Event Announcement: Diagnosing and strengthening local and regional innovation systems

On the 28th of August I will present a practical workshop in South Africa as part of the 5th Innovation Summit. Last year’s summit was one of the highlights of my year and I look forward to contributing to this event.

The workshop I will be presenting will concentrate on how to diagnose an innovation system, and then what to do about improving the innovation system. We will ONLY accept 20 participants, so early bookings are essential. The cost per participant is R3420 all costs included. For more information visit the workshop page here or click on the logo.

During the workshop we will cover the following content:

  • Main theoretical principles of innovation systems
  • distinguishing between national, local and regional and sector innovation systems
  • understanding the difference between innovation within firms, and innovation systems
  • The relationship between the region and innovative performance of industries
  • 4 lines of inquiry to diagnose the factors that affects the performance of a specific innovation system
  • Different analytical instruments that can be applied to understand elements of the innovation system
  • aligning public and private supporting institutions to the innovation needs of an industry
  • facilitating a process of incremental change within an innovation system

If you have already attended my workshop before, then take a look at some of the other great speakers that will be presenting pre-summit workshops before the Innovation Summit:

  • * Claire Janisch will take delegates through Biomimicry which is a totally new and different way to look for innovative solutions based on nature’s problem solving capabilities. Claire is back after feedback on her workshop was outstanding and “we want more”.
    * Dan Buchner from the Centre for Creative Leadership is coming from the US to share his knowledge and insight on innovative leadership skills – leading innovation teams and how to create a culture for innovation to thrive.
    * Prof Deon de Beer will have his very innovative Idea to Product Lab set up and fully functional. You will learn about the basics of design right through to producing your physical prototype during the workshop. If you have an invention waiting to be made into a physical product, this is the workshop for you.
    * Klaus Schnurr from the UK will take delegates through a process where he will teach you how to synthesis transferable best practice methods, tools and techniques and will explain the key steps that companies in Africa can use to explore trends and generate scenarios to identify innovation platforms for future growth.
    * Vasintha Pather’s workshop is ideal for anyone who facilitates thinking, workshops and sessions as a full time job or within an organisation. Using graphic facilitation methods enhances the learning and take aways for everyone

During the main event of the Innovation Summit I will present a paper about the importance of moving from business model to business model innovation.

I will also launch my book titled “The fundamentals of innovation system promotion for development practitioners” during the Innovation Summit.

Link: Why dont they want what we know they need by Charles Kenny

Take a look at this post by Charles Kenny at the Centre for Global Development about why people don’t absorb technologies that we know they need!

Is there a hierarchy of the different levels of innovation?

In my daily work I often switch between working on firm level issues about innovation to working on the more systemic level of innovation systems. My focus is mainly on the institutions that are trying to get whole regions or sub-sectors to uprgrade technologically. In other words, they want modernization of a particular sub-sector or region for a specific reason.

In the last few years I have noticed some patterns that explain why these technology intermediaries are not hitting their targets:

1) they focus mainly on the micro level of the firm, and don’t move to the innovation system level. Moving from one firm to many is not necessarily systemic or holistic.

2) an underlying assumption in many Technology Transfer or economic development programmes with an emphasis on technology is that the problem is that firms cannot innovate (for whatever reason), therefore agencies must innovate on their behalf. It therefore takes a very narrow perspective that innovation is about products or processes, and that technology is about hardware + training. It completely miss the point that innovations emerge from within a specific framework, and that giving a firm a new product on a platter is not technology transfer nor sustainable.

3) a third pattern is the assumption that improving innovation in industry is an engineering problem (see my post on what is meant with technology). It completely ignores that fact that an innovation system is a dynamic system that is mainly about how different economic agents interact, engage, share information, learn together, and remember (learn) what works and what doesn’t work. 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.

4) Innovation is somehow disconnected from creativity and creative thinking. Creativity in innovation is all about getting different people to think together. Maybe they agree, most often they don’t. But somehow they need to recognize constraints, threats, opportunities and then work from there. It requires some tension and often a lot of argumentation. It isn’t serendipitous journey. It requires strong leadership and a lot of guts. And it takes time.

Let me stop here.

