Regional Consultative Workshop on NIS and IP,

Islamabad, Pakistan, 7-9 Oct 2013 1

Innovation Systems (IS)

Innovation Systems and the Innovation Systems

Conceptual Approach

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Why Systems? (1/4)

Start with the question of “how innovations come about?”

Becomes clear that innovation in firms depends heavily on external sources The firms themselves are not

responsible for innovating Collective achievement

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Why Systems? (2/4)

Employing a systems perspective, other relevant factors can also be included: Institutions Political process Public research infrastructure Financial institutions Skills

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Why Systems? (3/4)

Systems exhibit complementarities among constituent components Complementarity can be understood as

‘linkage(s)’ Absence of one critical complementary

component can block / slow down growth of the system Components can be technical and/or

social

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Why Systems? (4/4)

Innovation system perspective useful for understanding interaction between innovator and their environment (or context in which they innovate)

Firms depend on the environment in which they innovate and their behavior is shaped by it too (i.e. institutions)

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Formal Definition of NIS

The set of institutions that (jointly and individually) contribute to the development and diffusion of new technologies

These institutions provide the framework within which governments form and implement policies to influence the innovation process

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Formal Definition of NIS (cont’d)

As such, an NIS is a system of interconnected institutions to create, store, and transfer the knowledge, skills, and artifacts which define new technologies

Regional Consultative Workshop on NIS and IP,

Islamabad, Pakistan, 7-9 Oct 2013 9

The Innovation Systems Conceptual Approach

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Use of the (N)IS Approach IS approach grew out of the field of

innovation studies in 1980s Now, widely used by:

Supranational organizations, such as: OECD, EU, UNCTAD, World Bank, IMF

And individual countries, such as: Finland (first country to use it: 1992) Sweden’s ‘Vinnova’ or ‘Systems of Innovation

Authority’ Canada, New Zealand, UK, Hong Kong SAR

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Two Variations of the IS Conceptual Approach

One: a descriptive tool that permits enumeration of the set of institutions and organizations that contribute to the development and diffusion of new technologies

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Two Variations of the IS Conceptual Approach (cont’d) Two: A focusing device that points the

factors that influence the development, diffusion, and use of innovations, and, importantly, to an analysis of the intensity and nature of their linkages

Prescriptive dimension: to modify the existing IS by identifying deficiencies in an innovation system and prescribing corrective measures

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How the IS Approach Prescribes Corrective Measures

By taking an industrialized economy as its model

Based mainly based on comparisons with other economies At a similar level of innovative and

economic development

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Descriptive Dimension Prescriptive Dimension

What is done? Components of the innovation system are enumerated

Analysis of the system’s components carried out

Why is it done? To identify all factors influencing innovation

To investigate and analyze linkages—including their nature and intensity—between factors influencinginnovation

What are the results? Clearer and more methodicalunderstanding of the systemthat affects innovation

Policy recommendations for government and related agencies

Twin Dimensions of the NIS Conceptual Approach

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Types of Innovation Systems (and IS Approaches)

Spatial (regional, national) Sectoral Technological

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Uniqueness of the IS Approach (1/4) Innovations—new creations of economic

significance—are the center of focus, attention, and analysis

IS approach includes, but is broader than, the R&D system alone IS analysis is interdisciplinary in that it

considers non-economic factors, such as institutions, politics, and culture, which can influence the R&D system, but extend well beyond it

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Uniqueness of the IS Approach (2/4)

IS approach concerned with history Path dependencies and evolutionary

nature of innovations are important Institutions and organizations develop

over time Co-evolution of knowledge and

innovations within organizations and institutions

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Uniqueness of the IS Approach (3/4)

Process as well as product innovations are important sources of productivity Process and product innovations are not

always clearly separable [ Hong Kong ]

IS approach emphasizes the role of institutions, in addition to organizations

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Uniqueness of the IS Approach (3/4)

Important organizations = business firms and governments

The behavior of innovating entities is shaped by institutions that constitute constraints or incentives for innovation

i.e. laws, regulations, cultural norms and preferences, social rules, and technical standards

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4 Advantages of Utilizing the IS Approach

Goes beyond just research and development (R&D) to explain innovation dynamics

Encompasses institutional elements that strongly influence growth dynamics of an IS

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4 Advantages of Utilizing the IS Approach (cont’d) Recognizes that the organization is not the

sole vector of technological innovation Well suited to analyzing technology policy

By drawing attention to systemic features of the innovation process and their variation across countries, the IS approach cautions against simple policy prescriptions that do not account for cross-national differences among competing systems

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Disadvantages of the IS Approach (1/3)

What is the correct type and level of analysis: national, regional, sectoral, or technological? Increasing role played by

multinational corporations calls into question the ‘national’ level of analysis

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Disadvantages of the IS Approach (2/3)

Still a ‘conceptual approach’ rather than a formal theory Too broad, ambiguous and

conceptually diffuse? When so many factors may play a role,

assigning relative weight to particular institutions or relationships is difficult

Not neatly operationalizeable

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Disadvantages of the IS Approach (3/3) Because the approach is applied to

individual countries on a ‘case-by-case’ basis, elements of an IS may have little in common across geographic boundaries Makes it difficult to carry out effective

transnational comparisons Comparisons between countries may not

always provide useful policy prescriptions

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Sources of Diversity Between Countries

Country size Country’s level of development Respective roles of the main actors

in innovation processes Such as firms, public and private

research organizations, government Quality and intensity of their

interactions

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Conclusions

The innovation systems (IS) approach: Provides a tool for analyzing country-

specific features of the innovation process

Guide for policy formulation Highlights interactions among various

actors and the workings of the holistic system rather than the performance of its individual components

