Unlocking knowledge in organisations

A favorite topic that I love to talk, think and write about is the knowledge that is lurking around in organisations, often untapped.

Last week, the University of Stellenbosch Business School, where I am a member of faculty in the Executive Development programme, published an article I wrote in its thought leader newsletter. It is titled “Unlocking knowledge in organisations to enable innovation”. What started off as a 1200 word article was reduced to 700 words by Linton Davies, the wordsmith that always helps me to better express my ideas when I write formal publications. I think this article as it stands now must be the most I have ever said in only 700 words!

I am really proud of this article in its current short form. It started off many years ago as a much a more complicated module in my innovation systems training session. Now it is a practical workshop format that I use often in organisations supporting innovation, but increasingly in businesses, government programmes and even NGOs.

It is informed by evolutionary and complexity thinking, and is thus in line with my current research and the principles that I now pursue and value. Of course, a lot of extremely important theory is left out in this form, but by helping managers become more aware of how the inhibit or promote knowledge generation in their organisations is for me already a great start.

 

Instigating Innovation: Tech push fallacy is still alive

Let me continue with the Instigating Innovation series. I will slowly shift my attention to the technology intermediaries, research centres and technology transfer organisations that exist in many countries to overcome persistent market failures in the private sector. Yes, I know it is a shock for some, but these centres do not really exist to promote the technical careers or the of these people in these centres, nor to promote a specific technology in itself. From a systemic perspective, these kinds of technological institutions exist because they are supposed to overcome pervasive causes of under investment in technology (and skills development) and patterns of poor performance of enterprises. Economists describe the last two phenomena as the result of market failures, mainly caused by information asymmetries, a lack of public goods, high coordination costs, economies of scale and a myriad of other challenges faced by enterprises (hierarchies), markets and networks.

The challenge is that very often the technology these intermediaries promote become an objective in itself. The technology, embodied in equipment, processes and codified knowledge, becomes the main focus. So now we see technology centres being created to promote Industry 4.0, or 3D printing, or environmentally friendly technology. While I am the first to admit that I am helping many of my clients come to grips with industry 4.0, additive manufacturing or environmentally friendly technology, we must not confuse means with ends.

About 20 years ago, my late business partner Jorg Meyer-Stamer and his colleagues at the German Development Institute developed the Systemic Competitiveness framework. Many of my posts on technological capability and innovation systems are based on this Systemic Competitiveness, but I wont go into this right now (perhaps I can do that in a later post), but will only state this this model has greatly influenced my thinking of how technological capability can be developed in order to upgrade, improve or stimulate the competitiveness and innovative behavior of enterprises and state institutions. In one of my current research contracts I had to retrace the evolutionary economics origins of this framework and I found the following paragraph in one of the early publications:

“A further fallacy also played a role in the past: the establishment of technology institutions was based on the technology-push model, according to which breakthroughs in basic research provide impulses to
applied research, which these in turn pass on to product development. In fact, however, research and development is for the most part an interactive process; and it is frequently not scientific breakthroughs
that impel technological progress, but, on the contrary, technological breakthroughs that induce scientific research, which then seeks to interpret the essence and foundations of a technology already in use.”

What struck me was the past tense in the first sentence. So many of the technology institutions I am working with are still established on these same grounds. A technology push model. Actually, much of economic development has the same mindset, a solution-push model. It implies that clever solutions are developed in a clinical and carefully managed environment, and then is made relevant to business people (as Jorg often said “stupid business people”) through iterations of “simplification” and “adaptation”. Don’t get me wrong. I am the first to promote scientific discovery. But this has its place. Modernisation of industry must start from the demand side:

  • where is the system now?
  • What is preventing companies from competing regionally and internationally?
  • What kind of failures, both in business models but also in markets are repeating over and over again?
  • What kind of positive externality can we create?
  • How can we reduce the costs for many enterprises to innovate and become more competitive?

Only then do you start asking what kind of technological solutions, combinations, coordination effort or demonstration is needed. Perhaps no new equipment or applied research is needed, maybe something else must first happen. Some non technical things that I have seen work are:

  • mobilising a group of enterprises into a discovery process of common constraints and issues
  • arranging exchange between researchers, academics and business people at management and operational levels
  • hosting interesting events that provides technical or strategic inspiration to the private sector
  • helping companies overcome coordination costs
  • making existing technology that is not widely used available to industry so that they can try it
  • placing interns at enterprises that have different skills than the enterprise use at the moment
  • arranging visits to successful enterprises; and many more.

