Judge Business SchoolJudge Business School

(name)

(date)

New Developments in Innovation Policy and Practice

Michael KitsonUniversity of CambridgeJudge Business School

Innovation is the successful exploitation of new ideas.

Innovation: the conventional wisdom• The importance of R&D especially in high

technology manufacturing• Importance of corporate laboratories and

protecting IP

• The crucial role of technology transfer from universities of Universities

• The importance of location: clusters and agglomerations

• Innovation is an important driver of growth

5Things they don’t tell you about innovation

1The importance of R&D

is exaggerated

Innovation: how important is R&D?

‘This country’s success ultimately depends on a strong skills base and dynamic R&D both driving an innovative and competitive economy...... The Government will continue to play its part by stimulating R&D investment. The recent changes to the Research and Development Tax Credit, for example, will bring additional benefits to small, medium and large companies alike’.

Lord Drayson, former Minister of State for Science and Innovation, The 2008 R&D Scoreboard, pp. 2-3

Innovation: how important is R&D?

• Argument that R&D drives innovation

• But private sector will under-invest in R&D because it will not capture all the benefits because of externalities

• Therefore, the public sector must do R&D or subsidise private sector R&D

Direct and indirect government funding of business R&D and tax incentives for R&D, 2007 (% of GDP)

Source: OECD

How important is R&D?

• EU target of increasing research and development (R&D) to 3 per cent of GDP by 2010

• Illusive or elusive ‘externalities’?

• Frequent failure to distinguish between ‘R’ and ‘D’

• Many innovating firms do little or no R&D

Innovation expenditure per employee in the UK (£)

From: Abreu, Grinevich, Kitson and Savona (2008), Taking services Seriously, NESTA

Innovation expenditure per employee in the UK (£)

From: Abreu, Grinevich, Kitson and Savona (2008), Taking services Seriously, NESTA

2Most innovation takes

place outside corporate laboratories

Importance of corporate laboratories

Source: Henry Chesbrough (2007)

A Closed Innovation System

ResearchInvestigations

Development New Products & Services

TheMarket

Science&

TechnologyBase

R D&E

Limitations of Closed Innovation• Most ideas and technologies are outside the

firm

• Importance of accessing and absorbing external ideas

• Importance of being open

• Importance of being connected

• Importance of knowledge exchange

3Technology transfer is

only one part of the role of universities in the innovation system

Innovation: the role of universities

• The ‘laissez faire’ model

• Importance of chance, luck and serendipity• The narrow model

• Focus on a narrow range of technology transfer mechanisms

• The wider model

• Focus on a wide range of interactions• Exchange rather than transfer

The laissez faire model

• Universities focussed on two missions – research and education

• Example: the ‘Cambridge Phenomenon’ initially developed when the University took little active interest in business engagement. In the past:

• University largely ignored IP issue• Adopted a liberal attitude to what academics did• Industrial liaison merely acted as ‘window’ on what the

university did – little exchange or dialogue

The standard narrow model

• Narrow focus on Technology Transfer

• Mechanisms: Patents, Licenses, Spin-outs

• Limitations

• Potential financial returns were frequently over-estimated • Metrics distorting behaviour (Goodhart’s Law: any

observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes)• Model is incomplete

Commercialisation Activities of Academics in the UK

• Patents (7% of academics)

• Licenses (5% of academics)

• Spin- outs (4% of academics)

Patenting by UK Academics in the last 3 years (% of respondents)

Source: Abreu, M., Grinevich, V., Hughes, A. and Kitson, M. (2009), Knowledge Exchange between Academics and the Business, Public and Third Sectors, Centre for Business Research, University of Cambridge, Cambridge.

