Government as promoter of Innovation: good companion or intrusive mother-in-law for Industry?

1. Government as promoter of Innovation: good companion or intrusive mother-in-law for Industry? J.P.CONTZEN PROINOV, Lisboa December 18, 2001

2. Plan of the presentation (1) • Innovation as a transfer function • A public policy for Innovation? • Inputs to Innovation: the PUSH vs. PULL models • Outputs from Innovation: full scope • System Parameters: the sustainable development component

3. Plan of the presentation (2) • The external dimension of innovation: various action schemes • Formulation of new innovation scenarios • The appropriate level of public intervention • The role of Government • Conclusion

4. Innovation as a transfer function (1) • Innovation should not be considered as an end result. It is a contribution to the satisfaction of societal needs as well as to the reinforcement of economic competitiveness. For the latter, it is associated to other factors such as productivity, financial environment and budgetary policy

5. Innovation as a transfer function (2) • It is a process described by a time dependent transfer function with inputs, outputs and system parameters, involving complex mechanisms, with feedback loops and built-in time constants • The output of the innovation process is linked to, but not directly proportional to, the main input i.e. R&D intensity at the same moment of time. No «Juke Box » concept

6. Innovation as a transfer function (3)

7. Innovation as a transfer function (4) Proposal 1: Is Portugal (as several other countries) giving enough attention to the system parameters of the innovation process, beyond just caring about inputs and worrying about outputs?

8. A public policy for Innovation?(1) Should governments play a role in this process? As our modern societies constitute large interactive systems, one option would be leaving the chaotic, non linear process of innovation evolving naturally towards self-organized criticality. Already Francis Bacon (1561-1626) was saying: « Time is the greatest innovator « 

9. A public policy for Innovation? (2) • The other option is attempting at intervening in the highly complex innovation process through public policy measures, in association with industry • The formulation of any effective policy on innovation requires: • The identification of the inputs • The understanding of the system parameters • The expression of the desired outputs

10. Inputs to Innovation (1) The main, predominant input to the innovation process is scientific and technological knowledge. It is the base of the most conventional model of innovation, the PUSH model, a linear (or believed to be so), one-way process.

11. Inputs to Innovation (2) • The other significant input is the expression of a demand: in the PULL model, the innovation process is driven by a public or industrial demand, be it related to economic or societal aims. Such demand can affect innovation as well as R&D upstream of innovation The recent EC action plan on alternative fuels for transport is an example of the PULL model

12. Inputs to Innovation (3) Industry is also following the PULL model : customers are no longer only an economic asset generating revenues; they are also a source of motivation for innovation (cited by 85.5% of EU industry managers) The « Innovation clients » scheme at Pechiney with the co-development of new products is an illustration of the model

13. Inputs to Innovation (4) • The PUSH model based on offer only, may lead to problems of acceptance; the market, notably through the Civil Society rejects increasingly unwanted products (e.g. the Terminator seed) • The demand input should contribute to the moderation of the fury of innovating at all cost. Don’t exaggerate the « feel good » factor because you innovate

14. Inputs to Innovation (5) Proposal 2: Is Portugal – Government and Industry - giving enough attention to the PULL model of Innovation, stimulating the expression of a demand as input to the Innovation process?

15. Outputs from Innovation (1) These outputs should stimulate new markets or provide a response to the expression of a demand: • New products: the most frequent in the PUSH model, promising, medium term effect • New processes: representative of incremental innovation, short term effect • New services: currently the most attractive but volatile, subject to globalized market

16. Outputs from Innovation (2) • New systems: holistic approach including products, processes, services as in IT or in the Logistics sector. Attractive for the future • New structures, new tools: organisational innovation is essential for the evolution of our Society. This requires new tools « When you have only a hammer as a tool, you see all your problems as nails » Yves Dubreil, Renault

17. Outputs from Innovation (3) Proposal 3: Portugal is successful in the services sector. Does that mean that it should neglect new products, notably high tech products used in conventional sectors, as well as new systems, e.g. in the logistics field? Does Portugal give enough emphasis to organisational innovation?

18. System Parameters (1) Many parameters affect the process of Innovation. They are not fixed values, they evolve with time and they are influenced by the outputs, hence creating feedback loops in the transfer function The most significant are as follows: • Education, skill level of workforce • Technology awareness of industry leaders • Entrepreneurial spirit, risk culture, flexibility

19. System Parameters (2) • Availability of venture capital • Legal, regulatory and normative framework e.g. • IPRs (the European Patent) • Ethical issues in biotechnology • Standards in ICT

20. System Parameters(3) Another important parameter is • Creativity, i.e. the capacity to imagine new concepts. A necessary component of all innovation models. It allows in particular new applications of existing technologies

21. System Parameters (4) • Finally, don’t forget the sustainable development dimension of the innovation process. It should contribute to • The respect of international conventions • The guarantee of future competitiveness of industry • The public support to outputs of innovation « Highly innovative countries tend to give high priority to sustainability » EC Innovation Scoreboard, Sept. 2001

22. System Parameters (5) Proposal 4: Does Portugal pay enough attention to the sustainable development dimension of the innovation process?

