INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

w

For firms willing to innovate, dynamic markets increasingly

require them to search for better ideas and wider knowledge

beyond their customary boundaries, abandoning the

classical view that innovation occurs within the ivory

tower of a single firm. The Life Science cluster in Krakow

can be seen as a test-bed for open innovation.

read more on Page 03

TablE of ConTEnTS

INNO-Grips Newsletter November 2011

I n n o v a t I o n

Policy News04www.proinno-europe.eu/innogrips/newsletters

European CommissionEnterprise and Industry

Editorial // P 02

Open innovation – putting the concept into practice // P 03

Social attitudes to innovation and entrepreneurship // P 05

Disruptive innovation // P 06

Trends and challenges in demand-side innovation policies // P 07

New practices in regional innovation policy // P 08

European economic governance: a new impetus for public sector innovation? // P 09

International innovation policy news // P 11

About INNO-Grips // P 13

Imprint // P 14

lEad arTiClE

The internalisation of external knowledge

Open innovation: putting the concept into practice

©iS

tock

phot

o.co

m/v

ecst

ar

INNO-Grips NEWSLET TER 03

European innovation policy:

New trends and new practices

Dear Readers,

I am happy to present our fourth INNO-Grips newsletter, in which we brief you on the latest EU trends and practices in innovation policy and studies.

open innovation is a concept which not only attracts increasing attention from the academic community, but is also continuously becoming a focus of busi-ness practices. Enterprises are recognising that cooperation with each other, sharing and sourcing knowledge from outside to create synergies, is an effective engine for innovation and growth. To complement our recent study on Open Innovation, we offer in this issue an interesting example from industry on how to benefit from Open Innovation in practice.

At the same time, we are investigating two new areas of the innovation world - the role of social attitudes to innovation and entrepreneurship, and disruptive in-novation. We present a new study which explores how to achieve better under-standing of the social and cultural fac-tors that enhance entrepreneurship and innovation. This is not an easy task, but it offers some exciting perspectives. better understanding of social determinants will help us to respond more adequately to ex-isting challenges by shaping better, more targeted and thus more effective policies.

On disruptive innovation, we announce a forthcoming policy brief that will have a closer look at the implications, and at justifications of possible policy responses.

The examples of disruptive technologies changing existing industries and business paths are numerous and compelling: just look, for instance, at how storing music has evolved, from the gramophone, through music cassettes, CD, and on to mp3 for-mat… a chain of successively ousted prod-ucts, victims of disruptive innovation. In a globalised economy we have to know what change of this nature might mean for the competitiveness of the European economy.

In a time of austerity, all possible sources of growth must be examined. This means creating stronger synergies among the instruments supporting innovation. The right policy mix should not focus on sup-ply-side policies, but take full advantage of demand-side policies such as standardi-sation, regulation, public procurement, or lead market initiatives. These policies need attention from policy makers at all levels, from national governments to local authorities. Greater recourse to demand-side instruments will be crucial in keeping our economies on a growth track. Some EU member States have already made substantial use of public procurement and regulation, but there is still some reluctance in the EU to using demand-side policies more widely. A dedicated article summarises the principal results of the recent analytical iNNo-Policy Trendchart report on trends and chal-lenges in demand-side policies across the EU, and provides successful examples from member states.

Every nation and region in the EU has in-novation potential. This potential must, however, be correctly recognised and adequately promoted, taking account of local or regional strengths and weak-nesses. This challenge is addressed by the concept of smart specialisation, in which local and regional economies concentrate

their resources on the most promising areas of comparative advantage. These and others new practices and approaches in innovation policy at regional level were presented and discussed at the second annual policy workshop of the Regional innovation Monitor. We summarise the results of this event in this issue.

Exploiting all the EU’s innovation potential so as to remain competitive is a task not just for private businesses but also for the public sector. This is why the Commission is coordinating research into innovation patterns in public sector organisations and services. The objective is to promote the exchange of good practices that will deliver better services to citizens and busi-nesses. An article on the role of public sector innovation introduces this still-un-exploited field, and offers some successful examples of how society can benefit from new public sector approaches. This topic will be explored further in our forthcom-ing publications.

As usual, our newsletter is rounded off with a series of short international news items on innovation policy developments, as well as information on upcoming events. I would like to take the opportu-nity to invite our readers to our two iNNo-Grips workshops that will take place in brussels at the beginning of next year: on 19 January a workshop on Social attitudes to entrepreneurship and innovation and on 24 January a workshop on Policy chal-lenges to disruptive innovation. Details, with links to further information, appear at the end of this newsletter.

Tomasz Jerzyniak

// EDITORIAL

Tomasz Jerzyniak INNO-Grips coordinator European Commission, DG Enterprise and Industry

02

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

According to modern cognitive psychol-ogy, our thoughts are nothing but the randomised mixture of the results of external sensations and internal cogni-tive processes. This implies that inno-vative ideas arise largely from external sensations and knowledge. Against this background, the importance of the in-formation society is all the greater, as is the crucial issue of openness. Nowadays, firms increasingly accept the axiom that “the information society cannot be built by only one company”. The concept of Open Innovation (OI) enshrines this recognition, with companies not only maximising their use of internal sources of knowledge and technology, but also enlisting external sources through collaborations.

