Innovation as a Means for Economic Evolution

by Paul Hobcraft

Here is the first response to the Topic of the Month.

Innovation as a Means for Economic EvolutionEconomic growth is an outcome of the innovation trajectory we set. Today managing innovation is complex; often success is measured and valued by the creative destruction of others. The ability to ‘evolve’ is very determinant on the knowledge base, either within a given economy or within a ‘federation’ to bring together as something new, offering more value than what is on offer today.

Innovation is highly dynamic in its constant change but also in its needs of constant co-ordination of its parts.

Nations are Very Different

No one nation can just copy another, the same as one business entity cannot simply copy another, each has distinct characteristics, a history and a certain set of ‘physical’ boundaries on where it is located. Different cultures, different histories set each Nation apart. The main differences of Nations requiring to innovate they simply can’t migrate to another country or spread themselves around the globe to tap into the activities in these different places. Nations have to think differently, they are firmly anchored and the job of nations is to attract innovation activity so as to ‘create the right conditions’ and facilitate these as best they can, and work within the economic circumstances they find themselves within. They can’t escape but they can create the ‘right’ conditions.

The Value of the Innovation System

The innovation system operating within each country is made up of a set of resources, capabilities, technologies and institutions, all broadly conceived, that need to systematically contribute to the process of innovation. It is the way this is constructed in scope, scale and efficacy will largely determine the innovation prospects. Some countries have a well evolved (national) innovation system that devotes significant resources and knowledge to the system (such as the EU), others allow the market conditions to attract and generate innovation (perhaps the USA). The argument is if you have a good innovation system you get good innovation policies from this. I often wonder if this is really the case as policies, the world over, are governed not so much by common sense or allowing for market demands to dictate but are ‘interfered with’ by politics, by intervention that often distorts and puts markets out of good order. Decisions often made have knock-on effect that were not fully considered or simply ignored. So each nation makes its innovation system choices.

Capturing and Measuring the Innovation Activities

Innovation operates at the level of people, by firms and networks of firms learning to do new things. For them the mechanisms are the important enablers not the macroeconomic structures politicians often get caught up in. What allows competition to thrive, what needs to be in place to be within a cooperative system, where are the resources needed and the knowledge required to be accessed? It is the ability to create ‘value’ that will determine if one location over another is the appropriate place. Many nations focus hard on these factors, to ensure the set of activities needed to be undertaken by the firm can be achieved. If Nations are not focusing on this point they simply will lose the enterprise and all its surrounding knowledge to somewhere else. Sometimes Nations get lost in its statistics and measurements. It often forgets what often breakthrough innovation simply needs to thrive upon is a friendly set of conditions and encouragement to simply pursue around given ideas or thoughts-providing the right climate and nurturing culture to accommodate it.

Often Innovation National Structures Get Caught Up in Other People’s Business

Enterprises claim they welcome government involvement, but often they don’t when they see what comes with it in ‘red tape, bureaucracy, countless meetings and committees. Enterprises clearly differ in their innovation capabilities, some are minimally resourced, some are haphazard, highly entrepreneurial and opportunistic while others are highly organized and considerable resourced. How the innovation systems put in place to help in all the myriad variations can work is both demanding and difficult to balance.

Getting Out of the Way, or Placing Yourself in the Middle

The difficulty is where does a Nation wanting to promote, develop and protect its innovation base stand. Does it stay on the sidelines allowing the ‘dynamics’ of the market decide or does it wade right into the middle and swim alongside all the parties, accepting the rough and the smooth?

It comes back to the same problem “it all depends”. Today I think if Nations want to achieve superior innovation outcomes they need to ensure particular skills and practices are present, on their soil, to manage and navigate today’s world of highly uncertain, complex and highly distributed environments by crafting, and crafting really well, the mechanisms that enable this. I do not feel allowing innovation to simply flow is the right way, it needs deep understanding and often within National policies this is not the case.

Where government and its agencies can dramatically help is in providing instruments and ‘healthy’ funding options to promote and accelerate innovation and hopefully anchor it deeper into its society.

