or market demand, or changes in technological performance also affect the innovation process. However, innovation requires taking or at least managing risks. Therefore, firms with low capital or with tied up resources are less likely to innovate.

To turn an invention into an innovation, a firm typically needs to combine several different types of knowledge, capabilities, skills and resources from within the organisation and the external environment (Schumpeter, 1964/1911). The interaction between knowledge and learning will be discussed in more detail in the next section.

The willingness of an individual to tinker and explore better solutions is influenced in part by the organisational context of the innovator, but also by factors such as education, qualifications, meta-level factors such as culture, personal characteristics (such as patience, inquisitiveness or tolerance of failure) and the institutional environment. Other factors such as competitive pressure, problem pressure, or social and economic incentives also play a role. Locations with a more diverse economic and social make-up are more likely to be conducive to innovation, as actors interact with people with similar and different interests. The proximity of other actors and the density of interactions make imitation, cross-pollination of ideas, learning from others and the combination of different ideas into new products and services more viable (and less expensive). This feature could explain why urban areas are often hotbeds of innovation – there are more people with different ideas and perspectives that stimulates and often absorbs new innovations.

Why does this matter? Well, many countries (including South Africa) over emphasize “invention” (even when they say “innovation”). Many financial incentives, loans and support programmes prioritize novelty as opposed to absorption. Absorption is important for innovation, as it indicates how ready firms, industries or societies are to not only learn from their own mistakes (and success), but to also learn from the mistakes and the success of others.

Therefore innovation stimulation is about getting our developing countries ready and willing to absorb insights and ideas from others, as much as it is about getting our entrepreneurs to be creative.

As someone famous once said: “why re-invent the wheel?”. With our small budgets we are highly unlikely to out-invent our international peers on many of the topics that are now seen as “sexy” like climate technology etc.

Our priority should remain to get our entrepreneurs and enterprises to be innovative at product, process and business model level. Only once we improve our absorptive capacity will we be able to become inventive.

Sources:

FAGERBERG, J., MOWERY, D.C. & NELSON, R.R. 2005.  The Oxford handbook of innovation. Oxford ; New York: Oxford University Press.

SCHUMPETER, J. 1964/1911.  Theorie der wirtschaftlichen Entwicklung. Eine Untersuchung über Unternehmergewinn, Kapital, Kredit, Zins und den Konjunkturzyklus. Berlin: Duncker und Humblot.

Rediscovering things I once knew: 4 types of innovation

I am in the process of preparing for an intensive appraisal of several sectoral innovation systems around a University of Technology in South Africa. While reading up on my old notes I discovered something written a long time ago by the late Christopher Freeman in 1987. I thought it a good idea to share this with my readers.

According to Freeman, four types of innovation can be distinguished:

  • everyday, “incremental” technological change in small steps – an improvement in a production process, an improved product, a new service. It is this type of innovation that ensures that the productivity of firms will grow. Yet it does have inherent limits: even continuous improvements were, for instance, unable to prevent the replacement of sailing ships by steam ships;
  • technological breaks due to radical innovations, which alter the course of development of an entire industry – the introduction of the zipper, nuclear technology, or electronic word-processing systems are examples;
  • changes in a technical system that affect more than one industry; one example is the success of plastics;
  • changes in a techno-economic paradigm – new technologies prevail throughout entire societies, new industries emerge, old industries lose significance, conventional organizational patterns are invalidated. This type proceeds from the long-wave theory.

This is an important reminder that I have to design my process to be sensitive to these different kinds of change within technological systems!

 

Responsive but not pro-active innovation in business

During last year I conducted more than 100 interviews at engineering and high-tech firms in South Africa. This fieldwork was part of trying to better understand the innovation systems of which these firms formed part. On reflecting on the interview notes, I am shocked by a pattern that shows that the greater majority of these firms had a mainly responsive strategy to innovation. This means that many firms mainly did development and research work once customers asked for a specific improvement or change in a product. At least they are very responsive, but how to get from responsive to pro-active?

Although there were many firms that had a more pro-active approach to research and development, they were in the minority. Very few firms started from a scientific or technological base, combined with some or other research problem. Even firms that reported formal research and development budgets were mainly busy with incremental improvements on existing products.

