Making Innovation Flourish

The failure of market failure: Towards a 21st century Keynesianism

This morning saw the launch of a new NESTA provocation by Will Hutton and Philippe Schneider on The Failure of Market Failure: Towards a 21st century Keynesianism.  The provocation updates the age-old debate about the efficacy of state intervention versus laissez faire, and in so doing is fiercely critical of economic frameworks used to inform policymaking in the UK. The primacy of the concept of market failure in policymaking - the view that state intervention can only be justified when it can be demonstrated that free markets cannot do better - comes in for particular criticism.
 
The provocation updates the debate in two ways: first, by reference to developments in institutional economics, psychology and behavioural economics which the authors see as jarring with the behavioural and motivational assumptions traditionally made by policymakers; and second, by interpreting the current financial crisis as prima facie evidence that markets need government ('markets fail more often than they do not'). If the UK is to successfully innovate, the authors argue, policymakers must recognise the importance of the government and the private sector working together, not falsely pitch them at opposite sides.
 
At this morning's policy breakfast to launch the Provocation, Will Hutton argued that a number of crucial policy interventions in the UK have been sacrificed at the alter of market failures. For those working on policies to support future innovation and creativity, where well-defined market failures are by their nature difficult to anticipate and evidence, this is a sobering thought. Will finished his comments with a call to the British academic economics profession among others to respond to the thesis set out in his Provocation. Going ahead NESTA looks forward to playing its role in facilitating the debate.

The fallacy of localised innovation systems

This week we launch two new NPRU reports stemming from the Innovation and Place research programme. One report focuses on the new forms of globalisation characterised by the entrants of new players using new tools to engage in global business, and another focuses on the absorptive capacity of UK nations and regions. Initially, we became interested in the two topics of globalisation and local absorptive capacity from an Emerging Markets perspective, the rise of the BRICS and what does that mean for the UK. While we did cover these grounds pretty well in the globalisation report, the most provocative messages came from the absorptive capacity report (Innovation by Adoption). In this report we came to the following conclusions:

• Knowledge exploitation happens through multiples routes. The routes to moving a new idea, technique or discovery from its birth place to the market are diverse. Exploitation does not always happen through production lines co-located between a university and a firm, but can occur through multiple pipelines of deployment. A new technique can be learnt through formal and informal networks, by a local professor, expert, a firm or a university. Utlimately, a new technique will diffuse widely and become a known practice to a wide sprectrum of users who will pick it up through formal or informal training.

• Creation and exploitation do not always have to be co-located. There is no point for cities, regions, and sometimes not even countries to try create all the components of an innovation system within their boundaries. If your city or region is good at popping out new discoveries and ideas, but bad at exploiting them locally, then your best most optimal option is to team up with another city, region, or foreign country to help you exploit your discoveries and ideas at a massive scale.

• New value is, more often than not, a result of a successful adoption-exploitation process rather than creation-exploitation. The ultimate benefactors of one innovation will always be the wider users who will create more value from it than the original creators. Put simply, you don't need to have invented the computer to exploit it for creating new value for yourself.

• Innovation policies should support the capacities needed to be competitive within global value chains. The obsession with creating all encompassing national and regional innovation systems that seek to function as localised factories of innovation are doomed to failure. It has not worked in the past and there are no reasons to believe that they will work in the future. Instead focus on what you can do best within an innovation system that is intrinsically global.

Making innovative places (part two - observations)

Continuing from yesterday's post - reflecting on the first NESTA Summit: Making Innovative Places, held on 12 December at NESTA's head office in London.  You can see videos of highlights from the event here.

I've tried to capture some of what I felt were the main lessons of the day - I'll post more next week.

1. History matters – James Simmie and Ron Martin from Oxford Brookes and Cambridge Universities respectively presented the interim findings of their research on path dependence.  Path dependence means that a region’s past industrial structure and performance will have a significant bearing on its future.  But like so many powerful theories, it sounds deceptively simple.  To put it in context, demonstrating this would mean thinking again (and ideally quite quickly) about cluster-creation policies and about the ‘real’ choices that cities and regions face when attempting to shape their futures.

