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Toward Dynamic Innovation Environments

By Sitra

Experiences and analyses of globalisation indicate that the global economy has entered an innovation oriented phase. It is characterised by:

  • intensifying competition in the global market
  • human capital becoming one of the most central factors of competitive ability
  • emphasis on research and development nationally as well as in enterprises
  • differentiation of products and services according to customers and markets.

Each national economy is in its own phase of development and all such economies are not necessarily on the same development track. Nevertheless, new developing national economies (China, India, South Korea, etc.) will be rapidly moving to the innovation- oriented phase. Correspondingly, many current industrial countries are in danger of drifting to a prosperity-oriented phase, characterised by excessive complacency with the achieved competitive ability and standard of living. This may lead to regression and freezing of the society’s transformation ability. Signs of stagnation are already visible in Finland. Increasing social dynamics is one of the most important fundamental challenges when making Finland a leader in innovation activity.

Innovation at the core of human activities

Innovation refers to the successful production, application and utilisation of novelty both in the economy and in society. Innovations can be classifi ed as being technological, product, process, service or organisational innovations. Innovation creates added value to the operations. The innovation process has traditionally been perceived as consisting of three different stages, namely invention, innovation and dissemination. This traditional view has been called the waterfall model because it is based on the idea that the amount of basic research affects the number of innovations, which in turn determines the growth rate of production and subsequently of employment.

However, limitations of the waterfall model have been identifi ed. It has been noticed that technological change does not proceed in a linear manner as presumed by the model, and that it is impossible to separate any clearly distinguishable stages that must follow each other. It has also been noticed that several social factors affect the development of innovation processes. Market factors and social demand are the most crucial of these. A more recent view emphasises the interactive character of the innovation process, the signifi cance of communication, and the synergic advantages of networks and clusters.

The concept of innovation is often associated with technology alone, but practical innovations can also comprise new types of products, services, operating models, organisation methods or strategic approaches. According to more recent opinion, innovations can be created any time and in any area of economic (or other) activity. When innovation is understood in its broad sense, there is no reason to associate it only with great radical changes but also with gradual incremental changes. The change of view increasingly emphasises the signifi cance of an entire innovation process or innovation activity in addition to an individual innovation.

This programme has adopted a broad view of the concept of innovation. In other words, innovation refers to doing things in a new, different way, the objective being a better fi nal result or creation of added value. According to this, the reform of the Finnish economy will require good conditions for both radical and incremental innovations. When employing the broad concept of innovation, attention is focused above all on the learning processes through which new knowledge and new technology are created, distributed and used in different fi elds. Learning is an interactive process affected by existing production structures, organisation structures and institutional factors.

The innovation system is an interaction network

In the 1990s, it became common in Finland to take a holistic view of innovation activity through the concept of the innovation system. The innovation system consists of a group of institutions that together and separately contribute to the development and dissemination of new knowledge and new technologies and that form the structural and legislative framework within which the government implements policy that promotes innovation activity. Defi ned more broadly, the innovation system includes the structures, actors and interdependencies, as well as the operating environment created by regulations. Finland’s national innovation policy in particular but also the EU’s innovation policy affect the innovation system as well as innovation activity. The main levels of innovation policy are: development of structures and infrastructure, and supporting the innovation processes of enterprises and development of services, as well as the promotion of an innovation culture and the creation of shared visions.

The most crucial actors of Finland’s innovation system at national level include the ministries, the Science and Technology Policy Council, the Academy of Finland, National Technology Agency of Finland Tekes, National Fund for Research and Development Sitra, the universities, Technical Research Centre of Finland VTT, sector research institutions, Finpro, Finnvera, Finnish Industry Investment and venture capital investors. Some of the important actors at local level include various technology centres, TE Centres, so-called centres of competence, local venture capital investors, as well as industry-related municipal bodies. It is characteristic of the Finnish innovation system that in addition to a number of large national actors, it is composed of many relatively small organisations, the operations of which have elements of duplication. It is most important to intensify cooperation and increase interaction. Duplication must also be eliminated and units with suffi cient functional ability must be formed. Even though cooperation works better in Finland than in many other countries, we are still far from an operating model in which local and national innovation actors develop the innovation environment jointly in accordance with a common strategy.

Cooperation relationships welling forth from the operating environment have a signifi cant effect on innovativeness. Surveys have indicated that the most important sources of innovations in enterprises include customers and subcontractors, and often also competitors. Interaction between universities and enterprises is also a signifi cant source of innovations. The innovation system has indeed been supported by the idea that innovations are not created and organisations and individuals do not innovate in a vacuum: an organisation is always a part of its environment and many social actors infl uence the innovation activity of enterprises and other organisations.