From the very small sample that I have I can see that firms that had some kind of official or formal approach to research and development outperformed firms without these systems. It begs the question whether they first performed better and then engaged in product development (based on some research), or whether they first formalised research and then improved their performance. This question leads us nicely to the important point that innovation goes beyond product and process research, and that it also includes business management innovations. My research definitely supports the idea that more innovatively managed firms seems to be more creative in terms of research and development aimed at product or process innovations.

Many firms in South Africa complain that being pro-active requires fast amounts of working capital, as the economies of scale are too low to warrant huge investments. So many firms work from a successful past product. This has two implications. Firstly, that new entrants will struggle to get in at all. Secondly, that firms without a product to build on would be in deep water. But does this also pose an opportunity? Does this mean that if we can find new technological ways to overcome scale dependencies we can create new markets? Secondly, in a country with very demanding and sophisticated customers, should there not be many entry points that are not so scale dependent?

My New Years resolution is to investigate the relationship between science in business and innovation in business. Why are so few firms using a more scientific approach or basis in their business? Can science in business be stimulated? Can we use our technological and scientific base to create completely new markets, thus moving from fast and customised response to pro-active market creation?

PS. With scientific approaches in business I do not necessarily mean having labs full of white coated scientists brooding over bubling concoctions.  More about that in a next post.

How do you think we can deepen the use of science in business?

User-led innovation

Here is another short article that I wrote on the topic of user-led innovation. Many of my clients are asking about this topic. Because we are so far away from the industrialised countries, and because we have such huge geographical spaces to cover, we are faced by sophisticated and sometimes unreasonable demands. Therefore lead firms, lead customers, government and problems solvers are all asking for some very demanding solutions. Many of them are not waiting for new innovations to come from the markets, they are simply innovating to solve their own problems.

In recent years the focus in value chain promotion has increasingly emphasised the importance of systematic and market-based interventions. Within innovation system promotion, markets are important not only as selectors or buyers of successful innovations. Specialised users or unmet local needs could also be used as an impulse to stimulate innovation in a specific part of a value chain. The challenge here is not to ‘import’ technology or ‘solve’ a problem, but to get industry and its supporting structures to respond to this opportunity. This can often be achieved by better articulating unmet needs, or facilitating interaction between innovative producers and user groups.

Authors such as Von Hippel (2005, 1988) have over the years made a strong case for recognition of the innovations introduced by users, especially lead users. For instance, Von Hippel argues that customers (markets) often know what design criteria they have, and if a producer can capture this knowledge then new products could be created. Other authors, most notably Michael Porter, has in several publications indicated that the force of market demand not only shapes the design of products and technologies or strategies of firms (i.e. 5 Forces analysis), but that it could affect industry structure (i.e. the Diamond of Competitiveness). In his work Porter also emphasises the role of sophisticated or demanding customers in the innovativeness of firms.

Lead users may also provide unique opportunities for firms to innovate by customising or combining existing elements of technologies to respond to the needs of a potential customer group. For instance, many medical devices originate from the US or Europe. But surgeons and operating theatre staff working in distant locations may have unique functional requirements for these instruments, and if approached or observed in their working environments may provide important clues or insights on how instruments can be customised to improve their functionality. While firms in developing countries may be far from large markets, they are often close to specialised or niche users that may then create opportunities for innovators.

The risk of an emphasis on user-led innovation is that path dependence may occur and that blindness to rival technologies may result in a marketplace being disrupted by a rival technology. Path dependence occurs when producers respond to the demands of a certain kind of customer through investment choices that do not allow the producer to switch to a different technology or market. These customers may in turn be exposed to other market forces or technological change processes that may affect their continued demand for a given technology. The risk of the strong governance of strong buyers in the chain may then lead to a tunnel view that does not consider the upgrading potentials and requirements of the whole innovation system in the sector or region, but a too-narrow perspective on companies and their need to upgrade according to the demands of the main buyers and final customers[1]. The insights as well as interventions may be too narrow and may not lead to more proactive knowledge loops but to a reactive orientation that does not encourage new ways of doing things in the system.

