Innovation Paradigm In Transition

1. InnovationParadigm In Transition Tuomo Uotila, professor Lappeenranta University of Technology Lahti School of Innovation

2. Structure of thislecture Definitions of somekeyconcepts innovation / innovationpolicy (national vsregional) / innovationsystem Changinginnovationparadigm Networkedinnovationprocesses

3. Objective of the Lecture • To give an understanding of somekeyconceptsrelating to topic • To highlightrecentchanges in innovationpolicy (openinnovation, practice-basedinnovation) • To highlight the role of networks in innovationpolicy

4. 1. Definitions of somekeyconcepts

5. Innovations: new ideastakeninto practice • Manydifferenttypes: product, process, oganisational, social, system, service… • Combiningknowledge, expertice and technology in novelways. • Theyareoftendeveloped in complex, interactive and continuouspriocesses. • Theyarenot a marginalphenomenonbut a part of everyone’s life

6. Defining an Innovation • The distinctionbetweeninnovation and invention can be elaborated by an example used by Schumpeter, who when referring to technological change defined invention as the creation of new technologies, innovation as the commercial introduction of new technologies and diffusion as the spreading of new technologies (Arthur, 2007; originally Schumpeter 1911). • …new creations of economicsignificanceand primarilycarried out byfirms (butnot in isolation)… (Edquist et al 2009) • Lambooy (2005, 1142) defines innovation as “the result of an iterative process of interaction between individuals, organizations, systems and institutions, using price signals and other signals to find the direction in which to develop” • Dosi (1988, 222) defines innovation as “the search for, and the discovery, experimentation, development, imitation, and adoption of new products, new production processes and new organisational set-ups”

7. What is an innovation? Distinctive characteristics of an innovation: • a new or improved product, production method or service • substantially different or unique technological properties • products realised launched on the market (product innovations),production methods introduced (process innovations)or new services available (Tekes 2004) • Invention: absolutely new • Innovation: contextually new

8. WhyareInnovationsimportant? • Cornerstones of competitiveness: • Productivity • Productivity is noteverythingbut in the long runit is almosteverything (Krugman 1994) (80/80-rule) • Innovativeness • Production and use of knowledge is at the core of value-addedactivities, and innovation is at the core of growth (Archibugi and Michie 1995)

9. Origins of innovation? Share of Finnish companies engaged in innovative activity that consider the source in question as being a very important (or important) contributor to theirinnovativeactivity. Evaluation of Finnish NIS 2009

10. Origins of innovation? • Science-based (4 %) • Science, technology, innovation (STI) • Practice-based (96 %) • Doing, using, interacting (DUI)

11. Innovation Systems, Whatarethey? • Definition: Metcalfe (1995) defines a system of innovation as ”a set of distinct institutions which jointly and individually contributes to the development and diffusion of new technologies and which provides the framework within which governments form and implement policies to influence the innovation process” • National / Sectoral / Regional: …”regionalinnovationsystems (RIS), thatcanbethought of as the institutionalinfrastructuresupportinginnovationwithin the productionstructure of a region” (Asheim & Coenen, 2005) • ….”a set of interacting private and public interests, formal institutions, and other organizations that function according to organizational and institutional arrangements and relationships conducive to the generation, use, and dissemination of knowledge” (Doloreux, 2003) • Innovation systems thus provide a conceptual framework in which innovation processes are promoted and facilitated by means of innovation policy and where new innovation policy instruments are developed

12. Innovationpolicy • Innovation policy is concerned with stimulating, guiding and monitoring knowledge-based activities within a political jurisdiction; typically a nation or a region. The goals of innovation policy are economic, although they are also stated in broad welfare terms (de la Mothe 2004). • Kuhlman et al. (1999) define innovation policy as the entire scope of related public measures of science, research, technology policy, overlapping also with industrial, environmental, labour and social policies. • Innovation policy can also be seen as a complex process, not a single product. It is a result of a set of programmes and policies, all involving institutions (Kuhlmann & Edler 2003; de la Mothe 2004).

