Identifying firms to work with to induce upgrading of industries

This is a continuation of the series on improving innovation systems.

When working on the improvement of innovation systems in development countries, we have to work with firms. These firms have multiple roles. Firstly, the firm is an important unit of analysis where we look at innovative practices (product, process, business model). Furthermore, the firm is also an unit of analysis in terms of cooperation and collaboration, thus their ability to cooperate with rivals is an important consideration when we design interventions.

Lastly, working with the right firms also provides an important source of technology and knowledge spillovers. This is where the challenge comes in for development practitioners. Generally, firms that are able to lead the way, or be good role models, are difficult to involve in development programmes for different reasons. I won’t discuss that right now. What is important to remember is that most firms not only absorb or use technology and knowledge; they are also the main sources of knowledge and technology. This is both from a supply perspective (equipment suppliers, technical or specialist sources of knowledge, etc) and from a demand perspective (demanding customers, sophisticated demand). Whether firms are aware of their role as disseminators of knowledge in technology is another story!

Businesses absorb knowledge from other businesses that are economically competent

I will rather focus on how to find the firms that we can work with to improve innovation and competence for all 3 units of analysis discussed earlier. Remember, our objective is to find ways to improve the dynamic in innovation systems that will result in the modernization and technological upgrading of industries and regions.

More than 15 years ago Bo Carlsson and Gunnar Eliasson described a concept called “economic competence”. At the time they defined economic competence “as the ability to identify, expand and exploit business opportunities” (Carlsson and Eliasson, 1991). This is important as we have to remember that we cannot innovative on behalf of industry. Somehow we must work with the firms that are able to innovate, imitate, adapt and integrate new knowledge and ideas into their firms.

According to Carlsson and Eliasson economic or business competence has four main components:

  1. Selective (strategic) capability: the ability to make innovative choices or markets, products, technologies and overall organizational structure; to engage in entrepreneurial activity; and especially to select key personnel and acquire key resources, including new competence. This aspect has been amply illustrated in recent years as many companies have struggled to define their corporate identities and strategies as distinct from their competitive strategies in each individual business unit (Porter, 1991);
  2. Organizational (integrative, coordinating) capability, i.e. the ability to organize the business units in such a way that there is greater value in the corporate entity as a whole than in the sum of the individual parts;
  3. Technical (functional) ability relating to the various functions within the firm, such as production, marketing, engineering, research and development, as well as product-specific capabilities. These are the areas of activity in which firms can compare themselves to their peers or leading competitors;
  4. Learning ability, or the shaping of a corporate culture which encourages continual change in response to changes in the environment.

Economic competence must be present in sufficient quantity and quality on the part of all relevant economic agents, users as well as suppliers, government agents, etc. in order for the technological system to function well.

If the users are not competent to demand or use new technology – or alternatively, if the suppliers are not able or willing to supply it – even a major technical breakthrough has no practical value or may even have negative value if competitors are quicker to take advantage of it.

I think that this business approach to choose the entrepreneurs that we work with is very relevant to finding the people that can absorb new ideas and that can make it work in a developing country context. I will also state that I do not believe it feasible to select “change agents” on social criteria such as gender, age, etc. – but that we recognise that change within economic systems happens because of the economic competencies of the people that are recognized in the system (regardless of their demographical information). The reality is that you cannot be competent on behalf of other people!

I challenge you to review the firms that you are working with to see if they are economically competent!

Source:

Carlsson, B and Eliasson, G,.1991 The nature and importance of economic competence

Porter, M.E. (1991) “Towards a Dynamic Theory of Strategy“, Strategic Management Journal, 12 (Winter Special Issue), pp. 95-117.

Innovation is not linear

You would think that everyone would know this by now.

You are wrong.

Frequently, policy makers, universities and technological supporting institutions erroneously describe innovation according to a linear model that assumes that innovation is applied science. It is assumed to be ‘linear[1]‘ because it is believed that there are a series of well-defined stages that innovations go through, starting with research (science), followed by development and then finally production and marketing. In this linear model scientific research is deemed to be the most important step as it is the first step in the process. Although there are some cases that have followed this route, they are in the minority.

A softer version of the linear process of innovation is where it is assumed that the knowledgeable people are in the academia or business support structures, and that the task of policy makers is to devise ways to transfer the knowledge flows from universities and supporting structures to businesses. The main perceived limitation is the inability of business people to learn by themselves or to absorb knowledge from the system around them.

In the real world, innovation is dynamic and it is complex. It sometimes starts with a clever idea by an entrepreneur about an unmet need in the market. At other times it starts with a customer complaining to a service technician. Often it starts with a problem or obstacles, and in a few cases it is the result of brainstorming. Wherever it starts, innovation is definitely not neat and tidy. In fact, it is quite chaotic.

But there are elements of the innovation process that may appear linear, like a product development process (product innovation). But this scarce and mainly happens in professionally run firms. For most of us, innovation is not a structured process.

Again, it is important to understand that innovation in a systemic context often arise due to the interaction between different social actors like enterprises, technical specialists, suppliers, customers and maybe the odd academic.

Notes:

[1] The ‘linear’ innovation process was first criticised by KLINE, S. & ROSENBURG, N. 1986.  An overview of innovation. In The positive sum strategy: harnessing technology for economic growth. Landau, R. & Rosenburg, N. (Eds.), Washington, DC: National Academies Press, pp. 275-305.


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