The truth of the matter is that the innovative culture of the technology institution, and its openness to learn from the industries it is working with are much better predictors of whether the industries around them will be innovative. If the technology institutions are bureaucratic, stale or rigid, nobody in industry will be inspired by them to try new ideas, new technologies, explore applying technology into new markets, etc. Just like we can sense when we arrive (or contact) a succesful enterprise, so we can all sense when we have arrived at an innovative technology institution. It looks different, there is a vibe. It is information rich, everywhere you look you can see ideas being played with, things being tried, carcasses of past experiments can be seen in the corner.

I can already hear some of my customers leading technology centres reminding me that I must consider their “funding mandate from government” and their “institutional context in universities” as creating limitations in how creative they can be, and just how much demand orientation they can risk taking. Yes. I know this. In the end, leaders must also create some space between the expectations of their funders (masters?), their teams and their target industries. In fact, how leaders balance these demands and what is needed by their clients, students and staff can probably be described as business model innovation. If you cannot get funding from government for what you believe is required, just how creative are you to raise this funding through other (legal) means?

We have seen over and over again that it is not the shiny new piece of equipment in the technology centre that inspires industry; but the culture of the technology centre, the vibe, the willingness to try crazy ideas to make even old stuff work better or combining old and new. Ok, I agree, the shiny equipment excites geeks like me, but this is not all that matters.

My main point is this. Technology Institutions should focus on understanding the patterns of performance or under-performance in the industries and technology domains they are working in, and should then devise innovative products, services and business models to respond to these. This means working back from the constraint to what is possible, often through technology. To be effective in helping entrepreneurs overcome the issues they are facing would require that these technology institutions are innovative to the core. Not just using innovative technology, or offering some innovative services, but also in how these institutions are managed, how they discover what is needed and in how the collaborate with other institutions and the private sector.

To instigate innovation in the private sector, publicly funded technology institutions need to be innovative themselves.

 

Source:

ESSER, K., HILLEBRAND, W., MESSNER, D. & MEYER-STAMER, J. 1995.  Systemic competitiveness. New patterns for industrial development. London: Frank Cas. Page 69

 

 

Between a rock and a hard place. Sectoral vs. local approaches to private sector development

I am preparing for a presentation at a conference in May about development programmes shifting from a sectoral to a regional or local perspective. This got me thinking about these shifts in focus and why they appear.

In economic development, it is often necessary to choose whether to intervene at a sectoral level, or whether it would be better to take a locational or geographic approach. In my experience I have learned that when you start with the one, i.e. with a specific sector or value chain, you often end up with the other, i.e. supporting specialization or addressing specific issues in a certain location. But this is of little consolation to managers of development programmes and Local Economic Development units who are then typically measured by the wrong indicators or that have different incentives due to the design of their programme or institutional mandate.

During my MBA, the Professor in Organisational Development introduced us to a really elegant tool to assess whether a tension or conflict between different approaches could really be addressed. He introduced us to Polarity Management, a simple instrument developed by Johnson (1992). According to Johnson, many problems that we face today are not really problems to be solved, but polarities to be managed. Johnson argues that we can continually try to solve these problems by shifting our strategies to another mode where we perceive lots of benefits. The trouble is that after a while of some negative aspects emerge, and suddenly the benefits of the other strategy seems to be more attractive.

Polarity management is an instrument that can be used by change management practitioners to understand these polarities and to manage them. It implies that perhaps these different strategies even depend on each other, like breathing in versus breathing out. We need both, even if they have very different objectives, benefits and downsides. This means that the strengths and the weaknesses of alternatives must be understood, and then managed.

In development we have many polarities, for example wealth creation versus poverty reduction, or designed interventions versus enabling evolution, project versus process, top down versus bottom up, and many others. It is very expensive and even risky to shift between these, and an organisations current expertise, instruments and orientation may find it very hard to make these shifts effectively. But some try and some even manage to do this.

