STRATEGIC MANAGEMENT5. Innovation strategies

The European paradox

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IntroductionInnovation is the renewal and enlargement of the

range of products and services, the establishment of new methods of production, supply and distribution, the introduction of changes of management, work organisation.

Research and technological development (R&D) comprises creative work undertaken on a systematic basis in order to increase the stock of knowledge, and the use of this stock of knowledge to devise new applications.

Research can be part of innovation processes, but it is not necessary. (Source: OECD, EC).

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Often the main point of an innovation can be not a technological, but a social invention. E.g.:

• Sale on part-payment system. McCormick helped the agriculture’s modernisation with this type of sale of their tractors.

• Transport in containers. The consequence of this innovation was the multiplication of the world trade.

• Bank-cards. All financial processes were transformed by the utilisation of these cards.

• Standardisation of the catering. It helped McDonald to create a world empire.

Source: Drucker (1985).3

National Innovation System (NIS) is a set of institutions, whose interactions determine the innovative performance of a nation. The main institutions of a NIS are /1/ companies, /2/ R&D institutes and /3/ bridging institutions (figure). Many other institutions influence the functioning of them.

Triple Helix is another model of innovation system, in which the companies, R&D institutes and the state are considered as the main institutions.

Source: Lundvall, and Etzkowitz – Leydesdorff respectively.4

National Innovation System

Enterprises

R&D institutes

Bridging institutions

Education

Traditions

Laws, economic regulation

Technical development

Source: own figure based on many publications

MARKET

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European „national” innovation systems are different then those in the US.

In the US researches are realised often by profit-oriented firms (in many cases SMEs). So, the research results are utilised in the production practice at once.

In Europe often science-oriented universities, research institutions realise researches. Many times the distribution of their results is very slow in the SME sphere, because the R&D-industry relationships is weak.

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Knowledge and economic development

In a National Innovation System the most important connections among the elements are the knowledge flows .

Knowledge can be codified (explicit), or tacit (unrecorded). A large part of knowledge is tacit.

Today the economic and social development of a nation is determined primarily by the available (technological) knowledge base.

The knowledge base can be increased by the knowledge creation, the knowledge utilisation (innovation) and the knowledge distribution.

(Source: Nelson – Winter.)7

Today the leading centres of technology development are the Silicon valley and the Cambridge district in the USA, the „blue banana” in Europe, the mega- polices of Japan and some other areas in Far-East. – so, the most richer spaces of the world .

„Catching up” economies, like the East European countries are in search of the possibilities and methods to stimulate innovations, i.e. help the technological development.

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Knowledge creationKnowledge can be created or collected.

Well-known method of knowledge creation is research. Its techniques can be:

• brainstorming and Delphi method,

• patent analysis (analysis the ideas which can find in the patent office’s documents),

• value analysis (the comparison of the product’s functions and the costs of their production) etc.

Research institutions can be universities, research institutes and firms’ units.

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Some examples of knowledge creation:

Honda created his first excellent motorcycle by analysing and adapting all good ideas (e.g. patents), which were realized in the motorcycles of his competitors.

Seeing the large and expensive professional tape recorders Sony worked out a new and cheap one for the consumers’ market.

A man collected and analysed many used refrigerators, and stated, which components were still good. Then, he presented them to a refrigerator producer and recommended him to economise some materials in the production of these components.

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Other technique of knowledge creation is exchanges of views among employees of an enterprise. In this case inventions are results of some interactions (episodes of actions and reflections).

This type of knowledge creation was first analysed by Nonaka. Interactions happen in platforms („ba”-s in Japanese) between individual or collective knowledge. 4 types of „ba”-s are /1/ the existential face-to-face and /2/ reflective peer-to peer relations, /3/ the combination of new explicit knowledge with old knowledge base and /4/ the exercises (trainings). Knowledge comes when it goes along these four ba-s (this is the so called knowledge helix).

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Enterprises can not only create but collect innovation ideas. The main methods of it are as follow:

• survey of views of the buyers, consumers,

• questioning of the suppliers,

• observation of the competitors.

Good innovation ideas can get by their copying or buying (e.g. by technology transfer).

But sometimes new knowledge is the effect of some incidence (chance). Well-known was the case of Archimede, who stated his law during a bath.

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Knowledge utilisationA new knowledge can utilise first of all by firms,

in an existing, or in a new company.

Innovations can be extremely important in two phases of the life of an existing company: in the phases of growth and decline (renewal).

• First, during the II. War the nylon (invention of the company DuPont) was used to produce cords for parachutes. After the war there was no demand of parachutes, so, DuPont look for a new market for nylon and began to produce nylon stockings.

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There are three types of innovative firms (strategies):

/1/ pioneers, who are the representatives of technological front runners,

/2/ quick followers, who try to adapt first the successful ideas (e.g. research results) of pioneers,

/3/ late comers, who utilise opportunities of a market in decline (Rogers, 1960).

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In the USA, when somebody (for example a professor) has an innovation idea, he often found a new firm for the utilisation of the expected business opportunities.

In Europe, where the entrepreneurial willingness is weaker, then in the USA, men, who are not managers of an innovative company, do not look for the business opportunities of their ideas. It is exceptional that somebody found a new firm if he has a business idea. So, a lot of European innovation ideas have lost.

