This document provides an overview of a session on innovation systems. It includes an agenda, mini-test, and discussions of national and regional innovation systems. For national innovation systems, it discusses concepts, the rise of research and development, and factors influencing innovation. For regional innovation systems, it uses Silicon Valley as a case study, examining its characteristics and key success factors. It also discusses an innovation cluster for Galileo and satellite navigation, including the role of key actors and status in the Netherlands.

1. Session 5: Innovation System
Prof. Dr. Bernhard Katzy
Winter 2011
www.CeTIM.org
Prof. Dr. Bernhard R. Katzy

2. Innovation Management
Innovation
System
Organization of Innovation
innovation Governance
Innovation
Transformation
and
entrepreneurship
Basic innovation concepts Introduction based on life cases
Innovation Theory Innovation Practice
Dominant theory, Main issues High tech entrepreneurship…
and developments of innovation
research
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 1

3. Session 5: an overview
AGENDA
- Mini-Test
- National innovation system and basic concepts
- Regional innovation system (what can we learn
from Silicon Valley)
- Innovation cluster (the case of Galileo and
SatNav)
- Summary
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 2

4. Session 5 :reading engagement
MINI-TEST
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5. National innovation system
National Innovation system:
" the network of institutions in the public and private sectors whose
activities and interactions initiate, import, modify and diffuse new
technologies" <Freeman, C. 1995>
"that set of distinct institutions which jointly and individually contribute
to the development and diffusion of new technologies and which
provides the framework within which governments form and implement
policies to influence the innovation process. As such it is a system of
interconnected institutions to create, store and transfer
knowledge, skills and artefacts which define new technologies."
<Metcalfe,J.S, 1995>
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 4

6. National innovation system
ORIGIN OF NATIONAL INNOVATION SYSTEM THINKING
Friedrich List 's conception of "the national system of political
economy" (1841)
- The role of intellectual capital accumulation in
national economic development
- The interdependence of tangible and
intangible investment has a decidedly modern
ring. Industry should be linked to the formal
institutions of science and of education
- The independence of the import of foreign
technology and domestic technical
development
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 5

7. National innovation system
WHAT SET PRUSSIA ON THE ROAD TO OVERTAKING BRITAIN
IN THE LATTER HALF OF 19TH CENTURY
- German developed one of the best technical education and training
systems in the world
- The Prussian government set up TechnicalTraining Institute
(Gewerbeinstitut), made sure that they received imported British
machine tools for reverse engineering and for training German
craftsmen, who then disseminated the technology in German industry
- British craftsmen were also attracted to Prussia, as much of technology
depended on tacit knowledge
- The german machine tool industry and machine-building proved capable
of designing and manufacturing the machinery necessary to make
steam locamotive in the 1840s and1850s
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 6

8. National innovation system
THE RISE OF RESEARCH AND DEVELOPMENT
- The main factor in establishing the German chemical industry's leading
position before and after the first World war.
- The major institutional innovation of the in-house industrial R&D
department was firstly introduced in 1870
- As a result, Hoechst, Bayer and BASF have continued and strengthened
this tradition down to the present day.
- After the second world war, the prestige of organized, professional R&D
was very high, it was spread to other countries.
- It was a linear model of science and technology "push".
- The case of Atom bomb project
Basic physics - large-scale development in big labs- applications and
innovations (whether military or civil )
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 7

9. National innovation system
Increasing in R&D investment occurred in all industrial countries in
the 1950s and 1960s, and even in the Third World Countries
Estimated gross expenditure on research and development as a
fraction of GNP, 1934-1983
1934 1967 1983 1983
Civil R&D only
USA 0.6 3.1 2.7 2.0
EC* 0.2 1.2 2.1 1.8
Japan 0.1 1.0 2.7 2.7
USSR 0.3 3.2 3.6 1.0
*Estimated weighted average of 12 EC countries.
Source: Freeman,Chris’ estimates based on Bernal (1939) adapted to “Frascati” definition
(1963), OECD statistics, and adjustments to Soviet statistics based on Freeman and Young,
(1965)
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 8

