Study Manual for Innovation Systems Leadership

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CONTENTS

List of figures..................................................................................................................3

Preface ...........................................................................................................................4

Preface ...........................................................................................................................4Welcome ...................................................................................................................................................................... 4Rationale for the manual.............................................................................................................................................4

Overview of the course................................................................................................................................................5

Learning unit 1: Knowledge economies and the national system of innovation..........71.1 Introduction........................................................................................................................................................8

1.2 In pursuit of a knowledge economy...................................................................................................................81.2.1The role of knowledge in economic development.............................................................................................9

1.2.2Definition of a knowledge economy: Know-why and know-who matter more than know-what...................10

1.2.3South Africas knowledge economy.................................................................................................................111.3 The innovation system and a knowledge economy.........................................................................................13

1.3.1Innovation and its meaning with a systems view............................................................................................15

1.3.2Emergence of a national systemof innovation approach................................................................................161.3.3 What is a national system of innovation?........................................................................................................16

1.4 Leadership of a national innovation system.....................................................................................................19

1.5 Role of the private sector and other considerations........................................................................................261.5.1Current efforts towards triple helix innovation in South Africa.......................................................................26

1.5.2Intellectual capital is a firm's source of competitive advantage ..................................................................... 281.5.3The importance of ICT ...................................................................................................................................... 28

1.5.4The new economics of information..................................................................................................................29

1.5.5Globalisation.....................................................................................................................................................29 1.5.6The role of entrepreneurs ................................................................................................................................ 31

1.6 Conclusion.........................................................................................................................................................33

Learning unit 2: Introduction to regional innovation origins and concepts.............342.1 Introduction......................................................................................................................................................34

2.2 Clusters and cluster development....................................................................................................................36

2.2.1Industry clusters and innovation......................................................................................................................372.3 Innovation as a factor of regional development..............................................................................................39

2.3.1 Clusters and the new economics of competition ............................................................................................. 392.4 Systems of innovation......................................................................................................................................43

2.4.1Regional innovation a systems approach......................................................................................................43

2.4.2Innovation ecologies making the triple helix work............................................................. ...........................452.5 Regional innovation case studies.........................................................................................................................46

2.5.1Poland...............................................................................................................................................................46

2.5.2Finland .............................................................................................................................................................. 482.5.3Brazil ................................................................................................................................................................. 50

2.5.4Korea.................................................................................................................................................................53

2.5.6The United States ............................................................................................................................................. 532.6 Regional innovation in South Africa ................................................................................................................. 55

Learning unit 3: From theory to practice: enabling regional innovation systems in

South Africa..................................................................................................................583.1 Guidelines for using regional innovation tools.................................................................................................583.2 Activating regional innovation: the tools.........................................................................................................613.2.1Future methodologies......................................................................................................................................61

3.2.2Foresighting and innovation.............................................................................................................................61

3.2.3Science parks .................................................................................................................................................... 633.2.5Collaboration programmes...............................................................................................................................65

3.2.6Centres of Expertise (COE)................................................................................................................................65

3.3 Conclusion............................................................................................................................................................67References..................................................................................................................................................................68

Suggested background reading..................................................................................................................................71


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LIST OF FIGURES

Figure 1: The Porter diamond......................................................................................36

Figure 2: The Innovation Triple Helix ...........................................................................40

Figure 3: Finland's transition from a resource-driven economy

to an information- and knowledge-driven economy ...................................................49

Figure 4: The role of science parks in the Finnish economy

(figure from Neville Cummins, COFISA).......................................................................64

Figure 5: Facilitation drivers in Finland key stakeholders and roles.........................66


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Preface

Welcome

Welcome to the journey of learning about innovation systems. This manual will help you to

understand what an innovation system is, why the concept of innovation systems is

important for economic growth and job creation and how these systems can be activated in

regions.

The intent of the manual is to present a platform to think about innovation systems and

stimulate practical engagement around the topic through class discussions, case studies and

work group sessions.

Rationale for the manual

The aim of this manual is to introduce a new innovation management framework for use by

innovation actors collectively to identify and manage opportunities and failures in the

National System of Innovation (NSI) to improve national competitiveness. National

competitiveness is the ability of a nations industry to command high prices in foreign

markets and the ability of a nation to create jobs that support high wages, not merely the

employment of citizens at low wages and a dependence on the export of primary resources.

It is imperative that South Africa and its neighbours in the region compete in value added

markets through the creation of new knowledge and the commercialisation of the said

knowledge in international markets.

Niosi et al. (1993) define the NSI as the system of interacting private and public firms,

universities and government agencies aiming at the production of science and technology

(S&T) within national borders. Interaction among these units may be technical, commercial,

legal, social and financial, in as much as the goal of the interaction is the development,

protection, financing or regulation of new ideas and technology. Freeman (1995) emphasises

that innovation should not be viewed as a linear process, whether led by demand or by

technology, but a complex interaction linking potential users with new developments in

thinking and technology.


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Governments, regions and organisations on the African continent should adopt innovation

on policy levels to promote coordination in their NSIs to ensure that Africa has a set of

institutions, organisations and policies that give effect to their collective ability to innovate.

Through innovation economies are grown.

The evidence presented by Porter (1998), Romer (1990), Callon et al. (1992), Kim (1993),

Odagiri and Goto (1993), Hkansson and Snehota (1995), Buys (2001) and UNDP (2001)

confirms that the rate of technological progress determines the ability of a nations industry

to open new markets, and develop new products and services that command high prices in

domestic and international markets. Following this approach, many competitive nations

were able to create jobs that support high wages; not merely the employment of citizens at

low wages.

Overview of the course

What you will learn

The learning goals for this module are called outcomes. In order to help you to know what

you can expect of this module, and to know what you need to aim for in your studies, we

specify an overall module outcome and break it down into unit outcomes.

The module outcome of Innovation Systems Leadership (ISL) is:

To learn and engage on the conceptual models, tools and practical exercises needed to make

innovation a sustainable regional capability.

The module has been divided into learning units, each with its own outcome. These units

and their outcomes are summarised in the following table:

Unit Unit title Unit outcomes

1 National innovation systems 1. To define and explain the purpose of a nationalsystem of innovation

2. To describe the multi-helix approach and theimportance of collaboration in an innovation

system


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Unit Unit title Unit outcomes

3. To demonstrate insight in the expressioninnovation is everyones business in developing

national and regional innovation systems

4. To contextualise the notion of a knowledgeeconomy for countries in Africa

5. To explain how innovation differs from creativityand invention

6. To express the systems view of innovationthrough a diagram or model

7. To identify the leadership requirements in thecontext of multi-helix collaboration in innovation

systems

2 Regional innovation systems 8. To explain the difference between a regionalinnovation system and a national innovation

system

9. To explain what an economic cluster/region isand how it should influence regional policies and

strategies

3 Guidelines and tools to

activate innovation systems

1. To create cooperation mechanisms betweenmulti -helix actors on a regional level

2. To understand how tools can be used to stimulateregional innovation output


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Learning unit 1: Knowledge economies and the national

system of innovation

For countries in the vanguard of the world economy, the balance between knowledge and

resources has shifted so far towards the former that knowledge has become perhaps the

most important factor determining the standard of living more than land, than tools, than

labour. Today's most technologically advanced economies are truly knowledge-based.