13. FinnishNationalInnovationSystem (Nieminen & Kaukonen 2001)

14. Conceptualization of (regional) innovationsystem / Practice-basedinnovations ”Industrial” policy “Successful innovations are usually based on the open-minded combination of various competencies, while too narrow a concept of innovation activity results in part of innovation potential remaining untapped. Correspondingly, Finnish innovation activity has largely been concentrated on industrial sectors and focussed too narrowly on the exploitation of scientific-technological expertise.” (TEM, 2009, p. 23.) Innovationpolicy S & T - policy (Autio 1998)

15. RelevantFeatures of an Innovation System • Set of Nodes in InnovationChains • Systemic, InteractiveLinkages • KnowledgeGenerationInstitutions (& Firms) • KnowledgeExploitationFirms (& Public sectororganizations) • Soft Infrastructure • Financing • Commercialization and Marketing • Feedback and PolicySupport(Philip Cooke, Lahti 2006)

16. Innovation System Functions Functions, which should be promoted by an innovation system: • entrepreneurialactivities • knowledgedevelopment • knowledge diffusion through networks • guidance of the search • marketformation • resourcesmobilisation • creation of legitimacy/counteract resistance to change Hekkert et al. (2007, 9-13)

17. 2. Changinginnovationparadigm

18. The theses of the new innovation paradigm • Organizations must be able to adjust to open innovation activities • Very practice-based contexts are the driving force of the innovations • The role of the customer in innovation activities is changed from object to subject • The greatest innovation potential lies in the interfaces of different fields of expertise • Efficient value networks capable of implementing innovations are necessary • Very often organizations suffer from a communication gap that prevents innovation and creativity • There is a vast innovation potential hidden within the personnel of organizations

19. Paradigmshifts in innovationpolicy

20. Someconceptsrelated to broadbasedinnovationparadigm New and traditional innovationparadigmsare Complementing, not competingwitheachother

21. STI and DUI modes of innovation • The STI mode of innovation refers to the way firms use and further develop this body of science-like understanding in the context of their innovative activities and it relates to the use of explicit knowledge. The STI mode of learning even if it starts from a local problem will make use of ‘global’ knowledge all the way through and, ideally, it will end up with ‘potentially global knowledge’. • The DUI mode of learning most obviously refers to know-how and know who, which is tacit and often highly localised. While such learning may occur as an unintended by-product of the firm’s design, production and marketing activities, the DUI-mode can be intentionally fostered by building structures and relationships which enhance and utilise learning by doing, using and interacting. • In European ‘innovation scoreboard’ there is a bias toward indicators that reflect the STI-mode while those referring to the DUI-mode are almost absent, thus there is a need to develop indicators of the DUI-mode to arrive at an adequate understanding of the bases for differences in innovativeperformance. (Berg Jensen et al. 2007)

22. Modes of knowledgeproduction • Mode 1 knowledge production is traditional knowledge production based on single disciplines. It is homogeneous and primarily cognitive - > relates to STI. • Mode 2 knowledge knowledge production, by contrast, is created in broader, heterogeneous interdisciplinary social and economic contexts within an applied setting -> relates to DUI (Gibbons et al)

23. Practice-BasedInnovationActivities • From R&D to C&D. Openinnovationphilosophy. • Notwait for the waterfallapproach; break the traditionalchain; basicresearch, appliedresearch, productdevelopment • Activeuse of new tools in a practicalcontext and combination of the state-of-the-artknowledge in makinginnovations • Weaklinks and structuralholes • Payattention to the combination of different ”knowledgeinterests” – absorptivecapacity

24. Mode 1 knowledgeproduction -> STI-mode of innovation Context of knowledge application (companies and public sector organizations) Policy instruments and tools aiming at promoting knowledge transfer and utilization Mode 2 knowledgeproduction -> DUI-mode of innovation Bringing STI- and DUI-modestogether • Finland needssectoralworldlevelknowhowconcentrations for STI-processes • Finland needsalso to improveitsDUI-processes in order to betterabsorpthisscientificknowhow to facilitateinnovationprocesses in private and publicsectorcontexts (Harmaakorpi, Hermans & Uotila 2010)

25. Science-based and practice-basedinnovations: Arecomplementingeachother Bothareneeded But….. Expertice is different PolicyTools/instrumentsaredifferent Evaluation/measurument is different Big challenge for regionalinnovationpolicy

26. Science-based and practice-basedinnovation (Harmaakorpi et al., forthcoming)

27. “Can broad be too broad?” Two ways to go wrong with the broad-based approach: • First, to downgrade the definition of innovation to include even minor changes and modifications as innovation. If anything, Finland and Finnish policies should rather do the reverse. • Second, to label all enterprise policy – including old-style industrial policies and/or those not directly related to the generation and utilization of novel ideas – as innovation policy. (Edquist et al., 2009).