Download the reports from the NESTA website

2. Innovation goes global – It’s always the way.  We staged a major conference about the criticality of thinking on a sub-central level about innovation policy and already the delegates were ahead of us.  Several pointed out that thinking smaller than the nation also meant automatically thinking larger than the nation too.  Firms and individuals increasingly have less respect for administrative boundaries, so why should innovators or, for that matter, innovation policy?  Luckily, our very own Sami Mahroum was at least one step ahead.  He is already talking to me about the international bent of his next research strand.

3. Don’t create, absorb!  Michael Kitson, James Simmie, Ron Martin and Paul Benneworth all addressed to various degrees the concept of ‘absorptive capacity’.  This is bedded in sound theory and masses of empirical observation – that many innovations that create value result from the identification, absorption and recombination of existing ones.  Taken to an extreme, one can imagine a highly innovative economy that creates no new knowledge but simply takes it from elsewhere, applies it to problems and creates value-generating solutions.  Thinking in these terms means thinking of universities not simply as producers of knowledge, nor as ‘transferors’ of technology, but as highways of international knowledge and homes to bright people who know where good ideas are.

Download the reports from the NESTA website

4. Leading in harmony – If it wasn’t obvious already, Richard Leese’s address at lunchtime proved that regions don’t lead themselves.  Paul Benneworth’s report took this observation to new analytical heights.  He identified not only a ‘regional innovation journey’ that stacked up remarkably robustly against the eleven case studies in his report and (by all accounts) the experience of the practitioners in the room.  His presentation was helped by his highly accessible 2x2 matrix which went on to describe four types of leadership styles through the analogy of musical groups – from a few leaders leading a lot of innovation actors (an orchestra) to lots of actors without any leadership (enthusiastic improvisational jazz).  I’m pleased that he stopped before he decided to characterise either the nations and regions of the UK and/or our leadership of this group of research projects.

Download Richard Leese's speech and Q&A (MP3) or watch them online.

Thoughts?

Making innovative places (part one)

Over the next few days I will be reflecting on the first NESTA Summit: Making Innovative Places. It was quite a day. Stephen Timms, Sir Richard Leese and AnnaLee Saxenian delivered keynote addresses and we launched three final reports, one interim report and one policy briefing. 

That all sounds very impressive but I said it then and I’ll say it again: the 90 delegates were collectively as impressive as the ‘big names’ and I hope that much of the value will live on in the connections made as much as the evidence heard and opinions formed.

‘Yesterday’ actually started on Tuesday. The Daily Telegraph picked up on a pre-publication copy of ‘Rural Innovation’ and extensively quoted Dr. Sami Mahroum, the NESTA Senior Policy Analyst who has driven our ‘place’ agenda.  In a significant article, Richard Tyler talked of a ‘new industrial revolution’ that was going ignored by central innovation policymaking. He wasn’t wrong.

 

Five ways universities drive innovation

Our latest Policy Briefing focuses on the five ways that universities drive innovation.  Universities have traditionally had three main missions: undertaking research; teaching; and transferring knowledge. The UK’s increasing need to innovate to meet the economic and social challenges of the 21st century will place further pressure on these roles, but importantly will also introduce two more – universities’ international and regional missions.

Universities increasingly provide important national and regional links into the global knowledge economy. They exchange knowledge, gather intelligence and facilitate international flows of highly-skilled people who, in turn, create and attract high value-added businesses. As powerful institutions with well-connected and highly-educated leaders, they are also important actors in regional networks, and help lead the design and delivery of economic development strategies.

However, few universities can excel in all five roles. Each must choose where to concentrate its efforts depending on its strengths and regional requirements. Government should encourage greater interaction between universities and the wider economy and society, and ensure that research funding encourages innovation.

As ever, I'd welcome any comments on this publication....

Innovation Technology: How new technologies are changing the way we innovate

NESTA’s Provocations are regular extended essays by leading thinkers that showcase
thought-provoking work on innovation.  In 'Innovation Technology: How new technologies are changing the way we innovate', David Gann and Mark Dodgson argue that a new set of technologies is emerging that enables firms to innovate more rapidly, efficiently and accurately than ever before. This 'Innovation Technology' (IvT) includes eScience, virtual reality, simulation and modelling techniques, and rapid prototyping.

