The essence of a national innovation system Dr. Heikki Kotilainen Deputy Director General Tekes, the National Technology Agency Prague 30.11.2004

Dr. Heikki Kotilainen Deputy Director General Dr. tech. in mechanical engineering and physical metallurgy, studies in Germany and Austria Work in business and research In Tekes since establishment 1983 Responsible for international cooperation, national programmes, funding Industrial councellor in Boston U.S. (1993-95) Secretary General of EUREKA in Brussels (1999-2003) Currently responsible for international innovation benchmarking and strategic planning INNOVATION TECHNO LOGY SCIENCE PUBLIC FUNDING

The essence of a national innovation system Innovation system and policy Operational aspects Impelementation of the policy Finnish solution Conclusions

? THE POLICY DEVELOPMENTS IN FINLAND 1945 2000 TECHNOLOGICAL WEALTH DRIVEN ? TECHNOLOGY& SOCIETY POLICY FOR SOCIAL SCIENCES INVESTMENT DRIVEN TECHNOLOGICAL ADVANCEMENT ? INTERNATIONAL COMPETITION TECHNOLOGY POLICY TECHNOLOGY SUBSIDIES NATIONAL COMPETITIVENESS MARKET/INNOVATION DRIVEN MANUFACTURING DRIVEN INTERNATIONAL COOPERATION SKILLS AS COMPETITIVE FACTOR INTRODUCTION OF NATIONAL INNOVATION SYSTEM PRECONDITIONS FOR TECHNOLOGICAL&SOCIETAL ADVANCEMENT RISK/VENTURE CAPITAL RAW MATERIALS AS COMPETITIVE FACTOR GROWING NATIONAL DEMAND INVESTMENT SUBSIDIES SURVIVAL POLICY LACK OF CONSUMER GOODS INDEPENDENT INDUSTRIES DOMESTIC MARKET 1945 2000 TTKK TM19/HK 2.3.1999 © S&T Balance

THREE MAIN ARGUMENTS FOR PUBLIC SECTOR TO INVEST IN R&D First technology, innovation and knowledge investment contribute strongly in economical growth. Created and specialised production factors give relative competition advantage and economical growth. Secondly based on only market driven factors the research will get too little resources with regard to the needs of the society. The society benefits more from innovations than single innovator. Thirdly market driven research will be too short-sighted to be able to create long-term benefits to the society. The time span of applied research from idea to the market will be 5-10 years and in the basic research about 20 years. Source: OECD Public R&D arguments

Key questions concerning public innovation system Institutional structures what are the main organizations involved? what is their role and function in policy design and implementation, and budget allocation? what are the linkages among these organizations? Organizational structures what is the structure of individual organization? what is the legal set-up of the main organization? what are the funding instruments and how are they implemented? © S&T Balance Public innovation system

INNOVATION ROUTE THROUGH THE PUBLIC INNOVATION SYSTEM IN FINLAND MARKET MARKET ADAPTATION INDUSTRIAL APPLICATION FINPRO SITRA FINNVERA VENTURE CAPITAL TE CENTRES SCIENCE PARKS PRIVATE/SEMIPRIVATE FINANCING REGULATIONS,STANDARDS,LAWS POLICY PLANS, MINISTRIES AND GOVERNMENT AUTHORITIES R&D AND INNOVATION DEVELOPMENT FINNISH INSTITUTE OF INVENTIONS TEKES ACADEMY OF FINLAND VTT UNIVERSITIES POLYTECHNICS PUBLIC FINANCING R&D SUPPORT SCIENCE & TECHNOLOGY POLICY COUNCIL POTENTIAL INNOVATION SOCIAL & BUSINESS DEMAND © S&T Balance INNOROUTE3/HK 6.5.1999

Planning and implementing of technology and innovation policy Government Parliament Science and technology policy council Annual budget (law) 3 year outlines Planning Ministries (Education, Trade&Industry, Finance etc.) Annual & semi- annual reports and feedback Annual objectives and agreements Implementing the policy Institutions (Academy of Finland, Tekes, Universities VTT, Sectoral Institutes) Tech.plocy execution

BALANCE BETWEEN THE SCIENCE, TECHNOLOGY AND SOCIAL DEVELOPMENT MAINTAIN CLEAR NATIONAL FOCUS NATIONAL POLICY/STPC National Authorities ADAPTING TO CUSTOMERS (The Business Community, Society) PROACTIVE VISION (Science and University Community, Society) BOTTOM-UP REQUESTS MANAGE KEY DEMANDS © S&T Balance Mukula 15/HK 2.6.1999

The effectiveness of public R&D support ”Protection-Promotion-Policy” SCIENCE POLICY BASIC RESEARCH MATURITY OF THE SOCIETY NATIONAL PROGRAMMES APPLIED RESEARCH TECHNOLOGY POLICY THE BENEFIT OF SOCIETY INDUSTRIAL R&D INNOVATION POLICY ALLOCATED PUBLIC MONEY DIRECT SUBSIDIES INDUSTRIAL POLICY THE SPEED OF IMPACT © S&T Balance SLO1/HK 7.4.1999