28. 3. NETWORKED INNOVATION PROCESSES

29. Different kinds of networks (Smedlund 2009, 55)

30. Closed vs open innovation (Chesbrough 2003)

31. Enterprise InnovationProcess P0 P1 P2 P3 P4 P5 Idea refining Idea evaluation Idea generation Innovation management, strategy, culture Definition Planning Opportunityrecoqnition Testing Rampup Concept development NPD (New productdevelopment) Frontend of innovationprocess (FFE) Focus of thispresentation (Apilo & Taskinen 2006)

32. Challenges of innovation management Firms in manycasesfocussedtoomucheither on the frontendorbackend of innovationprocess Frontend: openness, creativity, ”degrees of freedom”, allowing, limitedcosts Back end: controll, limiting, moreclosed, costgenerating Focus on frontend -> Problem: ideasstay as ideas, theyveryseldomgetrealized Focus on backend -> Problem: ideasoftenhavelimitednoveltyvalue Different ”management logic” on frontend and vbackend of innovationprocess

33. Networks and StructuralHoles Structural hole Strong links Weak links (Burt 2004)

34. StructuralHoles and GoodIdeas • …”goodideasaredisproportionately in the hands of peoplewhosenetworksspanstructuralholes”…. • …”peoplewhostandnear the holes in a social structureare at higherrisk of havinggoodideas”... (Burt 1992)

35. Strong and Weak Ties in Networks • The strength of a tie is a combination of the amount of time, the emotionalintensity, the intimacy and the reciprocalserviceswhichcharacterize the tie • Strong ties arecharacterizedby common norms and highnetworkdensity. Thesestrong ties areeasier for innovation, sincetheyincludenormally a relativelyhighamount of trust, common aims and the samekind of language to communicate. • However, weak ties arereportedbemorefruitful for innovations, becausemorenovelinformationflows to the individualsthroughweak ties thanthroughstrong ties (Granovetter 1973, 2005)

36. Distances in innovationnetworks (adaptedfrom Harmaakorpi et al., 2006; temporaldistanceadded)

37. categories of knowledge • Explicitknowledge: Knowledgeexpressed as wordsornumbers. Thistype of knowledge is codified and welldefined. • Tacitknowledge: Knowledgeexpressed as insights, intuitions and hunches. Thistype of knowledge is highlypersonal and hard to formalize. • Self-transcendingknowledge: The ability to sense the presence of potential, to seewhatdoesnotyetexist. Itcanalsobedescribed as tacitknowledgeprior to itsembodiment. (Uotila & Melkas 2007)

38. Informationvsknowledgetransferin networks • Distinction between the concepts of “information” and “knowledge” • Knowledge defined as “interpreted, understood and internalised information in a certain context” • “Complex knowledge resists diffusion even within the social circles in which it originated” (Sorenson et al. 2006) • When actors in networks communicate along strong ties and across short distances, then what is communicated, is more “knowledge-like, ready-to-use inputs” for learning and innovation processes. • When communication takes place across greater distances and along weak links, then what is communicated is more “information-like” inputs, and much greater effort and resources are needed in the interpretation process in new contexts, before these inputs can provide support for learning, new knowledge generation and innovation. • Brokers can provide the necessary extra resources for contextualization, and thus they may help also the innovating actors of a network to cross greater distances. (Parjanen, Melkas & Uotila, 2011)

39. Information / knowledgebrokering • Brokeringactivitiesaim at reaching a suitableoverlap to stimulate the informationexchangebetweenactors in the innovationnetwork • Ifoverlap is toohigh, the transferredinformationdoesnothave a noveltyvalue • Ifoverlap is non-existentortoothin, information is nottransferred and andtheres a structuralhole in the network (Burt 2004) • The requiredoverlapbetweentwoactorsdepend on the absorptivecapacity of the respondent • Brokeringactivitiesshouldaim to optimize the right ”amount” of overlapbetween the actors in the innovationnetworks to ensure the transfer of information and knowledge

40. A. A. A. Brokering of the information/knowledgetransferprocess B. B. B. Brokering and optimaldistance A.= ”owner of innovationprocess” B.= new knowledgebrought into the process

41. Information technology research Biotechnology research Nanotechnologyresearch . ”Traditional” metalindustry Looking for StructuralHoles: Crossing the Distances (Harmaakorpi)

42. THAT’S IT, thankyou! tuomo.uotila@lut.fi