The crucial search is for what it is that makes some people, firms, regions and countries more innovative than others.
THE WORD “innovation” appears 114 times in the policy document on the smart economy, Building Ireland’s Smart Economy: A Framework for Sustainable Economic Renewal – that’s an average of more than once for every page. Yet nowhere in the document is there a clear definition.
Over the last 20 years or so, policy-focused economists in the Schumpeterian tradition have come to agree on a broad definition of innovation: it’s a new product, process or way of organising that is new to a place, or even to a particular firm, even though it may not be new to the world. Innovative firms are those that are good at creating, introducing or implementing such new products, processes or ways of organising. On the basis of this definition, it’s more than simply research and development, commercialisation and entrepreneurship.
Let us take the example of a small or medium enterprise (SME) with no RD unit and no RD expenditure. Can such a firm be innovative? A recently-completed European project on innovation in non-research intensive firms (www.pilotproject.org) examined some 40 firms in nine European countries, and concluded that even in low-tech industries, without any formal research taking place, firms can be and frequently are innovative.
What activities other than RD can create innovation? At the simplest level a worker in a factory might see a better way of doing whatever he or she does. If this better way is introduced it is an innovation. He or she is innovative; his or her company, if it can quickly and smoothly implement the change, is innovative. This also applies to changes in the way a service company operates. And innovative people, firms, regions and countries can also express their innovation in these ways. A firm, region or country can as a result be highly innovative without having high levels of RD. This does not mean that we should ignore RD. High levels of RD can be associated – as in Sweden and Israel – with innovation. But some successful regions, like Emilia Romagna in Italy, and Jutland in Denmark, are highly innovative with low levels of RD.
One of the firms in our study was a furniture manufacturer. It designs and manufactures furniture for exports. Apart from design itself being an innovation, it also innovated in the way it developed strong collaborative links with a furniture manufacturer in Eastern Europe. This enabled it to specialise in parts of the production process and leave other parts to its Eastern European partner.
Another firm, in the metal engineering industry, undertook no RD but used high-tech production equipment. Its innovation was first, in its early introduction of such equipment, and second, in its forging a close relationship with its equipment supplier. This resulted in a deeper understanding in the supplier of the customer’s needs, which in turn enabled the supplier to provide appropriate training.
What about commercialisation? This focuses on the process of bringing innovations to the market. It applies most directly to new products. Successful commercialisation is where, for example, a new product – or some new variation on an existing product – can be protected by a patent, then brought into production and marketed in such a way as to meet its target sales. But many product variations, processes of production and ways of organising are not amenable to patent or other protection. Let us take such innovations as the Just-In-Yime process – very important since the early 1990s. Groups of firms capable of introducing JIT and deriving all the benefits of reduced inventory, significantly improved their competitiveness. We found examples of this type of innovation in the printing industry. The firms could not commercialise the innovation because it is already widely available, unprotectable knowledge. In relation to such innovations, success for an economy comes from the absence of such protection, from the rapid diffusion of the new way of organising.
Another concept used in the smart economy is entrepreneurship. Again, it is not the same as innovation. Many innovative activities can clearly take place in existing businesses and don’t need new start-ups in order to be implemented. Few of the firms in our study were new start-ups, yet all were innovative.
The crucial search is for what it is that makes some people, firms, regions and countries more innovative than others. Building Ireland’s Smart Economy calls for Ireland to become an innovation hub for Europe, attracting RD-intensive multinationals and innovative start-up businesses. It aims to do this by encouraging RD in companies, providing capital for new ventures and funding for research projects in universities. However, none of these things alone will engender the diffusion of creativity throughout society that is the bedrock of innovative economies. More attention may have to be paid to education at all levels, including in the national schools.
Prof David Jacobson is associate dean for research at DCU Business School
