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  • 1. “Like Some, Like All, Like None: A Comparison of Five National Innovation Ecosystems, With Emphasis on Markets & Demand” Amnon Frenkel*, Shlomo Maital* * The Samuel Neaman Institute for Advanced Studies in Science and Technology ABSTRACT National innovation ecosystems are defined as“ .. the network of institutions in the public andprivate sectors whose activities and interactions initiate, import, modify and diffuse newtechnologies.” (Freeman, 1987). Building a visual portrayal of such systems can be highlyuseful, both for understanding the system and for designing effective policies to strengthen it. Anew methodology for achieving such a visualization was presented in a previous working paper(Frenkel & Maital, 2011). In this study we show the results of applying this methodology forthe first time, to five countries: Israel, Poland, Germany, Spain and France. Our analysis of hasrevealed, we believe, the crucial importance of combining ‘top down’ strategic innovationpolicies with ‘bottom up’ policies driven by the infrastructure of existing capabilities. Thesecapabilities find expression in the innovation ‘anchors’, in our analysis, which differ widelyacross countries in their impact on the evolution of innovation ecosystems and their ability toimplement national strategic goals. These anchors, and the dimensions to which they belong,comprise the foundation on which nations can build their strategic innovation policies, bystrengthening innovation-fostering processes that are closely linked to national objectives. Eachnation, therefore, must design its own unique, specific national innovation policy, according tothe strengths and weaknesses identified in its innovation ecosystem -- its innovation accelerators,that help the country achieve its goals for improving the wellbeing of its citizens.* The research has received funding from the European Union Seventh Framework ProgrammeFP7/2007-2013 under grant agreement n° SSH-CT-2010-266959 PICK-ME - Policy Incentives for the Creation of Knowledge: Methods & Evidence. The authors wish to thank the PICK-ME teams from Poland, Germany, France and Spain for their diligence in organizing and compiling results from Experts’ Workshops. 1
  • 2. IntroductionThe global economy today appeared to be emerging successfully from a deep financial andeconomic crisis. in October 2011, the crisis has deepened, the U.S. and Europe appear headedtoward recession or stagnation, and the key issue of how to restore dynamic economic growth innational economies has taken on new importance. It is clear to many that those economies mostsuccessful in restoring economic growth will do so through strategic entrepreneurship andinnovation. In the current global downturn, there is increased urgency for nations to redefine andrediscover the sources of their global competitive advantage. This has brought increasedattention to innovation – the ability to create new value in new ways, in order to succeed inglobal markets. This, in turn, has generated renewed interest in national innovation systems.This paper present an analysis of national innovation systems, thus has taken on new importancein light of the ongoing global crisis.One definition of “national innovation system” is that of Freeman (1987): “ .. the network ofinstitutions in the public and private sectors whose activities and interactions initiate, import,modify and diffuse new technologies.” (Freeman, 1987). An alternate definition is given byMetcalfe (1995) : “.. that set of distinct institutions which jointly and individually contribute tothe development and diffusion of new technologies and which provides the framework withinwhich governments form and implement policies to influence the innovation process. As such itis a system of interconnected institutions to create, store and transfer the knowledge, skills andartifacts which define new technologies.”The process of shaping effective policy follows a well-defined pattern. First, analysis. Define“what is”, by analyzing the existing situation. Second, objectives – define “what ought to be”,by setting future objectives. Third, gap analysis – where are there gaps between what is andwhat will be attained if the current situation continues, and what ought to be, and how can thosegaps be closed? For innovation policy, the process of analyzing “what is” is a highly complex one, becauseinnovation is the result of complex ecosystems involving a wide variety of variables. Yet unlessthe innovation ecosystem is well understood, effective policy measures cannot be devised.Moreover, such ecosystems have many components, related to history, culture, legal and 2
  • 3. regulatory frameworks, education, science, and finance, thus are country-specific, in large partunique to national systems. The components are interrelated in complex ways. In mostcountries, innovation policies are fragmented, driven by individual government ministries andother organizations, each of which are well-meaning but fail to achieve, and act on, afundamental integrated big-picture view of the problem.For every nation, it is crucial therefore to understand how its innovation ecosystem works, whatthe components are, and how they interact, as a first step to analyzing how to make the systemwork much better through policy change. Preferably, this innovation ecosystem should be a“visual innovation map”, to facilitate reaching a common understanding among all the keyplayers who seek to reinvent and modernize the system, in light of rapid changes occurring inglobal markets, in technology and in society.What is needed, we believe, is a methodology that can provide a concrete visualization ofnational innovation systems, as a foundation for enlightened policy discussions. The objective,we stated, was that by building a visual map of a nation’s innovation, the process of designingeffective new pro-innovation policies will be greatly expedited and strengthened. A newmethodology for achieving such a visualization was presented in a previous working paper(Frenkel & Maital, 2011) and was tested for the first time in this study by applying severalnational case studies. We believe this method will also facilitate cross-country comparisons,useful for best-practice benchmarking (transferring, while adapting, proven innovation policiesfrom one country to another). The fundamental axiom on which our methodology is based assume that in innovation,particularly in demand-driven innovation, one size never fits all. Innovation is driven, orhampered, by underlying cultural factors, and these factors differ widely across countries. Manycountries, in pursuing innovation policies, have in the past sought to import other nations’ecosystems, for instance Silicon Valley (U.S.). Indeed, some continue to do this but this hasproved ineffective. Innovation should be treated as a fingerprint, unique to each nation, and notas a one-size overall.In our study we identify innovation ecosystems for a country as a complex system that comprisefeatures that are : like no other country, like some other countries, and like all other countries. 3