This post is for those organisations that are undecided about their strategy and their focus.. A key question then is how do we manage these alternatives, especially if we want the best of both worlds?

There are 3 steps to better understand a polarity:

  1. Fill in the headings of the two polarities in the matrix
  2. Capture the strengths and the weaknesses of both in the columns
  3. Determine if there is a movement of preference between the polaries, meaning that when the negative consequences of a particular strategy becomes too much, strategy is shifted to the other approach for its apparent strengths. Then over time, the negatives start to weight in on the positives, resulting in a shift to the other approach.

Below I have quickly written down some of the positives and negatives of both approaches. This is an incomplete list but I think it is sufficient to illustrate the point. The PDF of the graphic below can be found here. For those that cannot read so small, the bottom line is this: there are pluses and minuses to both paradigms. Under each strategy, the benefits of the one approach may outweigh the negatives of that approach, but be aware, these weights are changing and after a while the other strategy may become more desirable!

Polary table

 

 

 

 

 

 

 

 

 

 

 

 

The third step in understanding the polarity is to look at whether there is a shift between these polarities. From my experience working in a dozen or so developing countries, development programmes are either designed to be sectoral or geographic, with very few programmes designed to do both. From a local perspective, institutions and programmes are designed and resourced to either be targeted at specific industries and sectors, or they have a locational focus. It is very hard for programmes and institutions to build a case that a strategic shift to the other paradigm may be needed, even if for only a part of the resources to be dedicated to the other approach. This typically happens when the negatives of a current path starts to outweigh the positives, and the benefits of the other approach increasingly looks appealing. The danger is that a compromise is reached, instead of a synergy being developed.

From a Local Economic Development perspective, growing the technical capability to pursue both strategies simultaneously is important. This does not imply that both are equally important at any given time, as both these approaches have different timescales, resource requirements, and objectives. For example, it would be unwise to leave a dominant sector to its own devices in order to focus on emerging enterprises. At the same time, focusing on the issues of a dominant sector might distract attention from purposefully promoting emergence, diversification and economic resilience. Yet, many programmes and organisations are forced to choose, often too early when not enough is understood about the dynamics of the place or the industries. For me the worst reason to choose an particular approach is because some or other decision maker has attended a training course or conference, or because a particular approach is deemed “best practice”. In fact, most of my time is spent trying to help leaders and decision makers get out of a mess because their programme or institutions was designed based on some ideology or “solution” without enough attention being given to the requirements, trajectories and complexity of the specific context.

For national governments and international development programmes there seems to be a continuous shift between these two. Almost like a flip-flopping from one to the other. I think that the shifts are counter productive, as the learning from the previous shifts are often lost. If I just think back over my 16 year career how often the value chain or sub sector approaches or alternatively cluster and Local Economic Development have become fashionable again and then losing its appeal after a short time.

My conclusion is that while there is a tension between these approaches, the shifting between the strategies are not taking place at an institutional or programmatic level. Decisions about these strategies are made at higher levels of government and development cooperation with little regard for the challenges faced at sub national level in developing countries to build and grow “the right” institutions that can ensure long term economic evolution and development.

At the implementation level, regional development programmes should do both:

  • Sectoral programmes that ignores the impact of their sector on the geographic areas they are working in are most likely creating negative externalities, even with the best intentions in mind and even when they achieve their objectives of inclusiveness, job creation or export promotion. The negative externalities could be about the environment (mono economy, mono culture), or about increasing the coordination cost of every economic activity not related to the priority sectors (institutional or locational lock-in to particular paths and trajectories). Sectoral programmes that ignore opportunities for regional nuances to develop in their targeted sectors miss important opportunities to enable diversification and emergence of unique regional capabilities.
  • Location development programmes that do not collaborate with other locations to build sufficient scale in particular sectors to justify investing in particular regionally significant institutions will forever remain trapped in low value add, or perpetual dependence on the priorities and mood shifts of national governments. While trying to help every kind of economic activity in a region, you have to at some point also start promoting specific industries and sectors in order to try and reach some leverage or scale.

