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Developing Poles of Excellence:Partnerships between Research and Business

John DrydenDeputy Director for Science, Technology and Industry

OECD

EC Conference on Regions for Economic Change

Brussels, 12-13 June 2006

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Outline

The importance of innovation – its link to economic growth.

Policies to foster innovation Linking science to industry:

– The growing importance of interactions– Policies and tools– The role of public-private partnerships– “Innovative Clusters”

Conclusions

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The importance of innovation Innovation is the key driver of economic growth - new and improved

products, processes and services account for the bulk of economic growth since the Industrial Revolution.

Innovation is of growing importance to economic activity in OECD countries – global competition is forcing all countries to upgrade their economic activity and move up the value chain.

A growing number of countries recognise the importance of innovation:– Lisbon strategy in the EU– Policy strategies in the US, Japan and Korea to strengthen

innovation– Growing policy focus outside the OECD, notably in China.

Innovation has become more important to economic policy making – e.g. OECD Going for Growth report.

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Countries that are successful in innovation share common characteristics

Good fundamentals, including well-functioning labour and product markets and sufficient international openness

Above average improvement in innovation due to:

– Strong investment in knowledge (education, ICT and R&D)

– Success in turning new technology, notably ICT, in stronger productivity growth and process innovation, e.g. in services.

– High share of business in financing R&D

– A diversified base of innovators, with a greater role for small technology-based firms, thanks inter alia to a supportive financial system

– Solid regional pillars of national development, i.e. vibrant innovative clusters

– High level of networking among innovators, especially strong linkages between science and industry

Some examples of countries with high correlation of innovation and MFP growth: Australia, Finland, United States.

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Innovation Policy Innovation requires strong fundamentals (eg macro stability)

– But strong fundamentals are not necessarily sufficient – a range of market and system failures may limit innovation

Innovation policy addresses these problems, e.g.:– Innovation may be held back by barriers to interaction between partners in

the innovation process, e.g. between clients and firms, between universities and firms, at the international level, etc.

Some key trends in innovation policy in recent years:– Reform of universities and public research organisations – greater

autonomy, flexibility and focus on performance.

– Growing policy efforts to foster greater investment in business R&D and innovation (eg, R&D tax credits, numerical targets)

– Increased emphasis on networking and co-operation.

– Growing focus on international S&T co-operation.

– Greater attention to policy evaluation.

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Industry-science links are of growing importance in the innovation process

Increasing scientific content of innovation:– Growing importance of science-based technologies (electronics, new

materials, biotechnology, nanotechnology, advanced analytical and measurement methods)

– ICTs have accelerated and intensified the role of codified knowledge, resulting in a move away from craft-based technology to technology based on more formal bodies of knowledge (including science) in many traditional engineering sectors

Changes in business R&D strategies: “Open Innovation”:– Focus on core business and short to medium term research agenda

– Individual products and processes incorporate an increasing range of technologies

– Growing need for knowledge from outside the firm.

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SCIENCESCIENCE INDUSTRYNDUSTRYNon-conducive Non-conducive framework conditions framework conditions ((e.g.e.g. barriers to barriers to entrepreneurship)entrepreneurship)

Ineffective Ineffective intermediariesintermediaries

Deficient legal and Deficient legal and regulatory frameworkregulatory framework

Low propensity to innovate and lack of absorptive capacityLack of qualified S&T personnelShort time horizon of investment in innovation

Inappropriate researchers’ incentivesRegulatory obstacles to researchers’ mobility and entrepreneurshipSpecialisation in research fields not relevant to business

Speed-up the Speed-up the acquisition of new acquisition of new knowledgeknowledge

Increase the innovation Increase the innovation capacity of firmscapacity of firms

Upgrade innovative Upgrade innovative networks and clustersnetworks and clusters

Secure and diversify the funding base

Provide guidance for research priorities

Improve research tools and capabilities

Governments can help address obstacles to Industry-science links

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Connecting science to innovation –interactions and policies

An efficient science-industry interface involves:– Co-operation (e.g. joint laboratories)– Well-functioning markets for knowledge – involving spin-off firms,

mechanisms for patenting and licensing, research contracts and labour mobility between science and industry

– Efficient bridging institutions and platforms, e.g. incubators, science parks, intermediaries, clusters.

