by: Issues: July / August 2009. Tags: Innovation. Categories: Innovation.

Successful innovation requires contributions from managers, salespeople and customers just as much, if not more than, researchers and scientists. Drawing on evidence from Ireland that suggests funding for research in universities does not have a positive impact on business-level innovation, this author describes an alternative model for creating an innovation policy.

Even before the current economic crises, governments across the globe were pushing an “innovation agenda.” This push has become even more pronounced as the recession continues to pressure governments to respond. The promise of an innovative, competitive economy is being held out as the panacea for economic ills.

The approach adopted in many countries, especially in Europe, has been to promote innovation by funding research at the university level. When European Union leaders met at a summit in Lisbon in March 2000, they set the goal of becoming “the most dynamic and competitive knowledge-based economy in the world” by 20101. In March 2005, the Lisbon Strategy was re-launched following its mid-term review. A critical goal of this strategy is to spend 3 percent of gross domestic product on research and development. This has resulted in a substantial increase in funding for basic research by government agencies across the European Union.

This “science-push” approach to innovation is now being championed in the United States, where President Obama has committed to doubling the budgets for the three key basic-research agencies over a decade2. The newly appointed first Chief Technology Officer, Aneesh Chopra, has stated that one of the four key priorities for the U.S. government will be to drive economic growth with technological innovation.

In the science-push innovation policy frameworks in place in Europe, and those slowly being rolled out in the U.S., most of the funding for research from government is channelled through higher education institutes. It is hoped that research in these academic laboratories will generate technological breakthroughs and, in turn, new products, services and processes.

While it may seem positive for governments to support basic research and science, business leaders should be wary that enterprise policies suffer from an over-emphasis on the role of science and technology.

It is important to recognise the power of the words used to design innovation policy. Innovation policies must be designed to support the activities of businesses, facilitating the easy establishment of new businesses or the introduction of new products/services or processes to the market. In the last number of years, innovation has been appropriated as a scientific concept, particularly in Europe. For example, the European Commission has developed a strategy on Science, Technology and Innovation3, the UK government has issued a Science and Innovation Investment Framework4, the Danish government has a Minster for Science, Technology and Innovation,5 and Ireland has published a similarly titled strategy6.

Amar Bhidé (2008) refers to the mindset that sees competitiveness and economic growth as a function of investment in leading-edge science and technology as “techno-fetishism”7. He is referring to the science-push mindset that generates innovation policies that are focused on increasing funding for research and training more scientists. He argues that these policies could do more harm than good and that successful innovation relies more on input from, and funding for, entrepreneurs, salespeople, managers and consumers.

This reflects the very important idea, expressed by Peter Drucker, that “entrepreneurs innovate…It is the act that endows resources with a new capacity to create wealth” (1985:30)8. The reliance on high-technology or scientific breakthroughs as the basis of innovation ignores the fact that many successful innovations (from a commercial perspective) were either not technologically based or relied on non-proprietary technologies.

Kline and Rosenberg (1986:282) note that it is extremely difficult to judge the commercial impact of an innovation prior to its introduction. Many radical technological breakthroughs have not been commercial successes, while incremental changes to existing products or services, or even the introduction of existing products or services to new markets, have proved to be significant commercial successes.9

In addition, the rhetoric surrounding innovation often overlooks the fact that countries or regions do not innovate. When we speak of innovative countries and regions and national or regional competitiveness, we are actually referring the businesses. This is an important distinction as it ensures that the focus of policy interventions will be firmly set on how businesses operate.

Evidence on Science-Push innovation policy from Ireland

The experience of Irish innovation policy over recent years is an interesting case of a “techno-fetishist,” science-push policy in action.

As part of its strategy to develop as a “knowledge and innovation-based economy”, the Irish government is increasingly targeting investment in science and technology, the promotion of which is now at the heart of Irish enterprise-development policy. The government is committed to €20 billion in new investment under the Enterprise, Science and Innovation priority in the new National Development Plan.