But most importantly, the economic activity, available institutional capabilities and the regional context prescribes where to start. And when you have started down a chosen path, be sensitive to when it may be necessary to foster additional organisational or collaborate with other institutions with different more adequate capabilities to enable the benefits of the other strategy to be leveraged. A key challenge in developing countries is that we do not have a rich layer of supporting institutions pursuing different strategies. Everyone seem to be trying more or less the same approaches, or chasing the same politically set targets.

In our capacity building sessions in Mesopartner we always elaborate on the importance of value chains and sectors to Local Economic Development practitioners, and the importance of regional competence development for value chain and sector development specialists. Actually, the process of diagnosing industries and regions are very similiar, even if you would give slightly more attention to different issues and perspectives.

In the end, from a bottom up perspective, supporting specific industries allows for scale and focused public investment, but caution must be taken to not create path dependence or institutional lock in. At the same time, a regional approach is critical as it allows for emergence of new kinds of economic activity and for diversity to emerge. I think we need to development of synergies for both, but it depends on the context what your priority should be. Simply being aware that there are pluses and negatives to either strategy is already a good start! This makes it much easier to collaborate with other organisations and programmes that have different objectives and priorities.

Now I have some questions to my readers:

  1. What is your current approach in your programme or organisation? Sectoral or locational?
  2. Have you even been through a shift from the one to the other in your programme, or do you cater for both?
  3. How did making the shift work out? Did you have the networks, resources and expertise to make this shift?
  4. What would you do differently next time?
  5. Please share your thoughts by commenting below, or send me an email if I can paste your comments unanimously if you are afraid to upset somebody higher up the chain.

References:

JOHNSON, B. 1992.  Polarity management : identifying and managing unsolvable problems. Amherst, Mass: HRD Press.

 

Instigating Innovation: Accelerating Experimentation in industry

When innovation centers, technology transfer centers, applied research platforms and other similar organisations want to help industry with innovation, one way could be to assist companies to experiment with new ideas. I will simply refer to these centers from here onward as innovation and technology support centers. In most of the places where I work these centers are often hosted by or associated with universities, applied research organisations or with technology transfer organisations.

One way to support industry to experiment is through various technology demonstration-like activities, allowing enterprises access to scarce and sophisticated equipment where they can try new ideas. In its simplest form, facilities allow companies to order samples to a certain specification, allowing a company to see whether a particular process can meet a specification or performance criteria. A slightly more intensive form of tech demonstration allows in visitors and a technology and its application is demonstrated (eyes only, no touching!). Very often equipment suppliers play this role, but in many developing countries equipment suppliers behave more like agents and can not really demonstrate equipment.

In Germany I saw demonstration facilities where the pro’s showed the enterprises how things works, and then they stood back allowing teams from a company to try things themselves.

A critical role of innovation support centers is to provide industry with comparative studies of different process equipment. For instance, in an innovation center supporting metal based manufacturers, providing industry with a comparison of the costs and uses of different kinds of CAD systems could be extremely valuable to industry.

Maker labs, Fablabs and similar centers all make it easier for teams that want to create or tinker with an idea to gain access to diverse technologies, reducing the costs of experimenting. However, the range of equipment in these labs are often not so advanced, but it can often be very diversified. In my experience these centers are very helpful to refine early idea formation and prototyping. However, to help manufacturers experiment with different process technologies, different kinds of materials, substitute technologies, etc. is the a binding constraint in many developing countries. The costs of gaining new knowledge is high, and due to high costs of failure, companies do not experiment.

Innovation support centers must be very intentional about reducing the costs of various kinds of experiments if they want manufacturers, emergent enterprises and inventors to try new ideas. These innovation centers can play a role by:

a) assisting companies to internally organize themselves better for experimentation internally

b) assisting many companies to organize themselves better for experimentation collaboratively

c) conducting transparent experiments on behalf of industry collectives

In my experience, graduates from science disciplines often understand how to conduct experiments because their coursework often involve time in a lab. They know basics like isolating variables, managing samples, measuring results, etc. However, engineering graduates often do not have this experience (at least in the countries where I am working most). For many engineering graduates, the closest they will ever get to an experiment is a CAD design, or perhaps a 3D printed prototype.

Therefore, it is necessary for a range of these innovation and technology support centres to assist companies at various hierarchical levels to experiment.