World Development Report, 1999

UNIT OUTCOMES

National innovation systems To define and explain the purpose of a nationalsystem of innovation

To describe the multi -helix approach and theimportance of collaboration in an innovation

system

To demonstrate insight in the expressioninnovation is everyones business in

developing national and regional innovation

systems

To contextualise the notion of a knowledgeeconomy for countries in Africa

To explain how innovation differs fromcreativity and invention

To express the systems view of innovationthrough a diagram or model

To identify the leadership requirements in thecontext of multi -helix collaboration in

innovation systems


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1.1 Introduction

Many developing economies are now looking towards innovation and the pursuit of a so-

called knowledge economy for new solutions and answers to various national challenges and

priorities. Stimulating innovation and increasing innovation output in a macroeconomic

setting necessitates approaching innovation as a system.

In a national or regional system of innovation, three key stakeholder groups can be

identified. They are the academic and research sectors (responsible for generating new

knowledge), the private sector (transforming knowledge into useful products, services and

processes) and the public sector (providing the environment and infrastructure in which

innovation takes place).

Collaboration between these three stakeholder groups is essential and no single player

should be dictating the direction and vision of the innovation system, but all three should

collaborate and align activities and processes towards unified objectives.

In emerging economies, developing a national innovation agenda is often driven by the public

sector (government), and the role and importance of the private sector is neglected or

misunderstood, while directed collaboration between the three sectors is fragmented at best.

This section draws on the experiences of the author in developing the national and regional

innovation systems in South Africa, and outlines some of the learning experiences in

implementing a systems view towards increasing national and regional innovation output.

1.2 In pursuit of a knowledge economy

South Africas Minister of Trade and Industry in 2009, Mandisi Mpahlwa, once stated that

knowledge is more important and valuable than land, tools and even labour. Similarly, his

colleague, the Minister of Science and Technology, punts the virtues of innovation and has

committed to increase South Africas research and development (R&D) spend from 0.91%

to 1% by 2008 and then to 1.8% by 2018.


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Class discussion

Is a knowledge economy realistic for Africa, given that Africa is still mostly dependent on

mining and natural resources, and a large segment of the continent is not yet part of the

existing labour market, whether knowledge-based or otherwise?

1.2.1 The role of knowledge in economic development

According to a submission to the New Zealand government in 19991, knowledge economy

thinking has fundamentally changed the way economists view the development of the global

economy.

For the last two hundred years, neo-classical economics have recognised only two factors of

production: labour and capital. Knowledge, productivity, education, and intellectual capital

were all regarded as exogenous factors, that is, falling outside the system.

New Growth Theory is based on work by Stanford economist Paul Romer and others who

have attempted to deal with the causes of long-term growth, something that traditional

economic models have had difficulty with.

Following from the work of economists such as Joseph Schumpeter, Robert Solow and

others, Romer has proposed a change to the neo-classical model by seeing technology (and

the knowledge on which it is based) as an intrinsic part of the economic system. Knowledge

has become the third factor of production in leading economies. (Romer, 1986; 1990).

As can be seen in the development of fast-growing regions and countries, such as Silicon

Valley, Finland, China and India, technology and knowledge are now the key factors of

production.

1New Zealand. Minister for Information Technology's IT Advisory Group. August 1999 (updated in 2006).

Submission to the New Zealand Government.


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Class discussion

It is important to ask the question as to why there is such a strong focus on science and

technology in defining a knowledge economy, or even in South Africa, structuring support

only to cater for science- and technology-based innovation?

Less than 4% of all innovation is science- and technology-based Most innovation in South Africa is incremental, building on existing knowledge and

inventions

Development in our economy has been primarily service-driven Our biggest challenges are non-high-tech innovation challenges such as clean water,

housing, road infrastructure, HIV/Aids, etc.

Economists such as Romer recognise the fact that technology platforms have the ability to

result in creating new economies or accelerated growth cycles from which new innovations

will flow. Examples are the introduction of the steam engine, the telephone or, recently, the

Internet.

It is, however, important to understand that not all innovation pertains to the developmentof such ground-breaking platforms, as most innovations by far relate to incremental

improvements in the processes or structures of existing products, services or businesses.

Sustained GDP growth doesn't just happen. In order to make investments in knowledge and

utlimately innovation, a country must have sufficient human capital. Human capital is the

formal education, training and on-the-job learning embodied in the workforce.

1.2.2 Definition of a knowledge economy: Know-why and know-who matter more than

know-what

A knowledge economy is one where the majority of sustainable national income is derived

from intellectual-based activities such as product design and development, new business

development, and services, as opposed to selling natural resources such as agricultural

produce, minerals, timber, etc.


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The phrase knowledge economy was popularised (if not invented) by Peter Drucker as the

heading to chapter 12 in his book The Age of Discontinuity (1969, Heinemann, London).

The concept came to prominence in the 1990s to refer to the manner in which various high-

technology businesses, especially computer software, telecommunications and virtual

services, as well as educational and research institutions, could contribute to a country's

economy.

However, this concept has grown and expanded beyond the definition developed by

Drucker.

1.2.3 South Africas knowledge economy

South Africas economy is still mainly dependent on the mining and manufacturing

industries, leveraging natural resources and minerals.

However, over the last ten years more new jobs were created in the service sector in South

Africa than in any other sector of the economy2. The overall growth rate of job creation in

this period was one of the highest, if not the highest in the recent history of the country.

South Africa does have an existing and thriving knowledge industry, which started with the

development of the early mining industry in South Africa and continued to the present day

with substantial industrial development and investment.

Knowledge-intensive businesses are emerging all over the country, spurred by the culture of

innovation and entrepreneurship for which South Africa is recognised globally, resulting in

export licences and direct foreign investment.

Will the change to a knowledge-based economy sustain this increase? Africa has no choice

but to compete on the basis of value additi on rather than commodities and cost of labour,

to quote Minister Mpahlwa.

2Expatforum. Internet: http://www.expatforum.com/articles/jobs/jobs -in-south-africa.html .


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The growth experienced in South Africa as outlined above, fuelled by targeted investments

from government and the private sector, is now expanding the economy rapidly, creating

completely new knowledge industries.

Initiatives such as the Pebble Bed Modular Reactor and the development of regional

incubation centres by the departments of Science and Technology, and Trade and Industry,

such as those for biotechnology, have all contributed significantly to create new core

strengths and skills in a relatively short time.

Governments promise of an additional R180 billion investment in the primary infrastructure

of the country will lead to further investment and an economic growth explosion.

Africa has the newcomer advantage, meaning it has access to existing and proven

technologies, strategies and economic policies that will facilitate the change to a full

knowledge-based economy.

We must learnfrom those experiences and adapt them to create our own unique solutions

for our own unique problems. A knowledge economy is a key requirement for such a

learning- and solutions-driven society.

