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David Kennedy Science Technology and Environment 25 November 1992 Parliamentary Research Service Background Paper Number 27 1992 Innovation: Managing Change

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Page 1: Innovation: managing change · 2009-10-12 · Innovation: Managing Change 3 develop military systems such as nuclear weapons and radar during that war. Scientists, it seemed, had

David KennedyScience Technology and Environment

25 November 1992

Parliamentary Research Service

Background Paper Number 27 1992Innovation: Managing Change

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'I'hia paper hu been prepared for pn,raJ. distribution to Membtn of tU Au.traliaA Parliament.Rewre outailH tM Parliament are reminded that thiJ is not an Au.t.ra1ia.n Govel'DlIltnt document, but a paper prepared bythe author and publiahed. by the Parliamentary R..earc:h Service to contribute to conlideration of the iauu by Senatorl andMemberl. The vie... expreued in this Paper are tm,.e of the author and do DOt neeeuari1y reflect thoM of the ParJ.iamental'yReMarch Service and are not to be attributed to the Department o(the Par~ntaryLibrary.

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CONTENTS

Introduction 1

Innovation and Invention: the Commercial Imperative. . . . . . .. 2What is Innovation? 2Why does Innovation happen? ,. 4

Innovative Activity in Australia and tbeWeigbt of History ...............................•... 7

The Elements of Innovation: Strategy, Marketand Structure ............................•......... 9Enterprise Management andInnovation Strategy. . . . . . . . . . . . . . . . . . . . . . . • . . . . . . . .. 10

Tbe Scope of Innovation. . . . . . . . . . . . . . . . . . . . . . .. 10Tbe Management of Innovation 12Australian Management and Innovation . . . . . . . . . . .. 13

Resources for Innovation: Management Beyondthe Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15The Training of Managers . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18

Innovation, Market Regulation andWorkplace Flexibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 19The Impact of Labour Regulation onthe Rate of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . • . .. 20Unions and Enterprise Competitiveness 23Flexibility and Society .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 24

Forward to an Innovation Policy? 25

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 28

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Innovation: Managing Change 1

Introduction

The present scale of world competition is unprecedented. Increasingproduct differentiation in function, price and quality have fragmentedsome important and previously 'mass' markets. Product developmentcycles in the most technology intensive industries such as cars andelectronic consumer goods have shortened significantly, and are as lowas 18 months in some industries.

The speed of technological advance has never been greater. Whole newconsumer and capital goods industries based on microelectronics, newmaterials and information technology have been spawned. Olderindustries have also benefited from the use of these technologies.

Advances in transportation have extended the reach of marketcompetition. As a consequence there has been steady growth in thevolume of international trade. In Australia over the last thirty years,there have been long-term increases in both import penetration andexport performance in almost all Australian Standard IndustryCategories I.

This trend has been accompanied by a large increase in the relativeimportance of trade in manufactures, with a corresponding decrease inthe relative importance of unprocessed commodities. The commodityshare of world merchandise trade declined from approximately 45 percent to 28 per cent from 1963 to 1987, offset by a correspondinggrowth in the value of trade in manufactures 2. It is clear also thattrade in services is growing at least as fast, but difficulties inmeasuring the volume of trade in services make precise calculationsimpossible 3.

The consequent mobility of knowledge and financial capital presentsentirely new possibilities. These developments have made innovationmore central to enterprise strategy.

Governments and enterprises are still struggling to catch up with thesechanges in many instances. Clearly, flexibility which allowsenterprises to innovate rapidly in response to the market is essentialto those industries and sectors experiencing such constant andoccasionally discontinuous changes. This is particularly true in a smalleconomy like Australia's.

Yet despite our reliance on innovation, surprisingly little is knownabout its links to science on one hand and economic growth on theother.

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2 Innovation: Managing Change

The task of this paper is to indicate what is known about those factorsimportant to the rate of innovation. It begins with a discussion of theinnovation process itself: how and why it occurs. The resourcesrequired for innovation, and the means by which enterprises obtainthem, are then discusseq.. This serves to emphasise the importance ofenterprise management in the innovation process. Finally. it presentsa thumb-nail sketch of the role of workplace organisation, both as acandidate for innovative approaches and as an environment to theinnovation process itself. It is hoped that the reader will also emergewith a better understanding of the innovation process and the types ofpolicies which are likely to encourage innovation in industry.

Innovation and Invention: the CommercialImperative

What is Innovation?

The DECD defines innovation as 'the first application of science ortechnology in a new way with commercial success'. In strict DECDusage, any application of the innovation thereafter is referred to as'adoption', but in this paper 'innovation' will refer also to the spread ofnew technology. As will be discussed below, the introduction oftechnology is never a simple copying process, but makes demands uponmanagement which may be quite specific to the enterprise.

This definition of innovation has two parts: a technical novelty (aninvention) and a successful commercial application. This sets up adistinction between invention and innovation.

In the past, innovation was believed to be driven by invention <4,5. Itwas assumed that innovation occurs as a linear progression. beginningwith a serendipitous discovery in the laboratory. This is followed bythe development of a commercial product or process, and finally by awell-defined application. For example, nuclear physics was seen tohave 'led' to nuclear weapons. while Einstein's quantum theory ofradiation 'led' to industrial lasers and the quantum theory ofsolid-statephysics 'led' to transistors. microelectronics and (most recently) high­temperature superconductors.

This way of thinking about innovation is now called the 'linear model'.As simplistic as it was, the linear model dominated the development ofscience policy following WWII.

The very concept of 'science policy' appeared in the United States outof the need to coordinate the massive technical efforts required to

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Innovation: Managing Change 3

develop military systems such as nuclear weapons and radar duringthat war. Scientists, it seemed, had emerged from their laboratorieswith ideas which had not only won the war against the Axis, butpromised to provide a technological edge over new enemies. It wasargued (not least by scientists themselves) that the only way suchserendipity could be encouraged was to give the scientific communityfully-funded independence. Science policy could be detached fromother considerations.

While high rates of economic growth lasted, there was little incentiveto question these assumptions, particularly within the scientific andtechnical communities. But the global 'productivity slowdown' of the1970s prompted a closer look by policy-makers and academics at theprocesses underlying innovation and the precise mechanism of itscontribution to growth. It became clear that the linear model couldnot explain innovation, not least because there seemed to be littlecorrelation between total national R&D spending and economic growth.