At the functional or operational level, organising for experimentation involves:

  • creating teams from different operational backgrounds,
  • creating multiple teams working on the same problem,
  • getting different teams to pursue different approaches
  • failing in parallel and then comparing results regularly
  • failing faster by using iterations, physical prototypes and mock ups
  • According to Thomke, results should be anticipated and exploited – even before the results are confirmed

At a higher management level, organising for experimentation involves:

  • Changing measurement systems to not only reward success, but to encourage trying new things (thus encouraging learning and not discouraging failure).
  • moving from expert opinion to allow naivety and creativity
  • Preparing for ideas and results that may point to management failures or inefficiencies elsewhere in the firm (e.g. improving a process may be hampered by a company policy from the finance department)

Getting multiple companies and supporting organisations to experiment together is of course a little bit harder. Management of different organisations have many reasons to hide failures, thus undermining collective learning. One way around this could be to use a panel or collective of companies to identify a range of experiments, and then these experiments are conducted at the supporting institution in a transparent way. All the results (success, failures and variable results) are carefully documented and shared with the companies. However, to get the manufacturers to use these new ideas may require some incentives. In my experience, this works much better in a competitive environment, where companies are under pressure to use new ideas to gain an advantage. In industries with poor dynamism and low competition, new ideas are often not leveraged because it simply takes too much effort to be different.

Promising ideas from experiments can be combined and integrated after several iterations to create working prototypes. Here the challenge is to help industries to think small. First get the prototype process to work at a small scale and at lower cost before going to large scale of testing several variables simultanously. An important heuristic is to prototype at as small as possible scale while keeping the key mechanical or scientific properties consistent. More about this in a later post. (Or perhaps some of the people I have helped recently would not mind sharing their experience in the comments?)

I know this is already a long post, but I will add that Dave Snowden promotes Safe2fail probes, where teams are forced to design a range of experiments going in a range of directions even if failure is certain in some instances. In my experience this really works well. It breaks the linear thinking that often dominates the technical and manufacturing industries by acknowledging that while there may be preferred solutions, alternatives and especially naive experiments should be included in the overall portfolio. To make this work it is really important that the teams report back regularly on their learning and results, and that all the teams together decide which solutions worked best within the context.

THOMKE, S.H. 2003.  Experimentation Matters: Unlocking the Potential of New Technologies for Innovation. Harvard Business Press.

 

Blunders, boo-boos and silly mistakes made on the fly

I am acutely aware that I often make grammar and spelling mistakes in my blogs. I do apologize about these.  I feel silly when I realize I made a mistake. I have no excuses. As my favorite cartoonist Hugh Macleod @gapingvoid put it, excuses are a disease.

excuses are a disease

The intention of my blog is not to write perfectly composed articles, but to share my thinking with a broader audience than just the small group of clients, collaborators and friends in my network that I get to work with on a frequent basis. Ask me about those perfect articles and books and I can tell you which ones to buy. I collect them.

Just like the practitioners and decision makers that I support have to confront clients, decisions and complexities without always having time to perfectly prepare; so I capture conversations, arguments or ideas developed with my clients – on the fly. The point is that in the field knowledge and ideas are not always perfectly described, neatly organised, thoroughly prepared. Sometimes the best explanations happen on napkins, flipcharts or a piece of paper.

brave as those who need us

The purpose of my blog site is to help the people I work with to explain some of these concepts on the fly. Hopefully they can do it shorter than it sometimes takes me, or maybe they can even do it more eloquent. Every time these concepts or thoughts are explained it becomes easier and easier.

I found it works best to write at my client sites, on the way home (on the plane, not while driving – yet), or between meetings – and then to post these articles before I start doubting the relevance of my ideas or the insight gained by explaining something to somebody (yes, most of my posts are based on real conversations with clients out there facing complex situations). I have a huge collection of articles written in the safety of my office, far from the coalface, that I have never published because they suddenly seem less than perfect or even insignificant. It is easy to feel challenged when I sit in my office surrounded by books written by articulate scholars. I wish I could say these scholars always inspire me to write, but that would not be honest. Sometimes they do. Especially when I can connect the different kinds of literature that I have collected over time. However, often this collection makes me feel discouraged. I just have to look at the amazing content my late friend Jorg Meyer-Stamer wrote on a wide range of topics to feel like I should rather not commit anything to the official record.