10. National innovation system
MORE FACTORS?
Evidence accumulated that the rate of technical change and of economic
growth depended more on efficient diffusion than on being first in the world
with radical innovation as much on social innovations as on technical
innovations.
Japan USSR
- Integration of R&D, - Separate research institute within the academy
production, and system (for fundamental research), for each industry
technology imports at sector ( for applied research and development) and
firm level for the design of plant and import of technology.
- Strong user-producer - Weak links between these different institutions and
linkages enterprise-level R&D remained rather weak
- “Kairetsu” Model - The user-producer linkages were very weak or
almost non-existent in some areas of the Soviet
Union.
Source: Summarized from Freeman’s idea (1995)
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 9

11. National innovation system
THE CONTINUING IMPORTANCE OF THE HOME MARKET
Firm strategy,
structure and rivalry
Factor conditions Demand conditions
Related and
supporting industries
[M. Porter 1990]
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 10

12. National innovation system
SAXENIAN'S IDEAS
- Innovation system dynamism is based on the organization of it's
firms or their relationships to one another or local institutions.
- Organization precedes technology. It is precisely the
openness, multiplicity and diversity of interconnections in Silicon
Valley that allows economic actors to continually scan the
environment for new opportunities and to invest in novel
technologies, markets and applications with unprecedented
speed.
- Regional advantage lies in an institutional environment that
supports continuous innovation and collective learning – one
that by it's very nature undermines technological trajectories or
path dependency.
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 11

13. Regional innovation system
REGIONAL INNOVATION SYSTEM
“The institutional infrastructure supporting innovation within
the production structure of a region" (Asheim and Coenen
2005)
- Silicon Valley
- Living lab and innovation system
Cluster
association
Business
angle
University Venture
capitalists
Technology Big Research
transfer centre companies institutes
SMEs
Technology test
NIVR
New centre
ventures
Vocational
ESA training centre
Incubator
[Katzy and Crownston 2008, Competency rallying for technical innovation – the case of the Virtuelle Fabrik]
[Schuh, Katzy, Eisen 1997, Wie virtuelle Unternehmen funktionieren: Der Praxistest ist bestanden]
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 12

14. Regional innovation system- what can we learn from
Silicon Valley
WHAT IS SILICON
VALLEY??
http://www.lucafiligheddu.com/wp-content/uploads/2008/09/siliconvalley.jpg
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 13

15. Regional innovation system- what can we learn from
Silicon Valley
SILICON VALLEY IS NOT
- a place you can point to on a map
- a planned phenomenon
- characterized by silicon or chips
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 14

16. Regional innovation system- what can we learn from
Silicon Valley
SO WHAT IS SILICON VALLEY?
- 1,500 square miles
- 35 Cities, 4 counties
- 2.4 million people, 41 percent
foreign born
- 1.2 million workers
- 81 percent high school
diploma
- 40 percent college degree
- 25 percent of workforce in
high-skill occupations
- Income average 60 percent
higher than US
- 6 percent US GNP, 11 percent
of US patents
Source: Silicon Valley index 2008 www.jointventure.org
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 15

17. Regional innovation system- what can we learn from
Silicon Valley
MORE ABOUT SILICON VALLEY
Source: www.jointventure.org
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18. Regional innovation system- what can we learn from
Silicon Valley
WHERE THE VALLEY'S EDGE STEMS FROM
- Market of Ideas?
- Market of Capital?
- Market of Talent?
- Or anything else?
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 17

19. Regional innovation system- what can we learn from
Silicon Valley
DIAMOND MODEL OF SILICON VALLEY
Factor Conditions
- 26% Bachelor's Degree and 18% Graduate or professional degree (Adult
educational attainment)
- The area's universities are an important magnet for and source of highly skilled
talent.
- Venture capital 2007 Q1-Q3: $5.9billion, the region receives almost 30% of the
nation's total venture capital funding.
- the region's cities now account for 11 of the top 20 U.S. cities for patent
registrations
Infrastructure
- The region is lagging other global regions in broadband speed and penetration
Bay area 51%200kb/bits; Japan 65%256kb/bits; South Korea 94% 256kb/bits.
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 18

20. Regional innovation system- what can we learn from
Silicon Valley
DIAMOND MODEL OF SILICON VALLEY
Firm strategy, structure and rivalry
- Open business environment
- Decentralized organizational forms even as it grew
Business environment
- Social health
- Quality of education
- Affordability of its housing
- The upward mobility of its people
- Quality of life
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 19

21. Regional innovation system- what can we learn from
Silicon Valley
MORE SECRET INGREDIENT?
Network and
relationships!!!
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 20