The -linear notion of innovation is being replaced by a much moresophisticated understanding of the linkages between the act ofinvention and the process of innovation.

Alexander Graham Bell invented the first telephone. Conceivably, thepatent for the telephone could have lain idle for decades or perhapshave never been used. In fact, that is the fate of most patents. Belldid more than invent the telephone, he identified a potential marketand commercialised it. With the aid of capital backing from his father­in-law, Bell established his Bell Telephone Company (later AT&T),which set up manufacturing, marketing and licensing systems.

By 1884, AT&T had invented the trunk line and was using them toimplement an innovative strategy. It horizontally integrated its localtelephone systems and provided the option of trunk calls to its owncustomers, while refusing to connect its local competitors. As a result,AT&T became the world's largest company and one of the firstcorporate giants 6.

In this case, as in all others, invention was simply the one step in thecomplicated process of bringing a superior technology to bear on themarket. Innovation is a process, the combination of two steps:invention and a complicated process of commercialisation 7. Inventionis not automatically followed by commercialisation. In fact it ispossible for a superior invention (a better machine) to be an inferiorcommercial product if it costs much more than its predecessor toproduce.

Innovation occurs in all healthy industries, but takes many differentforms. For example in the food industry, innovative forms of

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4 Innovation: Managing Change

packaging and processing are important. In the clothing and footwearindustry, the design of new fashions is an important form ofinnovation. The introduction of competition into the finance industryin Australia has resulted in the creation of many innovative serviceswhich previously did not exist, as well as innovative means of delivery,particularly electronic funds transfer.

Our oldest industries, agriculture and mining. have relied heavily oninnovation 8,9. The pressure to innovate arose from the novelconditions which Australians experienced after leaving the Europeancontinent. and from the need to establish export markets. As aconsequence, advanced mineral processing techniques developed andused in Australia are also used all over the world. Agriculture, a long­standing investor in R&D, is now poised on the threshold of abiotechnology revolution. These industries still carry on their traditionof innovation today.

Why does Innovation happen?

Is it correct to embed 'successful commercialisation' in the verydefinition of innovation? Is innovation entirely determined bycommercial return? This issue was discussed systematically bySchmookler during the 1960s 10. He examined 934 importantinnovations between the years 1800 and 1957 in four industries: 235in agriculture, 284 in oil refining, 230 in railways, and 185 in paper­making. During the project, he searched the relevant literature for anyindication of the reason for the innovation.

In most cases. no reason was able to be identified. But in a significantminority of cases one was, and in almost all of these cases themotivation was primarily commercial. In no case did Schmookler fmdthat a given invention had been developed into an innovation withoutan anticipated commercial return.

In a particularly powerful illustration of the commercial ongms ofinnovation Schmookler examined the development of the horseshoe.first invented over 2000 years ago. One might assume that anyinnovations in horseshoe design were exhausted long ago. In fact, theUS patent record shows that the development of new horseshoedesigns intensified right up until the introduction of the stearn engineand then the internal combustion engine. It was the commercialjustification, not the technical possibilities, which expired. (Schmooklerassumed here that patentees only take out patents because they havegood reason to believe that their invention may lead to a commercialinnovation in practice).

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Innovation: Managing Change 5

A similar pattern emerged in railway patents as road transportprovided increasing competition during the early twentieth century,and in several other industries.

Schmookler's pure 'demand·pull' accounting for innqvation hassubsequently been criticised as over·simple ll. Rothwell and Wissema,for exam~le, list four ways in which invention may be related todemand 1 :

• demand stimulates the act of invention e.g. the cotton gin, radar,paper and penicillin;

• a potential demand is identified after invention e.g. X·raymachines, wireless, photography, and the telegraph;

• a demand is not apparent until long after invention e.g. the rocketmotor, catalytic cracking, magnetic recording, the fax machlne andthe fluorescent lamp; or

• demand may be non-existent or even negative, activelydiscouraging the use of an invention either temporarily orpermanently e.g. the sewing machine, proposals for solar powergeneration in Australia.

So while market demands may indeed call forth inventions which aresubsequently commercialised, as argued by Schmookler, the reversemay also occur. An invention may expose an innovational opportunitywhich could not even have been imagined beforehand.

Another qualification placed on Schmookler's radically demand-pullexplanation of the innovation process is its dependence on earlierinnovations, occasionally in apparently unrelated technical areas 13.

For example, reliable measurement of longitude for navigation requiredthe development of accurate clocks which, unlike the pendulum clocksavailable at the time, were not affected by the ship's motion. Thisrequired the use of spring·wound clocks, which in tum required thedevelopment of Huntsman's crucible steel process for the productionof spring steel. Similarly, Babbage's nineteenth century design for amechanical calculating machine (the Difference Engine) was neverrealised because the engineers of the time could not produce parts withthe required tolerances.

Throughout the eighteenth and nineteenth centuries, developmentswere slowed by the need to create better engineering materials,particularly cheap strong steel. The eventual development of theBessemer process has since been labelled the greatest invention of

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6 Innovation: Managing Change

recent centuries as a result of its impact on innovative opportunity,publicly embodied in engineering sensations such as the Eiffel Tower.

The connection between invention and innovation is therefore muchmore complicated than has been assumed by most governments intheir approach to, say, science policy, and this in turn' raises manyissues as to the best formulation of an 'innovation policy'. If we acceptthat innovation is contingent on both commercial considerations andthe technical state of the art, it follows that raw data on expenditureon R&D and patenting cannot reliably be used as measures of the rateof innovation. A variety of other factors such as industry structure,the different R&D intensities of different industries, the skill level ofthe workforce, the stock of production knowledge generated by the actof production itself, and strategic responses such as the importation oftechnology, are also important in setting the appropriate rate of R&Dspending and in-house development.

Why then is increased R&D spending an objective of policy? Theevidence is that Australia does underspend relative to its OECDpartners in many areas of R&D even when these contingent factors aretaken into account 14. And in general, R&D is important to innovationbecause it both creates internal knowledge and also creates a capacityto absorb external knowledge as well. As will be discussed below,innovation demands this diversity of information sources. However,R&D is only one input to innovation. Unsupported by other inputs, itmay not deliver a commercial return.