I assure my readers that when the text on these blogs make it into other publication forms I usually first get an editor to fix all those pesty grammar mistakes. 

I thank those of you that read regularly, those that share your ideas with me – even if you don’t agree with everything I post. Thank you for pointing out the mistakes, the inconsistencies or your disagreements with what I post. I especially want to thank those that also take the risk of sharing their comments on Linkedin or directly as a comment to this blog, because you also take the risk of making mistakes or feeling exposed. Please don’t stop. I won’t. 

Honest feedback

I have often considered stopping blogging, just like I often wanted to quit co-producing the LEDCast (more than 1,000,000 downloads now!!) on many occasions, also due to my challenges to say ‘s’ or ‘r’ when my tongue gets tied. Somehow the workarounds when I speak have made its way into my writing.

So as long as I receive your ideas, comments, notes, emails, tweets and calls I will keep on blogging.

 

 

Teaching on innovation systems – afterthought

The post about how I teach on the topic of innovation systems two weeks ago really elicited a much bigger response than I expected. The tips, ideas, confirmations and questions received inspired me to think how I can share more practical training advice. I have a lot to share, simply because I love teaching on a wide range of topics. True to my mental construct of an innovator, I constantly develop small modules that can be combined, re-arranged, shortened or expanded to meet the requirements of the teams I support and coach.

For instance, the innovation systems outline that I explained in this previous posts consists of two parts: Part 1 is made up of modules on innovation and technology:

  • Innovation, invention and different kinds of innovation,
  • Knowledge generation in enterprises,
  • What is technology? Definitions, applications and implications of various definitions,
  • Different kinds of competition and its effect on the innovative behavior of enterprises,
  • Knowledge generation in enterprises and organisations

Part 2 then builds on this foundation with topics central to the promotion of innovation systems, with modules on:

  • Knowledge generation, co-generations and assimilation in societies,
  • Defining innovation systems,
  • Role of different kinds of economic and social institutions in innovation systems,
  • The importance and dynamic of building technological capability,
  • Systemic competitiveness as a way of focusing meso level institutions on persistent market failure,

If needed it is easy to bring in many other topics such as:

  • Technological change, social change, economic change (based on the excellent work by Eric Beinhoecker),
  • Assisting stakeholders to embrace sophisticated demand as a stimulus,
  • Diagnosing value chains,
  • Technology transfer, demonstration and extension, and so on

Yesterday I was reflecting with Frank Waeltring about the order of these sessions, why in my experience Part 1 goes before Part 2 and how difficult it is to present part 2 without the basics of part 1 in place. We reflected on why it is easier to start with foundation topics on innovation and technology management, and thereafter moving to the more abstract content of innovation systems.

In my experience, development practitioners and policy makers often believe the link between the subjects of innovation/technology management and innovation systems promotion is the concept of “innovation”. Almost as if innovation happens in enterprises, and innovation systems is then the public sectors way to make innovation happen in enterprises. This logic is an important stumbling block that many people I have supported struggle with. In my book on the promotion of innovation systems I created the following table to explain the difference.

Difference between innovation/technology management and innovation systems promotion

The connector between these two domains is not innovation (despite it being common two the names of the two domains). It is knowledge. Not necessarily formal knowledge (more engineers & phds = more innovation kind of over simplistic logic), but various forms of knowledge. Tacit knowledge. Knowing of who to speak to. Being exposed to other people from different knowledge and social domains. The costs and ease of getting information from somebody you know or don’t know. Learning from your own mistakes and the attempts of others.

Some places, countries and industries get this right, others struggle. Trust is central. This dynamic takes time to develop. You can sense its presence way before you can figure out how to measure it. While many of these issues can be addressed at a strategic level in an organisation like a company (or a publicly funded institution), many of these kinds of knowledge flows are inter-dependent and can be accelerated by taking an innovation system(ic) perspective.

The conclusion is a real tongue twister: The connection between the body of knowledge of innovation/technology management and the body of knowledge about innovation systems development is the body of knowledge on knowledge and how it emerges, gets assimilated, absorbed and further developed.

That is why knowledge generation, learning by doing fits in so well with part 1, but why it is not complete if not also addressed in part 2, especially the systemic elements of knowledge dissemination and absorption. It is the bridge.