Comparing South Africas GDP to that of Finland, specifically comparing the economic output

($550 billion for South Africa vs. roughly $176 billion for Finland in 2006) and the size of the

workforce (17 million for South Africa vs. 2.6 million for Finland in 2006)3, one arrives at the

difference in economic value add between a resource economy (South Africa) and

knowledge economy (Finland): the average economic value add per employee of Finland is

exactly double that of South Africa.

That is the economic basis for establishing and pursuing a knowledge economy: mineral and

related resources are finite, while knowledge and innovation are endless.

3World Fact Book. Internet: https://www.cia.gov/library/publications/the-world-factbook/index.html .


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1.3 The innovation system and a knowledge economy

Class discussion

What is innovation? How is this different from creativity and invention?

The process of transforming new ideas or concepts into useful products, services, processes

or organisation models and successfully introducing them to the market is defined as

innovation.

In order words, to have innovated means that a new idea or concept had to be packaged in a

way that it can be utilised or consumed by human kind this is an end-to-end process.

Invention is the process of generating new knowledge; innovation is taking new

knowledge and transforming knowledge into useful artefacts or processes.

Innovation is the vehicle with which to implement and sustain a knowledge economy.

Many factors have to come together to successfully innovate:

The creative powers generating new ideas and new knowledge The entrepreneurial spirit required to commercialise such new ideas and finding

useful applications in the real world

The involvement of business and society in shaping the demand for, and utilisationof new innovations

But even further, in order for innovation to flourish, the presence and influence of the

processes, policies and institutions that support such creative powers, entrepreneurs and

businesses (such as subsidies, tax incentives, finance, skilled and experienced workers), and

a conducive environment stimulating the productive and efficient activity of all such players

should be recognised. Innovation output doesnt increase by only stimulating individual

components.


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Increasing the knowledge output by funding higher education institutions (HEIs), for

example, without ensuring that there are adequate numbers of entrepreneurs, will see only

larger volumes of such knowledge permanently confined to the bookshelves and not

transformed into useful businesses, products and services.

Similarly, appropriate funding of entrepreneurs and businesses is required to achieve the

last component of innovation, namely successfully introducing such new innovations to the

market.

It should be clear that for innovation to take place, one is not only talking about the three

main components mentioned above (i.e. HEIs, entrepreneurs and businesses), but should

consider all elements impacting on innovation, directly or indirectly. This includes, for

example, the image of the economy and its ability to attract skills and talent; the ability to

attract investment to the economy.

Also consider the ability of role-players to interact, such as the availability of efficient

transport and telecommunications. A further, important requirement for innovation is the

environment in which innovation output is encouraged, meaning a safe and secure

environment, with access to housing and the ability to conduct business in a fare and

equitable context: innovation demands the presence and collaboration of every component

necessary to take new ideas and apply them to the betterment of society.

To support innovation, the whole picture needs to come together. For this reason, given the

complexity of the number and type of institutions, human capital, policies and role-players,

economists view innovation as a system.

By viewing innovation as a system, the focus is on the successful output of the overall

system and not only the performance of individual components.


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1.3.1 Innovation and its meaning with a systems view

Innovation in the systems view is not limited to R&D and traditional creative or inventive

processes.

The OECD4 (1994, p. 3) provides a useful definition of innovation as "the transformation of

an idea into a new or improved product introduced on the market or a new or improved

operational process used in industry and commerce or into a new approach to a social

service."

This description emphasises the point that technological innovation involves more than R&D

it also involves the workings of the marketplace. Innovation can, of course, occur in any

human activity, although it is primarily thought of in the context of industrial production.

Work group session 1

Identify the typical stakeholders that would be involved in, or influence the process of taking

the following ideas from the idea phase to innovation. Think, for example, in terms ofpolicies, regulatory implications, knowledge partners, funding instruments, certification

bodies, consumers, etc.

Developing a low-cost solar water heating system Developing affordable medicine for HIV/Aids treatment to be administered at rural

clinics

Implementing an integrated traffic management and information system for theGauteng Highway System, with the purpose of informing road users of congestion,

flow rates, alternative routes, etc.

4Organisation for Economic Cooperation and Development, Internet: www.oecd.org.


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1.3.2 Emergence of a national system of innovation approach

A systems view to innovation is not a recent phenomenon, as economists as early as

Schumpeter in 1939 defined the concept of an innovation system.

In fact, in his article National System of Innovation in a Historic Context5, author Chris

Freeman argues that the first person to use the expression 'national system of innovation'

was Bengt-Ake Lundvall but, the concept goes back even further.

The idea goes back at least to Friedrich List's conception of The national system of political

economy' (1841), which might just as well have been called 'The national system of

innovation'.

In South Africas recent history, the leadership embraced the notion of a national system of

innovation that is at the heart of the South African R&D Strategy launched by the Minister of

Science and Technology in 2002, and is seen to be fundamental in achieving South Africas

Accelerated and Shared Growth and Investment Strategy (AsgiSA) growth targets.

1.3.3 What is a national system of innovation?

The National Advisory Council on Innovation (NACI)6 provides a generic definition of a

national system of innovation as following:

A cluster or network of interacting public and private organisations within a specific country

focused on the nurturing and the development of the science and technology space within

the borders of that particular country.

a)Different definitions for an NSI

There are a number of definitions that are used to define an NSI, and the most widely

used are those quoted by the OECD publication National Innovation Systems (1997), as

follows:

5Freeman, C. 1995. National system of innovation in a historic context. Cambridge Journal of Economics. 19:5-24.6National Advisory Council on Innovation (NACI). Internet: www.naci.ac.za .


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The network of institutions in the public and private sectors whose activities andinteractions initiate, import, modify and diffuse new technologies (Freeman, 1987).

The elements and relationships which interact in the production, diffusion and useof new, and economically useful, knowledge... and are either located within or

rooted inside the borders of a nation state (Lundvall, 1992).

A set of institutions whose interactions determine the innovative performance ofnational firms (Nelson, 1993).

The national institutions, their incentive structures and their competencies, thatdetermine the rate and direction of technological learning (or the volume and

composition of change-generating activities) in a country (Patel and Pavitt, 1994).

That set of distinct institutions which jointly and individually contribute to thedevelopment and diffusion of new technologies and which provides the framework

within which governments form and implement policies to influence the innovation

process. As such it is a syste m of interconnected institutions to create, store and

transfer the knowledge, skills and artefacts which define new technologies

(Metcalfe, 1995).

According to the OECD, the NSI is "a network of institutions in the public and private

sectors whose activities and actions initiate, import, modify and diffuse newtechnologies."

b)OECD definition of an NSI

A system of interacting private and public firms (either large or small), universities and

government agencies aiming at the production of science and technology within national

borders.

Interaction among these units may be technical, commercial, legal, social and financial, in as

much as the goal of the interaction is the development, protection, financing or regulation

of new science and technology.


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An NSI can be thought of as a set of functioning institutions, organisations, and policies

that interact constructively in the pursuit of a common set of social and economic goals

and objectives and that use the introduction of innovations as the key promoter of

change.

c)NACI priorit ies for the South African NSINACI provides the following insights towards the priorities of the South African NSI:

Improving competitiveness Improving the quality of life Ensuring environmental sustainability Working on human resource development Ensuring community development through technology transfer instruments

A national system of innovation can thus be defined as the sum total of all the components

of a nation states collective capability to innovate. Similarly, a regional system of innovation

can be defined as all the institutions, human capital, policies and role-players that make up

the regions ability to innovate.