Often the Choice is Hard to Let Go Of

For me, the EU is not the ideal benchmark on how to set about innovation. It is overly structured, complicated and layered. In the EU, the 7th Innovation Research Framework attempts to put this all into place. Alongside its Competitiveness and Innovation Framework program these provide the overarching themes and objectives of where innovation will contribute in society. It funnels its considerable funds through either these programs or derivatives of these or bodies set up to focus and promote ‘given’ activity. It invests in partnership with regional development parties and offers structural funds yet still with all the hard work of streamlining its disbursement into ‘promising’ innovations it struggles to get that innovation momentum required. The structure itself has a maze that thousands are engaged in, to just pilot their projects through or offer their services to manage this activity to obtain funds or train you in its understanding. This set of activities, born out of necessity, offers no real added value and continues to depress and not progress innovation as the EU would like.

Taking this ‘highly structured’ route to innovation is not the right way. Innovation needs to be devolved as far down as it can go. The closer it gets to the actual needs of innovation, the better the delivery of resources, funds, structures etc. When the innovation is full of unknowns, completely new technology for instance, then the resource can be effectively channeled to the organizing structure to dispense more in the “R” of research than dispersing for the “D” in development.

Certainly Nations Need a Center of Innovation Knowledge and Expertise

In many countries this is ‘outsourced’ to think tanks, institutions, universities or simply review committees set up to advice government on policy. Often that advice is highly skewed to where the information is coming from. The value of innovation experts residing within a center of excellence can make a difference, it can reduce the risk of failure, improve the chances of pushing the emerging winners. This center can balance out much of the external, often highly biased thinking. This center can constantly raise the awareness for innovation and highlight the drivers, capabilities and resources needed for growth and wealth. These centers need to translate the needs of “the know-how and why” out into the market as opportunities to pursue. The market needs to determine, detect and explore these.

Proactive Innovation Needs to be Channeled Through Entrepreneurs

Innovation is considered one of the few proactive strategies available to promote wealth and growth. It does need organizing; it cannot be left to chance. It is working on the connectivity points; to reduce often abstract agenda’s and turn them into tangible opportunities. We need to make the approaches and thinking around innovation as coherent, accessible and open as possible.

At the heart of any future within innovation is the entrepreneur and the ability of nations to succeed in today’s environment of ‘stagnation’ is to provide the environment for these new entities and smaller ideas -rich ones to grow. Joseph Schumpeter talked about ‘creative destruction’ many years ago, back in 1942, that applies even more in today’s world. Creative destruction resulting from innovation and entrepreneurship is the force that creates sustainable long-term economic growth.

He concluded that radical innovation can lead to a better society but it is the way you interpret this will determine the winners from the losers. In Europe the entrepreneur exploits existing structures whereas that shinning beacon of entrepreneur activity lying in Silicon Valley and in a number of other innovation hot spots of the USA seem to have a greater appetite for radical change. This has its consequences and its attractions. Venture capital has its concentration in the US; failure is not only tolerated but talked about as a learning point, a certain badge of honor even. In much of the rest of the world failure is a heavy stigma that constrains and is often judged harshly by society.

The USA Has the Inbuilt Structure and Capabilities, Only if it Simply Would Realize It

If the US was to really extract and study its emerging innovation activity, that certain ‘collective learning curve’ often not captured and enhanced upon, it might realize it has its new launching point, to position itself even further as the vibrant ecosystem for innovation start up and acceleration.

It has most, if not all of the factors needed in place, it just needs a collective recognition of what it has, what it can provide and that is simply, going back to what America use to do best, to provide the best possible conditions to pioneer, to explore, to extract, to venture forth and simply innovate. It is through the recognition that the small business is the economic generator of jobs and through recognizing and then intensifying the factors that will allow entrepreneurship to flourish, that a path to growth can occur
The American dream is still caught up in the adventure, that pioneering need; innovation can certainly feed that ‘desire’. This time it is moving across the new innovation landscape or prairie, a global one, where entrepreneurs are free and able to roam that the US can grasp, as a nation and transform its economy back to an engine of value and real worth. To do this policy needs to ‘anchor’ everything that entrepreneurs require and seek to protect this by all the means possible, not in protective practices but in proactive practices and stimulus. Clear the current innovation ‘wood for the trees’ so it can then allow the emerging best to grow tall and give the new growth needed for the ‘ecosystem’ it will attract around it.