Indeed, it is possible that it will have as profound an impact on economic growth and social well-being in today's knowledge economy as the development of machine tools had on the industrial economy of the mid-19th century.

Over the next decade, understanding what IvT does, how to use it and where its limitations lie will prove critical for those running businesses, working in firms and providing public services. As a result, government policy-makers at all levels would do well to appreciate its implications.

I welcome your thoughts...

The Innovation Manifesto

Suw Charman's recent exploration of the sources of innovation touches on a lot of the same themes as my earlier post and issues a warning about the current way in which people & businesses think about innovation. In reading through Suw's post, the key messages start to feel like tenets of an Innovation Manifesto (if such a thing existed*). Julia Styles summed these up nicely in her comment:

Innovation does not have a size...it can be a small change that helps solve a big problem.

Innovation is not in a vacuum, and anyone might have a solution, including young people and customers.

Innovation will succeed in business when the business accepts innovation as part of their corporate culture.

It's important to stay connected to technology and what's going on in the outside world and new media if we want to really be innovative.

And finally,
"Innovation is not a buzzword to be repeated in meetings, it's an action, a culture, a day-to-day activity."

While I agree for the most part, I'd adapt this one slightly: "Innovation will succeed in business when the business creates a corporate culture where innovation can thrive."

It's a small change, but important I think. Creating a climate that's conducive to innovation has to come first (only then will you be able to accept innovation as part of the culture). In my mind, the single biggest hindrance to innovation within a business is a culture that is closed, or overly hierarchical, or one where the pressure to perform means people can't see the forest for the trees.

I'd also add a few of my own tenets to the manifesto, namely:

• Innovation cannot be forced, and often not even planned.
• Innovation isn't always about creating something totally new. Adapting, combining and applying existing ideas in new ways can be just as innovative.

Do you have any other principles to add to the manifesto? What's your take?

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* Turns out a few others have already made a stab at their own Innovation Manifestos, including John Kao, who made his into a book (I'd be interested in your review of this if you've read it). Of those freely available online, my personal faves are this one (for its pure idealism) and Matthew May's Elegant Solutions (for its practical advice and applicability). It's also worth a look at Mind of the Innovator, another PDF from Matthew May on the eternally-inspiring site ChangeThis.

From lightbulbs to 3D TV

Please note : This post has moved

Last week I was fortunate to spend a day at the High Tech Campus in Eindhoven in the Netherlands. The site itself is very impressive and hosts around 5000 engineers working on new technologies with ‘Open Innovation’ as their motto. And yet as recently as 2003, the site used to host just one big company, Philips.

Philips made a very deliberate decision to open up the way they operate, and the way they innovate. A clear indication of how things hare changed in a short space of time is the fact that there are now hosts over 40 businesses academic research institute and network called MiPlaza where companies share equipment and services such as cleanrooms. As a symbolic move, in 2005 they even removed the Philips sign at the entrance to the site, despite the major historical connections with the site.

We were fortunate to hear their Chief Technology Officer talk about their approach to open innovation. They now realise that it is much easier to sell successful businesses than it is to sell new technologies, and so they active spin out companies or technologies in the same was as many Universities.

I always find it fascinated to see how organisations re-invent themselves but this was made blatantly clear when we saw how Philips has moved on from starting out in lighting, progressing into Consumer Electronics, and now with a major focus is on Healthcare. The best ‘I want one of those’ moments came when they showcased a pretty spectacular 3D TV – like 3D cinema but without the cardboard red and green specs.

I am struck by the desire and ambition of companies like Philips to engage with ‘the outside world’ in a proactive way, and the opportunities for smaller companies, universities or individuals are significant, though it’s not always easy. Therefore, the theme of corporate open innovation is one of the three core themes that we will investigate through NESTA Connect launching in 2 weeks tomorrow and we’ll post again on this subject over the coming months.