Key Components of Innovation System S. T. K Naim Consultant COMSTECH, Islamabad 3-Day Regional Consultative Workshop on “National Innovation System and Intellectual Property” 7-9 October 2013, COMSATS, Islamabad

INVENTION AND INNOVATION Invention Creation of an idea of how to do or make something (usually by an individual) “First occurrence of an idea for a new product or process” (Fagerberg, 2004) "an increment in the set of total technical knowledge of a given society" (Mokyr, 1990) Inventions may be carried out in universities, hospitals, R&D organizations 2

Innovation Making an idea for a new product or process real, putting it into practice Usually carried out in Firms First commercialization of an idea (Fagerberg 2004) The act of creating a new good or service Innovation concept is commonly applied to product, process or service innovation 3

National Innovation Systems Definition “..the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies.” (Freeman, 1987) “..the elements and relationship which interact in the production, diffusion and use of new, and economically useful knowledge…and are either located within or rooted inside the borders of a nation state.” (Lundvall, 1992) 4

Organizational Innovation Different types of innovations include: new products, new methods of productions, new sources of supply, exploitation of new markets and new ways to organize businesses (Schumpeter) Organizational Innovation: US success to forge ahead was due to new ways to organize production and distribution 5

Radical and Incremental Innovation Radical Introduction of new type of Innovation technology Incremental Continuous improvement in Innovation product or process Most innovations go through drastic changes in their life time: Automobile, Aero plane, Mobile Phones etc. 6

Innovation Concepts: STI and DUI Learning STI Learning Human Development, Scientific Research, Codification, R&D efforts and S&T organizations Production of knowledge in Universities and codification This captures only one form of learning. DUI (Doing, Using and Interacting) on job training, production engineering, design, quality control, management, marketing 7

SI Approach focuses on three types of learning Organizational learning takes place in firms and creates structural capital Research and Development - carried out in universities, firms and R&D organizations – generated knowledge is often publically available Competence Building – training and education both at schools, universities and at firms to create human capital - These activities differ in quality and scope from one country to another 8

Six functional requirements for building IS (Staffan Jacobsson and Anna Bergek) Knowledge Development and Diffusion - Identify knowledge gaps Influence on the Direction of Search For an IS to develop, a whole range of firms and other organization have to work together Not just identification of new opportunity but incentives Coordination of investment between different firms A fuel cell operated automobile requires Contd… 9

Entrepreneurial Experimentation Investment in the development and production of fuel cells (Universities or Firms) Fuel cell driven cars (Firms) Production of energy carriers for fuel cells (Service providers) Petrol stations for fuel cells Coordination will require a range of firms supplying complimentary products and services Entrepreneurial Experimentation From a social perspective many entrepreneurial experiments take place. An IS without vibrant experimentation will fail Contd… 10

Market Formation For a new IS, markets may not exist, or be greatly underdeveloped Public purchasing for market formation Formation of standards is often a prerequisite for markets to evolve Incentives for entrepreneurs who introduce new technology to the market Contd… 11

Resource Mobilization Legitimating Legitimacy is prerequisite for formation of new industries Social Acceptance, compliance with relevant institutions Resource Mobilization As IS evolves different kind of resources needs to be mobilized. These includes technical, scientific, financials etc. 12

Functions of Innovation System Edquist (2004) identified 10 activities as essential functions of the Innovation system: Research and Development Competence building Formation of new product markets Articulation of user needs Creation and change of organization Networking around knowledge Creating and changing institutions Incubating activities Financial institutions Consultancy services 13

Functions of Innovation System Lundvall (1992) added five more factors to the above 10 Competition Openness to international trade Capital flows (inward and outward FDI) Labour market dynamics Social welfare systems 14

Fundamental activities of an Innovation System R&D for new knowledge creation Competence building, investment in human capital, production and reproduction of skills, learning Formation of new product markets (public purchasing) Quality requirement from demand side (MSTQ system) Establishing organizations and their frequent change with respect to new fields of innovation Contd.. 15

Fundamental activities of an Innovation System Networks through markets or other mechanisms. Interactive learning between different organizations Creating and changing institutions e.g. IPR laws, tax laws, environment and safety regulations Incubation facilities – providing access to facilities, administrative support Contd.. 16

Fundamental activities of an Innovation System Financing of innovation process and commercialization of knowledge Consultancy services e.g. technology transfer, commercial information, engineering and other services 17

Stages in the development of an innovation system U G F TNC TC Emerging IS Mature (well functioning) IS Time Indigenous Firms Government Universities Transnational corporations Technological centres Source: Chaminade and Vang, (2008) 18

A generic national innovation system Demand Consumers (final demand) Producers (intermediate demand) Framework conditions Financial environment; taxation and incentives; propensity to innovations and entrepreneurship; mobility, etc. Company system Large Companies Mature SMEs New TBFs Education and research system Professional education and training Higher education and research Public sector research Political system Government Governance STI policies Intermediaries Research institutes Brokers Infrastructure Banking, IPR and venture information capital systems Source: Arnold and Kuhlman (2001) 19

Regional Innovation System Innovation activity is not uniformly distributed across the geographical landscape Process of knowledge production exhibits a distinctive geography Tacit knowledge become major sources of acquiring unique capabilities Tacit knowledge is socially and culturally embedded and is context specific Spatial proximity is key - knowledge is sticky and localized learning with in the region - Supported by cluster policy 20

Sectoral Systems of Innovation A sector is set of activities that are unified by some linked product Sectoral system focuses on three main dimensions of sectors: Knowledge and technology domain Actors and networks; Institutions (Norms, routines, established practices, rules, laws, standards) (national institutions, patent law, sectoral institutions: labour markets or sector specific financial institutions.) 21

THANK YOU 22