DiMeNsioNs of oPeNNess

The term “open” includes multiple dimen-sions at any one time, and this often leads to significant differences in its definition. There are some common indicators, how-ever, to determine the degree of “open-ness” in innovation processes:

How many independent actors are involved? The larger the number of companies taking part in the collaboration, the more open the innovation process (e.g. Life Science Cluster Krakow).

Who is the ultimate owner of the result? If there is only one owner or a relatively narrow circle of own-ers, the innovation can be seen as closed (e.g. Apple).

How intensive is the collaboration between the developers and users of an innovation? If a company con-tinuously interacts with final cus-tomers or other external developers to include them in the process, the innovation can be regarded as open (e.g. Asthmapolis).

BuTTResses of oPeN iNNovaTioN – Two siDes of The saMe coiN

INNO-Grips conducted a large-scale empirical analysis (130,000 firms from 22 European countries) of the impacts and determinants of OI, based on the

pan-European Community Innovation Survey (Ref. 1). The analysis revealed that the competence bases of firms more broadly tend to strengthen the propen-sity of firms to be engaged in innovation collaboration. Firms relying on OI, i.e. col-laboration with parties beyond the firm’s walls, can benefit from the shortening of development cycles and the reduction of development costs, and can also access a wealth of new ideas from other firms and customers who can become involved without major investment commitments. The analysis suggests that firms intending to pioneer in OI should conduct appropri-ate searches for partners in industry and science: extending the circle of parties beyond the firm’s boundaries is conducive to innovation.

but, as always, there is another side to the coin. Establishing and maintaining a successful milieu for OI depends on some prerequisites. Sharing information and knowledge – whether codifiable or tacit– is tantamount to the assumption of trust between cooperating actors. Trust is the quintessence of any kind of cooperative relationship, and it is hard to build, but easy

The internalisation of external knowledge

Open innovation: putting the concept into practice

LEAD ARTICLE

03

For firms willing to innovate, dynamic mar-

kets increasingly require them to search for

better ideas and wider knowledge beyond

their customary boundaries, abandoning

the classical view that innovation occurs

within the ivory tower of a single firm. The

Life Science Cluster in Krakow can be seen

as a test-bed for open innovation.

// OPEN INNOvATION: PUT TING THE CONCEPT INTO PRACTICE

©iS

tock

phot

o.co

m/v

ecst

ar

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

to lose. Trust can be stimulated by early involvement – which entails e.g. lowering transaction costs – and due diligence dur-ing the cooperation.

However, openness also means that a firm’s competences will to a large ex-tent be hollowed out. As a corollary, the hollowing-out of a firm’s competences requires comprehensive abilities in coor-dination and integration among manag-ers. This implies that internal competences also play a key role in the process of OI. The INNO-Grips study confirmed this hypothesis, with its findings that strong internal corporate knowledge bases, as measured directly by R&D intensity and indirectly by size and sector classes, drive complementary processes of external search and collaboration.

oPeN iNNovaTioN iN PRacTice

In addition to trust, the legal and contrac-tual conditions have to be clear for each cooperating partner, as practice has dem-onstrated. For instance, successful cluster initiatives are those organised on the principle of a “bottom-up” approach: the firms engaging in cooperation with each other establish, in a transparent manner, the management of the cluster. Organized clusters are nothing other than the firms’ clear expression of interest in intensifying cooperation. Hence clusters are, to a great extent, manifestations of OI.

For example, Life Science Cluster Krakow reflects the business acumen emphasis-ing the importance of OI. The Life Science Cluster was established in 2006, compris-ing 32 collaborative institutions repre-senting business, science and healthcare, with intensive contributions from local government. The Cluster is meant to offer a unique opportunity for cluster firms to

keep ahead of the competition by bringing the best bio-business services and products to a global market. The cluster is managed by the Jagiellonian Centre of Innovation Ltd, which is geared towards creating bio-regions for firms focusing on health and medical science. The cluster already provides services ranging from support in R&D, through intellectual property protec-tion procedures and know-how transfer, to access to seed and venture capital for sup-porting spin-offs or market entry. The ob-jectives are promising. The achievements are expected to be visible within two years. As Kazimierz murzyn, managing director, indicates: “We are at an early stage of cluster initiative growth and we have just started to implement open innovation policy”.

Another interesting occurrence in OI is in the field of open-source software (e.g. Linux or the Cyc, which is the most com-prehensive artificial intelligence project in the world). Success is, of course, not associ-ated exclusively with OI. Take for instance the case of Apple, whose iPhone – wheth-er the older models or the newest iPhone 4S – are very successful despite the fact that Apple’s innovations bear the stamp of a more “auteur” model of innovation, in which the offered products and services are heavily influenced by the personality of the creator. Nonetheless, Apple can also be characterised by OI, as exemplified by the success of the iPhone App Store.

In contrast to the “auteur” model of in-novation, the case of Asthmapolis is best understood as an open service innovation for future health service innovation. Since asthma is becoming increasingly common worldwide, and since health sciences have not fully understood its principal causes, collecting and assessing real time informa-tion about the circumstances (time and location) of people suffering an asthma

crisis is instructive for achieving better control. As David van Sickle, co-founder and CEO, said: “Our strategy is that by vol-untarily aggregating shared individual level information about asthma from daily life we may be able to ‘innovate’ our way to more efficacious and cost-effective efforts against asthma. In the sense of open innovation, data is contributed by individuals in the crowd that becomes fuel for product and service innovation in their own management, but also all the way up through health care providers, payers and public health.”

euRoPe’s PoTeNTial iN oPeN iNNovaTioN

The INNO-Grips study also aimed to in-vestigate how European policy stimulates open innovation. One of the most insight-ful findings was that EU funding shows a perceivable bias towards sparking science-system linkages without distinct industry orientation.