BERD/GERD of Finland 1981 - 2003 % Innovation Policy Technology Policy Science Policy BERD/policies © S&T Balance

R&D/GDP in Finland 1981-2003 % Innovation Policy Technology Policy Science Policy © S&T Balance R&D/GDP,policies

Guidelines and Prerequisites for Establishing Innovation Policy Main target: High return of R&D investment Secure sufficient industrial R&D investment Do not copy – no directly adaptable features Environment is dynamic – create a continuous process Iterative process- questions & answers – solutions Consider methodology – not single tasks. Single tasks can serve as concrete examples for the creation of process/methodology Statistical data Auditing the innovation infrastructure © S&T Balance Guidelines

FACTORS IN THE DEVELOPMENT OF THE INNOVATION SYSTEM LARGE ENTITIES UNDER CONSIDERATION UNIVERSITIES AND SECTORAL RESEARCH AS A PART OF THE INNOVATION SYSTEM (human resources) CENTRES OF EXCELLENCE FOR RESEARCH AND EDUCATION ORGANISATIONAL CONSIDERATIONS SELECTIVE CHOICE AND PRIORISATION OF TOPICS TECHNOLOGY PROGRAMMES FOR INDUSTRIAL CLUSTERS MARKET ORIENTED RESEARCH (product development) INTERNATIONAL COOPERATION FOLLOW-UP AND EVALUATION RESEARCH CONSIDERATIONS GOVERNANCE (norms, rules, regulations, laws) NETWORKING BETWEEN THE ACTORS (vendor/ distribution channels) LEGITIMATION (creation of trust) IPR PROTECTION VENTURE CAPITAL INVOLVEMENT INSTITUTIONAL CONSIDERATIONS © S&T Balance Pres/factors innovation system

CHARACTERISTICS OF FINNISH INNOVATION POLICIES SUMMARY CHARACTERISTICS OF FINNISH INNOVATION POLICIES Networking among all relevant actors Cooperation (triple helix) System approach, large entities (value chain) e.g. clusters under consideration Highly targeted approach and clearly defined goals Strong technology orientation Regional aspects, not policy – networking instead of subsidies Vinnova årsmöte

Multiplication of public money in the innovation system Cumulative tax Government Parliament Ministries Short term investment Public finance Venture capital Funding agency grants loans equity funding Long term investment Businesses, employment Universities Research institutes New technology, knowledge, skills (c)S&T Balance Pres/Multiplicatioon publicmoney

Prerequisites for administration involvement in R&D Business and research understanding Genuine interest in facilitating development Trust by industrial community Trust by research community Money and funding opportunities Admini.involvement

State Incentives: The Business Perspective* If the program is a grant, is the grant made directly to the company, or is it given to a locality, which in turn will pass along the incentive to the investor in some fashion? What are the terms of the grant? Although the idea of a grant generally implies no responsibility to pay it back, there may be some that do expect payback. What obligations does the grant carry for the firm, both financial, and non-financial? If the incentive involves debt financing, how does the state view the debt in the hierarchy of corporate obligations? If debt finance, who is the actual lender and who sets the terms? If a participation loan, what are the composite terms? Who sets uinderwriting criteria for the loan, and what are they? Does the incentive carry any matching requirements, and what are they? For all types of incentives, what are the requirements in terms of job creation, investment leveraging and/or tax revenue generation? What are the reporting requirements? What are the consequences if initial projections are not met? * Directory of State Business Development Incentives, NASDA 2002

Acceptability of state aid and other incentives in the society COMPLIANCE with national and international legislation TRANSPARENCY of criteria and processes EFFECTIVE Implementation Speed is crucial! UNDERSTANDABLE and PREDICTABLE operation FLEXIBLE adaptation to rapidly changing environment CONTINUOUS EVALUATION of results and processes WIDE ACCEPTANCE in the society FEEDBACK

DEFINITION OF INNOVATION CUSTOMERS MARKETS BUSINESS MODELS INNOVATION IMITATION BUSINESS INVENTION ”If innovation is the commercial application of existing knowledge in a new context, technologically driven innovation is only one form of this. Innovation is distinct from research, which results in new knowledge and from the entrepreneurial function that spots market opportunities for products and services. It is the result of the interaction of these two functions” ”Innovate for a competitive Europe”, A new Action Plan for Innovation, European Commission, 2004 RESEARCH, KNOWLEDGE, IDEA, TECHNOLOGY © S&T Balance Innovation def.

