Role and Function of Industry Research Institutes in Western Europe: Ten Theses

1. Role and Function of Industry Research Institutes in Western Europe: Ten Theses Erik Arnold World Bank KEF VIII Conference INSEAD 29 April 2009 www.technopolis-group.com

2. Some of the track … • Book Technology Institutes: Strategies for Best Practice, with Rush, Bessant, Hobday and Murray (1997) • Strategic support to Swedish institute merger and funding debates (2000-2005) • Multiple evaluations of institute-based R&D and SME support programmes as well as of institutes (eg IMEC, TFK) • Role of Industrial Research Institutes in the National Innovation System, for VINNOVA (2006) • Role of institutes in the Norwegian innovation system (RCN evaluation 2001; expert panel, 2006) • Evaluation of the Danish GTS institute system (2009) • Past and future of EU RTOs (ongoing for European Commission)

3. Observations on ECA restructuring issues … • RIs are not only about ‘public goods’ but generating spillovers, tackling market and systems failures, which can sometimes include an absence of supply of services that the market ‘should’ provide • RIs need strategic and operational autonomy - if they can’t follow the ‘golden rule’ they cannot adapt to needs • It doesn’t matter in most legal systems whether it’s state-owned or a foundation (but beware the Austrian example) • GOCO adds an additional layer of principal-agent complexity and potentially perverse incentives. Avoid • You’ll struggle to measure impacts of RIs as enablers using Performance Indicators or macro-statistical measures – look at business plan fulfilment and the case level and the process becomes clear

4. There are four institute archetypes in the EU • Research associations, which originally tackled common problems within one or more branches of industry and then became institutionalised. (The growth of Mekanförbundet, which eventually established IVF is a good Swedish example.) Some of these are still membership based • ‘Technology push’ institutes, sometimes set up in the more recent past, in order to promote industrial development more widely. SINTEF is an older example. Fraunhofer is also in this category, since its modern role was created by transforming an earlier small institute network that had other purposes • Services-based institutes, generally focusing in their early years on measurement, testing and certification. Like the Swedish SP, these have moved ‘upstream’ into research. VTT is a mixed case where a policy decision was taken to transform a services-focused institute into a technology push institute • ‘Basic research’ institutes, in Soviet-style academies or analogues (CNRS, Max Planck…)

5. ‘Basic research’ institutes belong with universities • They don’t have customers, so they are isolated from education and broader society • The lack of the basic research function stunts the development and growth of universities, affecting all three Tasks • The failure of the Soviet Academy model is recognised in the growing number of former Soviet satellite countries integrating their Academy institutes with their universities • CNRS is leading the way towards integration among the EU-15, with over 80% of its staff now working in ‘unités mixtes’ • Facilities-based institutes (eg CERN) are the special case we should agree to live with

6. Institutes enable economic and technological development, they don’t drive it • There are plenty of examples of institutes founded in order to drive development by creating new products and processes for industry • ITRI, SINTEF, KISR, KIST … • There are no examples of this succeeding. Instead, such institutes produce • Skills, people • Services • Support to innovation • The closest cases are probably those that do collaborative research with a heavy industrial component • SEMACON, IMEC …

7. Customer and Project Leader views of the activities done: twin peaks Source: Technopolis Study of VINNOVA K-funding

8. Institutes help users go ‘one step beyond’ what they can already do Source: Technopolis Study of VINNOVA K-funding

9. Definition of strategic goals and planning of business Identification of business opportunities Development of products and services Sales and marketing CUSTOMER’s innovation process Technological breakthroughs Applications, alternative business concepts New products, methods, businesses Certification, technology and information services Strategic basic research (own and others’) New knowledge Applied research Application Contract research Product development Services Technology transfer VTT’s innovation chain They do this using a three-step innovation model

10. Institutes’ activities change with time and development • Applied institutes in Western Europe are generally long-established • In the past, they had high core funding and often a focus on, services, new products and SMEs • With rising industrial absorptive capacity their focus has shifted towards applied research, intermediate knowledge outputs and larger customers • Core funding as a share of income has tended to fall … • … but that trend is reversing as the research intensity goes up • Developing country policymakers sometimes struggle with the need to adopt past rather than present OECD practice

11. Why Swedish customers go to institutes and universities

12. ‘Commercialisation’ in institutes is a category mistake • Universities have been encouraged to undertake a ‘Third Task’ in recent years • Industrial liaison • Developing, owning and exploiting intellectual property portfolios • Promoting spin-offs • By analogy, policymakers are putting institutes under pressure to do the same • But the core of institutes’ business is the development and transfer of knowledge • The policymakers’ prescription is an invitation for institutes to compete with their customers

13. You get the research institutes you pay for 2001 data

14. Capability development resources provide THE key lever on the nature of institutes’ work 2004 data

15. There are more sources of capability than core funding • Core funding, in the sense of an un-earmarked subsidy paid to the institute, which allows it to fund the acquisition or generation of knowledge and instrumentation • Subsidy specifically earmarked for developing capabilities (whether acquired by negotiation or in competition with other institutes), such as the Swedish K-medel • Other R&D funding instruments that have the effect of increasing institute capabilities, such as the Danish centre contracts or VINNOVA’s new-style competence centres programme that finances institute participation • PhD scholarships, allocated to the institute to fund people studying there • PhD scholarships, allocated to others, where the doctorands in practice work at or in collaboration with the institute • Other resources, such as faculty time and instrumentation, shared with universities

16. Institute management and governance rely on markets • The use-orientation of institutes’ activities means that their ability to sell their services is the ultimate test of their relevance • Directors must, therefore, have considerable strategic freedom. It is not clear that socially-imposed targets or performance indicators will improve performance • Strategic intelligence is necessary, both from industry and science, but too much influence from either side encourages lock-in • A corollary, is that in the absence of a market it is close to impossible to run a modern institute

17. Institutes are in a time-warp - expect radical change • Customers are globalising, but national institutes’ ability to support this process is limited • Scale and the ability to offer polytechnic services are increasingly important for institutes - stretching the ability of small-country systems to compete • The policy pressure for a European Research Area reinforces the logic of larger, more capable institutes • Yet institute incentive structures remain obstinately national • The Framework Programme has done nothing to change this - yet - but institutes are coming onto the policy agenda • Small, research-intensive countries are probably best placed to lead, and benefit from, internationalisation

18. Hammering on the church door … • ‘Institutes’ is a bucket category - we must segment to understand • ‘Basic research’ institutes are a special case - they belong with universities, not in a more general institute discussion • Institutes are helpers, not motors in innovation systems • Their role is ‘de-risking’ innovation - taking innovators ‘one step beyond’ what they could otherwise do • Their activities (and funding and governance needs) therefore change over time and with economic and technological development

19. More banging … • Institutes and universities are not substitutes • Asking institutes to do ‘commercialisation’ in addition to their core business is a category mistake - commercialisation is their core business • Core funding is a key lever on institute behaviour • Institute management and governance must be influenced by market forces • The institute sector is caught in a nationally-focused time warp – expect a period of radical internationalisation and restructuring

20. Thank you for listening www.technopolis-group.com Technopolis Group has offices in Amsterdam, Ankara, Brighton, Brussels, Paris, Stockholm, Tallinn and Vienna.