The wider model: multiple knowledge exchange mechanisms

• Problem solving through multiple mechanisms

• Role of many disciplines (not just science and engineering)

• Interactions with public and third (not for profit) sectors as well as with business

• Public space functions (Universities do not move)

• Relatively neglected, but distinctive• Includes networking, social interaction,

meetings, informal advice etc• Exchange not simply ‘transfer’

5

7

414

Licensedresearch

Patenting

Spun-outcompany Formed/run

consultancy

Commercialisation activities

Format adapted from Ulrichsen (2009)

Academic Interactions with External Organisations

Source: Abreu, M., Grinevich, V., Hughes, A. and Kitson, M. (2009), Knowledge Exchange between Academics and the Business, Public and Third Sectors, Centre for Business Research,

University of Cambridge, Cambridge.

65

67

87

38

3328

31

33

6

38

30

3

15

5

7

4 14

57

49

4335

46

10 10

27

37

9Setting of physical facilities

Contractresearch

Consultancyservices

Externalsecondment

JointPublications

Prototyping and testing

Informaladvice

Researchconsortia

Hostingpersonnel

Jointresearch

Problem-solving activities

Licensedresearch

Patenting

Spun-outcompany Formed/run

consultancy

Commercialisation activities

Community-basedactivities

Lectures forthe community

Schoolsproject

Community-based sports

Publicexhibitions

People-based activities

Giving invitedlectures

Studentplacements

Participatingin networks

Standard-settingforums

Enterpriseeducation

Curriculumdevelopment

Attending conferences

Sitting onadvisory boards

Employeetraining

Format adapted from Ulrichsen (2009)

Academic Interactions with External Organisations

Source: Abreu, M., Grinevich, V., Hughes, A. and Kitson, M. (2009), Knowledge Exchange between Academics and the Business, Public and Third Sectors, Centre for Business Research,

University of Cambridge, Cambridge.

Constraints

Constraints on interactions with external organisations (% of respondents – All and Engineering)

Source: Cambridge Centre for Business Research Survey of Knowledge Exchange Activity by UK Academics (Hughes, A., Kitson, M., Abreu, M., Grinevich, V., Bullock, A. and Milner, I.) UK Data Archive Study Number 6462

Source: Cambridge Centre for Business Research Survey of Knowledge Exchange Activity by UK Academics (Hughes, A., Kitson, M., Abreu, M., Grinevich, V., Bullock, A. and Milner, I.) UK Data Archive Study Number 6462.

Academic and business perceptions of constraints on interactions

Source: Hughes, A. and Kitson, M. (2010), Connecting with the Ivory Tower: The Business Perspective on Knowledge Exchange in the UK, Centre for Business Research, University of Cambridge, Cambridge.

Source: Hughes, A. and Kitson, M. (2011), Connecting with the Ivory Tower: The Business Perspective on Knowledge Exchange in the UK, Centre for Business Research, University of

Cambridge, Cambridge.

THE ACADEMIC IVORY TOWER

IS A MYTH

4Geography: clusters are very different

Innovation and location: collaboration and clusters

According to Porter (1998) clusters are ‘geographic concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries, and associated institutions (for example universities, standards agencies, and trade associations) in particular fields that compete but also co-operate.’

Collaboration and clusters•The stress on ‘geographic concentrations’ of

collaborators can be misleading•The Porter analysis is based on where firms are, not

what firms do –Local collaborative behaviour is often not an

important driver of innovation –National and international collaborations are usually

more important than local collaboration–Important to distinguish between ‘bridging and’

bonding’ networks – bridging networks that are outward looking may be more important for knowledge based activity

•There is no one model of clusters

Developing New Technologies: the tale of two cities

• Strong biotechnology clusters in the Cambridges (USA and UK)

• But the development of the industry in the two cities reflects different trajectories and different challenges

• Indicates the importance of understanding the geography and history of place

1 mileSource: MIT Entrepreneurship Centre

8 miles

Collaboration and clusters

• Importance of local economic structure and local economic history

• Role of important economic anchors•Universities, Hospitals and key employers

• The character of local clusters will vary

• So policies will need to be shaped to the local economy

5Innovation is not correlated with

economic growth

Innovation and Growth

• Economic growth can be increased by technology and innovation

• Technological progress can be increased through appropriate policies•Technology transfer, support for R&D