(Also refer to the suggested reading topics.)

Define a conceptual model for a South African national system of innovation, giving specific

thought to the different role-players identified in work group session 1, especially with

regard to the following:

Key stakeholders from each element in the triple helix Intermediary institutions/role-players that operate between the triple helix (e.g.

trade associations, networks, etc.)

Representatives of the end-user or beneficiary community that will consume or useinnovations from the NSI

Science- and technology- related stakeholders, as well as stakeholders and role-players not related to science and technology


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Contrast this to the documented model of the South African NSI as promulgated in the South

African documentation included in the suggested reading topics.

1.4 Leadership of a national innovation system

Many emerging nations currently pursuing knowledge economies have turned towards the

innovation system view to shape their innovation ambitions.

This includes the so-called triple helix view of collaboration, outlining collaboration between

the three key stakeholders required for successful innovation: academia and research

institutions (responsible for generating new knowledge), industry (businesses and the

private sector commercialising new knowledge by turning such knowledge into products,

services and new business processes) and lastly the public sector (responsible for the

macroeconomic infrastructure, policies, support instruments and other, with which to

support research institutions and academia, as well as industry).

The strength of the triple helix depends more on the networks between the different

stakeholders, in other words connectivity and communication, rather than the number and

individual capacity of the respective stakeholders.

Class discussion

What would be the typical instruments, institutions, individuals and activities required

within the South African NSI with which to build and develop networks between the

different stakeholders in the NSI?

The majority of NSI-type initiatives, especially in emerging economies, are implemented and

spearheaded by the public sector: governments defining innovation policies and establishing

innovation instruments, such as national departments of science and technology, research

laboratories, funding instruments, etc.


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It follows that such implementations place enormous focus on the role of the public sector

(in South Africa, the Department of Science and Technology promotes itself as the so-called

custodian of the National System of Innovation), and by extension, those institutions

funded through public funds, such as universities, science councils and national laboratories.

So, for example, NACI sees the NSI in the following context:

Structures of the NSI (towards creat ing an effective NSI)

The Department of Science and Technology, Department of Trade and Industry andScience Councils are responsible for the development and implementation of an

effective NSI.

The NSI also has 12 centres, of which four are funded by the Department of Trade andIndustry.

The typical approach to such public-driven NSI initiatives is that of taking an institutional

view to improving the NSI: developing better and more efficient/relevant innovation support

institutions. This approach often neglects addressing structural, communication and

networking inefficiencies.

But where is the private sector in all this? What about the intermediaries, such as

consultants, lawyers, entrepreneurs, etc.?

In South Africa, there is a clear disconnect between the different triple helix role-players,

especially in the different spheres. Shared vision and objectives are traded for individual

mandates that often overlap. Most innovation activities at public sector level are driven by a

component of the NSI, being individuals with science, research or engineering backgrounds.

Innovation, in the systems view, requires the involvement of policy-makers, regulators,

business persons, marketers, funding instruments, etc. These disciplines are often not

represented in the policy development or implementation contexts of the bodies

responsible for driving NSI development.


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An innovation system that is dictated by any one or two of the key role-players in the triple

helix model will not result in a sustainable knowledge economy; all three partners need to

collaborate accordingly and contribute equally towards a single and common purpose.

Case Study: China7

Stakeholders in China's NSI

In industrialised countries, the term stakeholders is used in discussions of systems of many

kinds, including discussions of NSIs, to indicate the institutions and individuals who are

participants in the system in question or whose activities are significantly affected by the

operation of that system.

It is necessary to include in any analysis of an NSI a clear listing of the relevant stakeholders,

which follows below.

Policy-making institutions

A number of important national commissions, ministries and institutes have significant roles in

China's NSI, including the following:

SSTC, with its important roles in policy development and programme implementation SPC, which is directly involved in financing a number of important S&T programmes SEdC, which has particular responsibilities for the activities of institutions of higher

education

SETC, which has an important role in the technological renovation of enterprises The State Commission for Restructuring the Economic System (SCRES), whose

general economic reforms have in many ways interacted with reforms in the S&T

sector

The many sectoral ministries (responsible for individual sectors of the industrialeconomy), some of which are now undergoing transformation into what look like

holding companies in the socialist market system

Some policy research institutes, particularly the National Research Centre for Scienceand Technology for Development (NRCSTD) and ISPMCAS

Similar organisations at the provincial and municipal levels also have important roles.

7Organisation for Economic Cooperation and Development. OECD reviews of innovation policy: China. Internet:www.oecd.org/sti/innovation/reviews/china.


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Principal S&T institutions

The following six kinds of organisations constitute the heart of the Chinese NSI:

Research institutes SOEs Private, joint venture, and urban collective enterprises Universities Defence research institutes and enterprises TVEs

All of these organisations have been significantly affected by the reforms of the last decade.

Estimates of the number of such organisations vary, but one attempt to estimate the numbers

of those heavily engaged in R&D and therefore having a significant potential to promote

innovation.

One of the important considerations that affects the functioning of an NSI is the extent to

which the relevant governments can bring about an integration of their policies and funding

programmes to produce a positive policy environment that encourages entrepreneurial activity

and technological innovation.

The OECD countries, in a series of publications emanating from a major programme of research

on technology and economic policy (e.g. OECD 1991, 1992), concluded that industrialised

countries need to improve the integration of their various programmes and policies. This

approach is easier to prescribe than to implement, and each country has to devise a system

suited to its own political culture.


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Case Study: Finland8

The Finnish National Innovation System

The Finnish National Innovation system of today consists of a number of actors with

different tasks. However, the Finnish system consists of relatively few actors, making

cooperation and task allocation smoother. The most important policy-making bodies are the

Parliament, the Cabinet and the Science and Technology Policy Council.

Their role is to formulate general policy guidelines for the innovation system. The ministries

main function is to coordinate and allocate funding and supervise the system according to

general policy guidelines. Nonetheless, as decision-preparing bodies, the ministries also

participate to some extent in the creation and formulation of innovation policy. Under the

ministries are the main public financing organisations, the Academy of Finland and the

National Technology Agency. These are predominantly financing bodies, but also supervise,

coordinate and assess the functioning of the system.

The Science and Technology Policy Council (STPC) was created in 1987 to continue the work

of the Science Policy Council, although with different tasks and orientation. The members of

the council consist of various important persons from the public and private sector.

The Prime Minister of Finland chairs the board of the council. Other members of the council

are the ministers of Education, and Trade and Industry, four other ministers and

representatives from the research community, industry and employers and employee

organisations.

Every three years, the STPC publishes a report defining the guidelines of the Finnish

innovation policy. The most recent dates from 2003 and is entitled Knowledge, Innovation

and Internationalisation. In the report, the internationalisation of the innovation system is

emphasised together with the various challenges and opportunities that follows from this.