  • 4. This quote is a paraphrase of a famous saying by anthropologists Murray and Kluckhohn in theirbook “Personality in Nature, Society, and Culture (1953): “Each person is like all other persons,some other persons, and no other person”. They believe that the observation of uniformities,uniformities of elements and uniformities of patterns are of great impotence for the sake ofgeneral scientific purposes. without the discovery of uniformities they claim, there can be noconcepts, no classifications, no formulations, no principles; no laws; and without these noscience can exist.This paper presents the initial results obtained from five countries: Israel, Germany, France,Spain and Poland. Research teams1 from these five countries employed the methodologydeveloped through generated the pillars that enable us to draw visual portrayals of those nations’innovation ecosystems. A major focus of this paper is to distinguish between supply-side anddemand-side innovation drivers.In the first section of this paper, we present a very brief discussion of the underlying theoryregarding why demand-side and supply-side innovation drivers must be defined, separated andmeasured. The next section offers a very brief summary of our methodology. Next, acomparison of the five national innovation ecosystems is undertaken, based on the ecosystemmaps constructed jointly by national and Israeli teams. The last section draws severalimplications and insights derived from the innovation maps, and discusses future researchdirections.Innovation: Demand and/or SupplyIn his comprehensive textbook Business Dynamics, Sterman (2000) shows how complexbusinesses can be fruitfully modeled as a system of interdependent feedback loops. Countries,too, are businesses, and the innovation aspects of national business systems can also be fruitfullymodeled using system dynamics (See also Charles Edquist, Systems of innovation: technologies,institutions, and organizations, 1997). In its 1997 report on “National Innovation Systems”, theOECD (Organization for Economic Cooperation and Development, a group of some 34developed nations) notes: “The national innovation systems approach stresses that the flows of1 These research teams are part of the PICK-ME: “Policy Incentives for the Creation of Knowledge: Methods and Evidence (Demand Driven Innovation)”, research project under the EU 7th Framework project. 4
  • 5. technology and information among people, enterprises and institutions are key to the innovativeprocess. Innovation and technology development are the result of a complex set of relationshipsamong actors in the system, which includes enterprises, universities and government researchinstitutes” (Executive summary, p. 1). The OECD report stress the importance for policy-makersto understand national innovation system which help them to identify leverage points forenhancing innovative performance and overall competitiveness. It may assist them to pinpointingmismatches within the system, both among institutions and in relation to government policies,which can thwart technology development and innovation.Innovation policy often focuses single-mindedly on supply-side elements – changes in the supplyof innovation infrastructure, resources and capabilities. This can easily lead to neglect of keydemand-side and demand-driven innovation. At the extreme, massive supply-side interventioncan be inimical to open-market demand-driven innovation. Any innovation ecosystem must takethis into account. Maital and Seshadri (2007) observe that successful innovation is not, as iscommonly assumed, primarily a matter of creative ideas and inventions, but is principally aresult of effective operational implementation of those ideas, using creative business designs. Akey part of such implementation is the focus on identifying market needs and wants, andlistening to marketplace preferences throughout the innovation process. Bottazzi & Peri (1999)and Edler & Georghiou (2007) note rightly that demand-side aspects of innovation have beensomewhat neglected. Etzkowitz & Leydesdorff (2000) show the importance of innovationdynamics. Kuhlmann (2001), and Jänicke and Jacob (2004) examine the key role ofgovernments in innovation policy and examine how this role is rapidly changing, in Europe.These studies provide a strong basis for further research on demand-driven innovation policies,based on a clear visual map of innovation dynamics for each country under study.But what is an innovation ecosystem? There have been several strong efforts to define and modelnational innovation ecosystems. Niosi et al. (1993) e.g., made a strong effort to provide semanticcontent, theoretical basis and methodological dimensions to the notion of a national innovationsystem. Recently Jackson (undated) wrote an early paper for the National Science Foundation,defining an ‘innovation ecosystem’. In her working paper Jackson identifies a fundamentalparadox in innovation. The paradox is this: Innovation is the result of the complex interactionamong a large number of separate elements, involving industry, government and academe; 5