This more sophisticated approach to innovation helps us to understandwhy technical economies did not arise much earlier in human history.Even though the ancient Greeks, Chinese and Romans had access toall of the required technical and mathematical principles, and achievedsome successes 15, they did not develop technically literate societies.At least part of the reason is now believed to be that these societiesalready had slave-based economies in place which provided amplecommercial opportunity without the need for productivity-enhancinginvestment and the innovations which could have flowed as a result.In accordance with its association with manual slave labour,commercial activity was regarded by intellectuals of the time asinappropriate to cultivated minds, placing a strong cultural barrierbetween and economic and intellectual activity. This attitude still hasnot completely disappeared.

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Innovation: Managing Cbange 7

Innovative Activity ID Australia and theWeight of History

In contrast to the primary industries, Australia's innovationperformance in manufacturing has been relatively weak. There aremany reasons for this, but only two are mentioned here. First,protectionist and other policies which have weakened the commercialincentive to innovate. Second, historical accidents such as the long­established division between industry and universities, and technicaland managerial functions, have also contributed.

As a response at the national level, there has been a shift away fromforms of market regulation which weaken or delay market signals andtowards the strengthening of market signals and the capacity ofenterprises to act upon them. In Australia, this has been manifest inthe float of the Australian dollar, the recent decision to substantiallywind down the level of tariffs raised during our protectionist past, andin the movement towards enterprise bargaining.

At the institutional and enterprise level, change is slower. In theprotected sectors of the Australian economy, expectations have beenforged in an environment of isolation from world competition. As aconsequence, the commercial incentive to innovate under competitivepressure has been muted, undermining the innovation process.Complacency has been exacerbated by our geographical isolation fromEurope and North America, and our cultural isolation from East Asia,both of which have afforded some natural protection.

Although the immediate effect of such an environment is to reduce theincentive to innovate, the underlying effect is to erode by neglect thebase of skills and expertise which makes participation. in theinnovation process possible. During decades of domestic focus,Australian industry has lost skills in global marketing, technicalintelligence, workplace design and technology management, and hasforgone 'brand-name' recognition in the global marketplace. All ofthese are important elements of the capacity to assess, develop anddeliver innovative goods and services to the market. Thesemanagement deficiencies were noted by researchers such as North 16

many years ago, but have only recently been widely identified as aserious obstacle to structural reform 17.

This isolation, had it been allowed to continue, posed a grave threat toAustralia's future. Australian enterprises cannot be globallycompetitive without access to the intellectual resources of theindustrial and technological heartlands in the Northern Hemisphere.

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8 Innovation: Managing Change

The structural elements which generate the resources for innovationin the protected sectors are relatively primitive and weak in Australia,as are the regulatory forms which sustain innovation. These includevocationally-oriented education systems, links between science andindustry, industry-based R&D, traditions of innovative managementand flexible industrial relations systems. .

The consequences of this history for Australian company managementin protected sectors have been dire. Management attitudes toinnovation (with notable exceptions) have been characterised by 18:

• a lack of appreciation of the role of innovation, reflected in a lackof explicit planning for and commitment to innovation andsupporting activities such as in-house R&D, training, technologyselection and acquisition.

• complacency and self·deception regarding capacity for innovation.

• a conservative, risk-averse and undynamic approach.

• an inward·looking and narrow view of involvement in theinternational economy.

• an emphasis on cost reduction without a counter-balancing regardfor non-price factors such as quality, design and service.

Similar effects have been evident within other organisations whichcontribute to the innovation process. Unions, for example, have in thepast been relatively unskilled for dealing with the introduction of newtechnical systems into the workplace and assessing their likely impacton conditions of service. They were therefore less likely to deliver thecooperation of their members. Financial institutions lost their skillsin project evaluation, making it difficult to properly assess theinvestment proposals brought to them by other enterprises. Researchinstitutions had internal cultures unfavourable to the transfer anddiffusion of basic technical information to industry. Educationalinstitutions experienced little feedback on the skills needs of industry.

It would be easy to continue in this vein for some time, but that wouldpaint an unnecessarily black picture. As noted earlier, there aresectors of the Australian economy which have always been aware ofthe importance of innovation, and in recent years many enterprises inprotected industry have begun to change corporate organisation andstrategy in response to the changed conditions which will bear downmore and more as the decade progresses 19.

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Innovation: Managing Change 9

The Elements ofInnovation: Strategy, Marketand Structure

The outcome of the innovation process is new technology, and inmaking this statement we take a broader definition of technology thanis normally the case. It is usual to think of technology in terms ofmachines and hardware. This narrow definition takes no account ofthe fact that innovation takes place within a system, such as anenterprise or an industry, and therefore has a structural context. Thesimple introduction of new and 'better' machines does not complete theinnovation process.

An illustration of this fact is the success of Henry Ford's approach tothe car industry. The machine technique used in his first productionline was not exceptional. His great innovation was to reorganise theproduction process in such a way as to maximise the output of thosemachines. In this way, a new technology was created 20.

Similarly, the introduction of the breech-loading rifle, advances inartillery design and the spread of railways during the mid-nineteenthcentury were accompanied by new approaches to military organisationand lactics: flank rather than frontal attacks, the use of massedartillery, decentralisation of decision-making, speed of movement.These changes added up to a new military technology 21.

The development of such new technology clearly requires manyresources, both tangible and intangible. Some of these inputs areavailable on the open market, others which are internal to theenterprise, and others which can be obtained through non-marketapproaches to the acquisition of intangibles such as market ortechnical knowledge.

At the enterprise level, when decisions must be taken rapidly and onthe basis of incomplete information, the enterprise cannot be thetraditional 'rational actor' simply reacting to market conditions. Thefuture must be prepared for, with sufficient flexibility to cope with thecontingencies which will inevitably arise. Enterprise managementfaces both the lactical problem of ensuring that existing projects yieldcommercial success, and the strategic problem of moving into newmarkets and technologies in the future.

Behind tariff walls, management for stability is the norm. In theunstable environment of an open economy, corporate strategy becomesan innovation strategy: managing for change, in the expectation ofchange.

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10 Innovation: Managing Change

Enterprise Management and Innovation Strategy

The Scope of Innovation

Enterprises both produce goods or services for sale on the market, andgenerate internal expertise during the production process. Enterprisesare constantly learning more about their operations, and '(in a healthysituation) changing and adjusting them. Both empirical and theoreticalwork reveals that enterprises must do this in a coordinated way toachieve maximum success 22.23.24. The management of innovationrequires an enterprise strategy, a choice of goals and tactics, designedto continuously improve the operation of the enterprise by introducingnew technology.