 

Significance over scale when selecting sectors

When promoting territorial economic development from an innovation systems perspective it is important to find ways of increasing the use of knowledge and innovation in the region. However, in mainstream economic development there is a tendency to target the private sector based on scale. This means that practitioners look at quantitative measures such as jobs, numbers of enterprises, numbers of beneficiaries, etc. when deciding where to do analysis and focus support. This is common practice in value chain promotion, sub sector selection, etc. Many development programmes do this as well prioritizing scale measures such as jobs, women, rural individuals, etc.

From my experience of assisting development organisations to strengthen the economic resilience of regional economies (which means more innovation, more experiments, more diversity, increased use of knowledge, more collaboration between different technological domains), I have found that the scale argument is distracting and too focused on the beneficiaries (whatever is counted) and not focused enough on those indirect public or private agents that are significant and that enable a whole variety of economic activities to take place. With significant I mean that there could even be only one stakeholder or entry point (so the direct scale measure is low) but by addressing an issue it enables a whole variety of economic activities to take place.

Of course, scale is very important when a local politicians need votes. It is also important when you have limited budget and must try to achieve wide spread benefit. For this reason scale is very important for social programmes.

However, when local institutions are trying to strengthen the local innovation system, in other words improve the diversity technological capability of a region, then scale becomes a second priority. The first priority then becomes identifying economic activity that enables diversity or that reduces the costs for enterprises to innovate, use knowledge more productively should be targeted. The reason why this does not happen naturally is that these activities are often much harder to detect. To make it worse, “significance” could also be a matter of opinion (which means you have to actually speak to enterprises and their supporting institutions) while crunching data and making graphs often feel safer and appear to be more rigorous.

My argument is that in regions, the long term evolution and growth of the economy is based on supporting diversification and the creation of options. These options are combined and recombined by entrepreneurs to create new economic value in the region, and in so doing they create more options for others. By focusing exclusively on scale, economic actors and their networks increasingly behave in a homogeneous way. Innovation becomes harder, economic diversity is not really increased. I would go as far as saying that success becomes a trap, because once a recipe is proven it is also harder to change. As the different actors becomes more interdependent and synchronized the system becomes path dependent. Some systems thinkers refer to this phenomena as tightly coupled, meaning a failure in one area quickly spills over into other areas. This explains why whole regions goes into decline when key industries are in decline, the economic system in the region became too tightly coupled.

But I must contradict myself just briefly. When interventions are more generic in nature, meaning they address market failures that affect many different industries and economic activities, then scale is of course important.

The experienced development practitioners manage to develop portfolios where there are some activities that are about scale (for instance, targeting a large number of informal traders) and then some activities that are about significance (for instance ensuring that local conformity testing labs are accessible to local manufacturers).

The real challenge is to figure out what the emergent significant economic activities are that improves the technological capability in the region. New emergent ideas are undermined by market failures and often struggle to gain traction. Many new activities requires a certain minimum economic scale before it can be sustained, but this is a different kind of scale than when practitioners use scale of impact as a selection criteria. Many small but significant economic activities cannot grow if they do not receive public support in the form of promotion, awareness raising or perhaps some carefully designed funding support.

There are a wide range of market failures such as high coordination costs with other actors, high search cost, adverse selection, information asymmetry and public good failures that undermines emergence in local economies. It is exactly for this reason that public sector support at a territorial level (meaning sub national) must be sensitive to these market failures and how they undermine the emergence of new ideas that could be significant to others. The challenge is that often local stakeholders such as local governments have limited influence over public institutions in the region that are funded from other spheres of public administration.

Let me wrap up. My argument is that scale is often the wrong place to start when trying to improve the innovation system in a region. Yes, there are instances where scale is important. But my argument is that some things that could be significant, like the emergence of variety and new ideas often get lost when interventions are selected based on outreach. Furthermore, the focus on large scale impact draws the attention to symptoms of problems and not the the institutional or technological institutions that are supposed to address market failures and support the emergence of novelty.

I will stop writing now, Marcus always complains that my posts are too long!

Let me know if I should expand on the kinds of market failures that prevent local economies from becoming technologically more capable.

 

 

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