Promoting sectoral innovation systems


I am receiving more requests for support to diagnose and improve innovation systems than ever before. It’s just been a few years since I have decided to focus all my attention at working with the upgrading of regions and industries from an innovation systems perspective and I am pleased that this decision is working out.

The most popular demand is for support to promote sectoral innovation systems. However, people confuse the “sectoral” with a classical sector driven approach. In a purely sector driven approach the focus is on a broad group of firms that falls within a broad industry classification. This may to some extent include some suppliers and key customers, but even a sector-based approach can still be too broad to tell us much about the patterns of innovation, how knowledge is used, and how institutions respond to the typical market failures in that sector.

A sectoral innovation system is more about how different groups that uses a common knowledge and technological domains work, how knowledge flows and how technology (which includes knowledge) evolves. To quote my own work (Cunningham, 2012)

“According to Malerba (2005), the emphasis of sectoral innovation systems is on a group of firms that develop and manufacture the products for a specific sector and that generate and utilize the technologies of that sector. The boundary of the system is drawn around a technological paradigm that is formed by a knowledge base, specific technologies and inputs, the different actors and networks that are systemically interacting, and the institutions supporting a specific industry. This is an important difference from value chain analysis, where the logic of the chain is determined by the system surrounding the conversion of a raw material into a product for a market. “

What I am trying to say is that instead of looking at the manufacturers based on similar inputs (raw materials, equipment, skills) and outputs (products and services), in an sectoral innovation system approach we look more at the common technological or knowledge domain that brings various firms and institutions together. This knowledge domain could spread over several industrial sectors, linking different value chain actors together. In fact, many industrial clusters often emerge around a particular group of complimentary knowledge bases. For example, aluminium die casters, aluminium casting equipment manufacturers, and their key customers in the automotive and aerospace industries would make in interesting sectoral innovation system to investigate. On the surface, automotive and aerospace companies don’t seem to belong together, but from a knowledge and technological domain around aluminum processing and its applications it makes sense.

The second part that people get wrong about a sectoral innovation system is that it goes way beyond innovation at the level of the firms. While the physical results of innovation is often easy to see at the levels of firms, this is just the tip of the iceberg. The innovation system describes how knowledge gets created, shared, forgotten and the dynamic relations between them. Furthermore, in any innovation system approach attention must be given to how policies and rules create incentives to innovate (or not to innovate).

Sectoral innovation systems researchers distinguish between high R&D-intensive sectors (such as electronics or drugs) and low R&D-intensive sectors (such as textiles or shoes). These systems change over time as the different elements co-evolve. This means that within a traditional economic sector like the foundry sector (using standard industrial classification schema) there could be areas that are more R & D intensive (such as aluminium) and other parts where the R & D is mainly done either by equipment suppliers or customers. Each of these different intensity R & D systems within the foundry sector would constitute the starting point of a sectoral innovation system. Another example is the machine tooling sector. In some knowledge domains, tooling is developed by the customer of the toolmaker that is developing a new product. In other knowledge domains, the toolmaker is responsible for assisting a customer to come up with a tooling design. Yet in another area, equipment manufacturers push toolmakers to adopt new ways of making tools. For me these are all different sectoral innovation systems. Lastly, these sectoral innovation systems can also be very different within a country like South Africa. Some regions may be dominated by downstream industries like packaging, while other regions might be influenced more by the availability of high quality infrastructure, market density and logistics.

Let me stop here to keep the post short. In conclusion, a sectoral innovation system approach is more about the knowledge and common technological domains than it is about standard classifications of industries and sub sectors. Within an economic sub sector (like tooling or foundries or food processing) there could be several sectoral innovation systems. To make matters more confusing, several different sectors or links in a value chain could be brought together within a particular sectoral innovation system around specific knowledge or technology domains.

I am looking forward to your questions and comments to this post.

 

Sources:

CUNNINGHAM, S. 2012. 2012.  The fundamentals of innovation system promotion for development practitioners. Leveraging a bottom up understanding for better systemic interventions in innovation systems. Mesopartner Monograph 5. Mesopartner.

MALERBA, F. 2005. Sectoral Systems. How and why innovation differs across sectors. In The Oxford handbook of innovation. Fagerberg, J., Mowery, D.C. & Nelson, R.R. (Eds.), Oxford ; New York: Oxford University Press.

 

2 Responses to “Promoting sectoral innovation systems”

  1. Bart Doorneweert Says:

    I think Silicon Valley is also an example of what you’re describing. What is shared is IT and knowledge of innovation and business development in all the different methods like the lean startup and mentoring and advisory networks. Yet, the actual industries startups are working in are infinitely disparate.

    You don’t mention it here, but I also think you should look into purchasing patterns in customer behavior for understanding innovation systems. Technology is in itself increasingly becoming part of peoples’ spending, and that in turn impacts “sector”. Industry boundaries are blurring because of all the possible connections that technology can make. Take for instance the case I’ve written out on Naked Wines; a business model where grape producers become wine brands, and consumers double as a bank, all enabled by the web: http://valuechaingeneration.wordpress.com/2014/03/21/cracks-in-the-walls-of-mainstream-consumer-food-retail-naked-wines-meets-kagio-market/

    If you focus on market share within a declining market size overal, you’re loosing even when you succeed. Man, we need to do a project together! 😉

    Like

    • Dr Shawn Cunningham Says:

      Dear Bart,
      Thank you for your comment. I have a long list of ideas for future posts, amongst others an idea to look into why you can’t build an innovative economy (or industry) in a typical project by project basis. An innovation systems goes very far beyond innovation at firm levels.

      You are also very right about demand, both articulated or even not yet articulated. The risk of any sector based approach is that you get trapped into a path and network of interests. The beauty of looking at knowledge bases, is that they often don’t just dissapear. Knowledge typically flows from a declining or declined industry to other industries, so sometimes the demise of one industry could actually be good for others from a knowledge spillover context.

      Best wishes,

      Shawn

      Like


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