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Often university knowledge is not utilised. From this point of view we can distinguish three types of universities:

• Traditional state financed universities, which realise theoretical researches and do not look after the business opportunities even of their new knowledge (but they aspire to publish it).

• Budget-oriented universities , where there are a lot of theoretical researches but which sell their inventions, if it is possible.

• Entrepreneurial universities, where the researches are always business-oriented. 16

In a classical, or budget-oriented university an effective method of the utilisation of a new innovation idea to create a spin-off.

• A spin-off is founded by a public institution or by its employees to utilize their knowledge on the market.

• E. g. the first company in the Silicon valley was a firm founded by an university professor.

Main advantages of a spin-off : the mother institution provide the necessary business infrastructure, can create consulting possibilities, spin-off create possibilities for the part-time works etc.

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Innovation distributionAll firms (and societies) are interested in the

rapid distribution of the new innovation knowledge and its general utilisation. Firms, which do not map the new innovations of their competitors, risk the decline of their competitiveness.

In the USA the distribution of innovation knowledge is more rapid, then in Europe.

The most important „tool” for innovation distribution is the creation of human relations.

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IP protectionIn case of an innovation one of the first tasks can

be the intellectual property (IP) protection.

First step of the IP protection is the mapping of IPs. Some mapping methods are the following:

• Knowledge audit. It is a description about the works (tasks) of the production and the knowledge used in their realisation.

• Construction of a knowledge map. This map describes, which employees can contribute in the resolution of the different tasks, and what is used from their knowledge. 19

Main tools of the IP protection are as follows:

• Patent. It protects inventions by law during 20 years. Invention has to be /1/ really new, /2/ its ideas have to be based in some work of an inventor, /3/ it has to be exploitable (can be reproduced). The main patent forms are national ones and patents based on the PCT (Patent Cooperation Treaty).

• Trade-mark (brand); it protects the marks of a good product, service - or firm.

• Author’s rights.20

In 1769, when J. Watt constructed his first effective steam-engine, he applied for a patent at once.

The inventor (L. Bíró) sold the patent of his BIC’s (ball-pens). But an infringer began to produce them as well. A jury gave the case for Bíró, but the infringer declared bankruptcy and did pay any compensation.

During the 1970’s, when E. Rubik invented his cube, nobody wanted to pay for an international patent. Then, most of the cubes was produced by some far-eastern companies, so, these co’s realised the greater part of the invention’s profit.

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The European paradox

According to research results, although the level of the European science and research is very high, the innovative power (and competitiveness) of the EU is weaker than that of the US and Japan. A good example of this statement is, that the number of European publications is high, but that of the patents is low (figure). This is called the European paradox.Paradox (lat.) = contradiction

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Number of national patents / 1000 researchers of companies

Source: IMD: World Competitiveness Yearbook 2008.

Change 2000-2008

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Some experts think that the main cause of the European paradox is the weak European R&D-industry relationships (these „ba”-s), consequence of which in the SME sphere the distribution of the R&D results of the universities R&D institutions is very slow.

In Eastern Europe there are other problems of technological development as well. The main problem is that the proportion of the innovative firms is low (figure). But the RECORD EU project evaluated the performance of East-European R&D institutions, and stated that often R&D institutions are not competitive either. (RECORD Manual)

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Proportion of innovative firms (2004)

Industries Business servicesSource: Eurostat: Community Innovation Survey (CIS) 2004 25

In the Lisbon Program (2000) the EC decided to fight against competitiveness back lag by developing knowledge economy.

The main goal of the Lisbon Program was to create the best competitiveness in the world until 2010. The main „tools” were the knowledge based development, the employment creation, the increase of social cohesion, the environmental protection.

The goal was not fulfilled.

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In Hungary firms plan to improve competitiveness by the development of their marketing first of all (figure). Plans to innovate are less frequent. The main causes of weak willingness to innovate are the lack of capital, the uncertain return of innovation’s investment and the limits of the firms’ R&D capacities.

Often the distribution of the innovations is slow because the R&D institutions do not look for their utilisation (figure).

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Proportion of firms (%) which plan to innovate

Number of employees Actions of planned innovation 21-50 50-250 251-

Total

Own research 15 6 12 11 Outsourcing R&D 5 4 4 5 Licence, patent purchase 1 4 4 2 Engineering, investment in instruments

56 66 68 59

Intensive market research 49 44 28 43 Extending distribution channels 51 57 40 51 Aggressive advertising, PR activities

31 27 32 31

Source: GKI Co – HIA’s survey28

Proportion of research institutions (%) participating in knowledge transmission

University Academic Corporate Mode of knowledge transmission research institutes Total

Patents, etc., sales 17 18 57 20 Sales of new products and services

12 14 57 17

Sales of machine equipment

6 14 36 11

Studies for the state sector

42 46 36 43

Studies for companies 39 39 64 41 Studies for international

organisations

19 29 14 21

Publication, conference-lecture

90 89 71 88

Education 62 50 43 58

Source: HFI BUTE – GKI Co.’s survey

Thank you for your attention!

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