Experienced value chain practitioners will be able to identify the opportunities and the risks of working with lead users as sources of innovation, as in value chains lead customers often emerge who can be used to better position certain actors in a chain. Although this usually works to the benefit of certain kinds of chain actors, it could also be argued that it deepens the dependence on specific kinds of customers (resulting in path dependence).

Sources:

VON HIPPEL, E. (1988) The sources of innovation, New York, NY, Oxford University Press.

VON HIPPEL, E. (2005) Democratizing innovation, Cambridge, MA, MIT Press.


[1] For instance, the IDS has published several papers on this and related topics which can be found at http://www.ids.ac.uk/go/idsproject/clusters-in-the-global-economy

Connecting innovation systems with local and regional economies

Many of you have asked me how I connect my current focus on innovation systems and technological upgrading with industries with my past experiences of local and regional economic development. I thank you for repeatedly asking this question, and apologise for not providing you with an answer. The reason for my silence was that I was also not exactly sure how to connect these topics. But I think I am now starting to understand how these topics relate to each other.

Let me try to explain this.

Before I continue I need to make sure that you understand that an innovation system is far more than one or two innovative firms.  Freeman (1987:1) defined an innovation system as “the network of institutions in the public and private sectors whose activities and interactions initiate, import and diffuse new technologies.The emphasis is mainly on the dynamics, process and transformation of knowledge and learning into desired outputs within an adaptive and complex economic system.

So how does innovation systems work within regions or places? Well, it is often affected by issues such as trust, social and informal networks, formal relationships, common customers or common inputs and other factors. You will notice that it sounds very similar to the characteristics of a cluster in its early days. The main characteristic of a local or regional innovation system is that it is mainly focused on a specific geographic space and on the specific knowledge spill-overs that occur around certain firms, industries or institutions unique to that space.

You will immediately notice that innovation thus favours places with more people and more firms. You are right, a close relationship exist between density of interactions between people (provided for by towns and cities, nightlife, and frequent social exchanges) and the innovation system. It does not mean that innovations are limited to these spaces, but simply that they emerge faster or with more success in these spaces. This is largely caused by the increasing importance of knowledge exchange and interaction between firms, knowledge service providers and technological and educational infrastructure. But more about that in a seperate post.

I want to leave you with 3 questions that I have found to be useful to better understand the relationship between places and innovation systems. I use it frequently at the start of an assessment into an innovation system, or to stimulate thinking of public and private leadership.

1) Why are people innovating in this specific location (and not on another space)?

2) How does this space or place support innovation, and more specifically, how does it reduce the costs of innovation?

3) How do innovations in firms affect this space?

Bear in mind that with innovation I mean product, process as well as organisational or business model innovations.

Ask these questions and let me know what you find. I am sure that you will find that many places do not actively support innovation (unless you have some really determined or stubborn innovators there). Nor do they make it cheaper for people to innovate, exchange knowledge or stimulate joint problem solving (or opportunity exploitation). To me it also seems increasingly obvious that the role of cities and towns in Africa are not fully exploited in national economic development as spaces for innovation.

In South Africa, innovation happens mainly in 9 major and about a dozen secondary urban spaces. No amount of public policy will break this pattern until settlement patterns change, or until smaller places start to attract skilled people that can afford to innovate from cities.

So how can we support innovation systems in each and every town? How can we built regional and local institutions that reduce the cost and risk of innovation. Again, I dont mean only product development as an innovation. I mean process and business model innovation as well.

Until we can build our own local technological and educational institutions using local priorities and local resources from the bottom up the trend of urbanisation and migration to the major centres will continue. This is great in terms of reducing the costs of innovation, but it makes us very dependent on national policy, and only a few good local administrations. I would prefer a situation where we can build our local institutions around local issues, this giving firms in for example a mining region a head start in innovating around problems or opportunities related to mining.  For instance, in the Mpumalanga  province (South Africa) we have a lot of coal mining with its associated problems. Why is it so difficult to create a small but focused research institute or technological institute in a town that will focus on applied research and knowledge generation around environmental technology related to coal mining? Could this not be an impulse with environmental solutions as well as innovation as outcomes? I could imagine that such an institute could create positive externalities in a space that would lead to innovation that our both cutting edge and relevant to our society.