  • 6. successful innovation that generates income, wealth, exports and jobs depends on how well thesystem as a whole functions, and how well each individual element in the ecosystem supports theother elements. At the same time, it is vitally important that what Jackson calls “the researcheconomy”, driven in large part by academic research and by industry-academe cooperation,should be sufficiently independent from the “commercial economy” to retain autonomy and thefreedom to explore research questions that do not necessarily emerge directly and immediatelyfrom marketplace needs.In other words, the generally short-run driven commercial economy must be tightly linked to thelong-run-driven research economy, yet at the same time insulated from it, to prevent short-termprofit considerations from harming long-run research. We view this as one of severalfundamental dilemmas characterizing supply-side and demand-side innovation.A biological ecosystem is a complex set of relationships among living people and animals,habitat and resources, whose functional goal is to maintain an equilibrium sustaining state. Aninnovation ecosystem similarly reflects the relationships among firms, government bodies,universities, researchers, consumers, owners of capital, workers, whose goal is to drivetechnology development and innovation, with the goal of achieving sustained and sustainablegrowth and development through innovative products, services and processes (Jackson, p. 2).An innovation ecosystem generates increased innovative output in two ways: Through anincrease in the quantity of inputs (capital and labor) in the system, and through an improvementin the efficiency with which existing inputs are used to generate innovation. There is evidence,dating from Solow (1957), that in general, nations grow wealthy not through accumulatingphysical and financial capital, as Marx argued, but through using existing capital with greaterwisdom and creativity, as Schultz, Becker and especially Schumpeter argued. Innovation lives inboth worlds; part of the innovation ecosystem requires large capital investments, and another partsimply finds creative ways to use existing resources more productively.There is growing concern that the world faces a looming global shortage of capital (Dobbs et al.,2011; Batten Institute, 2011). A McKinsey report notes that “Surging [global] demand forcapital, led by developing economies, could put upward pressure on interest rates and crowd outsome investment” (Dobbs et al. 2011). If this is so, growing importance will attach to those 6
  • 7. aspects of growth and development that do not require additional capital resources. For thisreason alone, innovation policies are of growing importance. It will be vital for nations to useexisting “innovation capital” more efficiently. But how?An initial first step toward focused effective pro-innovation policies, adapted to the new globalenvironment of increasingly-scarce capital and deficit-ridden government budgets, is to modeleach nation’s innovation ecosystem, to fully understand its components and their interaction.The global business environment is characterized by “the dizzying effects of acceleratingchange” (Sterman, 2000, p. 3). A partial equilibrium approach to innovation policy runs the riskof embracing what appears to be sound logic, in strengthening a key part of the innovationsystem, resulting in unexpected, possibly disastrous counter-intuitive effects that achieveprecisely the opposite, because the interactive feedback effects were ignored. An example couldbe the following: Universities, strapped for research funds, might rely increasingly on industryfunding, which allegedly improves the links between basic research and market demand, but infact severely damages the quality and quantity of basic research that drives innovative success inthe long run.The theory of demand-driven innovation can be said to date back to Adam Smith’s masterpieceThe Wealth of Nations (1776). In it, Smith made the widely-quoted (and even more widely-misunderstood) observation regarding the so-called ‘invisible hand’ of free-market competition:“Every individual endeavors to employ his capital so that its produce may be of greatest value.He generally neither intends to promote the public interest, nor knows how much he is promotingit. He intends only his own security, his own gain. And he is in this led by an invisible hand topromote an end which was no part of his intention. By pursuing his own interest he frequentlypromotes that of society more effectually than when he really intends to promote it.” (Book IV,Chapter II, p. 456.)The Smithian dilemma, in the context of pro-innovation policy, is: How can policy-makersstrengthen the innovation ecosystem, and improve its efficiency, without hampering theintellectual freedom so vital for innovators, and so crucial to the smooth workings of the‘invisible hand’? We believe that an accurate innovation ecosystem map can help avoid policyerrors, and help identify creative pro-innovation policies that work well both for individual 7
  • 8. researchers and for society as a whole. A key issue, a very difficult one, is: How can basicresearch driven by the curiosity of individual researchers be leveraged to build innovations thatmeet real human needs and wants (demand-side innovation), without restricting it so much thatthe energy driving such research (curiosity, freedom, initiative) is diminished or destroyed?An additional dilemma, common to innovation ecosystems, is what management consultant PeterDrucker (2007) once terms ‘innovation and abandonment’, i.e. in order for systems to grow anddevelop, the processes of birth (of ideas) must be accompanied by a process of abandonment anddeath (elimination of entities that consume resources without contributing to innovation andwellbeing). 2 An innovation ecosystem must contain elements that show what parts of the systemmust be abandoned, and not only what parts must be created. Birth without death soon results inecological disaster through ‘overcrowding’. This key element of innovation was alsoemphasized in the writings of Schumpeter (1942), who called it ‘creative destruction’.A key element of innovation ecosystems refer to the term “the Valley of Death” (see Figure 1)and involves Type I and Type II errors. In Type II errors, technologies that should rightly ‘die’in fact are heavily funded, futilely; and in Type I errors, technologies that should develop insteadunjustly ‘die’, owing to lack of funds. Jackson terms type I errors the ‘valley of death’ – the gapbetween basic research funded largely by government and commercial development funded byindustry. The ability of an innovation ecosystem to avoid both Type I and Type II errors iscrucial. Often, success in navigating through the Valley of Death relates to how supply-side anddemand-side innovation are integrated. As Jackson undated notes (p.8): “In Figure 1, theinnovation spectrum shows the distribution of resources invested in activities aimed at discovery,technology demonstration, technology development, and commercialization. At the far left of thespectrum (i.e. where academic research is concentrated), there is a heavy concentration ofgovernment investment in fundamental research; while to the far right of the spectrum (i.e. in thecommercial marketplace) there is a much higher level of industry investment in direct product2 …"Theres an old medical proverb," Drucker once explained, "Theres [probably] nothing more expensive, nothing more difficult, than to keep a corpse from stinking!" Most corporations waste time, energy and precious resources on keeping their corpses - their old products - from stinking. Because these old products are still generating large revenues, most executives dont even recognize that they have stinking corpses. And so the bosses assign smart people to tackle serious problems in old businesses. This is a misallocation of precious, creative resources. From: Elizabeth Haas Edersheim, The Definitive Drucker: Challenges For Tomorrows Executives -- Final Advice From the Father of Modern Management [Hardcover] McGraw-Hill, NY, 2006, Chapter Three. 8