This type of conclusion might be a har-binger of changes that are needed. While companies in Western Europe are more likely to be outward looking than compa-nies in North America or the Asian Pacific region (Ref. 2), cooperation is often inhibit-ed by concerns among Western European executives about the threat that sharing information and knowledge can pose to intellectual property protection.

The good experiences that evolve during the process of open innovation may be one of the most fundamental support frameworks, because good experiences will justify the process of open innovation. moreover, the actors involved will then be more concerned about their reputations, and will, as a consequence, become more closely integrated into the cooperation.

04

R e f e R e n c e s a n d f u R t h e R i n f o R m at i o n

[1] Ebersberger, B. – Herstad, S. J. – Iversen, E. – Kirner, E. – Som, O. (2011): Open Innovation in Europe: effects, determinants and policy. INNO-Grips Report. Available: http://www.proinno-europe.eu/inno-grips-ii/workshop/exploring-potential-open-innovation-eu-2020-strategy-comprehensive-insight-tr

[2] Grant Thornton (2009): Innovation: the key to future success? Available: http://www.gt.com/staticfiles/GTCom/GTI/Innovation_-_Global_focus,_Sep_09_FINAL.pdf

// OPEN INNOvATION: PUT TING THE CONCEPT INTO PRACTICE

©iS

tock

phot

o.co

m/v

ecst

ar

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

Social and cultural attitudes – and their economic effects – are possibly the as-pects of innovation that are the most difficult to measure. The lack of adequate data limits our understanding of drivers and barriers to innovation and, conse-quently, the development of innovation policies that promote entrepreneurship and demand for innovative products. The INNO-Grips study on “Social attitudes to innovation and entrepreneurship” is cur-rently addressing this challenge. The study will identify socio-economic indicators for entrepreneurship and demand for innova-tion and explore their effect on innovation outcomes. It will be available in early 2012.

The study has two main objectives:

to compare how social attitudes influ-ence entrepreneurship and demand for innovative products in Europe and in other major economies, including the United States, Japan, Canada, Australia, India, China, and brazil; and

to suggest strategic responses for innovation policy, with a view to fos-tering more entrepreneurship and demand for innovation in Europe.

To stimulate the discussion in this field, and to validate the study results, an

INNO-Grips workshop will be held on 19 January 2012 in brussels, where the study team will present interim results for discus-sion. Due to limited capacity, participation in the workshop is restricted to invited experts. Requests to participate can be made to mr Peter Alpass from Greenovate! Europe (assistant@greenovate.eu).

How ‘soft factors‘ influence innovation

Social attitudes to innovation and entrepreneurship: understanding the impact of the cultural context Social attitudes to innovation exert an influence on entrepreneurship and the demand for innovative

goods and services. However, the impact of “soft” factors such as the social and cultural context in which

innovation processes take place is difficult to describe and measure. A forthcoming INNO-Grips study,

conducted by UNU-MERIT, aims to improve our understanding in this field.

05// HOW ‘SOFT FACTORS‘ INFLUENCE INNOvATION

I N N O - G r I p s w O r k s h O p:

“ Social attitudes toward fostering entrepreneurship and innovation demand”

19th January 2012, 09:00 – 12:00 hrsRue d’Arlon 63, 1040 Brussels

Contact person: Mr Peter Alpass, Greenovate! Europeassistant@greenovate.eu©

bria

n198

4 / p

hoto

case

.com

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

06// INNO-GRIPS POLICy bRIEF DISCUSSES DISRUPTIvE INNOvATION

The concept is closely linked with Schumpeter’s work on creative destruc-tion, where radical innovations create major disruptive changes in a market or in a whole industry. more recently, Harvard business School professor Clayton Christensen’s seminal work on disruptive technology (triggered by the bestseller “The Innovator’s Dilemma”, 1997) has highlighted the subject and initiated a debate about disruptive technology and its implications for business strategy, com-petitiveness and policy.

The forthcoming INNO-Grips policy brief will provide a synopsis of the main theo-retical foundations in this domain, both from an economic (macro) and business

(micro) perspective, and suggest an ana-lytical framework to assess the role of dis-ruptive innovation in different sectors. It will deliver innovation scenarios for two sectors, describing how expected innova-tions could unfold under different socio-economic circumstances. On this basis, conclusions for strategic responses in innovation policy will be drawn. The brief will be published in late February 2012.

To validate the study results, an INNO-Grips workshop on the same issue will be held in late January 2012 in brussels. Requests to participate can be made to mr Hannes Selhofer of empirica GmbH (hannes.selhofer@empirica.com).

INNO-Grips policy brief discusses disruptive innovation

Disruptive innovation and its implications for Europe’s competitiveness

“Incremental” innovation improves existing products or services without causing major structural

changes in the market. “Disruptive” innovation, by contrast, has more significant impacts, even render-

ing existing markets or products obsolete, while creating new markets. A forthcoming INNO-Grips

policy brief introduces the concept of disruptive innovation and explores its implications for specific

industries in Europe.