Now if you think about it, then Africa is rich with millions of ideas (also known as opportunities, challenges and obstacles) that could serve as impulses to create, stimulate or grow local innovation systems around relevant issues. Dont get me wrong, I dont mean that the public sector must do the research, and then the private sector must commercialise the research (although a little of this certainly helps). I mean that public funds or public private partnerships could be used to establish local institutions that create positive advantages for firms to innovate within regions through reducing the costs of finding relevant information (about a problem, opportunity or technology) and by highligthing opportunities for application of new ideas (by better articulating demand or applications). But there must be sufficient scale of infrastructure to allow the people with the right knowledge, experience and perhaps financial resources to settle in the region to exploit (or address) the opportunities through innovation.

Let me know what you find when you ask these questions.

PS. I know I will receive hundreds of angry e-mails that I am implying that rural areas are doomed.  Re-read my post before hitting ‘send’.

UNU-MERIT: How firms innovate: R&D, non-R&D, and technology adoption

You may be interested in the following paper from UNU-MERIT by C. Huang, A. Arundel & H. Hollanders

The official abstract is below.

Non-R&D innovation is a common economic phenomenon, though R&D has been the central focus of policy making and scholarly research in the field of innovation. An analysis of the third European Community Innovation
Survey (CIS-3) results for 15 countries finds that almost half of innovative European firms did not perform R&D in-house. Firms with weak in-house innovative capabilities and which source information from suppliers and competitors tend to innovate through non-R&D activities.
In contrast, firms that engage in product innovation, find clients, universities and research institutions an important information source for innovation, or apply for patents or use other appropriation methods are more likely to perform R&D. However, non-R&D performers do not form a consistent block, with several notable differences between firms that use three different methods of innovating without performing R&D. Many of these determinants also influence the share of total innovation expenditures that are spent on non-R&D innovation activities. Furthermore, an analysis of the determinants of the share of each firm’s total innovation expenditures for non-R&D activities shows that the
factors that influence how innovation expenditures are distributed is generally consistent across sectors and European countries.

What I find interesting is that these empirical findings are very similar to what I have found in my interviews with South African firms. Many firms do a lot of innovation without spending any money on R & D. A large number of firms use specialised product developers (or freelance experts) to do research on their behalf. Or they depend on universities or technology stations for research. Amazingly, the majority of the firms doing product development (as their area of specialisation) are small firms.

I wish we had this kind of data in Africa…..


Where does innovation come from? – part 1

I have been asked to share some of my work on innovation. Below is a short piece from a publication that I am working on dealing with innovation systems.

While product and process innovation is better known and often receives the most attention, competitive advantage often emanates from organisational and business model innovations that emerge within societies. Innovation is a powerful explanatory factor behind differences in performance between firms, regions and countries.

According to Fagerberg et al. (2005:4-5), invention is the first occurrence of an idea for a new product or process, while innovation is the first attempt to carry it out in practice. Thus invention and innovation could be closely linked, although in most cases it is separated in time (sometimes decades or centuries), place and organisation. However, the fact that innovation typically emerge within a complex system is often overlooked. For instance, Schumpeter explained that the innovator that invented the steam locomotive still had to wait for others to develop the different aspects of the rail system before the locomotive could be commercially viable. The steam engine was initially invented in a completely different context, again illustrating how inventions are dependent on the context in which it arises.

While many innovations can be linked to well-funded research programmes, this is not always the case. Firms usually innovate because they believe there is a commercial benefit to the effort and costs involved, and this process typically starts by reviewing and re-combining existing production factors (Schumpeter, 1964/1911). Sometimes increased competition, changes in market structure or market demand, or changes in technological performance also affect the innovation process. To turn an invention into an innovation, a firm typically needs to combine several different types of knowledge, capabilities, skills and resources from within the organisation and the external environment. The role of this knowledge and learning interaction will be described in the next sub-chapter. The willingness or interest of an individual in tinkering and exploring better solutions is influenced in part by the organizational context of the innovator, but is also influenced by factors such as education or qualifications, meta-level factors such as culture, personal characteristics (such as patience, inquisitiveness or tolerance of failure) and the institutional environment. Other factors, such as competitive pressure, problem pressure, or social and economic incentives also play a role.