The council recommends that Finlands most important know-how resources, which are

education, researcher careers and the utilisation of research results, should be further

developed. Furthermore, the council emphasises that social innovations and regional policy

are important sources for economic and technological development.

8Ahlback, J. 2005.The Finnish National Inovation System . Errin. Internet: http://www.nvca.org.


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Besides preparing guidelines, the STPC also plays an important role as a platform where

different actors from the public, private and academic sector meet and discuss what makes a

successful national innovation system.

The most important ministries in the innovation system are the ministries of Education, and

Trade and Industry. Together these ministries oversee nearly 80 % of the entire public R&D

budget. Other ministries that also deal with innovation policy are the ministries of Social

Affairs and Health, Environment, and Agriculture and Forestry.

The Ministry of Education administers Finlands 21 universities and 31 polytechnics, as well

as the Academy of Finland. The Academy of Finland is the most important funding agency

for basic research. Its main tasks are to finance individual research projects and broader

programmes and support researcher careers through the financing of academic posts and

training.

The academy is divided into four councils representing different research fields:

Biosciences and Environment, Culture and Society, Natural Sciences, as well as Engineering

and Health. As the academys funding is not concentrated in a specific research area, but

rather funds all basic research, the competition for it is intense. Yearl y the academy receives

about three times more applications than it is able to grant. The funding decisions are based

on scientific reviews of the applicants and their research plans. Starting in 1993, the Ministry

of Education and the academy launched a programme of nominating centres of excellence in

university research. The centres of excellence have been selected on the basis of open

competition and rewarded with extra funding.

The academy also nominates the candidates for the honorary title of Academician. This titleis the highest recognition in Finnish scientific research and is bestowed by the President of

the Republic for a lifes work in the service of science.

The Ministry of Trade and Industry handles the technology policy and the support to private

R&D. The ministry is also responsible for EU research activity, and the administration of

Finlands Technical Research Centre and The National Technology Agency (Tekes).


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Tekes is one of the most important organisations in the Finnish innovation system. Tekes

was established already in 1983, then with the name Technology Development Centre, and

has throughout its existence played a major role as a financing body in the development of

Finnish technical research and technology. Approximately 30% of the public research budget

is channelled through Tekes, equalling about 400 million euros.

Tekes funds industrial projects, as well as projects in research institutes, and especially

promotes innovative and risk-intensive projects. The most important funding instrument for

Tekes is the technology programmes. It promotes networking and internationalisation and is

therefore seldom the sole financer of R&D projects. In 2003, Tekes was engaged in a total of

2 196 R&D projects.

The total budget for these projects was 785 million euro, of which Tekes provided about

half. Of this funding, 230 million euro were targeted at corporate projects and 162 million

euro at universities, research institutes and polytechnics.

Another important R&D funding agency is Sitra, the Finnish Fund for Research and

Development. Sitra is an independent public foundation supervised by the Finnish

Parliament, created in 1967. The foundation was set up in conjunction with the Bank of

Finland in honour of the 50th anniversary of Finnish independence. Sitra mainly provides

venture capital and supports companies conducting experimental research and exploring

new areas.

Sitra is also an important organisation for the development of the innovation system. It

facilitates seminars and consistently conducts studies and evaluations on the Finnish

innovation system. Sitra upholds its independent status by financing its activities throughthe return of its own investments.

As the Academy of Finland supports basic research, Tekes supports generic technology and

Sitra supports explorative activity, the three funding agencies complement each other.

Apart from the institutional set-up for the innovation system in Finland, judicial regulations

in many fields also play a significant role. Basically all regulations affect innovation directly or

indirectly.


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The most important fields of regulations, however, relate to patents, copyrights and brands,

as well as competition and environmental law. In Finland it is considered important that

regulations in all these fields are constantly developed. Insufficient or backward regulations

may cause innovation failures and hinder innovative activities.

Private property rights may, for example, be so ill defined or transaction costs so high that

incentives for creative activities are completely lost. However, too much tampering with

regulations might also affect innovativeness counterproductively. There is a clear need of

foresight and openness in developing regulations.

During the last decades, most regulations have been prepared with consideration of their

effects on innovation. It must be noted that, since Finlands entry in the EU, many

regulations have been influenced by EU policies. According to competitiveness surveys, in

which various businesspeople in Finland were interviewed, Finnish regulations do not hinder

innovativeness. The openness and effectiveness of Finnish public institutions in particular

are found as positive with regard to this aspect.

1.5 Role of the private sector and other considerations

Class discussion

So what should be the role of the private sector? Can innovation take place without

entrepreneurs, businesses and open markets?

It is industry that interfaces with consumers and customers, that brings balance between the

supply and demand for products and services. It is industry that understands how to package

knowledge for customer consumption. It is industry that anticipates and monitors the future

demand for new innovations.

1.5.1 Current efforts towards triple helix innovation in South Africa

The public sector, including research institutes and academia, traditionally approached

innovation from a research or technology push point of view, i.e. conducting research or

developing new inventions without clear indications of how these will be introduced to themarket.


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This can be seen in the number of patents that never see the light of day, or the amount of

research papers and theses gathering dust on academic bookshelves.

Africa appears to increasingly have research capability, but does not efficiently transform

such research into useful products and services. There is not sufficient industry participation

in innovation activity.

This so-called innovation chasm results in Africa being a net importer of products and goods

from foreign markets. Even South Africa, with a well-developed and competitive private

sector, has a culture of firms rather importing or buying technology than pursuing their own

innovation.

Practice-based innovation, i.e. pursuing innovation from new knowledge dictated by clear

market needs and customer requirements, requires the development of industry in

emerging economies.

By only stimulating the research and academic side of the equation, innovation will not

increase, and Africa will simply witness a mass exodus of skills to economies with the

capability to leverage such skills for innovative products, services and businesses.

Innovation clearly comprises a number of processes, one of which is the creative act.

Business, entrepreneurial and management skills are all required to transform the act of

creativity into an innovative offering to the market.

The future of emerging economies weighs on the ability to bridge the innovation chasm and

bringing more people into the formal sector. Bridging the chasm requires the entry of moreentrepreneurs and the rapid maturation of newly created ventures into sustainable

enterprises.

Class discussion

What are the leadership requirements in a knowledge economy, especially with regards to

optimising the triple helix collaboration and innovation output in the NSI?


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1.5.2 Intellectual capital is a firm's source of competit ive advantage9

To become knowledge-driven, companies must learn how to recognise changes in

intellectual capital in the worth of their business and ultimately in their balance sheets. A

firm's intellectual capital employees' knowledge, brainpower, know-how and processes, as

well as their ability to continuously improve those processes is a source of competitive

advantage.

But there is now considerable evidence that the value of the intangible component of high-

technology and service firms far outweighs the tangible values of their physical assets, such

as buildings or equipment. The physical assets of a firm such as Microsoft, for example, are a

tiny proportion of its market capitalisation. The difference is its intellectual capital.