As a result, in the Strategy for Science, Technology and Innovation 2006-13, the Irish government has committed €1.88 billion to fund research. A substantial majority of that funding (81 percent) is targeted at higher education infrastructure and research, and commercialization in higher educational institutes (HEIs), with the remaining 19 percent being devoted to enterprise supports (2006:13 & 86).10

The emphasis placed by Irish policymakers on innovation as a key source of future competitiveness has its origin in the beginning of the millennium, when the so-called ‘Celtic Tiger’ growth spurt looked to have ended. The policy shift towards funding research in HEIs was initiated under the last National Development Plan, 2000-2006 (2000), with the foundation and funding of Science Foundation Ireland (SFI), based on the U.S. National Science Fund.

The upshot of these developments is that the Irish government has played a leading role in increasing the level of R&D funding. Between 1997 and 2006, gross expenditure on R&D in Ireland increased by 7.6 percent per annum. The increased contribution of public funding to R&D in HEIs is clear, rising from 20 percent of gross expenditure in 1996 to 26 percent in 2006. Despite this increase, there remains a widely held concern that Irish R&D expenditure still lags by international standards. For example, in 2006 gross expenditure on R&D was 1.56 percent of Irish GNP, compared to the EU 25 average of 1.77 percent.

The policy consensus is that the progress already made ought to be continued. For example, a recent review of the Irish research infrastructure in ten broad disciplinary areas by international experts stated that: “The foregoing suggests that Irish policymaking in relation to innovation is based on three main tenets. These are: (i) that gross expenditure on R&D should be increased, (ii) that agency support should be targeted either at HEIs or at businesses interacting with HEIs and (iii) that high-technology sectors have the greatest potential for innovation and growth.”

For all the positive press about innovation, however, the massive public investment in research at the third level (HEI) may have a disappointingly limited effect on future Irish prosperity. That seems to be the finding of surveys by Jordan and O’Leary (2008), which find no evidence of a positive relationship between interaction with universities and business innovation. Indeed, the first study, of 184 high-technology businesses, finds that the greater the frequency of direct interaction with academics, the lower the probability of both product and process innovation in these businesses.

A similar survey of nearly 200 small and medium-sized enterprises in the southwest and southeast regions of Ireland finds that interaction with third-level institutes, within or outside those regions, has no effect on innovation by these businesses. The results are consistent with several recent studies in Europe that fail to find a positive effect of HEI interaction on business innovation.

Historically, higher education institutes have rarely been the main source of business innovation in any country. Despite U.S. examples, such as Silicon Valley, Route 128 and the Research Triangle Park, there is a lack of evidence that university research drives business innovation and competitiveness. It is arguable that even those U.S. examples suggest that academic institutes are only enablers, rather than drivers, of business innovation. Despite this lack of systematic evidence, universities are increasingly seen by policymakers as driving business innovation, perhaps jeopardising their traditional economic roles of educating the workforce and publishing research.

The findings of Jordan and O’Leary (2008)11 should be seen in the context of the overall contribution of third-level institutes. Clearly, business innovators are often graduates, and businesses conducting R&D may use research published by Irish-based academics. However, the absence of any positive effect from interaction with academics is worrying, given the increasing policy emphasis on this form of collaboration.

In defence of the higher-education institutions, the results of the various surveys may be explained by the fact that businesses only turn to third-level researchers when faced with particularly difficult or complex problems, which may be insoluble.

Alternatively, the result may reflect differences in work practices and objectives between businesses and academics that hamper the commercial development of new products and processes. Either way, the results suggest that the substantial public investment in research in Irish higher education institutes may have a disappointing, and perhaps even a negative, effect on the innovation performance of Irish business.

Possible reasons for these disappointing results might be that academics are either not interested or not offered enough incentive to interact with business, and that businesses do not appreciate the level of expertise available in universities and institutes of technology. This may suggest that a possible solution is to properly incentivise academic-based researchers to commercialise their research, perhaps by providing a stake in the intellectual property they generate.

There may be a more fundamental shift in focus for policy required, however. This leads to this question: What are the alternatives to a science-push innovation policy?

A more nuanced model of the process of innovation presented by Kline and Rosenberg (1986) may hold the answers.

Re-imagining Innovation Policy

The ‘”chain-link” model introduced by Kline and Rosenberg (1986) is a useful framework for understanding how innovation occurs. Presented in Figure 1, it shows a central chain of innovation (represented by C) involving the identification of a potential market, followed by the design and testing of the idea, leading to market entry.

