NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016. 3....
103
NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Transcript of NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016. 3....
NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Report prepared by a team of authors led by Evgeny Borisovich Kuznetsov
NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
2 TAbLE Of CONTENTS
OPENING REMARKS. HOW TO AWAKEN SLEEPING GIANTS ....................... 3
EXECUTIVE SUMMARY .................................................................................... 41. From Theory to Practice: Application of Report-2015 Tools ..................................6
1.1. Report-2015 as an Instrumental Framework for Innovation Policy ...................................................... 71.2. Report-2016: Transforming the Concepts into a System of Innovation Policy Measures .................. 13
2. From Creating Conditions to Promoting Growth: Problem Definition ................142.1. Ready for Takeoff: Where is the Innovation System Moving? ............................................................... 152.2. The State’s Innovation Policy Today ...................................................................................................... 202.3. Why is There no Innovation Breakthrough? ......................................................................................... 282.4. Big Business in Russia: Sleeping Giants.............................................................................................. 31
3. How to Awaken the Champions? Making Big Companies Innovative ..................373.1. Impact on Big Businesses: Industry Examples .................................................................................... 383.2. Lack of Innovation Erodes Big Companies’ Competitive Position ....................................................... 393.3. What to Strive for? Opportunities for Innovative Development............................................................ 433.4. What are the Hurdles? Barriers to Innovation ..................................................................................... 443.5. What Can Be Done? Measures to Promote Innovation ....................................................................... 50
4. You Can’t Manage What You Don’t Measure: How to Set and Achieve Targets ...614.1. Innovation KPIs in Russia Today ........................................................................................................... 624.2. Choosing the “Main Attack Avenue” ..................................................................................................... 644.3. Cascading KPIs...................................................................................................................................... 704.4. Implementation Issues: Shortcomings of the Current System ........................................................... 764.5. How to Set Achievable Targets? Global Experience ............................................................................. 794.6. Project Office: Organizational Options.................................................................................................. 85
APPENDIX 1. DASHBOARD METHODOLOGICAL UPDATE: HARMONIZATION WITH IDS-2020 ................................................................. 89
APPENDIX 2 . KPIS FOR “MAIN ATTACK AVENUE”: METHODOLOGY DETAILS .............................................................................. 96
LIST OF ILLUSTRATIONS ............................................................................... 99
SOURCES ...................................................................................................... 100
TABLE OF CONTENTS
TAbLE Of CONTENTS
3NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
OPENING REMARKS
HOW TO AWAKEN SLEEPING GIANTS?
Dear friends,
The first national report “On Innovations in Russia”, which was issued a year ago, suggested to the state a set of in-novation policy tools, including a “dashboard” to measure the condition of the innovative environment, as well as the overall map for recommendations on priority areas of technological development. In the new second release of the Report, equipped with these tools, we shall evaluate progress over the past year and attempt to work out a range of innovation policy measures that would allow us within a short period to approach the leading countries in terms of technological development. Given that these countries do not intend to rest on their laurels, we need rapid and visible results in order to achieve a successful breakthrough.
In recent years, the initiatives taken by the state have mainly focused on areas where the impact yields a delayed effect: the innovative environment, science, education and venture investment. These support measures are critically import-ant for the development of innovation and it is crucial that they continue to be implemented. However, these measures are insufficient in order for us to catch up with the leading countries.
In our view, the key source of rapid and significant victories is large business. If we can move large companies in key sectors towards new technologies, even through their own weight they can reshape the country’s economy in a short time; moreover they can favor the emergence of self-reproducing research and business ecosystems around them-selves. The recent experience not only of Russia, but also several leading countries – such as the UK, Norway, and South Korea – offers specific successful examples of such action on the part of the state and their major representa-tives.
So how can we awaken our big business – these sleeping giants – to the technological revolution? The task is by no means a trivial one, given the low responsiveness of big business to innovations, the rigidity of sectoral structure and inter-sectoral dealings, heavy regulation of markets and processes, the high degree of state ownership and social significance of large enterprises. However, all of this has been seen in many countries that hold leading innovative ratings. How did they manage to pull themselves up and then stay at the top? The bulk of this report is devoted to an analysis of that experience.
The report is intended strictly for practical purposes: we expect that the recommendations set out herein will be ap-plied to operations and will at least have an impact on shaping the government’s technological agenda in the coming years.
Mikhail Abyzov Minister of the Russian Federation
4 ExECUTIVE SUmmARy
The objective of this release of the Report is to shift from general recommendations about priorities in in-novative policy, set forth in the 2015 Report, to the de-velopment of specific measures capable of speeding up technological development in the country.
In 2015-2016 the innovative environment improved in Russia, although innovative activity did not increase.
Russia’s positions improved in the Global Innovation Index (from 48th to 43rd position) and the Global Com-petitiveness Index (from 45th to 43rd position), while Russia’s lag behind leading innovative countries also decreased for 12 of the 41 dashboard indicators char-acterizing the innovative environment (while deteriora-tion was seen only in five indicators).
At the same time, we see mixed performance of inno-vative activity without any clear positive trend:
growth was observed in a number of indicators: state demand for innovative products, R&D expenses in the budget sector, and research cooperation;
however, the key indicators show a decline in the fol-lowing areas: patent activity, R&D expenses, and the number of innovative companies
The main reason for this is that state initiatives were aimed at areas where the effect is either delayed (sci-ence, education, innovative environment), or limited due to an “open-loop innovative system” (startups, venture investments).
Big business should be the main source of quick and significant wins in the development of innovations. Efforts aimed at innovating big business should sup-plement and create a synergetic effect with initiatives which have already been taken.
Mature business creates the main demand for innovation, thus activating other channels that can be used to roll out innovation: venture investments and invention activity.
In addition, the focus on large companies will make it possible to directly impact the majority of the economy, as the proportion of large companies is 79% compared to an average 42% on average in comparable coun-tries.
In addition, the state has direct levers for impacting big business, taking into account its strong footprint in large companies (81% in the top 10 major companies).
Nowadays, large companies are unable to unlock their in-novative development potential and show low innovative activity, losing their competitive positions as a result.
In a number of industries the level of R&D expenses and the number of registered patents is considerably lower than at foreign companies, while the average ci-tation rate is next to nil.
This leads to the loss of competitive positions:
for example, the proportion of domestic aircraft in Aeroflot’s fleet fell from 75% in 2000 to 11% in 2015;
in the oil and gas industry the lack of innovation will lead to a 6% decline in oil output already in 2025, according to forecasts by the Ministry of Energy.
At the same time opportunities exist to develop innova-tions already in the short term:
for example, technology for the “connected vehicle” in automotive;
development of non-capital intensive innovative products, for example in the area of geophysics in the oil and gas industry.
Barriers to innovation exist inside large companies and suppliers, as well as on the part of regulation and mar-kets.
The management at large companies does not push for-ward innovative agenda due to short planning horizon. In addition, low innovative activity over a long period results in a situation where companies lack the competencies and processes required to implement innovation.
For innovative development of suppliers the main bar-riers are their lack of resources for innovation and a limited sales market due to a high degree of vertical integration of large companies and high entry barriers.
The conditions which prevail on the Russian market – for example the current pricing system for state de-fense orders and limited competition on the part of foreign companies – do not produce the incentives re-quired to develop innovations at large companies.
Moreover, the state lacks a strategic approach to in-dustry standards and consistent policy for financial support of innovations. This also has a negative impact on innovative activity.
To resolve these issues it will first be necessary to cre-ate long-term motivation for the management of large companies, conditions for innovative development of suppliers and regulatory incentives. To do this, it will be necessary to:
create long-term incentive mechanisms for managers of state companies:
implement options programs for mid- and top-level management and design long-term incentive mech-anisms for members of the board of directors;
offer incentives linked to profit of corporate venture funds to the top management;
create an executive pool with a focus on innovations, as well as training programs for top management in the area of innovation
expand the list of companies slated for the projected privatization plan;
in order to develop exports of high-tech products the following actions should be taken:
develop a package of targeted measures to support high-tech exports;
ExECUTIVE SUmmARy
EXECUTIVE SUMMARY
5NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
revise industry standards and assess whether it is feasible to harmonize them with international stan-dards to facilitate access of Russian manufacturers to foreign markets;
in order to create ways and means to promote tech-nological development in a number of industries the following actions should be taken:
set up working groups on the basis of industry ad-visory boards with participation of the state and big business to develop and implement industry programs aimed at joint development of promising technologies and bridging gaps in production chains;
compile the list of advanced technological stan-dards/ quality marks subject to development and implementation;
amend the methodology for assessment of the imple-mentation of IDPs, focusing primarily on long-term collaboration programs with innovative suppliers;
conduct an audit of measures aimed at supporting R&D and high-tech exports in terms of their sim-plicity and ease of use both by large companies and SMEs;
in order to promote conditions for the expansion of manufacturers of high-tech components and innova-tive service companies the following measures should be taken:
single out 2nd and 3rd-tier suppliers in vertically integrated companies with state participation into standalone business units with responsibility for fi-nancial performance in order to promote expansion of the components market;
promote localization of R&D for international com-panies and increase foreign investments in compo-nent manufacturers;
implement a mechanism for partial funding of ex-penses related to industry certification of products;
in order to create the conditions for innovative develop-ment of companies that operate in the system of state defense orders:
amend the pricing system by introducing long-term contracts and revising the rules used to determine profit (1%+20% formula).
In order to manage the KPI program, we suggested to use 10 KPIs, which, on the one hand, correspond to the key bottlenecks of the innovative system, and on the other hand are controllable, measurable and tam-per-proof.
Seven KPIs refer to production companies: export of Russian high-tech goods, the share of innovative prod-ucts in output, the share of innovation expenditure in output, the share of innovation companies, investment in intangible assets, the number of PCT patents, and the number of PCT patent applications.
Two KPIs refer to science: the amount of research per-formed and the citation rate.
One KPI refers to the venture market: the volume of venture investments.