The situations faced by enterprises vary from industry to industry,with enterprise size and with the enterprise's position in theproduction chain. For instance, mining companies might find theirproduct market relatively undifferentiated and price-sensitive, andchoose a cost·minimisation strategy based on process innovation orworkplace reform. A scientific instruments company, on the otherhand, operating in a highly differentiated and cost-insensitive marketmight focus on product innovation and market leadership to keepahead of its competition.

There is no 'correct' innovation strategy an enterprise can uncriticallyadopt to deal with this situation because innovation is contingenL Italways occurs within a context: in a certain product market, in acertain enterprise, in a certain country, under a certain educationpolicy, under a certain industrial relations policy. As a result, thecapacity to generate and diffuse innovation can be affected by decisionstaken much earlier, and is therefore historical. Attempts to innovatemust take account of the anti-innovative enterprise practices andgovernment policies which may have been established in the past.

This feature of the innovation process counterbalances the'globalisation' theme implicit in current literature on the developmentof new technology. In fact it is still possible to speak of 'national'systems of innovation, even though technical information is circulatingmore freely at the global level, because many of the other inputs orinfluences on the innovation process are specific to individualcountries.

Because of this contingency, we will not attempt to prescribe in detailthe approach that enterprises must take. The needs of a miningcompany and those of a clothing company will clearly differ greatly,and the history of an Italian enterprise will differ greatly from anAustralian one. What is taken for granted is that innovation,

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Innovation: Managing Change 11

particularly in Western-style economies such as Australia, is movingmore and more to the centre of enterprise strategy 25.

In implementing an innovation strategy, enterprise management mustact across a wide front. A variety of types of innovation must be partof the management armoury, and it is possible to categorise thesedifferent types.

The first type of innovation is product innovation. This refers to thedevelopment of new products and (hopefully) the creation of newmarkets. This is critically dependent on skills in industrial design andexpertise in the use of new materials and processes. It is this type ofinnovation which the proponents of high value-added industry focusupon, and is an area in which Australian enterprises are often weak.

The second is process innovation. This refers to changes in productiontechnology, radical or incremental, which increase productivity, lowerprices and thereby raise living standards. This is dependent on ageneric base of technical and engineering expertise, up-to-dateawareness of technical developments, and of course capital investment.Australian enterprises have emphasised this tactic.

The third is organisational or managerial innovation. This refers tothe development of more efficient ways of organising work within thefirm and to novel ways of linking to other firms and product markets.This type of innovation is dependent on workplace flexibility andmanagerial skills, and is particularly important if maximum benefit isto be extracted from product and process innovation. Australianenterprises are traditionally poor organisational innovators. When werefer to innovation, we always imply both technical and organisationalchange.

\Ve can immediately draw two separate conclusions from this analysisof enterprise innovation.

First, innovation cannot be equated to new machine technique orclever products, as important as those are. Changes of one kind,unsupported by other changes. will rarely generate the anticipatedreturns. All too often it is organisational innovation which isneglected, even though it has become apparent aner many years ofstudy of the innovation process that innovation is often hinged (orunhinged) at the organisational and managerial level 26.

Second, most of the resource requirements listed earlier areintangibles: management and technical expertise, and marketing andtechnical information. Expertise, acting on relevant information, isessential to the implementation of any strategy. Combined, they yieldwhat is styled in the military idiom as intelligence. This is what

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12 Innovation: MSDsging Chsnge

management theorists mean when they refer to 'intelligent' or'learning' organisations.

The Management of Innovation

Innovative enterprises set a strategy which incorporates product,process and organisational innovation, and use information andexpertise as tactical elements of such a strategy. They can assess therelevance of technical and market developments to their strategy andadjust tactics accordingly. A variety of generic strategies, such as costleadership or product differentiation, are possible, and these canindividually be achieved by a variety of means.

It is important to recall that a strategic approach does not necessarilyimply a detailed long-term plan. In fast-changing industries, thiswould be inflexible and impractical. The object of a strategic approachis to deal with the unplanned contingencies which will inevitably arise,by building up expertise which can be used to rapidly absorb and actupon new information on market and technical developments Z7. Inthis way, management can create an innovation·facilitatingenvironment 28.

One requirement of an innovation strategy is to link innovation tobroader corporate goals. This consists of assessing the actual andpotential role of technology in all of the functions of the enterprise,and assessing the resources presently available to the enterprise asagainst those required to follow alternative strategies. This will leadto decisions on which innovations to invest in, which have mostpotential, and how it is proposed that they be integrated into theoperations of the enterprise.

A decision must then be made about resource allocation across projects,balancing immediate and pressing needs against investment in newprojects, focus on core expertise against investment in new expertise,and the purchase of expertise and knowhow on the market against in­house generation in R&D and training investments.

The level of technology required to implement the strategy must beconsidered: cutting-edge or straightforward? How much should bespent? What is the priority of this spending against other criteria,such as maintaining profit?

The timing of innovation is also important. Offensive (first-to-market),defensive (follow-the-leader), imitative and dependent strategy typesare all options.

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Innovation: Managing Change 13

Where necessary, networks and alliances with other enterprises orinstitutions in the public sector must be established to ensure accessto market and technical intelligence.

Finally, a key requirement is that any necessary changes in workplaceorganisation and culture must be explicitly incorporated ,in enterprisestrategy.

Researchers have observed that enterprises successful in implementingsuch strategies tend to have certain characteristics 29,30:

• a strong business focus on one or a few related markets orproducts.

• a focussed intense R&D effort, backed by consistent and committedmanagement.

• long-term relationships with employees, suppliers and customers.

• a capacity for objective self-assessment of the commercial prospectsof individual projects and for taking properly calculated risks.

• organisational cohesion, involving the use of all skills of employeesand the capacity to integrate functional areas (e.g. R&D andmarketing) in common tasks.

• good communications internally and with external sources ofinformation and expertise.

• a balance between flexible and hierarchical organisation.

Australian Management and Innovation

Does Australian management have the skills necessary to design andimplement an innovation strategy?

The quality of Australian management has been the subject of somedebate over the past two years as it has become plain that decades ofprotection have undermined management skills in many industries.What evidence of strategic thinking in Australian industry exists?

Relatively little work has been done on the growth of innovationstrategy in Australia, although many people have noted deficiencies.A notable exception, a report focusing on innovation strategy inAustralian manufacturing industry (called 'strategic technologyplanning' in the report), focussed on three industry groups: the food

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14 Innovation: Managing Change

processin~ industry, the telecommunications industry and the big R&Dspenders 1.