I N N O - G r I p s w O r k s h O p:

“ Disruptive innovation – implications for compe-titiveness and policy”

24th January 2012, 09:30 – 16:30 hrsBrussels

Contact person: Hannes Selhofer empirica GmbH hannes.selhofer@empirica.com

©iS

tock

phot

o.co

m/h

anss

lege

rs

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

07// INNO POLICy TRENDCHART

The relevance of demand-side measures has been highlighted by the European Commission’s “Innovation Union” Communication, which argues that “the potential of the single market should also be activated through policies that stimulate the demand for innovation”. It also says that a “bolder approach asso-ciating the supply and demand sides is needed”. A growing awareness amongst policy makers of the need to make better use of the power of public spending for in-novation, plus the recent focus on seeking solutions to societal challenges, provides a new basis for the spread of demand-side innovation policies.

INNO Policy TrendChart, the longest-running innovation policy monitoring tool in Europe, has looked deeper into the subject, identifying the trends in the deployment of demand-side inno-vation policy at national level in the EU member States. It also offers an overview of recently introduced demand-side in-novation policy measures and assesses how far there are patterns. The analysis covered 31 European countries (EU 27 plus Norway, Iceland, Switzerland and Liechtenstein) and relied heavily on the information provided by the TrendChart

country correspondent network during the period of June/September 2011.

It found a general trend in strategic docu-ments and policy measures towards more demand-based approaches. And com-pared to the 2009 policy brief it features more prominently across the board. In a number of countries demand-side innova-tion policy has become an explicit part of recent innovation strategies, even if it is often not labelled as such.

Several experiments and pilot projects to test new approaches are under way or are being planned, despite current debates as to where the boundary lies between

supply- and demand-side measures and what kinds of interventions are legitimate and appropriate. However, a majority of countries still focus largely on supply-side instruments. Even in countries with clear commitment, it is still relevant to promote the discussion of how to implement de-mand-side innovation policy tools, and what their impact can be.

In general, a relatively slow shift can be observed towards a demand-supply mix. Countries have adopted a move towards demand-based measures in different ways and to different degrees. In some there appears to be merely lip service, without a real definition or design of measures.

Is demand-side innovation policy one of the basic necessities?

inno Policy TrendChart on trends and challenges in demand-side innovation policies in Europe

Demand-side innovation policies are important policy instruments that intervene alongside demand,

instead of a supply-driven push. They aim to increase the demand for innovations, to improve the

conditions for the uptake of innovations, or to improve the way demand is articulated. Some famous

success stories of demand-side tools where regulation, standards or public procurement played a

critical role in spurring innovation include the internet, the GSM for mobile telephony, aircraft jet engines,

high-speed rail technology, or recent eco-innovative developments.

©iS

tock

phot

o.co

m/o

llo

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

08// INNO POLICy TRENDCHART

In consequence, it is still too early to say whether demand-side type of activities meet expectations, if they will be contin-ued, and what form they may take in the future.

There have been few systematic evalua-tions or impact assessments of demand-side innovation policies. Such evaluations that exist of demand-oriented diffusion policies and innovative public procure-ment highlight the need for demand-oriented policy measures to be designed with market and supply-side conditions in mind if they are to have a significant im-pact over time on innovative market areas.

Given that innovation policies are func-tionally and in time tightly intertwined with other policies, experience suggests that an integration or at least close co-ordination with related policies appears indispensable.

As for types of measures, the report found that there is a strong focus on public procurement of innovation, and, more recently, pre-commercial procurement has received particular attention. The UK, the Netherlands or belgium (Flanders) have been pioneers, but Spain, Sweden, Italy and the Czech Republic are now experimenting with pre-commercial procurement schemes.

Regulations remain important influences on innovation activities, however, and these remain very much in the domain of sectoral, industrial policies, rather than an explicit element in innovation policy. Support to user-driven innovation is an emerging approach within demand-side policy, but concrete support measures are not common. Green technologies have been a particular focus of current demand-side policies; particularly, green public procurement is recognised as a pri-ority. Examples of emobility initiatives as launched in a range of countries (Estonia, Germany, Portugal, the Netherlands, and Lithuania) were also identified and exam-ined in the report.

There are indications of more systemic policies, combining different demand-based instruments or even demand- and supply-side approaches. These range from demand-led supply-side policies, where supply support is focused on areas with a clearly defined demand (e.g. societal challenge), to lead-market types of mix, focused largely on the demand side itself, with some underpinning supply-side support. This suggests that in the future interventions might be designed in a more holistic manner, focusing on the specific context of challenges and sectors rather than launching trendy but isolated innova-tion policy initiatives.

The report draws attention to the poten-tial danger that demand-based measures might be rolled out prematurely and with high transaction and learning costs in certain cases. Support in understand-ing the challenges and opportunities of different forms of measures is needed. Only “intelligent learning”, rather than a simple policy of copying, can make the roll-out of demand-based measures suc-cessful. To that end, the EU can provide an important test bed. It is essential that the challenges of those policies and the importance of context and accompanying policies are stressed, and evaluations of early applications should be widely shared and discussed.

f u r t h e r i n f o r m at i o n

The report is available here: http://www.proinno-europe.eu/trendchart

and was authored by:

Kincso Izsak kincso.izsak@technopolis-group.comand Jakob Edler jakob.edler@mbs.ac.uk

The Regional Innovation monitor (RIm) is an initiative of the European Commission’s Directorate General for Enterprise and Industry to help regions in developing successful regional innovation strategies by providing policy-makers and other in-novation stakeholders with practical tools for evaluating the strengths and weak-nesses of regional policies and regional innovation systems.