IDEAS INNOVATION

Investors

Team

Entrepreneurs& Inventors

Growth: the Role of Innovation

Innovation and growth: the (Solow) paradox

“You can see the computer age everywhere these days, except in the productivity statistics". Robert Solow, 1987, (MIT, Nobel Laureate)

Economic growth is not apparently correlated with innovation

The Innovation (Solow) paradox

Answer? • Innovation takes time to have a major impact on

economic growth

Why?• It is the use of technology not the generation of

technology that has the biggest impact on growth

The innovation (Solow) paradox

US Productivity growth 1995-2000: the three largest contributors to the productivity surge were, in order:

• wholesale trade• retail trade• security and commodity brokers(Solow, Cambridge -MIT Summit 2001)

Bentonville AR.

Michael Kitson

IDEAS INNOVATION

Investors

Team

Entrepreneurs& Inventors

DIFFUSION

Growth: the Role of Innovation

Innovation and Growth

• Innovation takes time to have a significant impacts

• Similar with all General Purpose Technologies (steam, internal combustion engine, electricity, IT)

• Shows importance of diffusion of innovation and technology – which can be costly

Innovation: the conventional wisdomThe importance of R&D

• Is overestimatedThe importance of corporate laboratories• But most ideas are not inside the company

The importance of technology transfer from universities

• Is too narrow

Location is important for innovation

• But its character varies according by place

Innovation is an important driver of growth

• But it takes time as diffusion is vital

A new framework for innovation policy and practice

• Adopt a broad notion of innovation

• Foster connectivity and openness

• Importance of local economic structure

• Importance of key regional economic anchors

• Develop a Triple Helix approach

Adopt a broad notion of innovation

• No simply about high technology manufacturing

• Importance of process

• Importance of design

• Importance of business practice

• Importance of innovation in services and ‘traditional sectors’

A useful electronic device?

‘It has no camera; no USB port; no replaceable battery; no obvious advantage over a laptop, it doesn't support Flash.’

Who would buy this?

“In all of his products, technology would be married to great design, elegance, human touches, and even romance.”

Isaacson (2011), Steve Jobs.

Move From Closed to Open Innovation

• Importance of Networks

• Importance of Absorptive Capacity

Source: Chesbrough, 2006

Firms with national/international collaboration on innovation, 2004-06 (% of innovative firms)

The implications of open innovation• Importance of developing networks and communities

• It is not costless• Often difficult for individual businesses• Networks must be outward looking and inward looking• Develop ‘boundary spanners’ – people who

understand partners and can manage relationships

• Utilise economic anchors – organisations that do not move

• Universities and Hospitals (‘eds and meds’)

Develop Absorptive Capacity

• Open Innovation models requires firms to have internal ‘absorptive capacity’ that allows then to use new ideas and turn them into profitable products and processes

• This requires skilled labour

• And appropriate business practices

Importance of local economic structure

• Build on local strengths

• Develop, transform and upgrade local industries

• More cost effective and a bigger impact then developing new industries

London

Cambridge

Sheffield

Importance of local economic anchors

• Many economic actors move or can move

• Skilled workers, businesses• Importance of connecting to local economic

‘anchors’

•Major employers, universities, hospitals• Creates and embedded networked economy

Develop a Triple Helix approach

• Triple Helix: foster and strengthen connectivity between business, universities and policy makers

• Fosters knowledge exchange and wider innovation

• Strengthens all partners and the local economy

Innovation: some final comments

• Innovation may have a ‘dark side’ (negative impacts)

• May harm competition• Cause major disruption• Reduce individual freedom

“The only useful banking innovation was the invention of the ATM” Paul Volker

Innovation: the final comment

What is innovation for?

Economic growth

or well- being and the quality of life?