Lost in Innovation

Dr Sami Mahroum, Director of INSEAD’s Innovation & Policy Initiative.

The word has expanded from a noun to various hyphenated transmutations. Thus, today we don’t only talk of the importance of innovation to societies, but often of specific types of innovation too, such as green innovation, social innovation, open innovation. The innovation jargon has also expanded to innovation corridors, clusters, poles, and valleys, and to “disruptive”, “radical” and “incremental”.

Not surprisingly then, the average policymaker finds him or herself lost in the maze of innovation studies jargon. Academics and researchers concerned with innovation have produced a new genre of literature that is difficult to use to generate effective policy. In fact, little in the way of standard public policy analysis finds its way into innovation policy work, and hence too often the political, social, and economic feasibility of many recommendations are not taken into consideration.

One reason for this is the tendency of many innovation policy analysts to focus primarily on the big picture, such as the industrial structures of nations, their business cultures, education systems, and legislative frameworks. As a result, governments are often offered recommendations requiring some major socio-economic changes, ranging from calls to overhaul existing educational systems, to calls for centralising or decentralising governance structures. The malleability, risks and costs of such recommendations often go unnoticed, and the policymaker becomes either sceptical or dismissive, despite the validity of many such calls.

Deep structural, cultural changes are often difficult to implement

Governments are primarily interested in interventions that make a system work better, rather than those aimed at overhauling a system altogether. For the majority, socio-economic re-engineering policies are too big to undertake and carry no guarantees that they would deliver in practice what they promise in theory.

Historically, some success stories have emerged on the back of major socio-economic re-engineering plans, such as the post-war European industrial organisation policies, the Korean Chaebol, or the Japanese keiretsu, but these were made possible by extraordinary conditions, such as World War II, the Cold War, and the Marshall Plan. They also took decades to deliver.

Deep cultural and structural changes are rarely achieved within the scope of one or two terms of government, and are thus less likely to be adopted by policymakers. Even today, when one might assume that the global economic crisis might lead to some major socio-economic re-engineering, there have so far been no signs of governments initiating such changes. The recent failure of the COP15 climate talks in Copenhagen highlights the unwillingness of governments to indulge in major socio-economic change. Instead, most governments have chosen to try to ‘fix’ existing systems rather than overhaul them.

The space between government and firms hides secrets of success and failure

Individual stories of success and failure often coexist within the same national economy, and policy analysts need to understand how and why success and failure coexist under the same socio-economic conditions.

Success stories of firms like Google, Apple, Tata, Nokia, Zara, Skype or Subaru come from places where success and failure rub shoulders. In every country and region, for every successful innovation story there are many stories of failure.

Likewise, among failure exists success. Attributes associated with failure such as red tape, lack of seed funding and skills shortages, do not cause all firms to fail, even when they are operating in the same industries and locations. Some important factors for success and failure must then lie in the meso- and micro-levels of socio-economic activities.

Yet while there exists a long tradition of studying the factors of success and failure at the micro-level, that is, at the level of the firm, the meso-level, or space occupied by intermediate agencies that manage and deliver public policies, as well as organisations that manage relationships with governments, is rarely considered. This space is important because it is where the interaction between public policy and private enterprise takes place, and where success and failure can be best observed. If policy analysts want to see change happen, they need to pay more attention because it is here that the instruments of change lie.

Towards a more effective innovation policy

How may governments create favourable conditions for innovation? In search of an answer to this question, many governments in major advanced economies have launched national innovation strategies over the past few years. The summer of 2010 will see the launch of the OECD’s own Innovation Strategy.

Unfortunately, more often than not, these strategies emerge in the shape of laundry lists of tall orders. The urgent need to prioritise problems and solutions in the face of scarcity and competition for resources often goes unnoticed. Consequently, too often policymakers tend to treat such strategy documents, at best, as wish lists from which to cherry-pick and, at worst, as PR material.

An effective innovation policy should at least involve some of the following:

1. Focus more on what is urgent and less on what is desired. In other words, put a greater focus on removing barriers, rather than on setting targets and milestones. The Silicon Valley success story was not inspired by a government-designed socio-economic plan, but by a strong culture of entrepreneurship fuelled by immigration, foreign students and venture capital. In fact, some argue that Silicon Valley businesses succeeded despite and not because of government.

2. Base policy on what is available, not what is missing. Too often, innovation policy recommendations overlook or underestimate existing potential and exaggerate the value of what is lacking. For example, if family and friends happen to be an important source of finance for new ventures in an area where seed capital is scarce, then introducing (tax) incentives to entice more friends and families to invest in such ventures might be a more effective policy instrument than setting up a government fund.

3. Innovation policy needs to recognise that the role of government can be critical without necessarily being radical, and thus give priority to improving, rather than overhaul existing systems. Making adjustments to existing education systems, financing channels and public delivery institutions, can be easier to achieve than creating new replica of whatever works in other countries. The Nordic countries may serve as excellent models in this regard, where socio-economic systems were improved to become more competitive and more sustainable, without doing away with the main pillars of their socio-economic systems.

For a more effective innovation policy it is important to understand the factors behind success and failure within existing socio-economic framework conditions, and then to explore and identify the most malleable interventions to increase the rate of success and reduce the rate of failure. Finally, policy needs be pragmatic and not ideological, and so needs not be universal and valid for all players and places at all times.

Dr Sami Mahroum is the Director of INSEAD’s Innovation & Policy Initiative based in Abu Dhabi.

This article also appears at: http://knowledge.insead.edu/innovation-policy-mahroum-100511.cfm