The findings were:

• a low level of adoption of explicit technology strategies incomparison to similar overseas enterprises.

• but strong growth from this small base, accompanied by an overalltrend towards a more aggressive market stance in the industriesexamined.

• a strong correlation between larger company size, industryinnovativeness and the existence of a technology strategy.

• a tendency for such strategies to take a conservative approach,although smaller enterprises which had taken an explicitlystrategic approach had adopted a more aggressive market stance.

• a strong correlation between R&D performance and innovativeness(implying R&D in generally well-integrated into enterprisestrategy) when other elements of innovation strategy were in place.

In a more wide-ranging report, Invetech surveyed manufacturers invarious industries including the household goods, building materials,mining, ethical drugs, electronics and automotive parts industries toestablish the extent of 'technology planning' and the mechanisms oftechnology acquisition 32,

Less than a quarter of the enterprises surveyed had an explicittechnology plan, and these were more likely to be found in the 'high­tech' industries such as electronics or drugs. On average, boardmembers spent about ten per cent of their time discussing technicaldevelopments in their industry, but at least a quarter of boards spentno time doing this, suggesting that there is a lot of variation in theincidence of explicit planning.

The low incidence of explicit planning does not rule out the possibilityof implicit informal strategies, and these results must be taken in thatcontext. However, the rapid growth in the establishment of innovationstrategies also implies a certain amount of stress, and that some formof explicit planning is becoming more necessary over time.

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Resources for Innovation: Management Beyond theEnterprise

What resources are required by an enterprise pursuing an innovationstrategy, apart from traditional inputs such as materials, energy andlabour? Innovation also requires:

• technical acquisition, either purchased on the open market viatechnology licensing etc. or generated in-house by R&D or by on­the-job learning in the production process;

• skilled personnel with necessary expertise in management, R&D,design, marketing or technology, either hired on the open labourmarket, or trained in-house on-the-job or off-the-job;

• product market intelligence: consumer likes and dislikes, trends inindustrial standards, trends in design, needs of enterprises furtherdown the production chain; and

• technical intelligence: technical developments in hardware,relevant developments in publicly funded research here andoverseas, reliable links with hardware suppliers.

Obviously, an enterprise cannot internally generate all of theseresources. For instance, no amount of on-the-job training can replacethe recruitment of skilled personnel, and no amount of in-house R&Dcan replace the importation of intellectual property or the need fortechnical intelligence. There are two types of mechanism thatenterprises can obtain such resources, namely markets and networks.

Markets are essentially competitive. They convey trade in bothtangible and intangible goods. They work best when the ownership ofthe goods traded can be restricted to one enterprise or person at atime, either physically (in the case of material resources or labour) orby regulation (as in the case of intellectual property), therebyguaranteeing exclusive access to the purchaser. The structure andefficiency of markets depends on many factors, including the size andnumber of participants in the market, the costs of entry, the cost of theinformation required for participation in the market, the physicaldistance between market participants, and the institutions used toregulate transactions. These factors can interact to either discourageor encourage innovation, depending on circumstances.

Networks are not competitive but cooperative 33. They often becomeimportant when it is desirable that risks be shared, or when economiesof scale are required (e.g., joint ventures, consortia) or when the

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players need resources which cannot be exclusively held by one personor enterprise (e.g., information).

In the latter case it is not uncommon for cooperative solutions to beemployed to obtain information or knowledge based resou.rces such asscientific research, and market or technical intelligence. Althoughexpensive to produce, these are very cheap to reproduce. There istherefore a disincentive to invest in new information producingactivities because it is too easy for others to appropriate the results.Basic scientific research is the classic example of such a market failure.

In the past, and particularly in Australia which has been dominated bya 'colonial socialist' assumption that governments should provideinfrastructure, the public sector has intervened to perform suchfunctions. This will continue to be important in many areas.However, the growing need for technical and market information tosupport innovation activities, often specific to industry sectors or sub­sectors, has complicated the picture. It is often expedient forenterprises to cooperate in information generating activities 34.

Market intelligence, knowledge of the requirements of actual orpotential markets, derives ultimately from the customers themselves.The enterprise is itself a customer to its suppliers, and makes its owndemands. In this way, market needs are communicated up theproduction chain. If incorporated into strategy and ultimately aproduct, this flow of information is matched by a marketing effort backto the customer.

Technical intelligence, knowledge ofdevelopments and potential in newtechnology, is used to fmd ways of servicing perceived customer needs.Often it is diffused across the production chain, from enterprises in asimilar position. It is bolstered by the enterprise's own capacity togenerate new technology, both internally and in cooperation with itssuppliers and customers.

Clearly this requires a more sophisticated relationship betweenproducers and suppliers than has been the case in the past. Closerelations with suppliers has become a characteristic of manytechnology-intensive industries in recent years. A good example ofsuch an organisation is the Australian Supplies Institute (AUS!), acompany established by tbe Federation of Automotive ProductsManufacturers (FAPM). AUSI is self·funding, offering courses inquality control and improvement. The creation of AUSI is the resultof a change of attitude in the car industry, brought about by theincreasing commercial pressures of international exposure. Thecatalyst for establishment was Ford Australia's action in taking 15suppliers to the US to tour supplier companies which had satisfiedFord's top quality rating.

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This is a concrete example of the way in which consumer demandssuch as better quality can be mediated up the production chain, andhow enterprises can cooperate across the chain to raise standards inresponse. Another example of the cooperative approach is AMlRA, theAustralian Mineral Industries Research Association 35. AMlRA wasincorporated in 1959 to. commission and coordinate R&D in genericand strategic areas relevant to the industry, which owns and managesthe Association. All research is contracted to third parties, whileAMlRA performs the R&D project management. Each project isfunded by several members of the Association, who receive access tothe results. A management fee provides AMIRA with its own income.

While AMIRA focuses on cooperation between enterprises in a similarposition in the production chain, other organisations aim to establishbetter quality relations between purchasers and suppliers. Forexample the TCG Group, established over twenty years ago, consistsof over 60 enterprises in the computer and cash register industry. Itis involved in importing, exporting and production, and providesconsulting and design services to its members. The members cross·trade and share finance, administration, accounting and publicrelations services. More recently the Communications Cluster ofAustralia, a grouping of several telecommunications and electronicsenterprises, was fonned, designed to cement long-term relationsbetween the five companies involved and AOTC. Upon this firmfoundation it is hoped that cooperative R&D and integrated projectmanagement will be erected. Similar clusters of small to medium sizedenterprises have recently been established in the food processing,electricity equipment and other industries.