When setting KPIs, we suggest the following cascading guidelines:
differentiate between long-term (five years or more) and short-term (up to five years) horizons;
take into account the existing resources and powers of the responsible party to impact KPIs;
account for time lags required to implement programs (as a rule, this should make it possible to assign re-sponsibility only on the long-term horizon);
set target indicators as part of the iteration procedure to endure that they are aligned with action plans and allocated resources; the responsible party should be allowed to adjust the action plan and have it approved on an annual basis;
on the long-term horizon cascade targets on the 10 se-lected KPIs within industry/overall economy perimeter to 10 organizations and agencies which are the biggest contributors to their achievement and are empowered to develop, propose and implement respective action plans: six industry ministries, Rosatom, Roscosmos; the Ministry of education and RVC;
on the short-term horizon, full and personal respon-sibility of the 10 organizations and agencies to reach target indicators arises only if “failure” occurs within the perimeter of their affiliates/subsidiaries.
In order to frame achievable and balanced targets and ensure that these targets are reached without radically revising the country’s governance system, it is suggest-ed to assign the task of implementing the proposed KPI system to the project office. There are two options for the implementation of this initiative.
The option of a “light” project office as a superstruc-ture over the current system of innovative initiatives. Its purpose is to revise existing innovative projects, align them with KPI goals of the “main attack avenue” and monitor the status of their implementation.
The option of a “heavy” project office in charge of de-veloping and monitoring the implementation of nation-al innovative project to achieve the 10 proposed KPI targets. Its purpose is to develop project roadmaps and formulate targets, assist in roadmap implementation and monitor status.
6 1. fROm ThEORy TO PRACTICE: APPLICATION Of REPORT-2015 TOOLS
fROm ThEORy TO PRACTICE: APPLICATION Of REPORT-2015 TOOLS
1
1. fROm ThEORy TO PRACTICE: APPLICATION Of REPORT-2015 TOOLS
7NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
We explored the overriding importance of the topic of technological development in the country – which
also implies state policy aimed at stimulating such a development scenario – in one of the opening chapters of the report “On innovations in Russia”, published one year ago. At that time, we wrote that extensive economic growth had become exhausted in Russia – by means of capital, the quantity and quality of the workforce – thus driving home the conclusion that innovations are the only remaining source of economic growth. In order to achieve rapid and efficient results, the state should fo-cus on promoting innovations.
An apt illustration of this issue would be such a sport as ski racing, in which a skier’s technique gives him a 10-percent speed advantage, without requiring any ad-ditional resources, but merely allows the skier to use his
existing resources more efficiently (see Illustration No. 1.1)2. This is an example of “pure” technological innova-tion, which is difficult to replicate in the real economy independently. As a rule, innovations refer to a new piece of equipment or by means of know-how, which requires funds to purchase; however, even in this case the princi-ple remains unchanged: new ideas, which are embodied in equipment or labor organization methods, create im-petus for growth using the existing resources.
Russia needs impetus in order to launch innovative de-velopment and restructuring of the economy. That is not to say that to date the country has not yet achieved any innovations. On the contrary, researchers estimate that total factor productivity has accounted for 25-30% of Russia’s economic growth over the past 20 years.i A similar contribution to economic growth can be observed
1.1. REPORT-2015 AS AN INSTRUMENTAL FRAMEWORK FOR INNOVATION POLICY
Illustration No. 1.1. Innovations as the only available source of growth
How to run faster if all available resources have been mobilized and energy is beginning to flag?
Growth of economic well-being (GDP per capita)
= + + +
In 1985, the Swedish skier Gunde Svan was the first to use the skating stride
1 2 3 4
1 Athletic training: already at the peakWorkforce improvement (employee skills)
Change for the worse due to the government’s inefficient educational policy in the 1990s and decline in working-age population Development of a practice-oriented education system is a long-term objective with impact to be seen in the next generations
4 A new, more effective ski techniqueInnovations (total factor productivity)
The possibility of ensuring long-term economic growth by introducing innovations is confirmed by the data on China and South Korea for the last 20 years
2 Sports equipment: already at the peakCapital-labor ratio improvement (available capital per worker)
Net capital outflow since 2008 – 5% of GDP or 22% of capital investmentsLimited state support opportunities. The size of the Reserve fund and the SWf amounts to 23% of annual capital investmentsProduction capacity utilization is 62% (only 10% of respondents mention excess capacity)2
3 Effort: already at the peakEmployment growth (working hours per capita)
Working-age population will decline by 10 mn people from 2006 by 20301
1. based on the data of the ministry of Economic Development. Decline by 2.3 mn people from 2005 through 2011. 2. based on Rosstat data.
Source: BCG analysis
8 1. fROm ThEORy TO PRACTICE: APPLICATION Of REPORT-2015 TOOLS
Illustration No. 1.2. Innovation dashboard (2015)
Large
st ga
p vs.
devel
oped
coun
tries
Nega
tive d
ynami
cs2Ins
ignific
ant g
aphig
h curr
ent p
erform
ance
hypo
thesis
or ex
pert
judge
ment
due t
o lac
k of d
atano
data
R&D e
xpen
diture
R&D e
xpen
diture
in th
e priv
ate se
ctor
R&D e
xpen
diture
in th
e pub
lic se
ctor
migra
tion o
f hum
an ca
pital
Availa
bility
of sc
ientis
ts an
d eng
ineers
Cultu
re:Re
cogn
ition o
f the
pres
tige o
f res
earch
work
Reco
gnitio
n of t
he pr
estig
e of e
ntrep
reneu
rship
Cons
umers
hiphie
rarch
yInd
ividua
lism
Pragm
atism
Ambit
ionTo
leran
ceAvo
idanc
e of
unce
rtaint
y
Availa
bility
of fu
nding
(ven
ture c
apita
l, priv
ate eq
uity,
debt)
Cluste
r matu
rity (g
eogra
phica
l con
centr
ation
of su
pplie
rs an
d man
ufactu
rers o
f sup
pleme
ntary
produ
cts)
Mark
ets:
Inten
sity o
f com
petiti
on
Posit
ive dy
nami
cs2ХХ
Х – i
ndica
tor ad
ded i
n 201
6No
dyna
mics2
Globa
l lead
ership
in hi
gh-te
ch m
arkets
Emplo
ymen
t in th
e inn
ovatio
n-dri
ven ec
onom
yOv
erall l
abor
produ
ctivit
yLa
bor p
roduc
tivity
in no
n-co
mmod
ity in
dustr
iesGro
wth o
f the
total
facto
r prod
uctiv
ity
Russi
a’s ra
nking
in th
e Glob
al Inn
ovatio
n Ind
ex
Natio
nal p
atent
activ
ityWo
rldwid
e pate
nt ac
tivity
Emplo
ymen
t in R&
D (he
adco
unt a
nd st
ructur
e)Re
searc
h coo
perat
ion
Inves
tmen
t in in
tangib
le as
sets
Dema
nd fo
r tec
hnolo
gyAva
ilable
capit
al of
ventur
e fun
ds
Numb
er of
startu
ps
Direct
gover
nmen
t part
icipati
on in
dema
nd fo
r inno
vative
prod
ucts
Numb
er of
innova
tive c
ompa
nies
head
coun
t of in
novat
ive co
mpan
ies
Retur
n on R
&D ex
pend
iture
Conve
rsion
of pa
tent a
pplic
ation
s into
paten
ts
Numb
er of
world
wide p
atents
gran
tedQu
ality
of pa
tents
grante
d
Innov
ation
Capit
al eff
icien
cy of
ventur
e fun
ds
Ventu
re inv
estm
ent a
moun
tAm
ount
of ven
ture i
nvestm
ents
made
by co
rporat
e fun
ds
Retur
n on i
nvestm
ent in
inno
vation
Effici
ency
of sta
te su
pport
for e
xport
ers
Size o
f the i
nnova
tion-d
riven e
conom
yhig
h-tech
expo
rtsInt
ellect
ual p
ropert
y expo
rts
n/a
Innov
ative
en
viron
ment
supp
ort
Innov
ative
ac
tivity
Resu
lts
of inn
ovati
on
Econ
omic
impli
catio
ns
Lagg
ing
Stag
es
Long
-term
Lead
ing
Coinc
ident
Drive
rs
Coinc
ident
n/a
1 The n
ame i
s upd
ated i
n the
2015
dash
board
: ‘Edu
catio
n exp
endit
ure’ is
repla
ced b
y ‘Pu
blic e
duca
tion e
xpen
diture
’ in th
e 201
5 vers
ion. ‘E
duca
tion e
xpen
diture
’, an i
ndica
tor sh
owing
total
expe
nditu
re, is
adde
d 2 fo
r the
last
year o
r avai
lable
perio
d
Idea/
Inven
tion
Comm
ercia
lizati
on
Sourc
e: BC
G ana
lysis
Know
ledge
:Pu
blic e
duca
tion e
xpen
diture
1
Gradu
ates w
ith de
grees
in en
ginee
ring a
nd re
searc
hInt
ernati
onal
coop
eratio
n of in
stitut
es
Citati
on in
dex
Quali
ty of
resea
rch in
stitut
esQu
ality
of ed
ucati
on
Scien
tific a
nd te
chnic
al pu
blica
tions
Russi
a’s po
sition
in th
e QS W
orld U
nivers
ity Ra
nking
sEd
ucati
on ex
pend
iture
1
Availa
bility
of tr
aining
servi
ces
Comp
ensa
tion o
f tea
cher
sNu
mber
of stu
dents
per t
each
er
Asse
ssmen
t of r
eadin
g skil
ls,
know
ledge
of m
aths a
nd
basic
scien
tific r
esult
s
Acce
ss to
ICTPo
wer g
enera
tion
Infra
struc
ture
:Qu
ality
of log
istic
servi
ces
Asse
ssmen
t of e
nviron
menta
l poli
cy
Instit
ution
s:Pu
blic a
dmini
strati
on ef
ficien
cyEa
se of
inso
lvenc
y res
olutio
nInt
ellec
tual p
ropert
y prot
ectio
n
favor
itism
in the
decis
ions o
f pub
lic of
ficial
sQu
ality
of pro
perty
rights
prote
ction
Ease
of co
mpan
y reg
istrat
ion
Quali
ty of
inves
tor rig
hts pr
otecti
onba
rriers
to pro
duct
export
Simpli
city o
f taxa
tion
Quali
ty of
regula
tion
Rule
of law
E-go
vern
ment
deve
lopme
nt
9NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
in South Korea and China, for example, as well as certain areas of Western Europe.
We should also note that active efforts on the part of the Russian government have created many parts of the innovative ecosystem and resulted in transformations in many areas. Nonetheless, innovations in the country were not a key driver of economic growth, as this role was played by commodity prices, the rollout of unused capacities and use of workforce. Innovations should now be in the forefront, since other potential drivers have been exhausted.