Despite more than two decades of policy development, a regional-level overview

combining background information with information on regional innovation poli-cies has not been available - until now. The RIm core partners - Technopolis Group belgium, ISI Fraunhofer, UNU-mERIT and a network of regional experts - have rem-edied this by leveraging opportunities for learning.

Hosted by the Committee of the Regions, the RIm Consortium organised the sec-ond of three policy workshops on 28 October 2011. The event conveyed new

perspectives, raised new questions, and advanced new ideas for the development of more successful regional innovation policies. In three thematic sessions ad-dressing the topics of “smart specialisa-tion”, “demand-side oriented policies”, and “the role of universities in regional devel-opment”, participants were presented with findings from the RIm project as well as insights from policy practice. At the end of each session of the workshop, participants were invited to exchange their opinions on those topics and to provide concrete

Annual policy workshop on regional innovation policy

New practices in regional innovation policy – towards regionally adapted strategies

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

examples of practices adopted in their respective regions.

sMaRT sPecializaTioN

Dr James Wilson from the basque Institute of Competitiveness gave a comprehensive overview of how the new strategic concept can be related to existing policy approach-es and academic findings. Following that, Dr mikel Landabaso from DG Regio pre-sented the newest developments from the perspective of the European Commission.

During the discussion, it was argued that numerous starting points, both concep-tual and in policy practice, should be taken into account and built upon when the development of new strategies be-comes a condition for the allocation of European Structural Funding. The smart specialisation approach is not something entirely new, but a well-considered shift in emphasis that should allow many regions to further develop their implicitly existing strategic commitments.

DeMaND-siDe oRieNTeD Policies

benjamin Kuscher from Conplusultra in Austria recounted his experiences with

various procurement activities at the regional level as well as the RAPIDE pro-gramme, aimed at finding good practice relating to the role of regional public sec-tors in stimulating innovation.

The discussion revealed some uncertain-ties over what should be addressed under the heading of demand-side oriented poli-cies, and some consensus that this fuzzi-ness of definition should be addressed before further commitments are made in the field. Nonetheless, it was highlighted that activities based on approaches asso-ciable with this heading are undoubtedly important and arguably not sufficiently taken into account in current strategies and allocation schemes.

The Role of uNiveRsiTies iN ReGioNal DeveloPMeNT

As the thematic paper on this section is not yet written, the project team took the opportunity to collect information from the audience without inviting an addi-tional speaker.

The discussion found that regional lead-ership exercised by lighthouse PPP pro-jects of high-profile universities is a topic

worthy of consideration. Furthermore, however, there was agreement that the role of regional teaching colleges and low-profile universities deserves greater attention. Even the ‘traditional topic’ of matchmaking between universities and local SmEs remains a continuous challenge for many regions and should be analyti-cally addressed.

09// ANNUAL POLICy WORKSHOP ON REGIONAL INNOvATION POLICy

f u r t h e r i n f o r m at i o n

For workshop presentations, please visit the RIM public website: http://www.rim-europa.eu

Contact persons: Jacek Walendowski jacek.walendowski@technopolis-group.com

Dr. Henning Kroll henning.kroll@isi.fraunhofer.de

Dr. René Wintjes r.wintjes@maastrichtuniversity.nl

Economic governance will have conse-quences for the public sector within the member States too. Resources can be-come scarce, and the expansion of public spending will probably be limited. Against this background, the efficiency of the pub-lic sector will acquire greater importance, and modernisation through innovation can be a major tool for driving efficiency. Public sector innovation can help cut

excessive government spending and can also result in more efficient public sectors in EU member States.

PRivaTe veRsus PuBlic secToR iNNovaTioN

Any estimation of the potential direction of change is dependent on an awareness of the specific features of public sector

innovation. The innovation process in the public sector differs in many ways from how it happens in the private sector (it is slower; the bureaucratic rules and rigidities of the public sector hamper the innovation process; public sector innovation generally has an intangible nature of innovation; risk-taking and political issues are interlinked; there are sector-specific organisational and management structures etc.).

The role of public sector innovation

European economic governance: a new impetus for public sector innovation? The global financial and economic crisis has demonstrated the need for closer economic policy

coordination between the European Union (EU) Member States as a pre-condition for sustainable public

finances. Economic governance, as defined in recent EU legislation, is designed to enhance budgetary

surveillance and to prevent major macroeconomic imbalances in the future.

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

10// THE ROLE OF PUbLIC SECTOR INNOvATION

There are different analyses of the barri-ers to public sector innovation (Ref. 1). The specific nature of the public sector is also present in the motivations for innovation. Røste and miles (2005) identified the main motivations for innovation in the public and private sectors (Ref. 2). They present a long list of motivations, including ele-ments whose importance are likely to be enhanced in the era of European economic governance, such as money, potential for spin-off businesses or the propagation of a policy, idea or rationality. According to Technopolis (2008), the most important drivers of public sector innovation are political will, and pressures for economy and improved efficiency (Ref. 3). There is no doubt that some of these motivations and drivers will be strengthened in the era of European economic governance. The big question is what public sector innovation is likely to look like in such an economic policy environment.

exaMPles of efficieNT PuBlic secToR iNNovaTioN

While a definite answer to the above question is not available, examples from the past – good practices in the field of public sector innovation resulting in less government spending – can help identify some potential directions for public sector innovation in Europe in the near future.