Informal networks of individuals in some industries are well­documented. They generally emerge when individuals can ttrade'information, extracting a quid pro guo. They often include bothuniversity and enterprise employees. Such informal networks arebelieved to be a very efficient means of diffusing innovation knowhowin some cases, outstripping formal channels in some cases 36.

The evidence to date suggests that these networks are most likely tosucceed when the participants enter them anticipating long-termstrategic relationships with their partners. In other words, the use ofnetworks is an extension of the strategic approach to managementwithin the enterprise, and represents another kind of organisationalinnovation 37.

In a rapidly changing market environment where innovation isimportant, networking is a rational response to the enterprise's needfor access to outside expertise. The benefit of support from a networkmore than outweighs the cost of abandoning alternatives in thesupplier or customer market.

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The Training of Managers

The skills required for successful management of innovation, R&D, andtechnical change have only recently been acknowledged in Australianmanagement education under the rubric of 'technology management'.Of course, such skills are not obtained purely through universitycourses, but formal education certainly has a role to play.

However, JiTogress in this area has been tortuous. Back in the 1970s,Jackson pointed out the importance of formal managementeducation as a complement to learning on the job. Yet the recentJevons Report on established management training 39. concluded thatcoverage of such issues was sparse and scattered, were generallyconfined to specialist courses, and had not entered generalmanagement education. There were problems in recruitingappropriately qualified teaching staff. Perhaps most importantly,students were often not attracted to what were regarded as 'technical'subjects. Similarly, the introduction of appropriate managementteaching into engineering and science courses was also slow.

This situation reflects the longstanding separation of management andtechnical functions within enterprises, which is incompatible with theintegration of innovation into corporate strategy necessary forsuccessful innovation. More practically, it may also reflect thereluctance of universities to add more material to already demandingcourses.

In contrast, international best practice places great emphasis on therounded development of management. In a recent report, theAustralian Mission on Management Skills .. found that best practicemanagement education in Europe and Japan was:

• supported by a general societal commitment to education andtraining;

• available at all levels, from the line manager up, providing a welldefined career path;

• able to combine traditional management expertise with training intechnology management;

• characterised by active involvement of business and industryassociations in the development ofstandards and the provision andaccreditation of management education and training. As aconsequence, management qualifications at all levels were widelyrecognised; and

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• committed to language training as part of the global marketingeffort.

While Germany provided the most highly developed example of askills-intensive economy, the US, the UK, Japan and France all havenational systems of management education of one sort. or another.Clearly, it is impossible to import such systems directly, but this briefdescription serves to emphasise the seriousness with whichmanagement training is taken in other developed countries.

It has only been in recent times that Australian managers haveaccepted a share of responsibility for the anti-innovative culture whichprevails in many parts ofAustralian industry. Simultaneously, severalgovernment programs have been launched to deal with managementskills shortages 41. However, these programs are relatively small, aTesplit between various federal departments, and cannot yet be thoughtof as an integrated approach likely to change management skill levelsin the short or medium term.

Innovation, Market Regulation and WorkplaceFlexibility

With the gradual opening up of the Australian economy to outsidecompetition and influence, the capacity of enterprises to implementinnovation strategies as discussed in the last section will be essentialto their survival. Generically, we refer to this capacity as flexibility.

Flexibility, although sometimes presented as a simplistic panacea forstruggling industry, is anything but simple. It is possible to quicklyidentify several forms of enterprise flexibility 42,43.

Operational flexibility is the ability to produce a range of products withshort down-time and rapid changeover to new products. It is generallyaccompanied by high levels of capital usage, rapid assembly cycles,continuous improvement of quality and reliability of operation.

Workplace flexibility has three main components:

• Numerical flexibility refers to the ability to hire and fire inresponse to fluctuation in the level of demand and the needs ofinnovation.

• Functional flexibility refers to the capacity of workers to undertakedifferent tasks as the need arises, and implies a skilled andadaptable workforce.

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• Financial flexibility occurs where the level of pay reflects somemeasure of productivity, profitability or output.

Management flexibility refers to the range and scope of managementmethods used to respond to perceived opportunities, to improveefficiency, and to reduce costs. Examples include the integration ofdesign, development and production, the use of logistics methods toimprove workflow, and an integrated approach to quality management.

Economic flexibility involves greater capacity to respond to marketchanges and meet new demands, for instance product development andimprovement, incremental productivity gains and new ways of usinginputs.

It is obvious that these elements of strategy depend on the regulatoryenvironment.

The Impact of Labour Regulation on the Rate of Innovation

The role of inflexible work practices in retarding innovative approachesto management has been well documented. For example, work practicebarriers to the effective introduction of advanced manufacturingtechnology have been studied both here and overseas 44. The principalobstacle is the existence of rigid job demarcation, often exacerbated bythe presence of multiple unions and seniority rules. Lack of flexibilityin work hours leading to capital remaining idle for part of the day,manning restrictions, and piece-rate pay systems which encourageworkers to produce without regard for the needs of downstreamproduction are also problems. Finally, the highly integrated nature ofadvanced manufacturing systems make them susceptible to bothabsenteeism and industrial action.

Ironically, many restrictive types of work organisation were originallyintroduced by employers, implementing 'scientific management!techniques which reduced the need for skilled labour and intensifiedmanagement control by subdividing tasks into the most mechanicaland repetitive actions possible.

It should be emphasised that both employers and employees canobstruct innovation. In one case employees may not relish an attemptto use technology to undermine conditions or security. In another theemployer may decide not to either use installed capacity in a flexibleway or loosen up the organisation, for fear of losing control over theproduction process to the employees.

Ofcourse, the organisation of work within the enterprise is contingenton the system of bargaining within which the enterprise operates. In

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a recent report on the implementation of advanced manufacturingtechnology, the DEeD notes that the form of a nation's industrialrelations system can influence the rate of diffusion of new technologyand the way it is used 45. They point out that technology can be usedto implement a variety of innovation strategies: to obtain productivitygains by reducing labour input, to increase product quality, or toexpand the product range. The relative freedom an enterprise has toimplement these different strategies will clearly affect their strategicdirection, and therefore the regulation of industrial relations can affectenterprise strategy and the capacity for innovation.