How can the state promote technological development? In Report 2015 we elaborated several clear-cut concepts and tools, which, upon initial application, allowed us to frame a number of generalized recommendations for the innovation policy – first and foremost a dashboard and functional model for innovation management.
In this section, we shall merely enumerate the above-mentioned tools with a view to their subsequent development and application to a plan of action that we will elucidate in the following sections. For a more de-tailed description of the entire toolkit, see the 2015 Re-portii.
Innovation dashboard – a structured kit of indicators used to gauge progress in the country’s innovative de-velopment. For Report 2015 we gathered a uniform data-base with over 500 such indicators (on the basis of Rus-sian statistics, international experience, and innovative ratings) and selected 72 of them in line with two crite-ria: (1) evaluation of performance and not the speed of changes, and (2) making regular evaluations that make it possible to compare Russia’s performance with other countries in terms of comparative methodology. In this Report, in an effort to harmonize the dashboard and in-dicators of Russia’s Innovative Development Strategy for the period until 2020 (IDS-2020)iii we raised the number of indicators to 75 (see Appendix).
Indicators are displayed on the dashboard based on the traffic light principle, based on a comparison of data on Russia with input regarding 15 preliminarily chosen leading innovation countries. A green light is assigned to statistical indicators if the Russian value is at least 75% of the average; a yellow light means the value is between 75% and 50% of the average; and a red light means the value is less than 50% of the average. For survey and composite indicators the rationale behind assigning in-dicators is slightly more complex; but the sense remains unchanged: red signals critical lag, yellow — material lag, green — small lag, parity or even leadership.
The dashboard represents a 2D matrix, two axes which give the board the cells in which the indicators are lo-cated:
indicators are arranged on the horizontal axis along “the innovative progress funnel”: the quantity and qual-ity of inventions the commercialization level of in-ventions the level of implementation and scalability of inventions (i.e. innovations proper);
indicators are arranged on the vertical axis in layers of “innovation pyramids”: provision for an innovative environment funding and promoting demand (“in-
novation factors”) current innovative activity the results of innovative activity
The dashboard clearly shows that bottlenecks form at each stage of the innovation process, depending on how high the priorities of these areas are in relation to other areas and the general direction in which the regulator needs to move in order to debottleneck. Thus, when up-dating the dashboard, we can see how trends change in relation to other countries and draw conclusion about whether we are moving in the right direction, whether the measures are effective and whether any major changes occurred in the external environment.
In and of itself, the idea of a structured depiction of key efficiency indicators for managing the innovation pol-icy and monitoring its results is nothing new, as there is vast global practice in application of dashboard tools (see, for example “Australian key innovation indicators datacard”iv). Russian practice also reveals experience in selecting indicators which are critical for the innovation policy at the state level – first and foremost the key ef-ficiency indicators or IDS-2020, which were collected to measure the performance of the respective state agen-cies in the medium term.
The dashboard from the first release of the report, in-cluding subsequent amendments, is depicted in Illustra-tion No. 1.2 (details of the amendments compared to the initial version are shown in the Appendix).
Based on readings in the dashboard we reached some preliminary conclusions about total lag of the innovation system within relatively decent limits in the area of ed-ucation and infrastructure, as well as state funding for R&D. From the standpoint of impact areas and prepa-ration for subsequent provision of recommendations, we arranged our conclusions into five groups:
1. Low return on R&D expenses: state spending on re-search and development are quite extensive, but they do not result in projects moving along the funnel; proj-ects do not turn into competitive ventures or required patents.
2. Weakness of the fundamental layers of the system does not allow for projects to gain support or promo-tion; this is mainly due to the limiting influence of the following factors in three main areas:
a. innovative markets distinguished by low intensity of competition, high barriers to the development and implementation of innovative solutions;
b. innovative culture distinguished by weak house-hold demand for innovations, low prestige of sci-entists, inventors and entrepreneurs
c. quality of institutes distinguished by weak pro-tection of the rights of owners and investors, bad reputation for the efficiency of state management and law enforcement practice, resulting in short planning horizons on the part of economic agents.
3. The low responsiveness of business to technology is not conducive to demand for innovation as a key factor in the production process, or as a source of growth or competitiveness; private investors do not support the state in R&D expenses, as a result of which the
10 1. fROm ThEORy TO PRACTICE: APPLICATION Of REPORT-2015 TOOLS
Targ
ets
Tools
Imple
menta
tion
Grants
, sub
sidies
Deve
lopme
nt: t
he m
inistr
y of E
duca
tion a
nd Sc
ience
(Scie
ntific
and T
echn
ologic
al De
velop
ment
forec
ast), t
he m
inistr
y of E
cono
mic D
evelop
ment
(Socia
l and
Econ
omic
Devel
opme
nt fo
recast
), ind
ustry
fede
ral ex
ecuti
ve bo
dies (
indus
try-sp
ecific
forec
asts)
Appr
oval:
the R
f Gove
rnmen
Colle
ctive
bodie
s: the
Presi
dium
of the
Coun
cil fo
r mod
erniza
tion a
nd In
novat
ive De
velop
ment,
the C
ounc
il for
Scien
ce an
d Edu
catio
n, the
IAT5 on
NTI D
evelop
ment
and I
mplem
entat
ion, th
e IAT
on In
novat
ive De
velop
ment
Priori
ties,
the IA
C6 on In
novat
ive De
velop
ment
Strate
gy Im
pleme
ntatio
n, the
IAC o
n Tec
hnolo
gical
Devel
opme
nt, th
e IAC
on Te
chno
logica
l fore
casti
ng Ex
ecut
ive bo
dies:
the Pr
eside
ntial
Execu
tive O
ffice,
the Go
vernm
ent E
xecuti
ve Off
ice, m
inistr
ies an
d age
ncies
, the R
ussia
n Aca
demy
of Sc
ience
s
Monit
oring
: the m
inistr
y of E
cono
mic D
evelop
ment,
the R
ussia
n Aca
demy
of Sc
ience
s, oth
er mi
nistrie
s and
agen
cies,
the Ad
visory
board
unde
r the
Rf Go
vernm
ent, p
ublic
ly fun
ded o
rganiz
ation
sCo
ntro
l: the
Rf Pr
eside
nt, th
e Rf G
overnm
ent (t
he Pr
eside
ntial
Chief
Contr
ol Dir
ector
ate, G
overnm
ent C
ontro
l Dep
artme
nt), th
e Acco
unts
Cham
ber o
f the
Rf, th
e Inve
stiga
tive C
ommi
ttee o
f the
Rf, th
e Rf P
rosec
utor G
enera
l’s Of
fice
Monit
oring
: the m
inistr
y of E
cono
mic D
evelop
ment,
the R
ussia
n Aca
demy
of Sc
ience
s, oth
er mi
nistrie
s and
agen
cies,
the Ad
visory
board
unde
r the
Rf Go
vernm
ent, p
ublic
ly fun
ded o
rganiz
ation
sCo
ntro
l: the
Rf Pr
eside
nt, th
e Rf G
overnm
ent (t
he Pr
eside
ntial
Chief
Contr
ol Dir
ector
ate, G
overnm
ent C
ontro
l Dep
artme
nt), th
e Acco
unts
Cham
ber o
f the
Rf, th
e Inve
stiga
tive C
ommi
ttee o
f the
Rf, th
e Rf P
rosec
utor G
enera
l’s Of
fice
Devel
opme
nt: the
minis
try of E
conom
ic Deve
lopme
nt (th
e Innov
ative D
evelop
ment
Strate
gy unt
il 2020
), the R
ussian
Acade
my of
Scienc
es, ind
ustry f
ederal
execut
ive bod
ies (in
dustry-
specifi
c stra
tegies
), publ
icly fu
nded o
rganiz
ations2 , de
velopm
ent ins
titution
s (corp
orate i
nnovat
ive dev
elopm
ent str
ategie
s), SO
Es (inn
ovative
devel
opment
progra
ms), th
e minis
try of E
ducatio
n and
Scienc
e (scie
ntific a
nd tec
hnolog
ical de
velopm
ent str
ategy3 ), th
e NTI t
eam (N
TI road
maps)
4 . App
roval:
the P
reside
nt, the
Rf Go
vernm
ent, th
e Pres
idium o
f the C
ouncil
for mo
derniz
ation a
nd Inn
ovative
Devel
opment
, the C
ouncil
for Sc
ience
and Ed
ucation
Innov
ation
syste
m1
Dire
ct ec
onom
ic me
thod
sInd
irect
econ
omic
meth
ods
Orga
nizati
onal
and l
egal
meth
ods
Loan
s/cap
ital
contr
ibutio
ns
Larg
e com
panie
s
Acad
emic
envir
onme
nt
(high
er ed
ucati
on
instit
ution
s, re
sear
ch in
stitu
tes)
SME
Star
tups
(cre
ative
team
s)
VEb
foun
datio
n for
Advan
ced
Resea
rch
VEb,
Indus
trial
Devel
opme
nt fu
ndRu
ssian
Direc
t Inv
estme
nt fu
nd
RVC,
VEb
Innova
tion,
SmE b
ank
foun
datio
n for
Advan
ced R
esearc
h,Sk
olkovo
, Sma
ll bu
siness
Inno
va-tio
n fun
d, reg
ional
funds
, fun
d for
Infras
tructu
re an
d Ed
ucati
onal
Progra
ms
Skolk
ovo,
fund
for
Infras
tructu
re an
d Ed
ucati
onal
Progra
ms
Skolk
ovo,
fund
for
Infras
tructu
re an
d Ed
ucati
onal
Progra
ms,
Associ
ation
of
Techn
ology
Parks
No
n-Prof
it Pa
rtners
hip
fede
ral
Tax Se
rvice,
specia
l eco
nomi
czon
es
RVC,
Skolk
ovo,
Small
busin
ess
Innova
tion f
und,
RUSN
ANO,
VEb
Innova
tion,
Russi
an
foun
datio
n for
huma
nities
Russi
an Sc
ience
found
ation,
Ru
ssian
found
ation
for ba
sic Re
search
,Ru
ssian
found
ation
for hu
manit
ies
Tax b
enefi
tsDe
precia
tion
bene
fitsPro
motio
n of
insura
nce
Custo
ms
incen
tives
Export
pro
motio
n /
intern
ation
al co
opera
tion
Legis
lative
fra
mewo
rkDe
mand
sti
mulat
ion
Intell
ectua
l pro
perty
pro
tectio
n
Provis
ion of
inf
rastru
cture
Traini
ng of
pe
rsonn
el for
inn
ovatio
n ac
tivitie
s
Cons
ulting
an
d info
rmati
onsu
pport
iR&Dclub
Skolk
ovo
Russi
an
Export
Ce
nter
(ExIAR
)
SmE
Corpo
ration
,mi
nistry
of
Econ
omic
Devel
opme
nt(De
partm
ent
of Sm
E De
velop
ment)
RVC,
Skolk
ovo,
Small
busin
ess
Innova
tion f
und,
Natio
nal Co
uncil
for Oc
cupati
onal
Stand
ards,
Associ
ation
of
Innova
tive
Regio
ns of
Russi
a
fede
ral
Custo
ms
Servi
ce
Opora
Ro
ssii
Russi
an
Scien
ce fo
unda
tion,
Russi
an
foun
datio
n for
basic
Resea
rch,
Russi
an
foun
datio
n for
huma
nities
fede
ral
execu
tive
bodie
s (go
vernm
ent
progra
ms)7
fede
ral
execu
tive
bodie
s (go
vernm
ent
progra
ms)7 ,
Advis
ory bo
ard,
Skolk
ovo,
RUSN
ANO,
RVC,
VEb I
nnova
tion,
iR&Dc
lub,
highe
r Sch
ool
of Ec
onom
ics
minis
try of
Ed
ucati
on an
d Sc
ience
, Age
ncy
for St
rateg
ic Ini
tiativ
es,
RVC,
Skolk
ovo,
fund
for
Infras
tructu
re an
d Edu
catio
nal
Progra
ms,
SOEs
RO
SSTA
T, bu
siness
ass
ociat
ions
Direct
orate
of Sc
ientifi
c and
Tech.
