Categories
Innovation Process and Change Facilitation Technology and innovation management

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

Categories
Innovation Thinking out loud

What is the effect of Finland declaring broadband a basic right?

The news services are alive with reports that Finland has declared broadband of 1mb/s a basic right for all Finns.  Quite interestingly commercial service providers will be obliged to provide this service from 1 July to all households. No I can hear you all say “but that is a developed country, we have different priorities in a developing nation!“. And you would all be right. I agree completely with you. We have huge unemployment here in South Africa and the rest of Africa. Apparently, we (South Africa) have more people receiving grants than we have employed persons(also reported internationally today).

However, you have to wonder what the potential effect on our and other developing countries may be. Exactly what happens to the levels of innovation and of course comparative advantage when a whole society gains access to the internet at high speed for free? Will this affect our economy? In which way? How will this affect the so-called knowledge gap between industrialised and emerging economies?

Any ideas?

Categories
Innovation Private Sector Development Thinking out loud

Stimulating demand led innovation in Africa

To do business in Africa is not easy. I am not being pessimistic with this statement. I am based in Africa because I believe in our opportunities here. But lets face some truths:

  • We are far from input suppliers (a problem for many and an opportunity for others)
  • We are far from our customers (I mean those international customers or the pockets we have on the continent)
  • Things take longer to arrive here (inputs and my Amazon book parcels), and
  • We stretch our infrastructure on a daily basis (roads, rail, health, education).
  • It is not difficult to trade between countries, or to find partners, markets etc. because of various barriers (I think Europe and Asia is ahead of us in overcoming technical and cultural barriers to trade – whether perceived or real)
  • Our societies spend a huge amount of time arguing, blaming and politicising that could probably be better applied to solving problems and exploring opportunities
  • We have many government and market failures (more on this in another post) that only benefits elites (public and private)

Most people think that we have to innovate to reach markets that are far far away, line Europe or the US. Or we think that we have to out-innovate the Asians. But we have something right here under our noses. We have demands from consumers, businesses, policy makers. These demands are not yet always expressed as needs. If you think it is important to save energy in Europe to save the planet (or save money), then we have an additional and more urgent reason to save energy – our constraints to produce enough to go around. Same for water, food, technology and other areas.

So why are we not exploiting the opportunities created by local demands and unexpressed needs?

I think part of the answer is about our policy incentives, and then another part is about our low self esteem. Ok. There is also the fact that innovation is increasingly becoming difficult, because consumers are getting so smart at selected the better products that combines elements of good design with functionality (functionality alone often doesn’t make the cut). What I mean with difficult is that you have to spend a lot of time searching for the right components, process technology (and perhaps even patents).Many of you will probably come up with other reasons as well.

But here is a question worth spending our collective brain power on: what can we do to stimulate more demand led innovation here in Africa?

The OECD last year had an interesting seminar on this topic. I am relieved to find that industrial countries are also thinking about these things (it means we are not so far behind), but I am very envious because we also need to be discussing these things in Africa. Perhaps our greatest resource is not our minerals. Perhaps it is the huge number of problems that we still have to solve, and the millions of demands that are not yet articulated. But how do we turn these challenges, problems (or opportunities if you like) into profitable ventures?

Any ideas?

Categories
From the field Innovation Local Economic Development Private Sector Development Technology and innovation management

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’.

Categories
Innovation

Sharing links: Scidev.net and the new manifesto

I frequently receive requests for more links, papers and ideas around how science can be related to development. Add Scidev.net to your favourites.  (Thank you, Lucho for bringing the website to my attention.)

At the same time you might want to look at “a new manifesto” that deals with new ways of linking science and innovation for development.  This is an update of the 70’s publication of a radical and controversial document that helped shape modern thinking on science and technology for development. It was called The Sussex Manifesto: Science and Technology to Developing Countries during the Second Development Decade.

Let me know what you think!

Categories
Innovation Private Sector Development Technology and innovation management

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.


Categories
From the field Innovation Sustainable Economic Development Technology and innovation management

Innovative firms

Have you ever wondered why not all firms are innovative? If you are a development practitioner like I am, then you must have come across hundreds if not thousands of small and large firms that are not very innovative. This results in these firms also not being very competitive.

There could be many reasons why so many firms are not innovating, and one of these is that the firms are serving undemanding customers. This very often happens in rural or isolated areas, of where companies provide convenient goods and services.  Another reason why firms do not innovate is that innovation requires change, and this change is uncertain. This makes innovation not only risky, but also potentially expensive.

One of the reasons why development practitioners should try to stimulate the competitiveness of firms that they work with, is that increased competitiveness requires innovation. Again, this does not simply imply new products or processes are developed or improved, but also that firms try new management innovations. However, many development practitioners are not comfortable with competition, or do not understand the importance of competition to the socio-economic development of a society. There is a tendency in the field to try and get groups of individuals or firms to compete together against a competitor ‘out there’. This is a first step in the right direction, but we must also try to get our local firms to compete against each other. Thus we must try to create opportunities to collaborate, but at the same time we must try and increase or stimulate the local competition against each other. With this I am implying the nice and healthy kind of competition.

What is often forgotten in economic development, is that we are not only concerned with the health and the well-being of the business owners. Firms must also innovate to create better, healthier and more stimulating jobs, attract foreign investment, skills and knowledge into our areas, and finally, provide improved goods and services to local communities. The latter is usually overlooked. Thus, we want firms to be competing with each other, and together also competing with others, not only to make business owners and managers rich, but to ensure that our society in itself becomes wealthier and more innovative. This will then lead to more innovative and competitive businesses, and so the virtuous cycle is complete.

Categories
Innovation Promoting Innovation Systems Technology and innovation management

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