  • 9. development. This gap in resources for technology demonstration and development (TD&D) iscolloquially known as the Valley of Death. The actors engaged in moving innovations fromdiscovery through commercialization are academia, small businesses, the investor community,and commercial industry. For these actors, it is within this valley that many potential innovationsdie for lack of the resources to develop them to a stage where industry or the investor communitycan recognize their commercial potential and assess the risk associated with bringing them tomarket.” Valley of Death Figure 1. The “Valley of Death” Between ‘Discovery’ and ‘Invention’Source: Jackson (undated)To address at least some of these key issues and dilemmas, we have developed an empiricalevidence-based method that generates a visual tool useful for creating a common foundation forpolicy debate. Without this foundation, all too often innovation policy discussions becomedialogues of the deaf, featuring individual agendas and personal interests, with no commonagreement on a set of innovation ecosystem facts. 9
  • 10. The Innovation Ecosystem visualization Map MethodologyThe process for gathering basic data on each nation’s innovation ecosystem, and then analyzingthem, followed the following steps:A. Experts WorkshopThe objective of the experts workshop is to identify fundamental “anchors” and “processes” thatcomprise the main elements of a country’s innovation ecosystem.● “Quality anchors”: these are strengths, or core competencies, of the nation, on which innovation can be built. For example: The existence of a high level of human capital, or the existence of strong world-class scientific and technological infrastructure.● “Processes and trends”: these are processes that can enable countries to overcome strategic innovation weaknesses, or constraints, that hamper innovative initiatives and policies, for example: vocational training programs, tax incentives, R&D funding, etc.Identifying the anchors and processes is done in the Experts Workshop and is based on deepintimate knowledge of the experts and their familiarity with all aspects of the innovationecosystem, including informal and ill-defined ones. Some 10-20 experts took part in eachworkshop in the participant countries, representing all key sectors and disciplines relevant toinnovation. The objective of the workshop is to formulate a creative systematic and inclusive listof key innovation variables, that can be transformed into a visual innovation ecosystem map.The Workshop is conducted through brainstorming and “nominal groups”. In this refiningprocess, the final list of anchors and processes is organized, to distinguish between ‘demand-driven’ and ‘supply-side’ innovation. This analysis enables us to show visually and clearly thekey elements of demand-side innovation drivers, including consumers, businesses, labor markets,global markets and other channels, and indicate how these demand-side aspects of innovationinteract with supply-side elements. Our focus is on identifying ‘gaps’ -- crucial market needsthat have not been fully met, such that innovative technologies can be leveraged to match supplywith demand and create business opportunities. At the same time, we seek to identify supply-driven processes reflecting innovation driven by supply (incentives, funding, etc.), through 10
  • 11. which resources are directed toward specific markets and products, “pushed” by supply factorsrather than “pulled” by demand factors.B. Linking Anchors and ProcessesThis stage involves two complementary analyses. The first comprises “cross impact” analysiswhere the research teams evaluate the relationship between the anchors and the processes, thatwere identified in the earlier stage on a bipolar five-point Likert scale ranging from strongnegative link (1) to strong positive link (5).The matrices developed processed through Factor Analysis, a statistical tool whose purpose is toreduce a large number of variables into a smaller, more compact set (data reduction). In theanalysis the anchors serve as observations in order to group the processes into major factorsaccording to the similarities in their linkages with the anchors. The next step includeclassification of processes and anchors into groups. The processes were grouped according to theresults of the factor analysis while the classification of anchors into clusters did not involve asimilar mathematical procedure and was based on logic. An example of the output obtain fromthe cross impact analysis is given in Figure 2 using the Spanish experts workshop output.The result that came out from these analyses produces a matrix in which major linkages wereidentified between each process factors and anchor clusters. Based on this matrix the researchteam prepared -- a clear visual map of the nation’s innovation ecosystem, showing key ‘anchor’and ‘process’ elements and feedback among them.A Comparison of Five Innovation EcosystemsThe results obtained from the experts workshops conducted in each of the five participantcountries in the study provide data that was analyzed based on the cross impact analysis asdescribed above. The matrices that produced from the analysis were used to build the fiveinnovation ecosystem maps generated for Israel, Germany, France, Spain and Poland (see Figure3). These maps show visually a) innovation anchors, essentially ‘stocks’ of capabilities thatdrive innovation, and b) innovation ‘processes’, or flows. 11