Progra
ms,
higher
Sc
hool
of Eco
nomi
cs,
fora (
Open
Innova
tions,
INN
OPRO
m)
4
Monit
oring
and c
ontro
l5
Coor
dinati
on3
Stra
tegy a
nd pl
annin
g 2
Fore
casti
ng1
The P
reside
nt,
the Go
vernm
ent,
the Rf
fede
ral
Assem
bly,
the m
inistr
y of
Educ
ation
and
Scien
ce, fe
deral
exe
cutiv
e bod
ies,
Advis
ory bo
ard
minis
try of
Ec
onom
ic De
velop
ment
(Depa
rtmen
t of
Socia
l De
velop
ment
and I
nnova
tion),
reg
ional
autho
rities,
Ag
ency
for St
rateg
ic Ini
tiativ
es,As
socia
tion o
f Tec
hnolo
gy Pa
rks
Non-
Profit
Partn
ership
Russi
an
Export
Ce
nter
1 The c
hart
spec
ifies k
ey su
bjects
of in
novat
ive de
velop
ment.
2 Publi
cly fu
nded
orga
nizati
ons (
found
ation
s, de
velop
ment
institu
tions
, SOE
s, etc
.). 3 Th
e stra
tegy is
unde
r deve
lopme
nt. 4 Th
e crea
tive t
eam
of exp
erts f
rom di
fferen
t targ
ets of
the i
nnova
tion s
ystem
is th
e key
tool to
devel
op NT
I road
maps
. 5 Int
er-ag
ency
team.
6 Inter-
agen
cy co
mmiss
ion. 7 Sti
mulat
ion of
the i
nnova
tion a
ctivit
ies of
fede
ral ex
ecuti
ve bo
dies t
hroug
h gove
rnmen
t prog
rams.
fede
ral ex
ecuti
ve bo
dies (
gover
n-me
nt pro
grams
)7 ,Ru
ssian
Scien
ce
foun
datio
n, Ru
ssian
foun
da-
tion f
or ba
sic
Resea
rch, R
us-
sian f
ound
ation
for
huma
nities
,
Illustration No. 1.3. Functional innovation policy model (2015)
Источ
ник:
анал
из BC
G
11NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
country lags significantly behind by the number of in-novation-driven companies and high-tech exports.
4. Brain drain: Russia experiences considerably more difficulty when attempting to attract talent than oth-er leading innovative countries; state investment in human capital tends to make other economies more competitive, thus creating an “open-looped innova-tion system” (see Section 3).
5. Glass ceilings: innovative start-ups and venture in-vestors are faced with a lack of growth mechanisms and/or access: business projects rolled out by the local venture market are unable to achieve growth or find any entry point inside the country, so as a result they go abroad.
In Section 2 of this report, we update the dashboard us-ing the latest data, pausing to examine the trends of in-dicators on the board and offer an interpretation of our findings.
An organizational and functional model of innovation management – is the second fundamental analytical tool in Report 2015. It maps all key subjects of innova-tion policy through “management functions – manage-ment methods” measurements. Each state organization involved in shaping and implementing the respective solutions targets its activity either for a certain group of participants of the innovative system – educational institutions and research institutions, start-ups, medi-um-sized and large companies – or else for coordina-tion, planning and supervision of the innovation policy, as well as forecasting results. In addition, each organiza-tion uses in its activity a certain set of tools – those with direct action (grants, subsidies, loans, etc.), indirect ac-tion (various benefits) as well as organizational and legal tools (international collaboration, stimulation of demand, provision of infrastructure, etc.).
By arranging the impact targets and tools used on the map along the respective axes (see Illustration No. 1.3), we could see the innovation policy focus areas – based on the number of institutions concerned with one or another issue. Priority areas obviously include financial support of academic institutions, as well as small and medium-sized business, the provision of infrastructure, consulting and information support. This analysis does not mark the adequacy or quality of state support tools, but makes it possible to say that these tools are at the disposal of a large number of institutions, and all these institutions use them one way or another.
On the other hand, indirect tools – tax and customs ben-efits, insurance, etc. – are required by very few state agencies, development institutions and other innovative development agents. Furthermore, we note a gap in the area of intellectual property protection. In particular, large companies do not devote any attention to this issue. Intellectual property protection is an issue that involves not only stimulating innovative activity as such, but also promoting exports of high-tech products. Interested for-eign consumers will not be able to copy these products but will be forced to purchase either the rights to use innovations or the end product. Strengthening the state’s role in this area will be one of the issues that we will ex-amine in this report.
Aside from specific recommendations, we, along with the experts polled by us, made proposals aimed at restruc-turing the state management system of innovative de-velopment – mainly as regards the formation of uniform priorities, raising efficiency and distributing authority, removing overlapping functions, cascading responsibili-ties and coordinating actions. For the full list of proposed initiatives, see Report 2015.
All the main conceptual recommendations in Report 2015 are summarized in Illustration No. 1.4. In Report 2016 and the planned future issues we select the most relevant issues (or those best suited to the topic of the issue) and use them as the framework for elaborat-ing specific action plans and allocating responsibilities among management agencies. In particular, Report 2016 addresses the following areas of recommendations dealt with in Report 2015 (highlighted in Illustration No. 1.4):
Innovative markets:
develop measures to attract private capital to the innovation system;
develop measures to remove barriers to innovative markets;
reassess state programs motivating innovation companies to access the gloabal markets
Innovative institutions:
feed intellectual proper of state companies and state institutions into economic circulation;
ensure that the rights of owners/investor in innova-tion companies are duly protected.
Responsiveness of business to technology:
make large companies more open to innovations
take measures to stimulate the creation and growth of technological integrators
Growth mechanisms for innovation companies:
work out tools to promote innovative exports;
work out tools to support medium-sized and large leading innovation companies.
Promote innovation at large companies.
supply extra tools that can be used to promote inno-vation at large companies
Dashboard operationalization:
cascade indicators on state authorities, develop-ment institutions, and strategic planning docu-ments;
work out and implement a monitoring system based on the dashboard and National Report.
1 For the sake of brevity, hereafter, we refer to these established norms as “innovation policy”.
2 The illustration below was not included in the final text of Report 2015 and we decided to use it in the introductory section of this report.
12 1. fROm ThEORy TO PRACTICE: APPLICATION Of REPORT-2015 TOOLS
Innov
ation
polic
y pr
ioriti
es
Innov
ative
Deve
lopme
nt St
rateg
y•
Upda
te the
Inno
vative
Devel
opme
nt Str
ategy
2020
• De
velop
gene
ral an
d ind
ustry
strat
egic
plann
ing do
cume
nts•
Detai
l the S
trateg
y’s in
itiativ
es on
devel
oping
the i
nnova
tion e
cosys
tem an
d imp
roving
inno
va-tiv
e envi
ronme
nt dri
vers
Tech
nolog
y poli
cy an
d prio
rities
• ma
ke a
single
list o
f indu
stry a
nd m
arket
priori
ties
• bu
ild a
unifo
rm sy
stem
of tec
hnolo
gy pri
oritie
s (tec
hnolo
gy pa
ckag
es)
• De
velop
a sci
entifi
c and
tech
nolog
ical d
evelop
ment
strate
gy ba
sed o
n the
new s
ystem
of
techn
ology
priori
ties
‘Ope
nnes
s’ of
the
innov
ation
syste
m
R&D e
ffecti
vene
ss (id
ea/in
vent
ion)
• De
velop
tools
for t
alent
attrac
tion/r
e-exp
ort•
Devel
op to
ols to
acce
lerate
the t
ransit
ion fr
om ba
sic to
ap
plied
rese
arch
• Re
-alloc
ate st
ate su
pport
in fa
vor of
prior
ity te
chno
logies
Resp
onsiv
enes
s of b
usine
ss to
tech
nolog
y •
make
large
comp
anies
more
open
to in
novat
ions
• Int
roduc
e mea
sures
to st
imula
te the
crea
tion a
nd gr
owth
of int
egrat
ors (u
nivers
ities,
techn
ology
broke
rs, et
c.)
Grow
th m
echa
nisms
for i
nnov
ation
comp
anies
• Wo
rk ou
t too
ls to
promo
te inn
ovativ
e exp
orts;
• Wo
rk ou
t too
ls to
supp
ort m
edium
-sized
and l
arge l
eadin
g inn
ovatio
n com
panie
s.