The first example is a financial innovation called “Payment by Results”, promoted in the UK health sector. The NHS Plan (July 2000) introduced the government’s am-bition to link the allocation of funds to hospitals to the activity they undertake. Hospitals have been paid according to “block contracts”, so they received a fixed payment in respect of providing a broadly specified service. Consequently there was no incentive for healthcare providers to increase efficiency.

The main aim of the new system was to provide hospitals with greater motivation, by paying them for the optional activity they undertake. A system of payment by results was the outcome. This new finan-cial system offers incentives to remunerate performance, to support sustainable re-ductions in waiting times for patients, and to make the best use of available capacity.

The UK Audit Commission, a public corpo-ration set up in 1983 to protect the public purse, concluded that, following the in-troduction of “Payment by Results”, most hospitals improved their financial man-agement and have a better understand-ing of the costs of treating their patients. There are some indications that the NHS is providing care more efficiently, such as an increase in the number of patients treated as day cases and a reduction in the number of avoidable hospital admis-sions. Although the Audit Commission has concluded that greater efficiency is not yet widespread across the health service, the process of improvement has begun.

A second example is the Higher Education Initiative of Kingsport, Tennessee, which was the winner of the 2009 Innovations in American Government Award. Kingsport launched a successful “Educate and Grow” campaign to attract new business invest-ment to the region by upgrading the qual-ity of its workforce in 2001.

The Initiative contributed to the revi-talisation of a formerly depressed rust-belt region by improving the academic outcomes of its residents and adapting curricula to meet the workforce needs of the medical technology, healthcare, and information technology industries. It did not run the risk that many government-funded job-training programmes face, of providing unnecessary skills or training citizens for jobs that do not exist. Through

data analysis, Kingsport developed a deep understanding of the marketplace and helped the local government focus its investment in training on the jobs that could be available, rather than those that used to be.

Notable results included the diversifica-tion of economic activity and, conse-quently, employment, including new jobs in different sectors such as healthcare (8000), hospitality (5000), construction (3900), professional services (2500) and information technology (600). Increased employment means less public spending for unemployment in the region. Sales tax revenues have also increased in the region by nearly USD 950 000 since 2005. Property values are increasing, as well.

The results are visible in investments, too: an increase of USD 370 million in new con-struction has been observed since 2006. Some of the evidence is the 12 new res-taurants and regional education buildings that have been built. As a consequence of these positive tendencies, the population has increased: 2700 families had moved to Kingsport by 2006. The number of resi-dents earning college degrees has also increased by 2 percent (Ref. 4).

The above examples demonstrate aspects of the theoretical analysis of barriers to and motivations for public sector innova-tion. These cases are good indications of how it would be possible to cut govern-ment expenditure and/or increase public revenues through public sector innova-tion, and of how public sector innova-tion could play an important role in EU member States in the era of European eco-nomic governance. National and EU level economic policies should pay attention to assure adequate framework conditions for similar developments.

R e f e R e n c e s

[1] See for example: Mulgan, G. – Albury, D. (2003): Innovation in the Public Sector. London: Cabinet Office Strategy Unit.

[2] Miles, I. – Røste, R. (2005): Differences between public and private sector innovation. Publin Reports, pp 22-39.

[3] Technopolis (2008): Innovation index: 2008 Summer Mini-projects. NESTA Working Paper, September 2008.

[4] See more at Harvard Kennedy School’s Ash Center: http://www.ash.harvard.edu/Home/News-Events/Press-Releases/Kingsport-s-Higher-Education-Initiative-Wins-Innovations-Award, accessed in October 2011.

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

New innovation strategies, policies and studies

International InnovationPolicy news

INNO-Grips monitors international developments in innovation policy. A network of correspondents

from more than 30 countries worldwide reports regularly about the launch of new initiatives and other

relevant events in their country. Their news reports are published on the INNO-Grips website. This article

features a selection of news from some of the countries covered.

BulGaRia

The bulgarian Association of Consultants in European Programs (bACEP) has high-lighted the need to speed up the evalua-tion process for innovative projects, and is focusing on the problems created by the long timeframe for project assessment. bACEP has delegated board members to participate in permanent working group meetings (mEET) established to conduct a comprehensive evaluation of innovative projects under the OP “Competitiveness” 2007-2013.

caNaDa

According to a new study by the University of Toronto’s mowat Centre for Policy Innovation, entitled “Canada’s Innovation Underperformance: Whose Policy Problem Is It?”, Canada should dramatically cut its generous tax breaks for research and development and plough the cash back into targeted grants for businesses. The single largest R&D programme in Canada is Ottawa’s flagship Scientific Research and Experimental scheme, which offers tax credits and refunds to companies that carry out R&D. Several provinces piggy-back additional tax incentives on the fed-eral plan. A radical overhaul is warranted because the nearly USD 5 billion (about EUR 3.7 billion) a year in R&D tax incen-tives which Ottawa and the provinces offer now are not functioning, according to the study, which was released in October 2011.

czech RePuBlic

The ministry of Industry and Trade has jointly presented the new CzechInvest strategy, which aims principally to sup-port innovation, trigger sophisticated investments and catalyse the develop-ment of the knowledge-based economy. CzechInvest creates new measures and services with the aim of putting the com-petitiveness strategy into practice. Among other things, it focuses on special econom-ic zones, an approach which underlines the differences between regions. Special economic zones are those where special treatment is needed for their particular characteristics. The strategy will prioritize supporting less developed regions, so as to make those regions more attractive for foreign investors.