How do we measure a firm's intellectual capital? How can a firm tell whether its knowledge

assets have increased or diminished over a certain period of time? According to Strassman

(1998), intellectual capital is what is left over after suppliers, employees, creditors or

shareholders and the government have been paid, and obsolete assets replaced. There are

other approaches, including those of Sveiby (1997) and Stewart (1997). One tool that is now

widely used by US companies is Kaplan and Norton's Balanced Scorecard, which combines

financial with non-financial measures, such as internal business processes, learning and

growth, and various customer-related measures (Kaplan and Norton, 1996).

Competency models seek to define and classify the behaviours of successful employees and

calculate their market worth, while a business worth approach seeks to consider the value of

information and the costs of missed or under-utilised business opportunities.

1.5.3 The importance of ICT

Information and communication technology (ICT) releases people's creative potential and

knowledge. It is the enabler of change. ICT does not by itself create transformations in

society, but is best regarded as the facilitator of knowledge creation in innovative societies

(OECD, 1996). The new economy looks at ICT not as a driver of change, but as a tool for

releasing the creative potential and knowledge embodied in people.

9New Zealand. Minister for Information Technology's IT Advisory Group. August 1999 (updated in 2006).Submission to the New Zealand Government.


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However, the ICT sector has a powerful multiplier effect in the overall economy, compared

with manufacturing. A 1995 study of the effect of software producer Microsoft on the local

economy revealed that each job at Microsoft created 6.7 new jobs in Washington State,

whereas a job at Boeing create d 3.8 jobs (Mandel, 1997).

Wealth generation is becoming more closely tied to the capacity to add value using ICT

products and services.

1.5.4 The new economics of information

The rate of technological change has greatly increased over the past thirty years. Three laws

have combined to explain the economics of information (Gilder, 1994). Moore's Law holds

that the maximum processing power of a microchip at a given price doubles roughly every

18 months. In other words, computers become faster, but the price of a given level of

computing power halves.

Gilder's Law the total bandwidth of communication systems will triple every 12 months

describes a similar decline in the unit cost of the net. Metcalfe's Law holds that the value of

a network is proportional to the square of the number of nodes. So, as a network grows, thevalue of being connected to it grows exponentially, while the cost per user remains the same

or even reduces.

While Metcalfe's Law has been applied to the Internet, it is also true of telephone systems.

Gordon Moore first formulated Moore's Law in the early 1970s. There can be no doubt that

the cycle of technology development and implementation is accelerating and that we are

moving inexorably onward, out of the Industrial Age and into the Information Age.

1.5.5 Globalisation

ICT opens up global markets and fosters competition.

With the advent of information and communication technologies, the vision of perfect

competition is becoming a reality. Consumers can now determine the prices offered by all

vendors for any product. New markets have opened up, and prices have dropped.


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When businesses can deliver their products down a phone line anywhere in the world, twenty-

four hours a day, the advantage goes to the firm that has the greatest value addition, the best-

known brand, and the lowest weight. Software provides the best example: huge added value

through computer code, light weight, so that it can be delivered anywhere at any time.

Competition is fostered by the increasing size of the market opened up by these

technologies. Products with a high knowledge component generate higher returns and a

greater growth potential.

Competition and innovation go hand in hand. Products and processes can be swiftly imitated

and competitive advantage can be swiftly eroded. Knowledge spreads more quickly, but to

compete , a firm must be able to innovate more quickly than its competitors.

Brands are critical. They strengthen consumers' trust in nations and their products.

In a global marketplace where consumers are overwhelmed by choice, brand recognition

assures their trust in both the tangibles and intangibles that a product will deliver. Like

intellectual capital, brand equity can be hard to measure, yet it may account for a significant

proportion of a company's value.

It is intangible in the sense that it often consists of customers' perceptions of the value they

gain from using a product or service rather than any measurable benefit. A nation's brand

can be as important (or more) as the firm's, and provide extra leverage for whichever firm's

brand is attached to the actual product examples are Swiss watches, Scotch whisky,

German cars, Japanese appliances, New Zealand butter.

Capital searches the globe for the best returns, looking for innovation.

This has lead to the globalisation of capital. Capital continually circulates in search of

maximum investment opportunities. Information technology has accelerated this process

and made it more successful. It is no longer geography that determines the winners. Idea-

driven innovation cycles in the knowledge economy determine an economy's position in the

global hierarchy. The more innovative and intelligent a business location is, the higher its

rank in the ladder of global investment.


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1.5.6 The role of entrepreneurs

Governments should not only focus on encouraging entrepreneurship and only work to

increase the number of entrepreneurs, as this neglects the need for appropriate and

commercialisable knowledge and know-how.

The accepted notion among many economists and academics is that the underlying drivers

for entrepreneurship must be created and instilled in everyday society, so once more of us

have become Shuttleworths, the economy will overcome its challenges.

This view is flawed. Entrepreneurs play only a limited role in the process to create jobs and

grow any economy. They are often not the ones who come up with new ideas. Instead, theyfind willing buyers for other peoples ideas. Many entrepreneurs want to move on and

repeat their experiences elsewhere once initial business success has been achieved.

Furthermore, entrepreneurs are typically not successful managers. The majority of venture

capitalists in the US, responding to a recent survey commissioned by their National Venture

Capital Association10, stated that the first thing they did after investment was to replace the

entrepreneur with an experienced business manager.

For successful innovation to take place, entrepreneurs have to collaborate in a system

comprising other players: the creator (comes up with new ideas), the implementer (takes

the idea from mind to market), and the business person (establishes a sustainable and

growing enterprise). This collaboration can only thrive via strong and multidimensional

networks; conditions in which ideas, entrepreneurs and business persons meet frequently

and where policies and incentives promote such collaborations to the benefit of each

respective contributor.

Instead of boosting the number of entrepreneurs, one needs to take a systemic approach to

innovation output by stimulating each component of the innovation system reward

structures that allow each contributor to focus on its own capability and strengths, while

profiting from the success of the overall innovation output. In this model, each player,

although focused on different activities, is committed to only one purpose the commercial

success of the new venture.

10National Venture Capital Organisation. Internet: http://www.nvca.org.


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We should stop encouraging a culture of going it alone. Instead we need a culture of sharing

and cooperation. Government should focus less on supply side measures to support

entrepreneurs and more on creating powerful incentives to promote the formation of new

businesses along focused market needs, such as the current piloting of a centres of expertise

(CoE) programme in South Africa, taking input from the Finnish CoE experience.

Collaboration can be achieved through the aggressive implementation of measures to

promote procurement from small and medium enterprises (SMEs), both from public and

private sectors, simultaneously addressing a key constraint in many businesses: access to

market. Some measures exist already, but are notimplemented.

To enhance sustainability, active networks of academics, scientists, researchers,

entrepreneurs, businesspeople and bureaucrats are needed who are collectively able to

deliver SMEs that can successfully address procurement needs. In such a networked

environment, SMEs can compete effectively against large players, since the resources of the

network compensates for the limited resources of the SME.

The third requirement is a supportive environment for SMEs, including access to funding,

business support and mentorship, available skills and a tax-friendly regime.

Entrepreneurship has a role in an innovation system that requires equal inputs from all

players and that pursues and rewards the outputs of successful collaboration in the entire

system.


(Refer specifically to the suggested reading topic Finnish Innovation System by ERRIN.)