22. Regional innovation system- what can we learn from
Silicon Valley
APOLLO AND SUN
1980 1982 1984 1986 1987 1989
Apollo Computer - Poduska was - Commited 30% of
- Started in 1980 with - Sold to HP
replaced R&D budget to
pioneered workstation
RISC
- Poduska and his team - Fell behind
from Prime computer
- Adopted proprietary
Sun Microsystems standards
- Founded in 1982 - Cheaper,
- Vertical integration Management team nonpropriet - Surpassed
- Apollo
ary and half
with a mix of
price than
experiences
that of
- Adopted open Apollo
system (UNIX)
- Limited
specialization
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 21

23. What can we learn from Silicon Valley
KEY SUCCESSFUL FACTORS ARE IDENTIFIED
- High level of research capability
- Abundance of high-qualified manpower
- A pleasant business climate (business environment)
- The retention of enough funds (VCs)
- Diffusion of S&T and innovation culture is important in addition to
having an open business climate (cooperation culture)
- Inducement of multinational companies or research institutes (anchor
company's role)
- Networking and Entrepreneurship
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 22

24. Innovation Cluster the case of GALILEO and SatNav
GALILEO
– The first satellite positioning and
navigation system specifically
designed for civil purposes
- Some EUR 3.4 billion to be
invested
- 30 satellites to be launched and
numerous ground equipment to be
installed
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 23

25. Innovation Cluster the case of GALILEO and SatNav
GALILEO
- A market for equipment and
services worth some EUR 200
billion per annum by 2013
- More than 100 000 new jobs in
transportation, energy, environmen
tal management, recreation ……
are expected
- But how???
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 24

26. Innovation Cluster the case of GALILEO and SatNav
INNOFIT
The findings we got so far
1) All the clusters show a weakness
in market orientation-Demand
creation
2) Different demand creation
mechanisms were identified
(ESNC, Innovation Voucher,
Galileo Road Show……)
3) There is no “one-size-fit-all”
demand creation mechanism
4) Require stakeholder’s
involvement
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 25

27. Innovation Cluster the case of GALILEO and SatNav
THE STORY IN NETHERLANDS
Key actors
? - NIVR
ESNC
Ideas
Technical/ Innovation
Products/
Scientific voucher Demand
Services
Knowledge
- TOMTOM
-ESA- ESTEC - Dutch space
-TUD - Logica
-TNO - Other SMEs,
-…… and start ups
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 26

28. Innovation Cluster the case of GALILEO and SatNav
Cluster
association
Business
angle
Venture
capitalists
University Big Research
companies institutes
Technology SME
transfer s
centre Living lab
Technology
NIVR test centre
New ventures
Vocational
training
centre
ESA
Incubator
[Katzy and Crowston 2008, Competency rallying for technical innovation – the case of the Virtuelle Fabrik]
[Schuh, Katzy, Eisen 1997, Wie virtuelle Unternehmen funktionieren: Der Praxistest ist bestanden]
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 27

29. Innovation Cluster the case of GALILEO and SatNav
THE STATUS QUO OF SATNAV IN HOLLAND
- Strengthen Anchor company's role
- Sub-clustering developed but different groups within don't know
each other well.
- Positive innovation voucher, IPC
- Better integration between venture capital and early stage
financing
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 28

30. Summary
NIS, SIS AND INNOVATION CLUSTER
Category National innovation Sub-national Innovation Cluster
system innovation system
(SIS)
Focus - National level innovation - Regional level - Clustering
process - Innovation at specific
area
Major actors - National/local government, - Local government, - Industry, university,
university, industry, public local university, local public research
institute industry (SME), institute
public institute
Policy Objective - National competitiveness - Regional - Competitiveness of
competitiveness cluster
Policy direction - Promoting interaction - Involvement of local - Cluster
- S&T culture promotion government establishment
- R&D investment and - More local contents development
management into S&T policy
Source: www.unescap.org/tid/publication/indpub2507_chap3.pdf
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 29

31. Readings for session 6: Governance of Innovation
King/Gurbaxani/Kraemer/McFarlan/Raman/Yap (1994):
Institutional factors in information technology innovation.
In: Information Systems Research 5, 2: 139-169.
www.CeTIM.org Prof. Dr. Bernhard Katzy 14/02/12 30