DeNMaRk

The Danish ministry of Science, Technology and Innovation conducted an impact assessment on the Innovation Network Denmark Programme (the Impact of Cluster Policy in Denmark of the Danish Agency of Science, Technology and Innovation 2011). One of the principal findings of the report was that the prob-ability of being innovative is 4.5 times higher for companies participating in innovation networks compared to a con-trol group of similar companies not par-ticipating in networks. Participants already became significantly more innovative in the first year. What is more, the year after

participating in an innovation network, the probability of entering R&D collabora-tion was almost 300 per cent higher than for similar companies not participating in networks.

esToNia

The ministry of Economic Affairs and Communications decided to foster the Electric mobility Programme within the domain of Technology and Innovation. The government contracted with the mitsubishi Corporation for the sale of emission allowances worth 10 million AAU (Assigned Amount Units) to launch its Electric mobility Programme, which has three phases. First, the ministry of Social Affairs will order 507 mitsubishi imiev elec-tric cars, acting as both a demonstrator and a driver of this type of development. Then the ministry of Economic Affairs and Communications will develop a grant scheme to support the acquisition of elec-tric cars. At the same time, the ministry of Economic Affairs and Communications will be responsible for building an infrastruc-ture for electric cars covering the entire territory of the country. The Programme covers the period 2011-2012.

GeRMaNy

Germany ranks fourth in the “Innovation Indicator 2011“, a new international benchmarking study of the innovation performance of 26 leading economies. The study, conducted by Fraunhofer ISI, ZEW

// INTERNATIONAL INNOvATION POLICy NEWS 11

12// INTERNATIONAL INNOvATION POLICy NEWS

and mERIT, compares the innovation per-formance and skills of 26 countries, based on indicators related to economy, science and research, education, governance, and society. Switzerland is in first place, fol-lowed by Singapore, Sweden and Finland. The study is conducted every 2-3 years. Germany has improved its ranking from the previous study, conducted in 2009. According to the study, the improvement is largely a result of the increased public sector investment in science, research and development. (Ref. 1)

iNDia

The Government of India has announced the establishment of a new development centre for sports-related textile technolo-gies. The Indian government will also promote national R&D in the textile sec-tor by supporting the establishment of a new R&D centre, the National Centre of Excellence (NCE) in Sportech, at the mumbai-based Institute of Chemical Technology. The initiative has been strongly influenced by the concept of open innovation. Initial plans foresee the NCE in a cooperative partnership with Reliance Industries Ltd, the mumbai-based Kusumgar Associates, and the vadodara-based Kemrock Industries.

laTvia

The recognition of the importance of micro, small- and medium-sized enter-prises gained momentum during a cabinet meeting in October 2011 which under-lined the availability of 2.8 million euro available through the European Regional Development Fund for co-financing new product and technology development. The programme will support industrial research that promotes the development of new products or technologies and will

also provide for intellectual property rights (e.g. industrial design, certification etc.). The European Social Fund is also provid-ing support for micro firms and SmEs with the aim of fostering internal knowledge development through employee training and the promotion of in-house partner-ship activities.

NoRway

A new study by Nordic Innovation warns against a lack of focus on innovation in Norway, both in government and busi-ness. It says that Norwegian policy mak-ers and business leaders often display a narrow and traditional perception of innovation. At the same time, the identi-fied weaknesses indicate that there is an untapped innovation potential in Norway, if the weaknesses can be addressed and remedied. Nordic Innovation, which is gov-erned by the Nordic Council of ministers, mapped the innovation focus of 100 Norwegian businesses, using the so-called “Innovation Radar” method, licensed from Kellogg School of management.

slovakia

The Slovak ministry of Economy has as-sessed how the country could improve its innovation performance to improve on its current “moderate innovator” ranking in the European Innovation Scoreboard. The country’s innovation policy for 2011-2013, mainly under the authority of the ministry of Economy, features increased efforts to fulfil the innovation-related priorities set out in the Strategy of the Slovak Republic for 2007-2013. These are: (i) high-quality infrastructure and an efficient system for innovation development; (ii) high-quality human resources; and (iii) efficient tools for innovation. (Ref. 2)

sweDeN

The Swedish government is aiming to produce and then refine a new innova-tion strategy by the end of 2011. It is exploiting all available information and evaluation about innovation systems, and is also seeking foreign guidance. The OECD is expected to follow up on the develop-ments and publish reports in June 2012. An extra EUR 3.5 million has already been earmarked for innovation through the strategy. The government is also making efforts to speed up the issue of patents, and has announced that it will be possi-ble to file national patents for Sweden in English as from march 2012.