– Social and professional networks, e.g. through joint publication, conferences and expos, informal contacts

– Flows of graduates from science to industry

Policies to promote industry-science relationships– Entrepreneurship (new technology-based firms, including spin-offs) – Patenting (licensing IPR that results from publicly-funded research)– Co-operation (joint projects involving scientists and innovators) – Public-private partnerships for research and Innovation (P/PPs)

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P/PPs for innovation

• Definition:

• “Any formal relationship or arrangement over a fixed-term/indefinite period of time, between public and private actors, where both sides interact in the decision-making process, and co-invest scarce resources such as money, personnel, facility, and information in order to achieve specific objectives in the area of the area of science, technology, and innovation”

• A public-private partnership -- as opposed to more casual, arms length or hierarchical relationships – is characterised by the following:

• Institutionalisation• Government as a partner.• Shared objectives and a clearly defined public interest • Active involvement and co-investment of resources

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Public-private partnerships are of growing importance

• P/PPs are expanding because they can :• provide effective platforms for pre-competitive R&D • help build innovative networks in new multidisciplinary research fields (e.g.

nanotechnology, genomics)

• But also because they can contribute to other objectives:• increase the impact of public R&D funding on business R&D and business

behaviour (e.g. changes in the type or orientation of research)• help create new avenues for commercial spill-overs from public research • help link SMEs to scientific research• increase synergies between regional innovation systems

• P/PPs play an increasing role within the innovation policy tool-kit of most OECD countries

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Key factors of success for P/PPs

Long-term commitment from both government and industry, based on a shared vision

Achieve critical mass but also deep reach within the National Innovation System (e.g. complement large P/PPs with support to smaller research teams).

Build on existing networks but do not neglect areas where potential actors are still dispersed (e.g. in multidisciplinary research) and/or inexperienced.

Implement efficient/competitive selection and steering/financing mechanisms that ensure a sustainable balance between public and private interests

Other areas that require attention:– Organisation and management of such projects.– Evaluation of such efforts - the key to learning and improvements in

policy.

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Stronger industry-science links may also develop through “innovative clusters” policies

Cluster policies involve:– Building a shared vision, based on sound diagnostics about starting

point, and ensuring a dialogue between industry and government in defining and implementing the strategy

– Shifting from « top down picking winners » to « backing local leaders »

– Improving availability and access to key resources (skilled people, R&D, physical and « intangible » infrastructure, smart money)

– Leveraging regional resources through interregional co-operation and participation in nation-wide or international innovation initiatives

– Building on existing innovation networks, but keeping incentive schemes open and attractive to outsiders, especially new firms

– Using high leverage instruments (stimulate but not crowd out private initiative; no silver bullet but a set of well coordinated instruments)

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Such policies need careful consideration

Cluster policies have sometimes focused too much on «High-tech» or “Manufacturing” – but knowledge-intensive services are often of great importance

They have sometimes focused exclusively on applied research, ignoring the need for basic research and strong capabilities (“free riding” model)

They have sometimes led to the building of “knowledge cathedrals” in the desert, instead of building on existing networks

They have sometimes been captive to allies of past successes, ignoring new players.

References: OECD, 2001, Innovative Clusters. Drivers of National Innovation Systems; OECD, 2001, Innovative Networks. Co-operation in National Innovation Systems.

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Conclusion Countries are focusing their efforts on improving science - industry

links, which have many dimensions and require a broad spectrum of policies

Improving science - industry links requires a good understanding of demand and supply factors – top-down approaches are rarely effective.

Fostering links also requires finding a balance between different aims of public policy with regard to scientific institutions, e.g. long-term scientific research and/or being relevant to business.

Some good practices have been developed in OECD countries, but this field continues to change and good practices will continue to evolve.

So, what is the role of the European level in fostering P/PPs for innovation, in a world of increasing globalisation in high-value added activities, including R&D, and increasing innovation policy activity at regional and national levels?

What can be done to avoid a repeat of past errors such as trying to pick winners (e.g. too many attempted “centres of excellence”) in a layered policy environment (regional, national, EU)?

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john.dryden@oecd.org