Frequently, policy makers, universities and technological supporting institutions erroneously describe innovation in a linear model that assumes that innovation is applied science. It is assumed to be “linear[1]” because it is believed that there are a series of well-defined stages that innovations go through from research (science), followed by development and finally production and marketing. In this linear model scientific research is deemed to be the most important step as it is the first step in the process. Although there are some cases that followed this path, these are the minority. Very often this line of reasoning is brought by people wanting to justify larger research budgets.

Notes

[1] The “linear” innovation process was first criticized by (Kline & Rosenburg, 1986)

Sources

FAGERBERG, J., MOWERY, D.C. & NELSON, R.R. 2005.  The Oxford handbook of innovation. Oxford ; New York: Oxford University Press.

KLINE, S. & ROSENBURG, N. 1986.  An overview of innovation. In The positive sum strategy: harnessing technology for economic growth. Landau, R. & Rosenburg, N. (Eds.), Washington, DC: National Academies Press, pp. 275-305.

SCHUMPETER, J. 1964/1911.  Theorie der wirtschaftlichen Entwicklung. Eine Untersuchung über Unternehmergewinn, Kapital, Kredit, Zins und den Konjunkturzyklus. Berlin: Duncker und Humblot.


Stimulating the formation of manufacturing business in South Africa

My international readers must please forgive my focus on my beloved home country in this post. But this is a topic that is close to my heart that we have to resolve in South Africa to secure the wealth and prosperity that our nation so desire. But perhaps you have faced the same challenges wherever you work.

I receive many requests to assist with the ‘creation of industrial businesses’ in South Africa. As this is a topic that is close to my heart I usually respond very enthusiastically to these requests. But in the last year or two the reality of the difficulty of establishing these kinds of businesses have dawned on me. Let me take you through my thinking.

Lets look at what it takes to start a manufacturing business. Firstly, you need an entrepreneur. This person must take the lead and mobilize and marshal the right resources, people and processes to take advantage of some opportunity. I think you would all agree with this statement. But if you unpack this sentence then you find three potential bottlenecks:

a)      you need an entrepreneur;

b)      this person must take the lead and mobilize the right resources, people and processes

c)       you need an viable opportunity

Point a) is a challenge. To start a manufacturing business the entrepreneur stands a far better change if the individual has technical or scientific competency or experience in the industry. With the current incentive environment many black or female candidates with the required competencies are better of in the corporate world, where large salaries and other perks are available. With the shortage of experienced or highly qualified advisors, most white candidates that meet this requirement have incentives to rather provide consulting services to government or large business. Many development programmes try to work around this problem by taking young inexperienced people, or even worse, vulnerable unemployed people, and try to establish them as entrepreneurs despite the fact that they would prefer employment rather than being a business person. I can go on for pages about this issue, but let me stop here.

Point b) is a second challenge. The role of an entrepreneurs goes beyond having a bold vision or being able to spot a great opportunity. The entrepreneur must mobilize resources and recruit sufficiently experienced or qualified people to work towards exploiting the opportunity. It doesn’t end here, as the most important role of the entrepreneur is to use their leadership skills to organize their mobilized resources and people into business and manufacturing processes. The latter is really difficult if the entrepreneur does not have management or manufacturing experience. Of course, we can all think of examples of individuals who have built viable businesses without management or technical skills. These cases are rare for many reasons, and it often depends on the character of the individual and the tolerance of their customers to pay for the steep learning curve that small under-resourced or under-managed enterprises have to go through. Say for instance, an entrepreneur can secure enough capital to start a manufacturing business, but they do not have any manufacturing experience. Unless they are able to recruit and trust a suitable qualified and experienced person that can take the responsibility on the technical side of the business, their investment is doomed. The inverse is also true. When a person that is technically competent starts a business, they might have trouble with the management of the administration and business processes of the enterprise unless they are able to recruit staff with sufficient experience to reduce the risks on that side of the business.