usa

The National Science Foundation (NSF) has announced that it will award a total of USD 74 million (55 million euro) for the creation of four interdisciplinary research and education centres as part of the third generation of NSF Engineering Research Centers. In addition to their primary focus on commercialisation and education, these centres will emphasise innovation, entrepreneurship, small business collabo-ration and international partnerships. For the first time, two of the centres will be co-funded by the Department of Energy. One, led by Arizona State University, will investigate quantum energy and sustain-able solar technologies. A second, at the University of Tennessee, Knoxville, will develop more reliable and efficient elec-tricity transmission networks. Another, at Stanford University, will focus on research into urban water infrastructure, and one at the University of Washington will focus on mind-machine interfaces. (Ref. 3)

R e f e R e n c e s

[1] Innovation Indicator 2011. English summary of the benchmarking study: (http://www.proinno-europe.eu/sites/default/files/newsroom/2011/10/DE_Innovation_Indicator_2011.pdf)

[2] Innovation Strategy for the Slovak Republic for 2011-2013: (http://www.economy.gov.sk/innovation-strategy-of-the-slovak-republic-for-2011-to-2013/133336s)

[3] Read more about ERCs and the innovation ecosystem in “What is an Innovation Ecosystem?”: (http://erc-assoc.org/docs/innovation_ecosystem.pdf)

FurtherInFormatIon

Further information, more news and updated innovation policy country reports are available at the INNO-Grips website at:

http://www.proinno-europe.eu/innogrips/latest-news

INNO-Grips NEWSLET TER 04

INNO-Grips NEWSLET TER NOvEmbER 2011

INNO-Grips NEWSLET TER 04// AbOUT INNO-GRIPS

Renewed strategies, new programmes and evaluations

About inno-GripsThis newsletter is an INNO-Grips publication. INNO-Grips (http://www.proinno-europe.eu/innogrips2) stands for “Global Review of Innovation Policy Studies”. It supports policy-makers in adopting appropriate responses to emerging innovation needs, trends and phenomena. It analyses framework conditions and barriers and drivers to innovation and innovation policy, and offers intel-ligence on international developments in these fields. INNO-Grips is part of the European Commission’s PRO INNO Europe portal (http://www.proinno-europe.eu/), a focal point for innovation policy analysis and cooperation.

INNO-Grips has two strands of activity. One concentrates on innovation policy (this newsletter is part of this strand), the other conducts economic studies of framework conditions, barriers and drivers to innovation.

iNNo-GRiPs iNNovaTioN sTuDies:

barriers to internationalisation and growth of EU’s innovative companies (http://www.proinno-europe.eu/inno-grips-ii/workshop/barriers-internationalisation-and-growth-eu-s-innovative-companies)

Integrated Innovation Policy for an Integrated Problem: Addressing Climate Change, Resource Scarcity and Demographic Change to 2030 (http://www.proinno-europe.eu/inno-grips-ii/workshop/implications-climate-change-resource-scarcity-and-demographic-developments-in)

Open innovation and other new forms of collaboration (http://www.proinno-europe.eu/inno-grips-ii/workshop/exploring-potential-open-innovation-eu-2020-strategy-comprehensive-insight-tr)

Social attitudes to innovation and entrepreneurship (forthcoming)

The role of multinational companies and supply chains in innovation (forthcoming, 2012)

The new nature of innovation (forthcoming, 2012)

iNNo-GRiPs Policy BRiefs:

Innovation policy and the business cycle: innovation policy’s role in addressing economic downturn (http://www.proinno-europe.eu/sites/default/files/IG_Pb1_Anti-cyclical-policy.pdf )

Policies in support of high-growth innovative SmEs (http://www.proinno-europe.eu/sites/default/files/ INNO-Grips_Pb2_High-growth_SmEs.pdf )

Policies in support of service innovation (http://www.proinno-europe.eu/sites/default/files/ INNO-Grips-Pb3_Service-Innovation.pdf )

Disruptive innovation - implications for Europe’s competitiveness (forthcoming, February 2012)

Policies supporting innovation in public service provision (forthcoming, June 2012)

New trends in innovation policy (forthcoming, December 2012)

iNNo-GRiPs woRkshoPs (ReceNT / foRThcoMiNG):

19 January 2012, brussels: Entrepreneurship – social attitudes toward fostering entrepreneurship and innovation demand

24 January 2012, brussels: Disruptive innovation - implications for Europe’s competitiveness

may / June 2012: Policies supporting innovation in public service provision

The INNO-Grips policy analysis and monitoring is carried out by empirica GmbH, bonn (http://www.empirica.com) and ICEG European Center, budapest (http://www.icegec.hu), with support from Institut der deutschen Wirtschaft Köln Consult GmbH, Cologne (http://www.iwconsult.de), based on a service contract with the European Commission, DG Enterprise and Industry, running until the end of 2012.

INNO-Grips NEWSLET TER NOvEmbER 2011

13

The INNO-Grips Newsletter

I n n o v a t I o n

Policy News04

// ImPRINT INNO-Grips NEWSLET TER 04

iMPRiNTThis INNO-Grips newsletter has been prepared by ICEG European Center, budapest, Hungary, on behalf of the European Commission, Enterprise and Industry Directorate General. Editors: Olivér Kovács, Adrienn Fekó, Tamás Szemlér (ICEG European Center) Design and Layout: KITZ.KOmmUNIKATION GmbH Werbeagentur, bonn © European Union, 2011. Reproduction is authorised provided the source is acknowledged.