Contrast the South African current NSI and the leadership of the Department of Science and

Technology to the role of the Science and Technology Council in Finland. Give specific

attention to the current structuring and functions of NACI and make recommendations as to

how to improve triple helix leadership within the current South African NSI.


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1.6 Conclusion

Government should not be alone in developing and driving innovation. Both government

and industry are equally important in a national system of innovation, working together with

research institutions and academia to develop and exploit new and useful knowledge.

However, government should not be the custodian of innovation, as this should be the

shared responsibility of all three partners in the triple helix model of collaboration.


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Learning unit 2: Introduction to regional innovation origins

and concepts

UNIT OUTCOMES

Regional innovation systems To explain the difference between a regionalinnovation system and a national innovation

system

To explain what an economic cluster/region isand how it should influence regional policies

and strategies

2.1 Introduction

The concept of regional innovation is an integral element of globalisation and the

knowledge-based economy that we find ourselves in. The paradox of regional innovation is

that even as globalisation (and competitiveness) is the dominant driver of economic activityin the global economy, locality or regions matter more than ever.

This apparent paradox is explained by the fact that although technology, capital, knowledge

and (knowledge) workers move across international borders, it is how these assets are

utilised at the local or regional level that determines competitiveness and prosperity.

Regions that can attract talented people and support the development of highly innovative

firms will support greater prosperity. This is in contrast to traditional economic development

models that are based on low wage rates, tax incentives and basic extraction of natural

resources. In the era of the increasing intensity of knowledge to work processes the old

model will not be able to sustain competitiveness and create prosperity.

Regional innovation is about leveraging the totality of a regions assets. These assets would

include purely physical assets or attributes, such as location or the availability of natural

resources, but can also include the legacy (positive or negative) it inherits from historical

developments and past policies. These inherited legacies include things such as institutions,educational systems, transport infrastructure, environment and so on.


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Leveraging these assets can occur by chance (which is historically what happened), but it is

now recognised that a knowledge- and innovation-based economy requires cooperation and

coopitition, as well as knowledge exchanges between firms, knowledge institutions and the

public sector and other stakeholders. This interaction is too important to be left to chance

alone, and hence the need for a deliberate and directed effort in creating an enabling

environment for the networking, cooperation and coopitition that is required for innovation.

This deliberate and directed effort is at the heart of regional innovations systems.

Regional innovation is therefore about creating systematic and systemic processes to

develop interfaces and cooperation mechanisms to match supply of innovation, research

and development to demand.

In the South African context, regional innovation is about creating an environment for

collaboration between knowledge creators, business, civil society and government, which

will be the key to unlocking the huge innovation potential in various parts of the country.

This chapter attempts to contextualise regional innovation, how the concept developed and

is applied and what it means for the (economic) performance of regions and ultimately what

it means for South Africa.

Class discussion

What is the difference between a regional innovation system and a national innovation

system?

Who are the actors? How do they collaborate? What should be considered?


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2.2 Clusters and cluster development

Clusters are geographic concentrations of interconnected companies, specialised suppliers,

service providers and associated institutions in a particular field that are present in a nation

or region. Clusters arise because they increase the productivity with which companies can

compete. Historically clusters have evolved in response to demand conditions. The Porter

diamond model is perhaps the clearest framework to illustrate this phenomenon (Figure

1)11

.

GOVERNMENT

!GOVERNMENT

!

CHANCE

?CHANCE

?

Figure 1: The Porter diamond

The Porter model explains many regional economic developments in South Africa. The

chance discovery of gold on the Witwatersrand provided the factor conditions that

responded to the demand conditions for gold. Mining was supported by a huge number of

related and supporting industries. The state played a role in many ways, from providing

basic services to ensuring that a supply of cheap labour wasavailable. In time, competition

and rivalry developed between the supporting and related industries, which theoretically led

to market-driven efficiency and innovation.

11Porter, M. The competitive advantage of nations.


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The legacy of this phenomenon is still visible in the socio-economic, political and spatial

landscape of greater Johannesburg today. The same phenomenon describes the economic

development of Kimberley and, in more recent times, the regional development in the North

West Province based on Platinum.

The importance of this phenomenon is acknowledged in the development and upgrading of

clusters as an important agenda for governments, companies and other institutions.

Whereas historically cluster development occurred by chance or natural evolution, directed

cluster development initiatives are now an important new direction in economic policy

development. Again, in the South African context, the Gauteng Provincial Governments

Smart Province Strategy implicitly recognised the importance of clusters when it chose to

support the automotive cluster in Rosslin, north of Pretoria, and the upgrading of

infrastructure around the City Deep inland container terminal and around the OR Tambo

International Airport.

It must be emphasised that these clusters do not necessarily result in efficiency, innovation

and global competitiveness.

2.2.1 Industry clusters and innovation

In order to survive and prosper in a globalised and increasingly knowledge-driven economy,

clusters cannot simply depend on factor and demand conditions. In order for clusters to

grow and prosper innovation, must take place.

Therefore industry cluster policies to drive innovation are a current trend in economic

development planning. As noted above, these policies represent a major shift from

traditional economic development programmes that focused on individual firm-oriented

policies and were often based on cheap labour, tax incentives or other inducements. Cluster

policies, on the other hand, are based on the recognition that firms and industries are inter-

related in both direct and indirect ways (cooperation, coopitition, solution demand and

supply issues).12

12 Le Veen, J. March 1998. Plan 261: Urban and regional development.


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Given the interest in innovation for economic development by both the public and private

sectors, industry cluster policies have received significant attention in current literature.

However, there is considerable debate regarding the actual definition of an industry cluster,

how to identify an industry cluster, or what factors drive the development of an industry

cluster. The literature focuses on the different definitions of industry clusters, and much of

the literature involves case studies illustrating different types of clusters. Examples of

industry clusters range from the small hosiery cluster in rural North Carolina, or the

apparel/hosiery cluster in Northern Italy, to Silicon Valley. In the South African context the

automotive cluster in north Tshwane may be cited as an example.

A second focus in the literature is the identification of industry clusters. Given the many

variations in the definitions of clusters, it is not surprising that there are several different

approaches to identifying clusters. A third common theme in the literature is cluster

policies, and how these policies can be incorporated into economic development

programmes. However clusters are described, innovation in these clusters are certainly one

of the defining characteristics.


1. Use the conceptual model developed in work session 2. Adapt the model for aregional innovation system.

2. Identify three economic clusters in different regions in Gauteng and three economicclusters in different regions in the Eastern Cape.

3. Propose a set of collaboration mechanisms between government, academia andindustry for one of the clusters identified.


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2.3 Innovation as a factor of regional development13

Traditional regional economic development policies based entirely on physical infrastructure

improvement, direct grants to firms and foreign investment attraction have not proved to be

very successful in many areas. The reasons are varied and include the following:

They may be poorly adapted to current business needs and therefore may not becost-effective.

They tend to be short term and to work better with winners than with losers. Most importantly, there is often limited capacity in these regions to absorb funding

efficiently, even though there is a comparatively greater need. (In the South Africancontext, these limiting absorptive capacity issues include infrastructure and an

appropriately skilled labour pool.)