Foun
datio
n of t
he
‘inno
vatio
n pyr
amid’
—
envir
onme
nt
Mark
ets•
Devel
op m
easu
res to
attra
ct pri
vate c
apita
l to th
e inn
ova-
tion s
ystem
• De
velop
mea
sures
to re
move
admi
nistra
tive a
nd re
gulat
ory
barrie
rs to
innova
tion m
arkets
• Re
asse
ss sta
te pro
grams
to en
coura
ge co
mpan
ies to
enter
int
ernati
onal
marke
ts
Cultu
re•
Devel
op m
easu
res to
popu
larize
acad
emic
and b
usine
ss ca
reers
• De
velop
a sys
tem of
finan
cial a
nd no
n-fin
ancia
l ince
ntives
to
promo
te res
earch
activ
ities
Instit
ution
s•
feed
intel
lectua
l prop
erty o
f SOE
s and
state
insti
tution
s int
o eco
nomi
c circ
ulatio
n•
Ensu
re tha
t the
rights
of ow
ners/
inves
tors i
n inn
ovatio
n co
mpan
ies ar
e duly
prote
cted
Innov
ation
ma
nage
ment
syste
m
Impr
ovem
ent o
f the
inno
vatio
n poli
cy co
ordin
ation
• Op
timize
the f
uncti
ons o
f man
agem
ent s
ystem
subje
cts to
impro
ve the
inno
vation
polic
y co
ordina
tion
• Op
timize
man
dates
and t
he ra
nge o
f deve
lopme
nt ins
titutio
ns to
elim
inate
dupli
catio
n and
off
er su
pport
to th
e unc
overed
targe
ts of
the in
novat
ion ec
osyst
em
Prom
otion
of In
nova
tion i
n lar
ge co
mpan
ies•
Devel
op ad
dition
al too
ls to
promo
te inn
ovatio
n in l
arge c
ompa
nies (
includ
ing in
novat
ive
eleme
nts of
state
supp
ort, re
comm
enda
tions
on or
ganiz
ation
and t
he in
novat
ion m
anag
emen
t sys
tem, e
tc.)
• Im
prove
the m
ethod
ology
and t
he m
onito
ring s
ystem
of in
novat
ive de
velop
ment
progra
ms
Innov
ation
syste
m mo
nitor
ing
Optim
izatio
n of t
he KP
Is of
the I
nnov
ative
Deve
lopme
nt St
rateg
y – 20
20
• De
termi
ne an
d app
rove t
he St
rateg
y’s KP
Is •
Deter
mine
the t
arget
value
s of t
he St
rateg
y’s KP
Is
Dash
boar
d ope
ratio
naliz
ation
• De
tail a
nd ad
opt in
dicato
rs ba
sed o
n the
inno
vation
dash
board
• Ca
scade
the i
ndica
tors t
o gove
rnmen
t age
ncies
, deve
lopme
nt ins
titutio
ns, s
trateg
ic pla
nning
do
cume
nts•
Work
out a
nd im
pleme
nt a m
onito
ring s
ystem
base
d on t
he da
shbo
ard an
d Nati
onal
Repo
rt.
Illustration No. 1.4. Main groups of initiatives proposed in Report 2015.
Reco
mmen
datio
ns co
vered
by Re
port
2016
Sourc
e: BC
G ana
lysis
13NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
In Report 2015 we limited ourselves to developing in-struments and framing higher-level recommendations
for the areas of action of the innovation regulator. In this issue of the report we also intend to develop in detail the operationalization of the conceptual recommendations set forth in Report 2015, which are partially summarized in Illustration No.1.4.
The keynote theme of the past issue that there is no other realistic path of development for the country’s econom-ic development except innovation will be developed in a practical manner in the new report by addressing the claim that the regulator needs to take actions that would lead to swift and clear results (as well as qualitative and sustainable) for all participants of the innovation system and also for the population at large. In financial terms, one may speak of actions conducive to a reduction in the payback period of infrastructure and specific expenses, thus increasing the overall value of the state’s “innova-tion project”.
Right now, when the long-established model of the coun-try’s economic development is exposed to the most seri-ous tests that point to the need for change, is the ideal time for a breakthrough in global innovation competi-tion. The state can and must provide this breakthrough – which has been achieved by many of today’s leading innovative development countries. However, to meet this goal the state should not resort to the directive meth-od, which has proven ineffective on numerous occasions in recent years, but rather strive to effectively promote innovation of economic players. The state’s active, tar-geted, responsible and ultimately effective participation in the country’s innovative development is the main intro-ductory idea of Report 2016.
This approach to the problem entails a number of pri-mary issues, which, if not addressed, will not allow the regulator to devise a realistic action plan. In Report 2016 we frame these issues and attempt – on the basis of vast application-oriented material – to address these issues, providing answers that could be turned into specific rec-ommendations. The sequencing of issues that we shall review is as follows:
Where and at what stage of development should the state focus its innovation policy measures in order to achieve the most rapid, widespread, all-encompassing and sustainable result: in the scientific or business en-vironment? in large or small forms of business? We will give preliminary answers to these questions in Section 2.
In what direction should efforts be focused? What bar-riers to innovative breakthrough need to be overcome and what tools should be should to reach this goal? This topic will be addressed in Section 3.
What should the organizational mechanism for effi-cient implementation of the proposed initiatives look like and what management changes should be made subsequently? How can a viable incentive and account-ability mechanism be built in for every member of the system? How should progress be measured and tar-gets be set? We will address these issues in Section 4.
As a result, we expect Report 2016 to become a docu-ment that will have a direct impact on the state’s inno-vation policy in the very near future. Unlike Report 2015, this issue contains a minimum of theoretical conjecture s and maximum practical recommendations that have value only if results are implemented swiftly.
1.2. REPORT-2016: TRANSFORMING THE CONCEPTS INTO A SYSTEM OF INNOVATION POLICY MEASURES
14 1. fROm ThEORy TO PRACTICE: APPLICATION Of REPORT-2015 TOOLS
fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
2
15NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
The efforts of the Russian state in the area of innovative development undertaken over the past 5-6 years since
the adoption of IDS-2020 have plainly yielded positive re-sults as shown in global ratings such as Doing Business of the World Bank, the Global Innovation Index” of INSEAD business school and the Global Competitiveness Index of the Davos Economic Forum.
The Doing Business rating contains a target indicator for two key state initiatives, the National Entrepreneurial Ini-tiative and the Innovative Development Rating for the Rus-sian regions. It shows that Russia moved from 123rd posi-tion in 2011 to 51st position in 2016, thus reducing the lag behind leading countries, which have also not been stand-ing idle during that time, and have improved the way busi-ness is conducted by almost two-fold. The Doing Business rating refers only indirectly to innovations – it measures the success of the state’s actions in providing a business environment to all types of companies. Nonetheless, a fa-vorable environment is the linchpin of our dashboard and a key prerequisite for innovative development.
According to the Global Innovation Index (GII) Russia has improved its performance over the past six years, moving from 64th to 43rd position, i.e. up about one and a half times1. Almost the same picture can be see in the Glob-al Competitiveness Index (GCI), in which Russia rose from 63rd to 43rd over the same period (see Illustration No. 2.1).
However, when studying the component and the accom-panying indicators of the GII and GCI ratings, which reflect
the dynamics and degree of innovative development, re-spectively (there is not such component in the third rating - Doing Business - since this rating reflects only the con-ditions created by the state), the picture becomes slightly less optimistic.
Thus, in the GII rating, most of the growth occurred in the Innovation Input Subindex component, which reflects in the same broad sense the country’s investment in inno-vative development, and also includes efforts to create a favorable innovative environment; in terms of this compo-nent Russia’s position rose during the same six years from 82nd to 44th, i.e. the country improved its performance al-most two-fold. As for the second component, which re-flects innovative activity as such – the Innovation Output Subindex – Russia improved its positions only slightly, up from 51st to 47th spot.
The CGI splits countries into three groups depending on the main driving force of their economic development at this stage:
countries driven by production factors;
countries driven by production efficiency;
countries driven by production innovation.
The first group includes very poor countries that survive by offering cheap workforce or natural resources; countries of the second group compete by way of efficiency – i.e. they produce something which is already widely available, but they do this better than countries of the first group; and
2.1. READY FOR TAKEOFF: WHERE IS THE INNOVATION SYSTEM MOVING?
2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
402006 2008 2010 2012 2014 2016
60
80
100
120
140Ranking
5451
63 63
5651
63
4948
43
51
62
92
112
120123
120120
CGI
106
96
58
6864 64 66 67
64
53
45
GII DbИсточник: ежегодные выпуски индексов «Doing Business», «Global Innovation Index», «Global Competitiveness Index»; анализ BCG
Illustration No. 2.1. Trends in Russia’s positions of the ratings Doing Business, Global Innovation Index, and Global Competitiveness Index
16 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
only countries of the third group offer the world innova-tive solutions, i.e. compete by creating new products and technologies. As of 2010 Russia was ranked in the second group of countries and was unable to reach the first group over the next six years.
Thus, having evaluated the state’s efforts to put the coun-try’s economy on an innovative path of development, glob-al ratings have not recorded great headway from these efforts and highlight the weakness of the innovation econ-omy as such. Judging by trends in the ratings, the country has not been able to achieve an “innovation breakthrough” over the past five-six years – since the adoption of IDS-2020.
The initial indicators on our dashboard, examined in detail in Report 2015 and summarized in Section 1 of this docu-ment, broadly confirm this picture: the dashboard showed a relatively well developed educational and infrastructure environment amid very weak innovative activity at all stag-es of the “funnel”.
In this report, we present revised dashboard indicators. The revised results are shown in Illustration No. 2.2.
The green highlighting shows the indicators that showed improvement – in these areas Russia developed at a fast-er pace than leading innovation leaders. Conversely, the indicators marked in red show where Russia fell behind.
The revised panel shows that the trends seen in past years continued last year: environment indicators improved, ac-tivity indicators were variable and did not improve on the whole. More detailed trends can be seen in Illustration No. 2.3., where we show not only the dynamics for dashboard indicators, which reflect the gap between Russia’s posi-tions and the fifteen leading innovation countries (these data frequently show a lag of 1-2 years, since comparative data for the various countries are late), but also the ab-solute changes in these indicators using the most recent data that give an idea of recent trends.