Regional Consultative Workshop on NIS and IP,

Islamabad, Pakistan, 7-9 Oct 2013 27

Application of the Innovation Systems Conceptual Approach

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Application How is the innovation systems

conceptual approach to be applied, in practice? One key drawback is the difficulty of

operationalizing the IS conceptual approach

Illustrated through the case of Hong Kong A small, open, international economy

R&D Expenditure by Performing Sector as % of GDP: 1995-2011

Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

BERD0.11%

0.13%

0.10%

0.12%

0.11%

0.08%

0.08%

0.20%

0.29%

0.36%

0.41%

0.43%

0.37%

0.31%

0.33%

0.32%

0.32%

HERD0.24%

0.25%

0.27%

0.30%

0.34%

0.38%

0.38%

0.38%

0.39%

0.36%

0.37%

0.37%

0.38%

0.39%

0.41%

0.39%

0.37%

GOVERD

0.01%

0.01%

0.01%

0.01%

0.01%

0.01%

0.01%

0.02%

0.02%

0.02%

0.02%

0.02%

0.02%

0.02%

0.03%

0.03%

0.03%

Total (GERD

)

0.36%

0.39%

0.38%

0.43%

0.46%

0.46%

0.47%

0.60%

0.70%

0.74%

0.80%

0.82%

0.77%

0.72%

0.77%

0.75%

0.72%

BERD: Business Expenditure on Research and DevelopmentHERD: Higher Education Expenditure on Research and DevelopmentGOVERD: Government Expenditure on Research and DevelopmentGERD: Gross Domestic Expenditure on Research and Development

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Hierarchical Representation of S&T Actors in HK

Political forum Legislative Council (LegCo)

Policy makers

Government Steering Committee on Innovation and Technology (SCIT)

Innovation and Technology Commission (ITC)

Other bureaux

Financing Government EB Private Sector

ITC -> ITF ARF(ceased) RGC UGC

Operators Universities Public Technology Support Organizations

Private Sector

R&D Centres ASTRI

Facilitators HKPC HKTDC HKSTPC Cyberport HKIB

Commercialization Agents

Business Enterprises

New High Tech Ventures

Multinational Corporations

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Multi-Dimensional Nature of Hong Kong’s Innovation System

‘Bird’s eye’ view of Hong Kong’s innovation system

Different levels of Hong Kong’s innovation system Government permeates all three

levels of the innovation system Government is still an important player

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Multi-Dimensional Nature of Hong Kong’s Innovation System

Innovation Actors

Innovation Resource

Flow

Innovation Environment

HKSAR Government

Impact of Innovation

on Economy

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Three Dimensions of HK’s IS (1/3) Dimension 1: Key Innovation actors and

their linkages [Definition: organizations created with

explicit purpose of promoting or implementing innovation]

Identify the key innovation actors involved in promoting, producing or implementing innovation

Roles that each of these innovation actors play

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Three Dimensions of HK’s IS (2/3) Dimension 2: Resources and

outcomes Resources refer to:

Financial support Knowledge Technology Human capital

How these resources flow through the system to achieve outcomes

Inputs and outputs

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Three Dimensions of HK’s IS (3/3) Dimension 3: Innovation Environment

[Definition: totality of common habits, norms, routines, established practices, rules or laws that regulate way individuals, groups and orgs relate and interact with one another]

The surrounding climate within which the innovation actors function

Institutional factors and incentives that influence the innovation process

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Dimension 1: Innovation Actor

Government

Universities

Industry & Professional Association

s

Private Sector

Mainland & International

Institutes/ Entities

R&D Organizations

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Understanding the ‘S&T Actors’ Map Arrow widths represent the intensity of the

linkages between various actors Circles’ varying sizes represent the relative

importance of various actors based on: Ability to formulate rules (lay down ‘rules of the

game’) for the S&T environment, and policy formulation

Amount of funding injected into the local S&T system

Provision of infrastructure support

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Dimension 2: Resource Flow

Resources flow through HK’s IS through the actions of innovation actors

There are: Resource inputs Intermediate outputs Final outputs

INPUTS INTERMEDIATE OUTPUTS OUTPUTS

Human Resource FlowsKnowledge FlowsPossible HRR&D Conversion

Hong Kong-based ResourcesNon-Hong Kong ResourcesFunding Flows

Existing Knowledge/ Technological Capabilities

(Hong Kong)

Funding

Non-Hong Kong R&D Human Resources

Hong Kong R&D Human Resources

Existing Knowledge/ Technological Capabilities

(Non-Hong Kong)

New Knowledge/ Technological Capabilities

Human Resources Innovation Oriented R&D Human Resource Base

Firm Level Innovation Outcome

Hong Kong-Wide Economic Impact

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Red boxes = human resources; Blue boxes = funding; Green boxes = knowledge/technical resources

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Resource Flow: Inputs

Inputs Most important input: FUNDING

Public funding and Private funding Human resources

Locally produced and from overseas Organizations with knowledge and

technological capabilities Universities, private sector firms, R&D

orgs

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Resource Flow: Outputs Intermediate Outputs

Human resources New Knowledge/Technological Capabilities

Outputs Human resources (HR)

HR forms a cycle; newly trained R&D specialists Firm level outcomes

Successful startups, new or improved products/processes, increased profits/sales, licensing royalties

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Dimension 3: Innovation Environment

HK’s innovation system operates in an environment Environment influences innovation-

related incentives and initiatives

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Innovation Environment

Policy and regulatory framework strongly influenced by policies of: Positive non-interventionism and free

trade Now: Small-government, big market

Environment serves to enhance influence of local + global competition

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Constituents of the Innovation Environment

Financial systems and markets General business practices Regulations governing talent

mobility Education system R&D-related legislation (laws)