However, a major element is that these regions do not have (or historically evolved)

innovation systems and therefore have limited institutional and organisational capacity to

drive innovation (e.g. there is little or no tradition of public-private and inter-firm

cooperation, a weak research base, lack of interfaces for research, development and

technological innovation (RDTI), insufficient social/relational capital, etc.). In short, there are

no formal or informal networking or cooperation mechanisms to match innovation and

research demand and supply. Therefore especially SMEs find it hard to access the

technology sources, network and make contacts with the partners, including informal

personal contacts that are necessary to keep up with technological change.

2.3.1 Clusters and the new economics of competit ion

14

Why do clusters foster high levels of productivity and innovation? This is a paradox, since in

the era of globalisation location should, in theory at least, no longer be a source of

competitive advantage.

13 Landabaso, M. 2003. European Commission DG Regional Policy. In, proceedings of International Forum Europe-LatinAmerica, 4 7 November 2003 .

14 Porter ME. 1998. Harvard Business Review, November-December 1998.


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In theory, open global markets, rapid transportation and high-speed communications should

allow any company to source anything from any place at any time. In practice, however,

location remains central to competition. The economic map of the world today is

characterised by what Porter calls clusters, critical masses in one place of linked industries

and institutions from suppliers to universities to government agencies that enjoy unusual

competitive success in a particular field.

In the regional innovation strategy business these clusters of critical masses of linked

industries and institutions from suppliers to universities to government agencies can be

described in terms of an innovation triple helix (Figure 2).

R&D Needs

Skilled Personnel

Social compact

Enabling environment

R&D Needs

Trained staff

Figure 2: The Innovation Triple Helix

These clusters or geographic concentrations of interconnected companies and institutions

are a feature of virtually all national, regional and even metropolitan economies, especially

in more advanced nations.


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Case study

The concept of these clusters of interconnected companies and institutions as key drivers of

innovation economies is exemplified by two of the top twelve mega-regions in North

America, the Boston-Washington corridor and the Toronto-Chester Region15:

The Boston-Washington (Bos-Wash) Mega-region stretches for some 1 000kilometres along the East Coast of the US from Boston, through New York, to

Washington. It has a population of some 54.3 million people and its economy is

worth $2.2 trillion. The leading economic sectors are in finance, the media and in

biotechnology. The key creative class jobs include computer engineers, fashion

designers and investment dealers.

The Toronto-Buffalo-Chester Mega-region (Tor-Buff-Chester) runs from Toronto inCanada through Buffalo and Rochester in New York State. Its economy is worth

some $530 billion. It is the 12th

largest mega-region in the world and its prosperity is

attributed to superb universities, leading arts, entertainment, design and culture

industries, and it also has what is arguably the most diverse population in the world.

It is now recognised that clusters throughout the world reveal important insights about the

microeconomics of competition and the role of location in competitive advantage. Even

though the older reasoning for clustering (see Porters diamond model) have diminished in

importance, the dynamics of the knowledge-based economy and the role of demand and

supply of knowledge and innovation (the triple helix) and their importance for

competitiveness represent a new way of thinking about national, regional and local

economies. Hence, the necessity for a structured approach to innovation and the roles for

companies, governments and other institutions in enhancing competitiveness at the regional

level.16

15 Florida , R. The Rise of the Creative Class.

Florida, R. The Flight of the Creative Class.

Florida, R. The Breakthrough Illusion.

Florida, R. Beyond Mass Production.16 Porter, ME. February 2000. Location, competition and economic development: local clusters in a global economy. Economic

Development Quarterly. 14(1): 15-34.


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The most famous example of this new approach to regional innovation is Silicon Valley.

Porter explains how clusters affect competition in three broad ways:

Firstly, by increasing the productivity of companies based in the area Secondly, by driving the direction and pace of innovation Thirdly, by stimulating the formation of new businesses in the cluster

Geographic, cultural, and institutional proximity provides companies with special access,

closer relationships, better information, powerful incentives, and other advantages that are

difficult to tap from a distance . The more complex, knowledge-based, and dynamic the

world economy becomes, the more this is true. Competitive advantage lies increasingly in

local things knowledge, relationships, and motivation that distant rivals cannot

replicate. In the South African scenario one might think of the effect of geographic

clustering, of demand and supply and innovation in the mining industry in the Johannesburg

area, which involved the mining companies creating the demand side of the equation and

academia and a myriad service industries fulfilling the supply side. In more recent times, this

is equally true of the ICT clusters in the Midrand area.

This realisation has led to the Clusters of Innovation Initiative undertaken to understandhow regional economies ability to produce high-value products and services depends on the

creation and strengthening of regional clusters of industries that become hubs of innovation

how these clusters enhance productivity and spur innovation by bringing together

technology, information, specialised talent, competing companies, academic institutions,

and other organisations.17

The Harvard Cluster Mapping Project uses detailed county level data and statistical

techniques to profile regional economies and their performance over time, with a special

focus on clusters. Clusters are geographically concentrated groups of interconnected

companies, universities, and related institutions that arise out of linkages or externalities

across industries. Regions and clusters are analysed at various geographic levels, including

states, economic areas and metropolitan areas.18

17 Harvard Business School, Institute for Strategy and Competitiveness. 2008. The cluster mapping project.18

Ibid


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The outcome is that the economic development potential of a region can be described in the

following framework:

Regional competitiveness and innovative capacity The economic performance of regions The composition of regional economies The evolution of regional economies The determinants of regional competitiveness and innovative capacity Creating and implementing a regional economic strategy Action agendas for the public and private sectors19

Class discussion

Apply the above-mentioned framework on the Western Capes regional innovation system

or a system that you will be able to have a discussion about.

This approach is very much in line with what is being proposed for systems of innovation and

regional innovation strategies in South Africa that are promulgated by the Department of

Science and Technology at a national level and also for sponsoring various provincial

initiatives.

2.4 Systems of innovation

2.4.1 Regional innovation a systems approach

It is clear from the above that in a globalised knowledge-based economy, regional economic

development through innovation cannot be left to chance and that a directed approach to

regional innovation requires a systems approach.

19Ibid


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The view of an innovation system is that of a holistic approach to the overall capability of the

system (i.e. a region in its entirety) to achieve the future objectives or desired end state for

that region:

The set of economic, political and institutional relationships occurring in a given geographic

area which generates a collective learning process leading to the rapid diffusion of

knowledge and best practice.20

Therefore innovation in the systems view is not limited to science, technology and

engineering, as is the popular misconception, but comprises the total capability in a region

to innovate and includes new products, (public) services, processes, organisational and

social innovation. This view is reinforced by the fact that, according to recent studies in

Finland, science-based innovation accounts for roughly 4% of all innovation.

In a systems approach the strength of the innovation system is determined by the number

and quality of networks between the different components of the system (as illustrated in

Figure 2).

Collaboration within this system, towards the common objectives of the overall system, is at

the heart of a regional innovation system.

This requires the identification of the objectives of the system (i.e. desired innovation

outputs, regional economic development), defining all the subcomponents of the system

and their interrelationships and creating a c

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Study Manual for Innovation Systems Leadership