  • 12. Local an d Regio nal T ar geted Public Joint Public-Pr ivate Pub lic Fundin g of Development Incen tives Supp orting Pr ogr am s In itiatives for Suppo rting Private Entities and of Hum an Factors Innovatio n Innovation Progr am s Capital S uppor t policies for non tec hnological Quality impr ovement of huma n capital Pr oject s supported by C DTI progr am Technologic al infr as truc ture s uppor t univer sities & r elate d infr ast ruct ur e Scie nce polic y supporting actions Enhance ment of third m ission of P ublic procure ment s uppor ting M ultilev el innovation progr am s Ope n sof twar e support policy Enhanc em ent of fir m or ie nted Support to soc ia l innovat ion R egional s tr ategic plan technological centr es Anchors/Processes A VA NZA plan (TIC S) P RO FIT program IDEA S progr am C EN IT pr ogr am innovations innovation pr ogr am Clu sterse ntrepreneurial infras tructure Technologic al infr astruc ture 4 4 5 4 3 4 4 4 5 5 5 3 3 5 4 4 Technologi cal & Valorization of int angible 4 4 3 2 4 4 3 5 3 4 4 5 3 5 4 4 as se ts Wide range of impr ovem ent in 4 4 4 2 4 3 4 4 4 3 4 4 4 5 4 4 the innov ation syste m Str ong pr ese nce of S MEs stimulate e ntre pr e ne ur ship 2 2 2 4 3 5 4 5 4 5 4 4 4 3 4 4 att itude among young gene r ations H um an resour ce s Human capital and leadership compe tence s (public & privat e 5 5 5 4 3 5 4 4 3 4 4 4 4 3 4 5 se ctor) D ev elopme nt pote ntial of 2 2 1 4 4 4 5 4 5 1 4 4 4 2 4 4 Spanish Innov ation Sys tem Quality of innova tion (r atio 5 4 4 4 4 4 4 4 4 4 3 5 4 2 3 4 Science/r ecours es) Leading positions of 4 4 3 2 5 4 4 4 4 4 5 4 3 4 4 4 technological s e ctor sculture and attitude s C reat iv ity (Mediterr anea n 4 3 4 4 3 5 4 4 3 4 3 5 5 2 5 5 specia l feat ur e s) Pro innovation Entr e pr e ne ur ship attitude 3 3 4 3 4 5 3 5 3 5 4 3 4 2 4 5 Positive politic al attitude 5 4 4 4 4 4 4 4 4 5 4 4 4 4 4 4 towar ds innov ation Strong positive link Weak positive link positive No link Strong negative link Weak negative link negativeFigure 2: Classification of Processes and Anchors into Groups (Spanish Outputs) 12
  • 13. Israel +- P1. Private + P2. Demand + ++ in the Sector Private + Activities Sector + ‘Out of the + + box‘ thinking +- + + _ Entrepreneurship Culture of Scientific and Empowerment Educational ++ Cluster Infrastructure P3. Public- + Private Competitive Cultural Economic + Cooperation structure Diversity Institutions +- ++ _ + + +++ P6. Govt. + Programs + + P5. Govt. ++ P4. National + Research Invest. in + Funds Human capital + Legend Germany P2.Cluster ++ P1.Market Strategies + + P3. Standard- -Driven + ization Forces ++ + + + + + + A1. Technology Availability of A3. Pro- ++ A2. Availability innovation Capabilities ofHuman Capital Human Capital Culture ++ A4. Market A5. Govern. & A6. External Structure Instit. Infrastr. Effect + ++ ++ + + P5. Tax & + + P4. Develop. Subsidy + of Key Skills + Policies + LegendGroup of processes (factor analysis) Supply Dema nd Cluster of Positive Link + Negative Link - Mixed Link +/ - factor analysis) side Driven Anchors Figure 3: Innovation Ecosystem Maps for Five Nations 13
  • 14. France P1.Standards +/- + +/- P.2 Public & Regulations + procurement + + +/-+ A1.Public Policy, A2. Corporate Intervention & Policy Regulation A3. A4. Demand Education, Side Policies Mobilization + ++ ++ P3. Lead P.4 markets ++ Labeling & &Consumer + awareness policies ++ raising Ind. Spain P2. Joint Public- P1. Local & ++ Private P3. Targeted + Initiatives + Regional Public + Incentives Programs + + A1. Technological A2. Human A3. Pro- & Entrepreneurial capital and innovation Infrastructure leadership Culture and attitude + + ++ P5. Public Funding P4. Develop. of Private of Human Entities + Capital LegendGroup of processes (factor analysis) Supply Demand Cluster of Positive Link + Negative Link - Mixed Link +/ - factor analysis) side Driven Anchors Figure 3: (Continued) 14
  • 15. Poland P2. Gov. encourage P1. innovation + Increased + implement. + P3. Govern. awareness of programs innovation + + ++ A1. A2. Human A3. Financial Entrepreneurship capital and regional structure systems A4. Culture of A5. Economic empowerment institutions ++ ++ P5. Private ++ P4. Encourage sector technologic. attractive- independent ness ++ Legend Group of processes (factor analysis) Supply Dema nd Cluster of Positive Link + Negative Link - Mixed Link +/ - factor analysis) side Driven Anchors Figure 3: (Continued)Based on these maps and related factor analyses and interaction analyses, we constructed acomparison among these countries, based on three layers of examination. The first layer refers tothe list of key anchors identified in each of the participant countries based on four key innovationdimensions:● Culture (shared values)● Context (scientific and technological infrastructure, structure of the economy)● Markets (demand, preferences)● Institutions (system of laws & regulations, written & unwritten ‘rules of the game’)The results of this comparison are shown in Table 1 (Comparison of Innovation “Key Anchors”).The numbering of the ‘Key Anchors’ correspond to those in the individual country innovationmap reports; “A” stands for Anchor and “P” stands for processes. We now proceed to describesimilarities and differences among the five innovation ecosystems. 15
  • 16. A. “Like All….”Each of the five innovation ecosystems had ‘anchors’ in each of the four key dimensions listedabove. The exceptions were Poland that lacked a market-based anchor and Spain that lacked amarket-based anchor and Institutional anchors as well.All five have significant anchors that fall under “Context”, reflecting scientific and technologicalinfrastructure, human capital, governance, transparency and accountability and technologicalstructure that support innovation. Similarly most of them (with the exception of Spain) haveanchors that belong to the “institutions” dimension, reflecting availability of capital to fosterentrepreneurship and R&D, economic institutions, trade agreements etc. On the other hand it issignificant to note that the “Markets” dimension was among the weakest of the four dimensions,overall.One of our most unexpected results was related to “culture”. Though the expert workshops werelargely comprised of those with management and technology or science backgrounds, thecultural aspect of innovation features prominently in all the five of the innovation ecosystems. Inthe end, it appears, it is the individual energy of entrepreneurs and innovators that drives theinnovative ecosystem, which in turn flows from the culture and history of their nation.In Table 2 a comparison of innovation Key Processes is presented with respect to their supply ordemand side. Here too the numbering of the ‘Processes’ correspond to those in the individualcountry innovation map reports; “P” stands for Process.Each of the five innovation ecosystems had key processes representing the demand or the supplyside of innovation. More than half of the key processes purely fall under the supply side whileonly five Key Processes depict purely the demand side; none of them belong to Spain. In regardto the mixed aspect of innovation, the data reveal that of the 12 innovation processes linked withdemand, fully seven combine aspects of both supply and demand (such as “joint public-privateinitiatives, and ‘public-private cooperation’). 16