A Guide to Open Innovation and Crowdsourcing

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Paul HobcraftPaul Hobcraft runs Agility Innovation, an advisory business that stimulates sound innovation practice, researches topics that relate to innovation for the future, as well as aligning innovation to organizations core capabilities.

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  1. Deborah Mills-Scofield

    Paul,

    The issue of innovation as an economic driver at a corporate and at a national level is most interesting, especially given how global the economy is and the transitional concept of the nation-state. To a large degree, many global corporations are nations unto themselves in terms of corporate “GDP”, scope, impact, power, etc.

    There is a great paper from USC’s Marshall School of Business titled “Radical Innovation in Firms Across Nations” by Gerard J. Tellis, Jaideep C. Prabhu, and Rajesh K. Chandy (http://www-bcf.usc.edu/~tellis/nations.pdf). Surprisingly, they found that the traditionally posited factors affecting radical innovation in firms within both developed and emerging markets (e.g., labor, capital, government regulation, national culture) were not significant – what mattered more was the company’s own internal culture, and they list the reasons why. I keep referring to and re-reading this paper because it gets to the role of a national government in innovation.

    Just like a good manager and a good leader, I believe the role of a national government in innovation is to provide the access, resources, and tools to enable and nurture innovation and then get out of the way; to free up the entrepreneur’s time to focus on innovating and not on filling out forms, waiting on hold, paying more and more fees for each little step. Perhaps nations can identify a unique “competitive advantage’ given its natural tangible and intangible resources and assets (a la Adam Smith), but I’m not sure how relevant that is in a global economy.

    It will be interesting to see how the increasing blur of boundaries between firms and nations evolves, especially in light of the ongoing financial/trust crisis and unrest in the Mideast/North Africa, Balkans, “Stans”, etc. If these crises are teaching us anything, it is hopefully that the role of traditional centralized institutions – public and private – is going away. Those that can free, enable, nurture, develop their talent will succeed. Those that try to hold onto control – through policies, taxation, immigration will fail.

    Thank you for your thought-provoking post!

    Deb

  2. Deb,
    Thanks for your thoughtful reply. I’m less of the pushing Governments out of the way, they have a ‘given’ role to play. In Asia they are the catlayst to much that brings together Universities and Corporations to advance in given areas of work (Taiwan, Korea, Thailand, China) so we need to not just see them through our ‘western’ eyes.

    In Europe by Governments taking the lead, encouraging longer term R&D by investing in this, we have seen some moderate success. Where it gets in the way, is its need to be ‘accountable’ often not I know! This is the countless form filing, justification etc and that is when yuo wish this would simply get out of the way. It simply adds complexity to the process and slows research down some of the time.

    So its not all bad. Governments and the Agencies set up to help small companies, the entrepreneurs are often really helpful, and provide some terrific connections. This is hugely valuable.

    It is the flow up and down Government, between agences that blocks and frustrates innovation often, this can be resolved but it is never easy.

    In Singapore, the Public Sector for innovation are quiet special.They (my term) “hang loose” by providing broad themes and then stand back to allow the different agencies to experiment, to learn, to adapt to their specific target needs for the public or the role they are playing in society but provide them some ‘high level’ measurements to show return.

    It can be difficult to compare global firms to national governments, each can learn from the other but selectively. Often the ones doing the investigation focus on what they can’t have instead of what they can take and adapt. The ‘innovation grass’ is always greener in much of the benchmarking sadly and many mistakes are made because of this.

    These concepts will evolve, they have to. The way innovation is being conducted is forcing this. Open innovation is again a useflu area for government expertise to come in and play its part. We tend to ignore this value due to not knowing who is for what often in government or they limit their own remit so don’t seek out breaking opportunities, just wait for proven ones to reduce the ‘public’ risk.

    I share your worry over centralized institutions but many of the large global business organizations still operate within these silo’s of specialisation, often it cannot be avoided.

    Holding on for policies that block the flow of innovation need breaking down but until innovation sits in the real higher conscious minds of the politicans and mandarins underneath it is given often after thought and that is such a pity. Regards

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