This year we can see an improvement on the most fun-damental, institutional level. The dashboard records prog-ress in such indicators as quality of the protection of hu-man rights, how easy it is to set up a business and pay taxes, and other factors that exert a positive impact on the overall environment for innovative activity.
Furthermore, the dashboard does not record explicit re-covery of innovative activity; trends remain mixed and there is no discernible vector of change. Some key indi-cators demonstrate a decline – specifically patent activity contracted, total R&D expenses fell, and the number of innovation companies decreased. We do not observe any signs of a major recovery in the innovation economy.
Given the improvement in the innovative environment, the lack of activity requires interpretation and explanation. There is reason to believe that the improved environment (but not activity) is directly related to specific targets and actions taken by the state over the past 5-10 years, which we will examine in Section 2.22.
1 A change in methodological calculation, i.e. the addition of new in-dicators in order to increase the objectivity of the overall result, partially helped improve Russia’s ratings.
2 Another factor which evidently has an impact on certain aspects of the environment is well-being of the oil industry, which, despite several interruptions, prevailed until 2014; we do not analyze this factor in the report since is not associated with the innovation poli-cy as such.
17NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Large
st ga
p vs.
devel
oped
coun
tries
Nega
tive d
ynami
cs1Ins
ignific
ant g
aphig
h curr
ent p
erform
ance
hypo
thesis
or ex
pert
judge
ment
due t
o lac
k of d
ataInd
icator
not u
pdate
dInd
icator
upda
ted
No da
taNo
data
on dy
nami
cs
R&D e
xpen
ditur
eR&
D expe
nditu
re in
the pr
ivate
sector
R&D e
xpen
ditur
e in t
he pu
blic s
ector
Migr
ation
of hu
man c
apita
lAva
ilabil
ity of
scien
tists
and e
ngine
ers
Cultu
re:Re
cogn
ition o
f the
pres
tige o
f res
earch
work
Reco
gnitio
n of t
he pr
estig
e of e
ntrep
reneu
rship
Custo
mer e
xper
ience
mat
urity
hierar
chy
Individ
ualis
mPra
gmati
smAm
bition
Tolera
nceAvo
idanc
e of u
ncert
ainty
Avail
abilit
y of f
undin
g (ve
ntur
e cap
ital, p
rivat
e equ
ity, d
ebt)
Cluste
r matu
rity (
geog
raphic
al co
ncen
tratio
n of s
uppli
ers an
d man
ufactu
rers o
f sup
pleme
ntary
produ
cts)
Mark
ets:
Inten
sity
of co
mpeti
tion
Posit
ive dy
nami
cs1ХХ
ХSig
nifica
nt po
sitive
dyna
mics2
ХХХ
Signif
icant
nega
tive d
ynami
cs2No
dyna
mics1
Globa
l lead
ership
in hi
gh-te
ch m
arkets
Emplo
ymen
t in th
e inn
ovatio
n-dri
ven ec
onom
y Ov
erall l
abor
produ
ctivit
yLa
bor p
roduc
tivity
in no
n-co
mmod
ity in
dustr
iesGro
wth o
f the
total
facto
r prod
uctiv
ity
Russ
ia’s r
ankin
g in t
he Gl
obal
Innov
ation
Inde
x
Natio
nal p
aten
t acti
vity
Wor
ldwide
paten
t acti
vity
Emplo
ymen
t in R&
D (he
adco
unt a
nd st
ructur
e)Re
sear
ch co
oper
ation
Inves
tmen
t in in
tangib
le as
sets
Dema
nd fo
r tec
hnolo
gyAva
ilable
capit
al of
ventur
e fun
ds
Numb
er of
startu
ps
Gove
rnme
nt pa
rticip
ation
in de
mand
for
inno
vativ
e pro
ducts
Numb
er of
innova
tive c
ompa
nies
head
coun
t of in
novat
ive co
mpan
ies
Retur
n on R
&D ex
pend
iture
Conve
rsion
of pa
tent a
pplic
ation
s into
paten
ts
Numb
er of
wor
ldwide
paten
ts gr
anted
Quali
ty of
paten
ts gra
nted
Innov
ation
Capit
al eff
icien
cy of
ventur
e fun
ds
Vent
ure i
nves
tmen
t amo
unt
Amou
nt of
ventur
e inve
stmen
ts ma
de by
corpo
rate f
unds
Retur
n on i
nvestm
ent in
inno
vation
Effici
ency
of sta
te su
pport
for e
xport
ers
Size o
f the i
nnova
tion-d
riven e
conom
yHi
gh-te
ch ex
ports
Intell
ectu
al pr
oper
ty ex
ports
n/a
Innov
ation
en
viron
ment
su
ppor
t
Innov
ation
ac
tivity
Resu
lts
of inn
ovati
on
Econ
omic
impli
catio
ns
Lagg
ing
Stag
es
Long
-term
Lead
ing
Coinc
ident
Drive
rs
Coinc
ident
n/a
1 Gap d
ynami
cs vs.
othe
r cou
ntries
(take
n into
acco
unt if
there
is a
signif
icant
chan
ge, i.
e. 5%
and m
ore)
2 Take
n into
acco
unt in
case
of da
ta up
date
in the
prim
ary so
urce s
tartin
g from
2014
Idea/
Inven
tion
Comm
ercia
lizati
on
Sourc
e: BC
G ana
lysis
Know
ledge
:Pu
blic e
duca
tion e
xpen
diture
Gradu
ates w
ith de
grees
in eng
ineerin
g and
resea
rchInt
ernati
onal
coop
eratio
n of in
stitut
es
Citati
on in
dex
Quali
ty of
resea
rch in
stitut
esQu
ality
of ed
ucat
ion
Avail
abilit
y of t
raini
ng se
rvice
sSc
ientif
ic an
d tec
hnica
l pub
licati
ons
Numb
er of
stud
ents
per t
each
er
Russi
a’s po
s. in t
he QS
Worl
d Univ
ersity
Rank
ings
Comp
ensa
tion o
f tea
chers
Educ
ation
expe
nditu
re
Asse
ssmen
t of r
eadin
g skil
ls,
know
ledge
of m
aths a
nd ba
sic
scien
tific r
esult
s
Acce
ss to
ICTPo
wer g
enera
tion
Infra
struc
ture
:Qu
ality
of log
istic
servi
ces
Asse
ssme
nt of
envir
onme
ntal
polic
y
Instit
ution
s:Pu
blic a
dmini
strat
ion ef
ficien
cyEa
se of
inso
lvenc
y res
olutio
nInt
ellec
tual p
ropert
y prot
ectio
n
Favo
ritism
in th
e dec
ision
s of p
ublic
offic
ials
Quali
ty of
prope
rty rig
hts pr
otecti
onEa
se of
comp
any r
egist
ratio
n
Quali
ty of
inves
tor r
ights
prot
ectio
nba
rriers
to pro
duct
export
Simpli
city o
f tax
ation
Quali
ty of
regula
tion
Rule
of law
E-go
vern
ment
deve
lopme
nt
Illustration No. 2.2. Revised dashboard
18 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
Indica
tor
Traffi
c ligh
ts of
the 2
015 N
RTra
ffic l
ights
of th
e 201
6 NR
Gap d
ynam
ics vs
. ot
her c
ount
ries
Upda
ted ab
solut
e dy
nami
csCo
mmen
ts
Innovative environment
Availa
bility
of fu
nding
(2016
/15) S
urvey
indica
tor. T
he in
dex f
ell fr
om 3.
5 to 3
.1
Comp
etitiv
e inte
nsity
(2016
/15) S
urvey
indica
tor. T
he ab
solut
e ind
icator
rema
ined t
he sa
me (5
out o
f 7 po
ints),
the g
ap
widen
ed du
e to t
he gr
owth
in pe
er co
untrie
s
matur
ity of
clus
ters
(2016
/15) S
urvey
indica
tor. T
he ga
p narr
owed
by 22
%, th
e ind
ex ros
e from
3.1 t
o 3.4
Asse
ssmen
t of e
nviron
menta
l poli
cy(20
15/14
) Surv
ey ind
icator
. The
inde
x ros
e from
53.5
to 83
.5. Se
veral
envir
onme
ntal b
ills w
ere
adop
ted: t
he be
st Ava
ilable
Tech
nolog
y Act,
the W
aste
Act
Cons
umers
hip(20
16/15
) Surv
ey ind
icator
. The
inde
x fell
sligh
tly fr
om 3.
75 to
3.68
while
othe
r cou
ntries
de
mons
trated
grow
th
Quali
ty of
educ
ation
(2016
/15) S
urvey
indica
tor. T
he ga
p narr
owed
by 6%
, the i
ndex
rose f
rom 3.
5 to 3
.7
Quali
ty of
resea
rch in
stitut
es(20
16/15
) Surv
ey ind
icator
. The
gap n
arrow
ed by
10%,
the i
ndex
rose f
rom 3.
96 to
4.23
Availa
bility
of tr
aining
servi
ces
(2016
/15) S
urvey
indica
tor. T
he ga
p narr
owed
by 6%
with
a slig
ht ab
solut
e grow
th (fr
om 4.
3 to
4.5 po
ints)
Numb
er of
stude
nts pe
r tea
cher
(20
15/13
) The
stud
ent/t
each
er rat
io in
gene
ral ed
ucati
on in
stitut
ions r
emain
ed st
able,
chan
ge fo
r the
worse
in pe
er co
untrie
s in 2
014
Scien
tific a
nd te
chnic
al pu
blica
tions
(2015
/14) A
n inc
rease
in th
e num
ber o
f pub
licati
ons p
er GD
P bn (
PPP)
from
8.2 to
9.3.
Execu
tion
of Pre
siden
tial D
ecree
No. 5
99 (m
ay 7,
2012
): inc
rease
in th
e com
pens
ation
s to r
esea
rchers
for
scien
tific p
ublic
ation
s in i
nterna
tiona
l journ
alsGra
duate
s with
degre
es in
engin
eerin
g and
res
earch
(2014
/12) A
n inc
rease
in th
e num
ber o
f stat
e-fina
nced
open
ings,
lower
cost
of att
enda
nce f
or tec
hnica
l deg
rees
Publi
c edu
catio
n exp
endit
ure(20
15/11
) Low
er co
sts on
pre-s
choo
l and
seco
ndary
educ
ation
in th
e fed
eral b
udge
t (from
over
30
to 1 b
n rub
les)
favor
itism
in the
decis
ions o
f pub
lic of
ficial
s(20
16/15
) Surv
ey ind
icator
. The
inde
x ros
e by 6
%, fr
om 2.