Earlier in a post I have written about the different levels of innovation that are commonly identified as:

  1. Product or service innovation
  2. Process innovation
  3. Business model or organizational innovation
  4. Social or societal innovation

The funny thing is that everyone is focusing on helping firms to develop new products or maybe even a better process. Yet, the biggest obstacles to product and process innovation is not a lack of effort, or funding or ideas. It is complacent or outdated management, or perhaps business models that worked in another time but that has not kept pace with change. How often do we hear that someone we know or even a whole group quit a firm to start their own enterprise because management wouldn’t listen to their ideas?

Lets get practical. For example, large parts of our South African manufacturing sector is focused on the manufacturing of components designed somewhere else in the value chain. This is most likely explained by several factors including the concentration of corporate ownership in a few industrial holdings (a left over from sanctions and import substitution) and the presence of highly organized supply chains in many sectors like Automotives or electronics. Partial success in getting larger firms to compete internationally, combined with local framework conditions that inhibit the growth of small firms (for instance inflexible labour laws, collective bargaining, Black Economic Empowerment and a preference to procure through tenders) re-inforce this pyramid structure, with many component manufacturers at the base and product integrators (OEMs) at the top of the pyramid. The product owners dominates both their supply chain, the product architecture and the performance criteria. Most component manufacturers are squeezed both on their margin but also on the processes that they may use.

Are we getting things the wrong way around?

To help manufacturers to design new products and services is not entirely a bad idea, but this doesn’t address the systemic problem. We need business model innovation. We need new OEMs to emerge with new product combinations that draw on existing or easy to develop component competencies. Or we need some business model innovation where some traditional component manufacturers expand their business by manufacturing their own products. Perhaps we need some manufacturers to diversify horizontally, or vertically.

I have played with this idea with students in my classes, and almost all business model innovations will lead to interesting product, service and process innovations. However, we can generate long lists of product/service and process innovations that have not resulted in business model innovations. Partly because these firms cannot sell their new innovative products to their existing customers, they also need to diversify their markets which sometimes requires a completely different business approach.

To stimulate a sub-sector or a region to upgrade cannot be achieved only by helping one firm or a few firms at a time. Somehow we have to challenge management models, we have to help business people identify areas for management innovation. This will result in business model, process and product/service innovations that are self perpetuating; meaning businesses can do it again and again because their competence have increased. Actually, the best impulse into innovation is still modern management that is strategic not only about the internal dynamics of the enterprise, but that is also looking outside of the firm into the market place, at their collaborators, new technologies and their competitors. With firms that are aware of what is going on inside and outside the discussion about innovation is a fantastically creative discussion about what is possible or impossible, with the latter gives rise to very interesting discussions. But a firm that is under-managed or managed with outdated principles is very difficult to assist. Giving the latter group a new product, or taking them to a new market simply won’t do the trick.

Perhaps this is where creative destruction of Schumpeter comes in. Sometimes the only way to upgrade a sector is to allow enterprises with new combinations of management, ideas, products and processes to outcompete older more complacent firms. Hopefully some of the incumbents will at least be able to imitate the signals from the new entrants.

I propose a toast to business model innovation.

Identifying firms to work with to induce upgrading of industries

This post was revised in February 2018.

When working on the improvement of innovation systems in developing countries, we have to work with firms. These firms have several roles, and there are three units of analysis:

  1. The firm is an important unit of analysis of innovative practices (product, process, business model).
  2. The firm is also a unit of analysis in terms of cooperation and collaboration, thus its ability to cooperate with rivals is an important consideration when we design interventions.
  3. Working with the right firms also provides an important source of technology and knowledge spillovers. This is where the challenge comes in for development practitioners.

Generally, firms that are able to lead the way, or could be good role models, are difficult to involve in development programmes for a variety of reasons. I won’t discuss that right now. What is important to remember is that most firms not only absorb or use technology and knowledge, they are also the main sources of knowledge and technology. This is both from a supply perspective (equipment suppliers, technical or specialist sources of knowledge, etc.) and from a demand perspective (demanding customers, sophisticated demand). Whether firms are aware of their role as disseminators of knowledge of technology is another story!

I will rather focus on how to identify the firms that we can work with to improve innovation and competence in all three units of analysis discussed above. Remember, our objective is to find ways to improve the dynamic in innovation systems that will result in the modernisation and technological upgrading of industries and regions.