RESEARCH AND INNOVATION A new Action Plan for Innovation, New knowledge Curiosity Business models Customer needs Research ”If innovation is the commercial application of existing knowledge in a new context, technologically driven innovation is only one form of this. Innovation is distinct from research, which results in new knowledge and from the entrepreneurial function that spots market opportunities for products and services. It is the result of the interaction of these two functions” ”Innovate for a competitive Europe”, A new Action Plan for Innovation, European Commission, 2004 Innovation R & D WORK Linear model Scientific excellence Turnover/earnings Growth and Employment © S&T Balance Meet R&I

RESEARCH PARADIGMS Old paradigm (Linear model) BASIC RESEARCH APPLIED RESEARCH DEVELOPMENT New paradigm (Concurrent model) SCIENTIFIC UNDERSTANDING PROBLEM SOLVING BUSINESS OPTIONS DEMAND Basic research MARKET SOCIETAL & BUSINESS CHALLENGES Applied research Development TECHNOLOGICAL SOLUTIONS TTKK TM 15/HK 2.3.1999 © S&T Balance

The Interface of Research and Industry CURIOSITY KNOWLEDGE CREATION SCIENTIFIC EXCELLENCE PUBLICATIONS CUSTOMER NEEDS MARKET&MARKETABILITY STRATEGY PRODUCT PORTFOLIO R&D PORTFOLIO COMPETENCE MONEY&FINANCING IPR REVENUES TECHNOLOGY TRANSFER R&I interface

PRIORITIES OF THE INNOVATION SYSTEM Case: Finland SUPPLY DEMAND RESEARCH FACILITATOR ENTERPRISES QUALITY: APPROPRIATE STANDARD RELEVANCE EFFECTIVENESS PUBLIC FINANCE NATIONAL PROGRAMMES VENTURE CAPITAL IPR PROTECTION ARTICULATION OF NEEDS APPROPRIATE TECHNOLOGY ABSORB NEW TECHNOLOGIES Pres/ priorit,innovation system

Technology programmes Steering enterprices 23 on-going programmes in 2004 with a total extent of EUR 1.2 billion a programme lasts typically 3–5 years annually 2000 company participations annually 800 research unit participations Tekes usually finances - 60–80 % of university projects - 25–50 % of company projects Public research projects Grants Tekes preparing co-ordi- nating decision making Synergy Networking Concurrent development Part financing Grants Loans Capital loans Company R&D projects Implementation of results of public research is based on parallel execution and networking with company projects. #54280

Annual average 2000 - 2002 Million euros Funding flows of Tekes funded R&D projects between large companies, research organisations and SMEs Annual average 2000 - 2002 Million euros Universities Public research centres SMEs Large companies 30 Project volume 17 6 11 Tekes 90 Funding flows to/from large companies Tekes funding to R&D projects of large companies Large companies projects buy research services from research organisations Large companies projects use SMEs as subcontractors Large companies co-finance public research projects Net flow + 30 - 17 - 6 - 11 - 4 Large companies (more than 5 000 employees) receive 8 % of Tekes total funding and 13 % of Tekes business R&D funding. Large companies co-finance Tekes R&D projects in universities, public research centres and SMEs more than Tekes finances their projects. This system is managed by Tekes funding criteria. The system increases the quality of R&D projects and has important externalities in: knowledge transfer between large companies and research organisations development of SMEs as subcontractors and strategic partners of large companies DM 58774 05-2003 Copyright © Tekes

Networking in corporate R&D projects funded by Tekes Share of networked projects, % Total corporate R&D projects Subcontracting from research institutes Part of technology programme International cooperation Large company subcontracting from SMEs DM 58620 08-2003 Copyright © Tekes

The Main Factors of Operations by the National Innovation Agency Speed and Efficacy (concurrent development) Trust (independent, centralized decision making) Expertise (human resources) Innoagency

Unique features of Finnish innovation system Simultaneous implementation of following issues: Genuine and voluntary cooperation within Triple Helix High degree of concensus and implementation Funding simultaneously universities, research insititutes and industry to couple basic, applied research to development High degree of freedom for decision making In-house assessment of projects System for national technology programmes Genuine, holistic and simple system (few actors) Uniqueness of FI system

CONCLUSIONS GOVERNMENT IS A FACILITATOR - NOT AN OPERATIVE ACTOR TECHNOLOGY MUST NOT DEPART FROM THE SOCIETAL DEVELOPMENT - OBJECTIVES FOR THE SOCIAL RESEARCH - UTILISATION OF TECHNOLOGY IN SOCIAL AND SECTORIAL SCIENCES R&D FUNDING MORE FOCUSED ON - GOAL ORIENTED BASIC RESEARCH MARKET ORIENTED DEVELOPMENT NETWORKING SECURING THE QUALITY AND QUANTITY OF RESEARCH RESOURSES - FOCUS ON EDUCATION - RESEARCHER CAREER AS A RELEVANT OPTION CONSCIOUS ACTIONS REGARDING “CONCURRENT DEVELOPMENT” INTERNATIONAL COOPERATION AS A PRACTICAL TOOL - NOT AS A HOBBY © S&T Balance Pres/conclus policy

Thank you for your kind attention! Dr. Heikki Kotilainen Thank you for your kind attention! www.tekes.fi