The innovation environment as a culture medium for innovations

Even though the concept of an innovation system has been a good tool for improving the functions that support innovation activity, it does not cover all the signifi cant factors. Due to this, the signifi cance of innovation environments has been emphasised in parallel with the innovation system or even instead of it. In the development of innovation environments, the scope is both wider and deeper than when attention is mostly focused on systems. Here it must be noticed, however, that the concept of an innovation environment does not replace the innovation system. These approaches supplement each other. The innovation system is the foundation of the innovation environment.

In addition to the innovation system, the central elements of the innovation environment include an innovation culture, “buzzing”, or a number of processes that inspire individuals and organisations and create new innovations, global information channels, a common awareness of innovation and shared interpretative frames of reference (in other words, realisation of the signifi cance of reforming, a common vocabulary and a way to perceive the innovation processes of a certain sector). To a great extent, the emphasis on innovation environments is due to the observation that innovativeness is highest in encouraging and dynamic innovation environments with a high risk-taking capacity.

The innovation environment is perceived by the actors as heterogeneous and dynamic networks that are always simultaneously both international and local. Networking with international centres of competence and actors plays a key role in the development of the innovation environment. On the other hand, locality is emphasised due to the fact that people live and operate in certain physical environments and within a certain type of national frame of reference (legislation, infrastructure, services, etc.). Research on innovation and creativity has indicated that “the quality of the location” is very signifi cant for innovation activity. Successful locations and high-quality innovation environments bound to a certain place attract experts and investments. Here one must notice, however, that individuals as well as enterprises generally perceive the innovation environment as a cross-border network. However, it is essential that Finland should have strong nodes in global innovation networks, local innovation environments.

It is characteristic of innovation environments that many kinds of fascinating and useful processes that create new knowledge are constantly under way, and these attract innovative and creative individuals and enterprises. Thus, the core of innovation environments is an information and communication environment in which research and practice are intertwined and in which opportunities for both conscious and unconscious learning are continuously created. This creates common views of the development and outlook of a certain industry, a generic technology or branch-specifi c technology, as well as the effects of these on the future. It is essential that the actors gain a lot of information from many sources both directly and indirectly by just being present in the innovation environment. These environments are thus characterised by a kind of “drizzle of information” in which a lot of information is conveyed to the actors without the actors necessarily being able to identify any individual source of information.

Innovations are often created through individuals and their networks. Therefore the ability to attract competent and creative individuals has become quite a crucial feature of the innovation environment. Among others, Richard Florida has paid attention to this feature. His studies emphasise the significance of creative individuals in the economic success of urban regions. Creative individuals look for inspiring assignments, colleagues and environments. They appreciate difference and tolerance. In addition to work, leisure time is important to them according to Florida. Creative environments have enough “buzzing” and events to keep life interesting and challenging. The core of a really dynamic innovation environment is an innovation culture that encourages individuals to take risks, accepts failure, tolerates difference and appreciates entrepreneurship.

Innovation activity must be international

Even though international cooperation relationships were previously mentioned as a characteristic feature of the innovation environment, the signifi cance of international activity is worthy of brief separate consideration. High-quality cooperation relationships with the world’s leading centres of innovation are extremely important for Finland’s future development because innovation activity will be even more international in the future. Innovation activity will be organised as global innovation networks having local nodes in different parts of the world. The majority of new knowledge and innovation produced in the world originates beyond the borders of Finland. Because of this, remaining at the leading edge of development will require Finland to actively seek cooperation with the best centres of innovation in the world.

The transfer to Finland of knowledge and innovations produced at international centres and their utilisation has been totally inadequate so far. The transfer of knowledge and innovations requires that Finns engage in intensive long-term work at foreign centres of competence – visits of a few weeks are not enough to transfer the “quiet information” included in know-how. We must build “two-way bridges” to worldclass concentrations of know-how so that there will be ample movement of people both from Finland to global centres of competence and from other countries to Finland.

The business processes of enterprises are also global. Business is increasingly developing towards the direction that each enterprise focuses on certain areas of strength and supplements its own competence by fi nding the best partners and suppliers in the international market. This leads to the global networking of business and emphasises the management (orchestration) of networks as a central form of business competence. Enterprises establish their functions in locations that provide the best framework from a functional point of view. Crucial points governing location include:

  • the dynamics and high quality of the innovation environment
  • the vicinity of growing markets
  • the presence of business partners
  • the existence of legislation favourable to business (copyrights, competition legislation, rights of ownership, etc.)
  • the availability of skilled labour and
  • the total costs of practising business (labour expenses, transport expenses, taxation, etc.).

The objective of this programme is to create a world-class dynamic innovation environment in Finland, attracting innovative companies and creative individuals to the country.

This excerpt was originally published in the report Making Finland a Leading Country in Innovation by Sitra in 2005.

15 Jun 2011