  • 17. Table 1. Comparison of Innovation “Anchors”: Israel, Germany, France, Spain and Poland CountryKey InnovationDimensions Israel Germany France Spain PolandCulture (shared A1. ‘Out of the Box’ A3. Pro-Innovation A3. Education, A3 Pro-Innovation A1.values) Thinking Culture Mobilization Culture Entrepreneurship A2. Entrepreneurship A4. Culture of Culture Empowerment A3. Culture of Empowerment A6. Cultural DiversityContext A4. Scientific & A1. Technology A2. Corporate A1. Technological & A2. Human(infrastructure, Educational Capabilities Policy Entrepreneurial Capital Structureeconomy) Infrastructure Infrastructure A5. Government A2. Human Capital Institutional Leadership Infrastructure A6. External EffectsMarkets (demand, A5. Competitive A4. Market A4. Demand Side __ __preferences) Structure Structure PoliciesInstitutions A7. Economic A2. Availability of A1.Public Policy, __ A3. Financial,(regulation, laws) Institutions Human Capital Intervention & Regional Systems Regulation A5. Economic Institutions 16
  • 18. Table 2. Comparison of Innovation “Processes”: Israel, Germany, France, Spain and Poland CountrySupply/Demandside of Israel Germany France Spain PolandInnovationDemand Driven P2. Demand in the P1. Market-Driven P3. Lead markets __ P5. Private SectorInnovation Private Sector Forces &Consumer policies Attractiveness P2. Cluster StrategiesSupply Side of P4. National Research P4. Key Skills P1.Standards & P1. Local & P1. IncreaseInnovation Funds Development Regulations Regional Awareness of Incentives Innovation P5. Government P5. Tax, Subsidy P.2 Public P3. Targeted P2. Govrenment Investments in Human Policies procurement Public Programs Policies to Foster Capital Innovation Implementation P6. Government P5. Public Funding P3. Government Programs of Private Entities ProgramsBoth Supply and P1. Private & Public- P3. Standardization P.4 Labeling & P2. Joint Public- P4. EncourageDemand Side of Sector Activities awareness raising Private Initiatives TechnologicalInnovation industries Independence P3. Public-Private P4. Human Capital Cooperation Development 17
  • 19. We believe that the ‘valley of death’ identified by Jackson, where basic research crosses the‘desert’ of resource scarcity toward commercial exploitation, exists in all five countries understudy, because it is market forces that ‘pull’ innovative ideas through this barren territory towardfull implementation and global scale-up. The five innovation ecosystems indicate that this‘demand pull’ force can fruitfully be strengthened in each of the five nations under study, inparticular in Spain but also in France.B. “Like Some…”There are aspects of the innovation ecosystems that exist in some, though not all, of the fivecountries. All five systems are complex, as one might anticipate, though the French, Polish andSpanish ecosystems appear rather simpler than those of Israel and Germany (see the fiveindividual country innovation ecosystem maps in Figure 2). Poland’s ecosystem is simpleprobably because it is in its early stages. Poland’s system features growing “awareness” of thevital importance of innovation. It seems that for Poland, the experts’ workshop identified a clearneed to create a culture of innovation, which we believe is quite typical of a transition economyshifting from state planning to market-driven economy based on private initiative. Spain features‘local and regional initiatives’. Israel’s culture of “empowerment” and “out-of-the-box” thinkingis vital, while Germany features “cluster strategies”. France’s system stresses the key roleplayed by government procurement policies.The third ‘layer’ of our comparative analysis of the five innovation ecosystems is related to theexistence and strength of linkages between anchors and processes (see the ecosystem maps inFigure 2), along with the appendices of the individual reports on each country’s innovationecosystem). A comparative analysis of the linkages is shown in Table 3. The table wasconstructed to identify and isolate the most important linkages for each of the five countries. Foreach of the four key dimensions common to all the ecosystems, we listed (for each country) themain processes that were most strongly linked to anchors comprising the four dimensions, aslisted in Table 1. In this manner, it can be seen which dimensions of the innovation ecosystemscontribute most to fostering innovation-supporting processes, which processes are ‘innovationaccelerators’, and what are the major differences across countries. Note that groups of processesmay appear in more than one dimension. For example, for Israel, public-private sectorcooperation links closely with both the culture dimension and with the infrastructure dimension. 18
  • 20. Table 3. Comparison of Key Innovation Dimensions that strongly encourage factor processes: Israel, Germany, France, Spain and Poland CountryKey InnovationDimensions Israel Germany France Spain PolandCulture (shared P2. Creating demand in the P1. Market-Driven P3. Lead markets P2. Joint Public-Private P5. Private Sectorvalues) private sector Forces &Consumer policies Initiatives Attractiveness P3. Public-Private Cooperation P4. Key Skills P.4 Labeling & P3. Targeted Public Development awareness raising Programs industries P5. Government Investments in P4. Human Capital Human Capital Development P6. Government programs for supporting innovationContext P3. Public-Private Cooperation P2. Cluster Strategies __ P2. Joint Public-Private P2. Government(infrastructure, Initiatives Policies to Fostereconomy) Innovation Implementation P6. Government programs for P3. Standardization P5. Public Funding of P5. Private Sector supporting innovation Private Entities Attractiveness P4. Key Skills DevelopmentMarkets __ P2. Cluster Strategies P3. Lead markets __ __(demand, &Consumer policiespreferences) P.4 Labeling & awareness raising industriesInstitutions __ P4. Key Skills __ __ P5. Private Sector(regulation, laws) Development Attractiveness 19
