Dilemmas of practice-based innovation policy-

makingBy

Réjean Landry and Nabil AmaraDepartment of Management, Faculty of Business

Laval UniversityRejean.landry@mng.ulaval.ca

Notes prepared for presentation and discussion at the symposium«Practice-based innovation: something for you?», Lathi School ofInnovation in collaboration with Lathi Science and Business Park,

Lathi, Finland, November 23, 2010.

Key messages

1. Many innovation policy concepts that appearattractive are not supported by robust evidence.

2. Hence, turning these concepts into innovationpolicies is difficult.

3. Policy-makers are very often submitted totensions where they have to choose betweenequally attractive but opposite alternativeinnovation policies.

This paper addresses dilemmas ofinnovation policies by discussing

two questions:

1) What is the capacity of theories and newpolicy concepts linked to innovation toprovide useful policy prescriptions to fosterinnovation?

2)To what extent are these theories and newpolicy concepts supported by solidevidence?

Approach• The paper is based on a review of concepts and buzz

words linked to innovation, and the types of data anddiagnostics used by policy-makers to develop newnational and regional innovation policies.

• The paper is also based on the consulting experience ofthe authors regarding the production of evidence-baseddiagnostics and derivation of policy measures at both thenational and regional levels.

• The paper defines policy issues in terms of dilemmas, itprovides concrete examples, and it discusses howpolicy-makers could resolve the tensions betweenequally attractive policy alternatives.

The discussion of practice-based innovationpolicy-making is organized around nine policy

dilemmas:1. Theory vs practice-based innovation2. The magic ingredient concept vs multiple ingredients practice3. Global innovative firms vs local innovative firms4. Open vs closed innovation5. Inward vs outward view of innovation6. Innovations that are first on the world market vs incremental

innovations7. Policy imitation vs customized solutions8. Innovations in knowledge-based firms vs innovations in traditional

firms9. Producing national innovation diagnostics vs producing innovation

policy diagnostics

Dilemma 1: theory vs practice-based innovation

•Policy-makers are equally attracted by theidea of implementing innovation policiesbased on concepts derived from policytheories and theories of innovation–than by its opposite alternative which is:

• to implement innovation policies based onthe diversity of situations and needs offirms, industries and regions.

theory vs practice-basedinnovation

1. The theoretical argument:• How are innovation policies justified by the market theory? In theory,

there are market deficiencies when private firms invest less in R&Dand innovation than is socially beneficial (Lerner 2009). Expertsclassify the economic justifications in a series of factors

2. Implications for practice-based innovation policy-making• The market failure arguments are formulated at a very high level of

aggregation that prevent policy-makers from deriving policyprescriptions that would take into account the diversity of situationsand needs of firms, industries, regions and countries in the matter ofinnovation.

• Furthermore, the market failure arguments do not diagnose theinnovation process in a way that is disaggregated enough to be ableto derive specific policy implications that would contribute to fosterinnovation in firms

Dilemma 2: the magic ingredient conceptvs multiple ingredients practice

Policy-makers are equally attracted by conceptssuggesting the implementation of innovationpolicies based primarily on one or twoingredients, such as R&D and patents,–than by its opposite alternative which is:

to implement innovation policies based onevidence showing that, in practice, innovationdepends on multiple factors (ingredients) used ina complementary manner by firms.

The magic ingredient conceptvs multiple ingredients practice1. The theoretical argument: Policy-makers tend to

assume that the innovative performance of firmsmight be improved by developing innovationpolicies that rely primarily on increasing R&Dand patenting activities

2. The evidence: 15 % of SMEs rely on patents…3. Implications: many other ingredients are

required. Ingredients that explain innovation in astatistically significant manner are the only onesthat should be used as policy tools

Dilemma 3: global innovativefirms vs local innovative firms•Policy-makers are equally attracted by the

idea of implementing innovation policiesbased on the concept of globalization ofinnovative firms–than by its opposite alternative which is

•to implement innovation policies based onthe evidence that shows that about half ofthe firms buy and sell locally

Global innovative firms vslocal innovative firms

1. The argument: Globalization has to be part ofcompany business models and has to be part ofinnovation public policies

2. The evidence: half SMEs buy and sell onlylocally

3. Implications: to help firms to graduateprogressively from non-innovative to innovativefirms; and from developing product innovationsthat carry low degrees of novelty to developingproduct innovations that embody higher degreesof novelty

Dilemma 4: open vs closedinnovation

•Policy-makers are equally attracted by theidea of implementing innovation policiesbased on the concept of open innovation–than by its opposite alternative which is:

•to implement innovation policies based onthe protection of innovation (closedinnovation)

Open vs closed innovation• 1. The argument: open innovation is «the use of

purposive inflows and outflows of knowledge toaccelerate internal innovation, and to expand themarkets for external use of innovation..»