More than 25 years ago Bo Carlsson and Gunnar Eliasson described a concept called “economic competence”. At the time they defined economic competence as “the ability to identify, expand and exploit business opportunities” (Carlsson and Eliasson, 1991). This is a useful definition as we have to remember that we cannot innovate on behalf of a broader industry. Somehow we must work with those firms that are able to innovate, imitate, adapt and integrate new knowledge and ideas.

According to Carlsson and Eliasson, economic or business competence has four main components:

  1. Selective (strategic) capability: the ability to make innovative choices of markets, products, technologies and overall organisational structure; to engage in entrepreneurial activity; and especially to select key personnel and acquire key resources, including new competence. This aspect has been amply illustrated in recent years as many companies have struggled to define their corporate identities and strategies as distinct from their competitive strategies in each individual business unit (Porter, 1991).
  2. Organisational (integrative, coordinating) capability: the ability to organise the business units in such a way that there is greater value in the corporate entity as a whole than in the sum of the individual parts.
  3. Technical (functional) ability: this relates to the various functions within the firm, such as production, marketing, engineering, research and development, as well as product-specific capabilities. These are the areas of activity in which firms can compare themselves to their peers or leading competitors.
  4. Learning ability, or the shaping of a corporate culture which encourages continual change in response to changes in the environment.

Economic competence must be present in sufficient quantity and quality on the part of all relevant economic agents, users as well as suppliers, government agents, etc. in order for the technological system to function well. This is both true at a local or regional level, our a national or sectoral level.

If the buyers are not competent to demand or use new technology – or alternatively, if the suppliers are not able or willing to supply it – even a major technical breakthrough has no practical value or may even have negative value if competitors are quicker to take advantage of it.

I think that this business approach of choosing the entrepreneurs that we work with is very relevant to finding the people who can absorb new ideas and make them work in a developing country context. I would also go so far as to state that I do not believe that it is feasible to select “change agents” according to social criteria such as gender, age, etc. – but that we recognise that change within economic systems happens because of the economic competencies of the people who are recognised in the system (regardless of their demographic data). The reality is that you cannot be competent on behalf of other people!

I challenge you to review the firms that you are working with to see if they are economically competent!

Sources:

Carlsson, B. and Eliasson, G. (1991). The nature and importance of economic competence. Working Paper No. 294, The Industrial Institute for Economic and Social Research (IUI).

Porter, M.E. (1991). “Towards a dynamic theory of strategy“, Strategic Management Journal, 12 (Winter Special Issue), pp. 95-117.

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.

Quick recap: what is an innovation system?

Before I continue with this series, it is necessary for me to refer you back to a post I wrote some time ago where I described what an innovation system is. For the full post, click here

For those to lazy to click on links I will quickly summary two key points.

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.

For the rest of the post where I related innovation systems to the surrounding geographic environment click here.

In search of innovation in firms

Thank you for your concerned messages about my recent whereabouts.

In the last few weeks I have involved in running a RALIS (Rapid Appraisal of Local Innovation Systems) with my colleague and friend John Lawson. This process is focused around three Institutes of Advanced Tooling in South Africa that are based in the Western Cape, Eastern Cape and Gauteng. We are looking at the innovation system around the tooling sector around these 3 centres and their key customers.

A literature search on innovation reveals that product, process and organisational innovation (a.k.a business model innovation) is commonly identified in the academic literature. Innovation does not take place in a vacuum, and a RALIS methodology allows us to better understand the determinants of innovative behaviour by firms. It is important to recognise that while tinkering about in a workshop is great fun, a lot of innovation in firms and between firms cost a lot of money and time, and the outcomes are uncertain. Therefore, we have to understand how and why firms innovate, and how the Institutes of Advanced Tooling can play a role to support innovative behaviour by firms in the South African Tooling sector.

Now many of you will know that my interest in the tooling sector goes back a long time. Firstly, the tooling sector is truly an important sector, as toolmakers make the machine tools and production equipment that is used by the manufacturing sector to produce just about everything that you see around you. Secondly, the tooling sector was one of the two sectors that I used to analyse market failures in a knowledge intensive business service market in for my PhD Thesis.

In the next few posts I will share some of the insights from this exciting process with you!

A tool used to make picture frames
A tool used to make picture frames
Tools and moulds
Tools and moulds