It is to these systematic aspects of innovation that we now turn.

The function of the institutions which regulate transactions in anymarket is to prevent those actions regarded as against the interests ofsociety, while allowing those regarded as in its interest. This is as trueof the institution of contract law as it is of any other type of industrialrelations system. The choice of industrial relations system thereforereflects the kinds of actions a society regards as acceptable. In turn,such regulation can directly affect the strategic direction of enterprisesand by extension whole industries. This raises the possibility thatsome types of industrial relations systems may encourage innovationmore than others. Is this so, and what are these systems?

As put recently by Applebaum of the Economic Policy Institute in theUS, 'What is required are social and political institutions that imposeconstraints on rational actors ... otherwise, firms in competitivemarkets will have difficulty resisting the temptation to exploit anyweakness in the market power of the workforce for short-termadvantage, and difficulty justifying the expenditures on investments inthe skills and capabilities of front-line production workers thattransformed production systems require' 46.

Surprisingly little systematic investigation of the link between labourmarket regulation and the rate of innovation has been done. It isobvious, given the emphasis we have placed on the fact that enterpriseinnovation is primarily an organisational and managerial issue, thatpoor regulation of labour can slow down innovation. Most study inthis area has focussed on the impact of working arrangements oninnovation in the manufacturing industry rather than the primaryindustries, on the principle that it is not the healthy who need thedoctor but the sick. Many researchers have concluded thatorganisational innovation is generally being held back by a lack offlexibility in organisational design.

But a reliable analysis of this issue is held back by continuingcontroversy among economists over the way labour markets function,

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and the focus of labour market studies on the role of regulation in thewage-fixing process. Innovation has received much less attention.

In the Australian context, the impact of labour market regulation onthe rate of innovation has recently been addressed both theoreticallyand empirically by Dowrick 47. This author considers several types ofindustrial relations systems, on the reasonable assumption thatworker's bargaining units will act in their own interest irrespective ofthe impact on other units. On theoretical grounds, he concludes thatthe least favourable system for innovation is craft. unionism withindustry level bargaining, which was roughly the type of industrialrelations system in place in Australia and the UK during the 1960s and1970s.

Interestingly, on the basis of Dowrick's argument both centralised(national level bargaining) and decentralised (enterprise levelbargaining) systems produce a better innovation outcome than industrylevel bargaining. In the former case, innovation is welcomed as anopportunity to raise the living standards of all workers. In the second,it is welcomed as an opportunity to increase productivity and improvethe wage bargaining position. In both cases, wage pressure is checkedby the threat of job losses if wage gains are too high.

The empirical data presented by Dowrick on different countries' totalfactor productivity, grO\vth and per capita output performance over theperiod 1973-85 roughly support his arguments. The performance ofthe economies based on industry-level bargaining was consistentlypoor. The enterprise-level economies did marginally better (except inproductivity where they lagged). However the 'centralised' economiesdid much better on all measures.

Obviously this is still a very crude model of the complexity ofindustrial organisation, and it would be risky to take it too far, if onlybecause industrial relations systems were not the only differencebetween these countries.

For instance, the centralised nations examined by Dowrick hadgenerally constructed well-developed vocational education systems andwidely accepted skill standards in association with their industrialrelations systems, surely another important component of theinnovation infrastructure. They also had strong active labour marketprograms which provide retraining for workers displaced by industryrestructuring, lowering the social cost of innovation and so reducingresistanca to change. It is very arguabla that these factors, rather thanany intrinsic property of 'centralisation', were responsible for theobserved pattern.

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The inter-relatedness of the various inputs to innovative activity makeit dangerous to apply any formula indiscriminately. In particular,Australia's current experiment with a hybrid centralised/enterprisesystem does not fit too easily into the theoretical categories used inthis analysis, and it would be unwise to draw firm conclusions. It doesseem, however, that Australia have moved away from the 'system mostlikely to discourage innovation.

Unions and Enterprise Competitiveness

Is an industrially organised workforce in a better or worse position tocontribute to enterprise innovation? And does the need for aninnovation strategy, determined at the level of the enterprise, implythe superiority of an enterprise approach to industrial relations?

The assumption that the cooperation of the workforce is necessary toproperly implement the organisational changes required by amanagement strategy of innovation is implicit in Dowrick's analysis oflabour regulation, and seems to be backed by empirical work both hereand· overseas. In particular, a recent report on the role of unions inNorth America 48 concluded that there was no evidence that collectivebargaining (at the enterprise level in the US) had led to any fall inoverall competitiveness. In fact, 'high productivity, worker rights,flexibility, unionisation, and economic competitiveness are notincompatible ... In actuality, they may be highly compatible componentsof a high performance business system'. Finally, it was noted that 'theunion sector is beginning to outpace the non-union sector with regardto experimentation with the type of serious workplace innovations thathave potentially large impact on productivity', and that by the end ofthe 1980s, large unionised enterprises had consistently outperformedlarge non-unionised enterprises in flexibility and workplace innovation.

A recent Australian study of management/worker consultation placesthis in the Australian context ". Its findings on the impact ofunionisation were similar to those found in the US, and emphasisedthe potential contribution of organised labour to the innovationprocess. As in the US, it was found that short-term strategies basedon cost cutting tended to work against improvements in efficiency andquality.

Systematic investigation of the mechanism of worker contribution toenterprise innovation is relatively recent and still has not produced acomprehensive picture of the way organisations innovate theiroperations and output. However, the mechanism of unionisation onenterprise performance seems to be twofold 50. First, an organisedlabour force places constraints on management which, if properlyconstructed, encourage precisely those management tactics andstrategies which are required for the implementation of an innovation

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strategy: worker training, more flexible use of labour, and a shifttowards more diversified, quality-sensitive and innovation-intensivemarkets. Second, an organised workforce can deliver a level ofcommitment that an unorganised group of individuals cannot hope toemulate. The unionisation that allows workers to collectively say 'No'can also enable them to collectively say 'Yes'. .

The key phrase in the last paragraph is 'properly constructed'. It isobvious that poor union management can easily derail the mostpromising enterprise strategy. Many of the weaknesses of Australianenterprise management discussed earlier can just as easily be found inunion management as well. Union management is climbing a learningcurve just as steep and demanding as the one facing enterprisemanagement with the ongoing restructuring of the Australianeconomy. It is just as imperative that it succeeds, if the idiosyncratictalents of the enterprise workforce are to be harnessed and innovationat the enterprise level is to be smoothly implemented.