  • 21. The meaning of the empty cells in the Table is that no groups of processes were identifiedthat were strongly linked with the anchors included in a particular dimension, but onlyweakly or bi-directionally linked.It is clear that the dominant dimensions of the innovation ecosystems are on the one hand, theculture dimension and on the other, the infrastructure dimension, which together form thefoundation anchors for developing the processes that drive the innovation systems. Theinfluence of the other two dimensions – the market dimension and the institutional dimension– is much smaller. The relative weakness of the market dimension is especially striking,which contributes significantly to creating innovation-supporting processes only in Germany,and in France, among the five nations. The linkages between the institutional anchors andinnovation-supporting processes are weak in Israel, in France and in Spain.Comparative analysis between the five nations, based on the Tables, indicates there is astrong contribution by the culture dimension to innovation processes in Spain and in Israel.This is expressed in the manner culture drives processes for collaboration between public andprivate sectors, and for launching new government programs to encourage innovation, R&Dand human capital. Culture is less important in France and in Germany; Poland in particularappears to need to create and strengthen an innovation culture, as it is a transition economy.In all five countries studied, the infrastructure dimension supports processes that contribute toinnovation driven by the public sector and the private sector alike. This is true in particularof Israel, Germany and Poland. France notably appears to lack processes driven by thisdimension.C. “…and Like None…”Each innovation ecosystem has unique features found only in that country. Through theprocess of best-practice benchmarking, it is useful for nations to explore these specialinnovation drivers, and to find ways to adapt them to their own innovation systems. Here area few of the more significant features in each of the five countries we analyzed:• Israel: In Israel the important role of cultural characteristics and assets in driving and nurturing Israeli innovation is clear. Evidence shows that strong ties exist between cultural anchors and supply and demand driven processes. Pure supply-side processes such as government support for the defense industries and the establishment of military R&D programs (e.g. Talpiot) were found to exert significant spillovers effects on innovation 20
  • 22. infrastructure (e.g. entrepreneurial and applied technological skills). The existence of strong scientific and technological base (e.g. research universities) and solid entrepreneurial infrastructure (e.g. emphasis on the teaching and development of entrepreneurial and applied technological skills at a young age) seems to be one of the key drivers of the Israeli innovation ecosystem. The strongest catalysts of the Israeli innovation ecosystem are the joint demand and supply processes, focusing on government and public policy measures, private sector activities and dual private-public initiatives. A variety of institutions exist that leverage defense- related R&D into civilian innovation, especially indirect ones, for example, young engineers who develop technology-intensive projects within the military use their knowledge and experience later to launch startup companies. Another notable examples are the Office of the Chief Scientist (OCS), within the Ministry of Industry and Trade, which plays a key role in R&D by leveraging a large budget to support technology- intensive projects. The OCS also supports a) Magnet, in which commercial firms and at least one research institution collaborate on developing generic technologies; b) Magneton, which funds 2/3 of the R&D cost of an existing partnership between a company and an academic institution; and c) Nofar, which funds 90 per cent of later-stage applied academic research, in bio- and nano-technologies, to bring the research to sufficient maturity to interest a business partner in investing in it. An extensive Public Incubator Program at its peak had some 30 govt.-sponsored incubators spread throughout Israel, each with 10-15 projects, offering basic funding for two years for each (See Dumanis et al., 2008).• Germany: The German innovation ecosystem is highly interconnected, with many strong links between processes and anchors. It is significant that three of the five key processes that drive German innovation are demand-driven. This suggests that for nations interested in strengthening demand-driven innovation, Germany is a country that could and should be benchmarked with useful results. Technological capabilities and the existence of economies of scale (in the market structure cluster) seem to have a profound impact on processes that foster innovation in Germany. Cultural ("pro innovation culture") and public policy anchors (in the availability of capital and government culture clusters) also play a vital role in driving these processes. Labor unions provide a good example. Outside Germany, it is widely thought that the strong labor unions hinder innovation and growth. In fact, they likely contribute, as we see with 21
  • 23. Germany’s innovate kurzarbeit policy that kept experienced SME workers in the mittelstand. In several places in the map, the term “SME” is seen – this reflects the German mittelstand SME’s, a rather unique and important feature of German innovation. But on the other side, Germany has important industrial ‘clusters’, specifically the automotive cluster surrounding the city of Stuttgart, with major installations of Bosch, Mercedes and Porsche. Such clusters comprise agglomerations of complementary capabilities and are actively supported by tax and subsidy policies. Germany’s vocational training schools provide valuable skills that support its mittelstand SME’s that produce precision machinery. Germany also has a unique chain of R&D labs, the Fraunhofer Institutes, that provide fast and efficient technology transfer.