The third point is around the opportunity, and the ability of small enterprises to pursue them. One of the huge business process innovations of the last decades is the emergence of franchises. In a franchise, a proven and tested business system is replicated throughout a market. Think of a car-rental business. If you wanted to start a car rental business 15 years ago, you would need finance for several cars, staff at your outlet, technical staff, and cleaning staff. Now the likes of AVIS and others have mastered their business and technical systems to the point where a franchise in a small town can use tried and tested methods to run an office. The person managing the branch or franchise earns far less than you would be satisfied with, and plugs into a national (or even global) administrative system that manages salaries, vehicles, insurance and logistics. It would take a very brave business person to try and compete with such a hugely refined and efficient business system. And if you think of it carefully, then some of the basic rules of economies is that these kinds of system makes a society wealthier, as the productivity of each person working in that franchise branch is much higher than it would have been in your independent outfit. To compete against these business innovations (the innovation of a decentralized management and administrative system backup up by a highly efficient logistical system) you would need to have a highly differentiated business with many innovations. I am not saying it is impossible, I am simply saying it will not be easy.

OK, that is a service business example. For an entrepreneur to pursue the manufacturing of almost any product, they need suppliers, service providers, process information, marketing channels. The days where a single business making a completely integrated product are over, as these opportunities are often only profitable in a large scale. Manufacturing now takes place in ‘value networks’. So if I wanted to manufacture speakers, I have to establish myself within these networks. Despite the fact that almost an electronic student knows how to create a set of speakers, without knowledge of these networks and industrial systems it would be very difficult to establish a profitable and competitive speaker manufacturing business. So unless my product is completely unique or differentiated, I have to depend on existing systems to build my business.

Why are there so few serious entrepreneurs pursuing detergent mixing, or candle making or many of the other business formats that are often promoted by small enterprise promotion agencies? I think the main reason, is that the opportunity to build a business where a viable return on investment can be secured is limited. This means that vulnerable people are being helped to establish businesses where most sensible investors would not even venture into. If anyone can copy your business model even without acquiring the right skills or technical competencies, then how would you secure your investment?

We need to rephrase the objective of small enterprise development in South Africa. What we need to promote in South Africa is that experienced and technically competent people working in large corporates must have incentives to quit their secure jobs in order to pursue higher risk business opportunities. We need people with management skills, or with scarce technical skills, to start tinkering and designing new businesses, new products, new management systems in order to gain an advantage or an ability to secure a return on investment. Let these people create the jobs for the people that are lacking entrepreneurial skills or technical skills.

Let me know what you think!

Shifting towards innovation and technology application

Have you also noticed that increasingly local economic development is captured by the public sector, often from a governance perspective, while the role of the private sector and its own development gets reduced to a consultative stakeholder? I find this amusing, as the private sector is the acknowledged driver of growth and increased wealth. I have already shifted my attention to the stimulation of technology use and innovation in the private sector, as I cannot imagine a more strategic way to create a new future for our region.

But strangely, the private sector, at least at an organised level, has only in a few places in Southern Africa taken the lead in its own development. While the media and government complains about job losses, firm closures and the increased uncompetitive performance of the industries, industry itself seems to be waiting for government to bail them out!

At the moment I see only a few ways out of the hole that our industries are in. Firstly a more pro-active approach towards the use of technology and innovation is required. Government is not going to donate the machines, and nobody will give a firm the research. Firms need to invest in new technology. Secondly, at a collective level, industry bodies need to move from advocacy towards a more proactive approach of building value chains and industrial networks. Many famous developmental fads like value chains, incubators, clusters etc have their origins in the private sector, even if these instruments are often widely used and abused by the public sector. Why are we seeing so little investment in these instruments by the private sector for the benefit of a specific industry? Thirdly, industry needs to realise that both increased competition and increased globalisation have changed the rules. Just as governments have to deal with immigration and passport issues, business should become a bit more obsessed with shaping the economic, education and science policies of their countries.  If industry does not as a collective become more vocal about education standards, research missions or industrial support then we are in for a tough 20 years!!

Hey, what do you think we can do to inspire our industries in Southern Africa to become better organised and more involved?

How can we get businesses to start investing in the latest technology?

How do we get business to not only innovate in marketing and advertising (we are good at that) but also to invent new business models, new technologies and new solutions to the problems of the world?

Any ideas or proposals are welcome!!