Flexibility and Society

There is no consensus on the long-term impact that new approachesto production will have on the labour force. However, severalcommentators have noted dangers for the workforce in changes thatare occurring in the structure of the labour market 51.52.

One danger is that enterprise management can subdivide theworkforce into two groups: a core group with relative security ofemployment and access to training and career paths, and a peripheralgroup, relatively unskilled and lacking in job security or careerprospects. In this way management can obtain all types of workplaceflexibility: functional flexibility in a skilled core, and numerical andfinancial flexibility in an insecure periphery. It is unclear whether thisis indeed happening, whether it is part of a deliberate managementstrategy, or whether it is related to the well-known phenomenon of the'disappearing middle', the increasing polarisation of incomes nowobserved in most of the advanced world.

Another danger is that the balance of power in the workplace mightshift too far towards management. This presents several problems.First, it might encourage management to pursue the short-term cost·focussed strategies which are now known not to lead to long-termcompetitiveness. Second, workplaces within which the cooperation ofthe workforce has not been freely obtained are unlikely to achievethose long-term changes which are attempted. Third, managementdominated bargaining processes are likely to be spumed by workersjust at the moment when they are most needed: when there is adispute. Finally, nothing lasts forever: eventually, bargaining power

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shifts back to the workers again, and management had best beprepared to face an unpleasant payback in the traditional style.

Finally, the emergence of a core workforce with privileged access toopportunities for education and training poses the danger of a newtype of class division, between the 'Knows' and the 'Know-nots'. It iswell known that the educational background of the family is a stronginfluence on the educational aspirations of children. This raises theprospect of such a division being transferred to the next generation aswell. In an innovation-intensive economy in which a worker hasnothing to offer but their expertise, what would be the future of anrelatively uneducated or unskilled school-leaver?

Forward to an Innovation Policy?

In our discussion, the commercial aspect of the innovation process hasbeen exposed and the complexity of the relationship between inventiveand innovative activity revealed. The importance ofmanagement skillsand organisational innovation, and the large variety of tangible andintangible resources required to implement an innovation strategy atthe enterprise level has been emphasised. The importance of theregulatory environment, which impinges on the rewards for innovativebehaviour, has also been highlighted.

The first conclusion drawn from this paper, though perhaps obvious,is worth stating explicitly: the innovation process is largely internal tothe enterprise, though many of the resources are accessed externally.The corollary is that governments cannot innovate for the privatesector, even though they have an important role in the generation ofmany of the resources.

The second conclusion is that some of the resources for innovation arebest obtained collectively. In the past it has been argued thatcompetitive action should be left to the private sector, whilecooperativa efforts should be carried by government. But in thecurrent conditions, the private sector is becoming more likely to engagein cooperative action to obtain certain inputs to the production andinnovation processes. For the purposes of thinking clearly aboutinnovation and how to implement an innovation policy, it is thecompetitive/cooperative dichotomy which is relevant, not theprivate/public one. Care must be taken not to forca a competitivemodel onto the private sector. It is not 'pathological' for privatepersons to act collectively in those circumstances where it may be intheir interest.

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Finally, there is a need to design policy which explicitly takes intoaccount the impact of policy changes on the innovation process at thelevel of the enterprise. Governments intervene in all markets in theact of regulating them. They can perform this task of regulation eitherwell or badly. The policies implemented by government are eithergood for innovation or bad. Irrelevance is not an option forgovernments.

The fact that the innovation process demands so many interrelatedinputs clearly implies that piecemeal attempts by governments tofacilitate anyone aspect of the innovation process are unlikely to yieldthe anticipated returns. As a consequence, the successfulimplementation of an innovation policy would require the coordinationand possibly the redesign of a wide variety of policies. Policy areaswhich are obviously included in the ambit of innovation policy wouldinclude education policy, science policy, intellectual property, policiesfor the diffusion of innovation, taxation policy and traditional industrypolicy.

In an environment characterised by change, all economic policy can bethought of as innovation policy, just as all corporate strategy can bethought of as innovation strategy. But to date, little thought has goneinto the design of policies with regard to their impact on the rate ofinnovation. To use an metaphor, policies designed to encourageinnovation have been embroidery or afterthought, rather than beingwoven into the policy fabric itself, and as a consequence have notaddressed underlying structural elements of the innovation processsuch as the quality of management or the regulation of organisationalinnovation.

Is there no scope for an active innovation policy? Can the privatesector be left to fight its own battle, while government simply sets theenvironment? The answer to this question would have to be 'No' fortwo reasons.

The first and most obvious reason is that the interests of individualenterprises are not the same as the national interest. The aim of theenterprise is to 'do innovation', while the national interest lies in thediffusion of innovation. But diffusion is not in the interest ofenterprises! More often than not, they would prefer that theircompetitors learn nothing which might help them to become moreproductive. The diffusion of innovation, essentially an educativeprocess, would be an important part of any innovation policy.

Second, the public sector contains many important elements of theinnovation process, for example basic science and education. Thesecannot be neglected.

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Finally, there are policies which do not easily fall into thepassive/active categories. Is an active labour market policy, whichencourages enterprises to innovate by increasing the willingness of theworkforce to countenance restructuring, active or passive? It is activein the sense that it requires action on the part of government. It ispassive in the sense that its impact is indirect. In many cases, drawingthe line between active and passive policy will be impossible.

But it is important to recall that the implementation of acomprehensive innovation policy would require a much betterunderstanding of how the innovation process works, and is hamperedthe paucity of empirical research on the relationship betweenmanagement, workplace organisation, public institutions andinnovation. The managerial and organisational nature of innovationhas only been recently widely recognised, and still has the status of aresearch topic. Although rough outlines of the innovation process arenow evident, the detailed picture is still beyond our reach.

It is nevertheless clear that some progress is being made, both in ourunderstanding of innovation and in the development of policy tosupport it. An emerging focus on management skills, workplacerefonn, and structural links between industry and research institutionson one side and industry and customers on the other, is evident. Butat the same time. the limitations ofgovernment action are also evident.A great deal will always lie in the hands of far smaller organisations.and ultimately the individuals who constitute them.

The author wishes to acknowledge the assistance of John Prytz, Rosemary Polys,Judy Hutchinson and Lynette Foley in the collection of resource materials for thispaper.

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