82 to
2.96
Quali
ty of
inves
tor rig
hts pr
otecti
on(20
15/14
) mixe
d ind
icator
with
a surv
ey co
mpon
ent. T
he in
dex r
ose f
rom 50
.8 to
56.7
Ease
of ins
olven
cy res
olutio
n(20
15/14
) mixe
d ind
icator
with
a surv
ey co
mpon
ent. R
ussia
’s ran
king i
mprov
ed, it
rose
from
the
62nd
to th
e 48th
posit
ion
Publi
c adm
inistr
ation
effic
iency
(2014
/13) m
ixed i
ndica
tor wi
th a s
urvey
comp
onen
t. The
rank
ing im
proved
from
the 8
8th to
the
74th
posit
ion
Ease
of co
mpan
y reg
istrat
ion(20
15/14
) mixe
d ind
icator
with
a surv
ey co
mpon
ent. T
he in
dex r
emain
ed st
able
at 92
Simpli
city o
f taxa
tion
(2015
/2014
) mixe
d ind
icator
with
a surv
ey co
mpon
ent. T
he in
dex r
ose s
lightl
y from
80.6
to 81
.6
E-go
vernm
ent d
evelop
ment
(2016
/2014
) Surv
ey ind
icator
. The
posit
ion wo
rsene
d from
the 2
7th to
the 3
5th pl
ace i
n the
ran
king
4
1 111
2 3
1 2014
/2013
; 2 2013
/2012
; 3 2012
/2011
; 4 New/
chan
ged i
ndica
tor, th
e traf
fic lig
hts fo
r the
2015
NR ar
e bas
ed on
histo
rical
data
Illustration No. 2.3. Overview of changes in dashboard indicators
Sourc
e: BC
G ana
lysis
19NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Indica
tor
Traffi
c ligh
ts of
the 2
015 N
RTra
ffic l
ights
of th
e 201
6 NR
Gap d
ynam
ics vs
. oth
er
coun
tries
Upda
ted ab
solut
e dy
nami
csCo
mmen
tsResults, implications
Russi
a’s ra
nking
in th
e Glob
al Inn
ovatio
n Ind
ex(20
16/15
) The
rank
ing im
proved
from
the 4
8th to
the 4
3rd po
sition
than
ks to
the “
Institu
-tio
ns” an
d “Cre
ative
conte
nt” ar
eas
Intell
ectua
l prop
erty e
xport
s(20
15/14
) Tec
hnolo
gy exp
ort re
venue
s in U
SD ro
se by
29%.
The
key d
river
is hig
her e
xport
s of
engin
eerin
g serv
ices
high-
tech e
xport
s(20
15/14
) high
er sh
are of
GDP d
ue to
lowe
r GDP
in US
D as a
resu
lt of t
he ru
ble de
valua
tion
Numb
er of
world
wide p
atents
gran
ted(20
14/13
) A re
ducti
on in
the n
umbe
r of P
CT pa
tents
grante
d by 1
3%, fr
om 91
4 to 7
93
Ventu
re inv
estm
ent a
moun
t(20
15/14
) A re
ducti
on in
the n
umbe
r of n
ew fu
nds,
in the
amou
nt of
inves
tmen
t mad
e and
the
capit
al of
new f
unds
. Low
er ava
ilabil
ity of
fund
ing du
e to t
he ex
it of g
lobal
player
s
Drivers, activity, conversions
Natio
nal p
atent
activ
ity(20
15/13
) The
2014
fall w
as ca
used
by th
e drop
in pa
tentin
g of in
ventio
ns (u
tility
mode
ls an
d des
igns a
t a co
mpara
ble le
vel). I
n 201
5, the
activ
ity in
creas
ed to
the l
evel o
f 201
3
World
wide p
atent
activ
ity(20
15/13
) In 20
14, th
e num
ber o
f worl
dwide
paten
t app
licati
ons f
ell sh
arply
due t
o the
rub
le de
valua
tion,
but in
2015
, it in
creas
ed to
the l
evel o
f 201
3
R&D e
xpen
diture
(2015
/13) b
ench
mark
coun
tries s
howe
d high
er gro
wth d
ue to
the p
rivate
secto
r. In R
ussia
, the
inter
nal s
pend
ing on
scien
tific R
&D (in
% of
GDP)
stabil
ized i
n 201
5
R&D e
xpen
diture
in th
e pub
lic se
ctor
(2015
/13) In
2014
, the s
econ
d stag
e of t
he Sc
ience
and T
echn
ology
Devel
opme
nt go
vernm
ent p
rogram
was
laun
ched
; an i
ncrea
se in
the p
ublic
spen
ding i
n Rus
sia vs
. the
reduc
tion/s
tabilit
y in b
ench
mark
coun
tries.
In Ru
ssia,
budg
et all
ocati
ons i
n 201
5 are
comp
arable
with
those
of 20
14
Rese
arch c
oope
ration
(2016
/15) S
urvey
indica
tor. T
he ga
p narr
owed
by 28
% du
e to t
he fa
ll in b
ench
mark
coun
tries
Numb
er of
innova
tive c
ompa
nies
n/an/a
(2015
/14) T
he la
rgest
drop i
n the
prod
uctio
n of c
oke a
nd oi
l prod
ucts,
vehic
les, m
achin
es
and e
quipm
ent
Inves
tmen
t in in
tangib
le as
sets
n/an/a
(2015
/14) T
he sh
are of
intan
gible
asse
ts in
GDP g
rew fr
om 0.
8% to
0.9%
Direc
t gove
rnmen
t part
icipa
tion i
n dem
and
for in
novat
ive pr
oduc
ts(20
16/15
) Surv
ey ind
icator
. The
gap d
ecrea
sed b
y 5%
due t
o the
lowe
r aver
age i
ndex
of pe
er co
untrie
s
Conversions
migra
tion (
reten
tion)
of hu
man c
apita
l(20
16/15
) Surv
ey ind
icator
. The
gap n
arrow
ed by
13%
(the i
ndex
rose f
rom 2.
95 to
3.32
)
1 1 1 1 1
1
1 2014
/2013
Illustration No. 2.3. Overview of changes in dashboard indicators
Sourc
e: BC
G ana
lysis
20 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
The weak results that we highlighted in Section 2.1 should be interpreted first and foremost in the con-
text of innovation policy – so that it at least becomes clear what the state needs to do or how to change measures it has already taken to reach a qualitatively new dynamic of innovative development.
First of all, let’s see what group of economic agents on which the state’s main initiatives should be focused un-der the current innovation policy. We have identified five of such groups of agents – which in reality may actually overlap:
(1) the state itself, state management system of the in-novation agenda;
(2) the academic environment, i.e. science and educa-tion as well as the “innovative spirit” of society as a whole;
(3) entrepreneurs, start-ups and venture investors;
(4) mature companies that would be small, medi-um-sized or large;
(5) other peripheral groups and areas – for example, the international community.
A brief analysis of the actions of state agencies, which we provided in Report 2015, shows that the priority areas of the state’s innovation policy from 2010 to 2015 were (aside from self-organization and improvement of the state management system as such) the academic environment and start-ups, while mature business was not specially targeted1.
As regards state management, IDS-2020 was approved, thus determining many subsequent areas of actions, in-cluding many of the activities highlighted below.
The avowed goal of IDS-2020 is to place the Russian economy on the path of innovative development by 2020. Pursuant to the achievement of this goal, the fol-lowing tasks were set:
develop HR potential in the areas of science, educa-tion, technology and innovation;
raise the innovative activity of business and speed up the emergence of new innovation companies;
phase in to the greatest possible extent advanced technologies in the activities of state management agencies;
create a balanced and steadily developing R&D sec-tor;
foster transparency of the national innovative system and economy, while integrating Russia into global processes for the creation and use of innovations;
revitalize activity aimed at implementing innovative policy to be carried out by state government bodies of constituent entities of the Russian Federation and municipal authorities.
In order to fulfill the tasks in IDS-2020, areas were iden-tified for the improvement of legislation, methods and the target size of financial support, the main areas of actions for the Government and ministry and a list of measure.
In addition, the main indicators and target indicators were established for the implementation of IDS-2020; harmonization of these indicators with our dashboard – an issue addressed in the Appendix to this report.
As regards the academic environment, steps have been over the past few years to restructure the current sys-tem. The decision to do this took a long time and some new programs and organizations were also created in an effort to modernize and support science and education. To remind, the major initiatives may be summarized as follows:
reorganization of the Russian Academy of Sciences (RAS) was carried out, with the main purpose being to arrange funding for institutes, laboratories and individ-ual scientists on new principles, and also to implement reform in the human resource system in science;
a number of state support programs were initiated for education and research, for example “Applied Bache-lor’s Degree”, “Global Education”, “5-100”, a program for fundamental scientific research, and a program for identification of talent;
the Federal Agency for Scientific Organizations was created, as well as the Russian Scientific Fund, the Fund for Promising Research, and the Zhukovsky Sci-entific Research Center.
Improvement of the business environment, conditions for doing business and start-up institutions have been another focus of innovation policy in recent years. As a re-sult, an entrepreneurial infrastructure was created in all senses of the word – territorial, financial, informational, and regulatory.
innovative territorial clusters were built, including the Skolkovo Innovation Center, the Innopolis special eco-nomic zone; the Technological Valley of the Moscow State University is currently being built;
the system of development institutions (Skolkovo Foun-dation), AO RVC, AO Rosnano was created, along with the Innovation Support Fund, the Fund for Infrastruc-ture and Educational Programs, the fund EEB Inno-vations2, etc.), which have already funded hundreds of innovative projects and start-ups, while acting as inves-
2.2. THE STATE’S INNOVATION POLICY TODAY
21NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
tors in private venture funds and promoters of commu-nication between funds and entrepreneurs;
As part of the National Enterprise Initiative (NEI) a num-ber of measures were implemented for the purpose of lowering administrative barriers; state programs were developed, including Economic Development and Inno-vative Economy, Development of Science and Technolo-gy, Development of Industry and enhancing its Compet-itiveness, etc.
the Agency of Strategic Initiatives was established to support the development and implementation of Na-tional Enterprise Initiative (NEI); under the auspices of NEI promising areas were selected for entrepreneur-ial activity (“markets of the future) and promising ways and means to support them (“supporting areas”), road maps were developed and reviewed for the develop-ment of key markets and supporting areas.