23. The external dimension (1) The globalisation of the Economy, of Science and Technology gives an external dimension to Innovation, leading to different schemes that affect differently public intervention: • The IN/IN scheme : inputs and outputs are internal to the level of government under consideration • The IN/OUT scheme : inputs are internal but the outputs are aimed at external markets

24. The external dimension (2) • The OUT/IN scheme : inputs, notably technology is brought from outside to satisfy an internal market • The OUT/OUT scheme : inputs and outputs are external, only the process takes place internally

25. The external dimension (3) These various schemes lead to several options when combined with the PUSH or PULL models. 5 scenarios have been retained for further examination; they are not exclusive. The innovation scenario to be adopted eventually should result probably from a combination of elements of each of them

26. Innovation Scenarios (1) • Scenario 1 (IN/IN-PUSH) : internally developed S&T are used for developing outputs aimed at the Portuguese market. The most classical scheme. Has its limitations due to the S&T capacity of Portugal and the size of the Portuguese market. Suitable for large countries such as the US

27. Innovation Scenarios (2) • Scenario 2 (IN/IN-PULL) : an internal demand triggers the development of outputs to be used on the Portuguese market. This variation of Scenario 1 fits well with public policies requirements of Portugal(environment, land management, fisheries, etc). It gives an impulse to the S&T system, notably to the Laboratorios de Estado. Part of EU philosophy

28. Innovation Scenarios (3) • Scenario 3 (IN/OUT-PUSH) : internally developed S&T are used for developing outputs aimed at external markets. Attractive scenario for niches of excellence. Risky because of the volatility of external markets. Corresponds to the South East Asia situation, applies currently to Russia and other CIS countries

29. Innovation Scenarios (4) • Scenario 4 (OUT/IN-PULL) : use externally developed S&T to produce outputs for the Portuguese market. Don’t forget that ~99.7% of the global S&T knowledge is developed outside Portugal. A realistic scenario for most of the countries. Reflected in UK DTI thinking

30. Innovation Scenarios (5) • Scenario 5 (OUT/OUT-PULL/PUSH) : externally developed S&T and an external demand produce outputs essentially destined for outside markets. Portugal in this case should be an Innovation processor, chosen for favorable system parameters. This scenario implies the existence of a sufficient internal S&T base to absorb adequately the external S&T output.Risky, as it is linked to the evolution of the global situation. Followed by Ireland

31. Innovation Scenarios (6) Proposal 5: Portugal should consider more actively alternative scenarios to scenario 1, reinforce scenarios 2 and 3 and think further about scenarios 4 and 5

32. Levels of Intervention (1) To be effective, public interventions on the innovation process should differ according to the level of government. In this case, four levels should be considered: • The international level : WTO, OECD • The European Union level • The national level • The regional and local level

33. Levels of Intervention (2) Subsidiarity should be a guiding principle for assigning the right level of intervention but: • Be careful about keeping the critical mass • Don’t forget that going to the lowest feasible level is not necessarily the most cost effective approach

34. Role of Government (1) • Taking into account all the preceding considerations, what should be the preferred measures for Government intervention, in particular in terms of partnership with industry?

35. Role of Government (2) • At the level of INPUTS to the process: • Stimulate the demand corresponding to public policies needs, including a few « man on the moon » projects P + EU • Support industrial S&T development: joint R&D programmes, exchange of researchers, access to specialized facilities P (LdE) + EU • Support acquisition of outside S&T (spin-in)P

36. Role of Government (3) • At the level of OUTPUTS to the process: • Develop the public procurement of innovative products, systems and services. P + EU • Promote export of innovative Portuguese outputs (spin-off)P • Facilitate industrial international alliances, in parallel with national consolidation P • Remove trade barriers INT

37. Role of Government (4) • At the level of SYSTEM PARAMETERS of the process: • Provide an adequate level of education and training, including Life Long Learning. Enlarge the role of Universities P + R/L • Ensure a legal and administrative framework favourable to industrial development P +R/L

38. Role of Government (5) • Provide financial support in various modes: • Fiscal measures P + EU • State guarantee of loans P + EU • Co-Financing of incubators P + R/L • Co-Financing of feasibility, market studies (SMEs) P +R/L • Special fund for prototypesP • Modern IT infrastructures P + EU

39. Role of Government (6) • Provide organisational support to industry: • Idea Centers: foresight, technological watch, industrial « roadmaps »,windows of opportunity P + EU • Benchmarking: Innovation indicators INT +P + EU • Support to the creation of Collective Learning Clusters P + R/L

40. Role of Government (7) All measures should be calibrated in such away that there is no unbalance in the Government intervention that might create assymmetry in the system

41. Role of Government (8)

42. Role of Government (9) Proposal 6: for a good insertion of the external dimension in the innovation process, Portugal should reinforce its external technological watch activities and should emphasize innovation brokerage mechanisms

43. In Conclusion (1) Government should be a good companion, rather than an intrusive mother-in-law, for Industry. A few conditions should be met: • A full, in-depth cognizance on both sides of the complex process of Innovation • A clear perception of what Industry expects from Government in this field

44. In Conclusion (2) • A commitment by Government to use a target-oriented approach, leaving room for flexibility in implementation As in successful couples, creativity helps quite a lot. Creativity should permeate the Government-Industry partnership in Innovation