• Poland: The Polish innovation ecosystem seems to be in its initial stages of development. This is understandable. As a transition nation, Poland’s economy is still a ‘work in progress’, shifting from a planning model to a free-market one. As a result, there is low connectivity and loose ties between the various factor and cluster groups. The demand side interactions in the system are much more significant than the supply-side interactions. This conclusion, however, must be qualified by the fact that the demand-side aspect is based on only two true demand-side processes. We believe that the embryonic nature of Poland’s innovation ecosystem is a distinct advantage. Poland begins the work of painting its own innovation portrait on clean canvas. It can benchmark other nations, learn from their experience, and build its own system unencumbered with baggage collected in the past. It can embrace and adapt all the innovation policies that have proved successful in other nations, and reject those that have failed. In this sense, Poland’s innovation ecosystem shows great promise for the future.• Spain: The Spanish innovation ecosystem is highly interconnected, and is mainly characterized by moderate positive links between processes and anchors. It is significant that four of the five key processes that drive Spanish innovation are supply-driven. The country has a number of local and regional incentives for innovation worthy of further study, especially those surrounding Valencia and Andalusia. Spain also has a number of “acronym” programs that are of interest, including PROFIT (university-industry research), and two other public-private initiatives (CENIT, CDTI). This finding accentuates the importance of strengthening targeted demand-driven polices in Spain. 22
  • 24. • France: What is remarkable about this map is not just what it reveals, but what it fails to reveal. Indeed, this is a major use of innovation ecosystem mappings – to compare them with those of other nations, in order to reveal key weaknesses and lacunae. Many countries, such as Israel, have innovation systems built crucially around the role of leading world-class science and technology universities, with a network of linkages to and from those institutions. France has such a top science and technology university, Ecole des Ponts et Chausees, Ecole des Mines some of which date back to 1747. French engineers and scientists are known worldwide for their excellence and creativity, particularly in civil engineering but increasingly in electronics and in biology. Yet these universities do not play a prominent role in the French innovation ecosystem. We speculate that this is perhaps an extreme case of the “valley of death” noted above in the second section – the enormous gap between the production of basic research in science and technology, and the successful rapid and profitable commercial exploitation of such research. The dominant role of public policy and government budgets in France’s innovation ecosystem is striking. We are led to wonder whether France can define a new type of pro- innovation policy, in which government procurement policies specifically, clearly and persistently award contracts to smaller innovative businesses and startups, in light of the very high weight awarded by the French experts to “public procurement”. Such policies have been implemented elsewhere, by governments, to help develop peripheral underdeveloped regions. Why not employ them to strengthen underdeveloped entrepreneurship?There is great untapped potential here, for best-practice benchmarking – a process in whichcountries adapt and import ideas that have been successful in other countries in strengtheninginnovation.Summary and ConclusionsIf a country is a business, then like a business, every country requires strategic direction andvision, that provide a clear answer to the question, what does our country do better than othercountries -- in which products and industries can we excel, so that we can produce andexport, in order to generate jobs, income, wealth, exports and dynamic sustained growth,even in the face of weak global markets? Such strategic planning is normally regarded as 23
  • 25. “top down”, driven by the country’s political and business leadership. But our analysis ofnational innovation ecosystems has revealed, we believe, the crucial importance ofcombining ‘top down’ strategic innovation policies with ‘bottom up’ policies driven by theinfrastructure of existing capabilities. These capabilities find expression in the innovation‘anchors’, in our analysis, which differ widely across countries in their impact on theevolution of innovation ecosystems and their ability to implement national strategic goals.These anchors, and the dimensions to which they belong, comprise the foundation on whichnations can build their strategic innovation policies, by strengthening innovation-fosteringprocesses that are closely linked to national objectives. Each nation, therefore, must design itsown unique, specific national innovation policy, according to the strengths and weaknessesidentified in its innovation ecosystem -- its innovation accelerators, that help the countryachieve its goals for improving the wellbeing of its citizens.It is the combination of effective top-down innovation policies, integrated closely withbottom-up market-driven initiatives and energy, that create effective innovation ecosystems.It is an over-simplification to assign top-down policies to ‘supply side’, and bottom-upinitiatives to ‘demand side’, yet, it is probably true in general that market forces are more of a‘bottom up’ nature.The importance of constructing visual innovation ecosystems goes well beyond their specificcontent. Effective consensual innovation policies rest crucially on an economy-wideunderstanding of the innovation system and its drivers. We envisage a two-stage process, inwhich experts from all parts of society meet to engage and interact on understanding andmapping the ecosystem, and only after reaching consensual agreement on how the systemworks (and why perhaps it does not), debating how policy interventions can be mosteffective. By achieving a deep understanding of national innovation ecosystems, and bystudying those of other nations, we hope that European innovation policies will be both moreinnovative, more effective in their national impact and more integrative in their Europe-widedesign. A widely-employed slogan in global corporate strategy is “think global, act local”.We believe this slogan is applicable to national strategic innovation policy as well. 24
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