Crucially, at each stage in the development of the idea there are feed-back loops (f) to depict the trial-and-error nature of the process. The most important source of feed-back (F) is from the testing of the idea in the market. The links to the knowledge and research panels along the top of the figure signify the circumstances under which the existing stock of knowledge (K) or research (R), which might be thought of as new knowledge, is required. This might occur where problem-solving is necessary as the idea is developed.

Thus, the problem might be solved by reference to the existing stock of knowledge (arrow 1 to node K and arrow 2 back). For example, this could be achieved through reading scientific publications or attending conferences. If the problem cannot be solved from the existing stock of knowledge, it might be necessary to undertake research (arrow 3 to R). The outcome of this research is uncertain as the problem may be insoluble (hence arrow 4 back is dashed).

Source: Kline and Rosenberg (1986:290)

The model recognises that existing technology or knowledge may not be sufficient to enable the development of products and processes to meet identified market needs. A two-stage process, indicated by the arrows labelled K and R, is often required to overcome technological problems. First, a solution is sought from the stock of existing knowledge. If this is unsuccessful, then research is needed to derive a solution. This leads to an increase in the stock of knowledge.

An important aspect of this model is the representation of research as coexisting with the innovation process, rather than at the start of the linear model. At each stage in the innovation process, if a technical problem needs to be solved, the first source of a solution is known science or the stock of knowledge. If a solution is found this information is fed back to the innovation process. Where a solution is not found then research is needed and justified, and the solution, if discovered, feeds back to the innovation process.

This does not mean that the research function only contributes to the innovation process when technological difficulties are experienced in identifying customer needs. Research may result in the broadening of technological opportunities, and the arrow labelled D represents this technology-push link between new scientific knowledge and the innovation process.

In Kline and Rosenberg’s model, the market and science are complementary in the innovation process. The market emerges as a stimulus for innovation, though perceived market needs can be filled only where the associated technical problems can be overcome. New technological opportunities are only commercially exploited where a market use exists.

One of the strengths of the model, and the reason it can be a worthwhile as a framework for innovation policy, is its emphasis on the feedback process in the process of innovation. Product specification, development, production, marketing and services functions co-operate to enhance products and processes.

This relates directly to Bhide’s (2008) suggestion that managers, salespeople and customers are potentially more important to the innovation process as researchers and scientists. Interaction between these functions, even informally, may lead to new learning and innovation. This may involve customers’ demands being fed back to designers, who can enhance new products, and to production operatives, who can realize new ways of organising processes to enhance efficiency.

Kline and Rosenberg present the chain link model as a means of describing the process of innovation within a system (1986:275). The boundaries of the system are not defined. If the model is taken to depict the process for a particular innovation, it is not specified which elements of the model are internal and which are external to the business. The implication is that some functions within the model may reside within the business, though others may not. Businesses need not rely on their own R&D effort, but may access knowledge that exists outside the business.

The implication of the models of science-push and market-pull models presented here is that there is more than one source of innovation. A policy that seeks to support innovation in businesses must therefore consider a range of potential drivers.

Peter Drucker asserted that “every practice rests on theory, even if the practitioners themselves are unaware of it” (1985:26). Though he was writing in the context of entrepreneurship, this observation applies just as much to policy makers. Where policy is based on a framework that does not appreciate the complexity of innovation, it cannot hope to achieve anything more than partial success. Given the significant budgets involved, especially given the current economic difficulties, incorrectly focused policy needs to be avoided.

One inescapable fact is clear: Policy that is evidence-based is now urgent if we are to experience a positive effect from multi-billion dollar drives towards supporting increasingly innovative businesses.

  7. Bhidé, A. (2008) The Venturesome Economy: How innovation sustains prosperity in a more connected world Princeton University Press, Princeton, NJ.
  8. Drucker, P. (1985) Innovation and Entrepreneurship HarperCollins, New York, NY.
  9. Kline, S.J. and Rosenberg, N. (1986). An Overview of Innovation in The Positive Sum Strategy Landau, R. and Rosenberg, N. editors. National Academy Press, Washington, D.C.
  11. Jordan, D. and O’Leary, E. (2008). Is Irish Innovation Policy Working? Evidence from Irish High-Technology Businesses. Journal of Statistical and Social Inquiry Society of Ireland 37, 1-44.