• 2. The evidence: sourcing and acquiring increasesinnovation capabilities but no evidence on revealing andselling

• 3. Implications: policy-makers should develop measureshelping firms to progressively increase sourcing andacquiring, because there is solid evidence of the positiveinfluence of such forms of openness on innovation.

Dilemma 5: inward vsoutward view of innovation

•Policy-makers are equally attracted by theidea of implementing outward-lookingapproaches to innovation policies fosteringniches of excellence–than by its opposite alternative which is:

• to implement inward-looking innovationpolicies that primarily focus on internalfactors of regions while neglecting theforging of linkages with the rest of theworld

Inward vs outward view ofinnovation

1. The argument: Policy-makers aim to foster innovationby developing niches of excellence and clusterscompeting on global markets

2. The evidence: policies end up stressing cognitive,organizational and geographical proximity as drivers ofinnovation

3. Implications: Policy-makers are induced to developtheir own independent clusters by stressing theimportance of internal factors at the expense of externalsources of knowledge, technologies and markets.

Dilemma 6: innovations that are firston the world market vs incremental

innovations•Policy-makers are equally attracted by the

idea of implementing innovation policiesbased on concepts of radical/disruptiveinnovations–than by its opposite alternative which is:

•to implement innovation policies thatprimarily support incremental innovationsin existing firms

Innovations that are first on the worldmarket vs incremental innovations

1. The argument: Policy-makers and business leaders areattracted by the concept of radical/disruptive innovations

2. The evidence: firms develop incremental innovations.3. Implications: position innovation policy interventions

regarding three categories of innovative firms:1) firms that do not develop innovations;2) firms that develop incremental innovations;3) firms that develop innovations that are first on the

world market or disruptive innovations.

Dilemma 7: policy imitations vscustomized solutions

• In the absence of good theories and solidevidence, policy-makers and firms are equallyattracted by the idea of implementing innovationpolicies based on the replication of « modelsthat work »

• than by its opposite alternative which is• to implement innovation policies based on

customized solutions that take into accountdifferences in their national contexts (history,institutions, values, R&D intensity,… ).

Policy imitations vs customizedsolutions

1. The argument:The lack of useful theories incites policy-makers to be inspired by «models that work» assources of orientation for practice-based innovationpolicies

2. The evidence: There now exist a very large number ofthese guidelines and policy papers

3. Implications: Replication of successful models must beguided by the attributes of the local context of actionsand decisions. Practice-based innovation policy-makersshould remember that history is more than the endpoint of evolution in the matter of innovationperformances.

Dilemma 8: innovations in knowledge-based firms vs innovations in traditional

firms• Policy-makers are equally attracted by the idea

of implementing innovation policies based on theconcept of knowledge-based firms–than by its opposite alternative which is

• to implement innovation policies based ondescriptive reports on innovation which showthat so-called traditional manufacturing firmscreate jobs and wealth, and therefore, thatpolicy-makers are equally incited to helptraditional firms become more innovative

Innovations in knowledge-basedfirms vs innovations in traditional

firms1. The argument:The concept of knowledge-based firms suggests

that more innovative firms rely more on knowledge than lessinnovative ones.

2. The evidence: In practice, all the firms and all the sectors, not onlythose based on science, are in industries and firms which rely onknowledge to innovate.

3. Implications: In a context of practice-based innovation policy-making, one might assume that this goal can be efficientlyachieved only if innovation policies are based on a portfolio ofsupport measures which take into account firms’ level: highknowledge processing capabilities, medium capabilities, below-average capabilities and non-existence of knowledge processingcapabilities

Dilemma 9: producing national innovationdiagnostics vs producing innovation policy

diagnostics

•National policy-makers are attracted bythe idea of producing national innovationdiagnostics based on aggregated data,–while regional policy-makers are attracted by

the alternative concept of producinginnovation policy diagnostics based ondisaggregated data that take into account thediversity of situations and needs of firms,industries and regions

Producing national innovationdiagnostics vs producing innovation

policy diagnostics1. The argument: The purpose of such guidelines was to generate

comparable data on innovation performances at the national level.2. The evidence: In practice, The data on innovation produced by

national statistical agencies, whether they be analyzed at theindustry or firm level, do not allow to diagnose firms’ performancesby distinguishing innovation performances at the regional level orin terms of industry and firm size.

3. Implications: The implementation of practice-based innovationpolicies requires disaggregated data and evidence about regionsand industries within regions that are not provided in nationalinnovation surveys

Tentative conclusion• The results of this paper contribute to show that

many policy concepts that appear attractive arenot supported by robust evidence.

• Hence, the results of this paper show thatturning policy concepts into evidence-basedpolicy is difficult.

• The professionals of innovation are very oftensubmitted to tensions where they have tochoose between equally attractive but oppositealternative innovation policy measures

Thank you for your attentionQuestions?Comments?