As for other major initiatives regarding mature business we note the adoption of the Innovative Development Pro-grams (here and hereinafter abbreviated as IDPs) for state companies in 2011, although their efficiency has been called into question since then (for example, se Illustra-tion No. 2.4. and proposals to update them were made)3.
It should also be noted that there is a long list of benefits applicable to innovative activity, which are handled by the Ministry of Finance of the Russian Federation4 – such as benefits related to R&D expenses, accelerated depreci-ation, benefits for IT companies (in all, about 70 types of benefits). However, experts note the limited effect from application of such benefits in the absence of any real in-centives for innovation on the part of mature and espe-cially large companies, since they are not used or used in a distorted manner because the accompanying conditions (formal and informal) are ultimately inconvenient.
The state’s activity in 2015-2016 – since the release of the previous edition of the report – in the area of innovation policy confirmed the ongoing vectors of innovation policy aimed primarily at planning and self-organization of the
state, support for education and science, the creation of favorable conditions for startups and venture investors. The surveys which we conducted among experts, as well as our own analysis of the state’s innovative activity iden-tified the key initiatives outlined below.
As part of the improvement of state management work on developing strategic documents continued:
IDS-2020 is being continuously adjusted and updated in line with the Prime Minister’s assignment as of Decem-ber 2014.VIII The updating of IDS-2020 is necessary due to substantial changes in the social and economic en-vironment and the delay in achieving projected targets by many key indicators. It is now time to revise both the target values and the strategy as a whole (see Illustra-tion No. 2.5 below).
Furthermore, in 2015-2016 work on of a new document “Scientific and Technical Development Strategy until 2035” (STDS-2035) got under way. (STDS-2035)x. The STDS-2035 Strategy was assigned a target setting sta-tus along with the National Security Strategy and Social and Economic Development Strategy of the Russian Federation. STDS-2035 sets the following goals:
Focus primary efforts and resources on ‘big chal-lenges’ that are particularly important to the state and the nation within the framework of scientific re-search and innovative technology projects.
Build a unified and comprehensive social institution integrating science, technology and innovations to ensure cooperation between science and innovations in the Russian Federation.
Boost the operating efficiency of Russian research organizations, researchers and developers as well as their networks and groups.
Stimulate fundamental and breakthrough research and developments, build up future scientific and technological reserves, while elaborating the under-standing global natural processes.
“The development of innovative development programs at state companies began in 2011. At the end of the first five years of their implementation it became clear that the system required improvement: both in expanding the requirements for program content and in strengthening control over their implementation. Expert reviews of the innovative development programs for six companies showed that the approach to implementation of IDPs remains quite formal, while it is impossible to assess the effect of funds spent on innovation due to the lack of alignment between the goals, measures and key performace indicators (KPIs) of the programs with the strategies of companies and between each other.
A new stage in work with innovative development programs, which calls for updating the programs and implementing a more efficient system to evaluate their realization, with involvement of the expert community in the process, was launched by the Government in December 2015”.
“Innovation KPIs: guidelines for state companies”, Open Government website, 2016vi
“Experience from past years has shown that the approach to implementation of IDPs remains quite formal, while it is impossible to assess the effect of funds spent on innovation due to the lack of alignment between the goals, measures and key performance indicators (KPIs) of the programs with the strategies of companies and between each other. It should be borne in mind that the management incentive system is linked to the KPI and is built into the long-term development program of companies, so our task is to build the other remaining modules into this system. Upper-level efficiency indicators of innovative development programs should be an integral part of the upper-level performance indicators of long-term development programs
Mikhail Abyzov, Open Government website, 2016vii
Illustration No. 2.4. Interim results of Innovative Development Programs for state companies
22 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
In order to achieve its goals, STDS-2035 suggests com-pleting a set of tasks listed in full in the draft strategy. STDS-2035 also lays down principles, mechanisms and stages of fulfillment of these tasks as well as plausible scenarios for scientific and technical development de-termined by certain parameters underlying the target-ed indicators and monitoring system. Apparently, these indicators will require harmonization, including adjust-ments made to the IDS-2020 indicators.
Science and education systems have also undergone substantial changes over the past year (including previ-ously launched initiatives) as follows:
Amendments were made to Federal Law No. 270 in relation to the funding mechanisms used for scientific activities and operations of scientific research support funds. Three new definitions were added to the Law: “scientific project”, “shared scientific equipment cen-ter” and “unique scientific facility”, with an overview of funding and other support procedures. These amend-ments are aimed at facilitating the import of knowl-edge, technologies and tools for their implementation from abroad.
As part of the state program Development of Science and Technology, in 2016 as much as 187 billion rubles (vs. 167 billion rubles in 2015) was allocated to conduct fundamental research, equip laboratories, issue grants to leading scientists, including 29 billion rubles provid-ed as grants to finance projects approved by technology platforms. This state-sponsored program was devel-oped in 2013 and provides for financing until 2020.
Implementation of the 5-100 Program designed to en-hance global competitiveness of Russian universities also continues. The seven-year program was launched in May 2013 and pursues the following goals: (1) to en-sure that at least five Russian universities rank among the top 100 global universities (Times Higher Education, QS, ARWU ratings); (2) to raise the share of foreign stu-dents to at least 15% of the total number of enrollment in each institution; (3) to reach at least 10% in terms of expat employees on each institution’s teaching staff. In October 2013, universities that were selected by public tender submitted their Roadmaps to Board members, i.e. the schedule for implementing their programs to enhance competitiveness. In 2015, 14 institutions were granted a total of 10 billion rubles, while as much as 11 billion rubles was allocated to 21 institutions in 2016.
In addition, the following new programs were also initi-ated:
Pursuant to the instructions of the President, the in-stitutes of Federal Agency for Scientific Organizations (FASO) were reorganized in order to join isolated insti-tutes into more competitive and viable Federal Research Centers (FRCs). After the first stage of the reform, about 100 scientific organizations merged into 24 FRCs, which have already been granted 1.15 billion rubles from the state budget. The establishment of the FRCs has already yielded a positive effect which will continue to gain mo-mentum not only as part of restructuring but also as a network cooperation model, where scientific institutions form a cooperative group for cooperation on a specific project, while maintaining their status as independent legal entities (see Illustration No. 2.6).
A merger of the Russian Foundation for Humanities (RFH) and the Russian Foundation for Fundamental Research (RFFR) was carried out to increase the vol-ume of interdisciplinary researchxii. According to the Deputy Minister of Education and Science of the Rus-sian Federation Lyudmila Ogorodova, the budgets of foundations will be increased in 2017. “While in 2016 10.9 billion rubles will be allocated to the RFFR and the RFH will receive 1.8 billion rubles under the state pro-gram For Science and Technology Development, these figures will rise to 18 billion rubles and 2.3 billion rubles in 2017, respectively”.
The concept was approved for a new draft Federal Law “On scientific, scientific and technical, and innovative activity”, which is being worked outxiii. Together with the Duma members, the concept was also developed for more than 30 months by representatives of the Rus-sian Academy of Science, the Association of State Sci-entific Centers, the Ministry of Education and Science of the Russian Federation5, the Ministry of Economic Development6, the Ministry of Finance and the Public Chamber of the Russian Federation. Its key tasks are: minimize prescriptive management in this area, create competitive and comfortable conditions for studying sciences, providing opportunities for self-development and self-management within the national scientific and technical system, cultivating relations between its par-ticipants at all stages of the knowledge life-cycle.
A project designed to support development of a net-work of science and technology parks for children was launched under the strategic initiative “New Model of Supplementary Education for Children” supervised by the Agency for Strategic Initiatives (ASI). The initiative aims to create a sustainable multi-tier system of ex-tra-curricular activities for children and is based on the
“<…> Attention needs to be focused on problems that arose during the first stage of this strategy. According to federal executive bodies and the Analytical Center for the Government, we have 45 target indicators, one-third of which have not been met, while some indicators lack reliable data. Despite a number of fairly successful projects, there remain significant disparities in the innovative development of various regions and sectors. This is indeed the case: the country is diverse and the difference in innovative development is truly substantial. In this context, it is important to analyze the reasons and then taking into account the current economic situation (which, evidently, cannot be ignored), to update the strategy itself”.
Prime Minister Dmitry Medvedev at a Meeting of the presidium of the Presidential Council for Russia’s Economic Modernization and Innovative Development, 2014 ix
Illustration No. 2.5. The Prime Minister on the need to update IDS-2020.
23NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
partnership between public and private organizations and targets implementation of advanced supplementa-ry education programs in order to discover and develop talents in each and every child. Specifically, the initiative provides for opening Quantorium science and technolo-gy parks throughout the country. One such park, with a total area exceeding 1,000 sq m, was launched in Sep-tember 2016 in Moscow (see Illustration No. 2.7).
As part of maintaining a favorable business environ-ment, establishing and developing technology startups and developing the venture market, previously launched programs also continued as follows:
State program “Economic development and innovation economy” was first announced in March 2013 with a planning horizon until 2020 and was aimed at main-taining a favorable business climate and business con-ditions, enhancing innovative activity in the business sector as well as boosting the efficiency of state man-agement. Under this state program funds were allocat-ed as follows:
In 2015, 19 billion rubles was earmarked for develop-ment of the Skolkovo Foundation, where 19 compa-nies opened R&D Centers in the Skolkovo Village and eight new laboratories were opened at SkolTech;
In 2015, 5 billion rubles was allocated to the Inno-vation Support Fund with a view to supporting small innovative businesses and 619 of such small compa-nies received financial assistance;
In 2016, the SME sector will receive total funding of 9.61 billion rubles to be allocated among the con-stituent entities of the Federation through tenders, including a tender by the Federal Agency for Youth Affairs (Russian Youth) aimed at selecting constituent entities to participate in the sub-program “For Devel-opment of Small and Medium-Sized Enterprises”.
Lively communication between development institu-tions also continued and included annual events for young entrepreneurs. Here are some examples.
The federal competition Startup Village took place on June 2-3, 2016 with over 20,000 contestants sign-ing up, 500 journalists and 1,500 investors, many of whom arrived from both neighboring countries and non-FSU countries; around 1,000 people applied to participate in the contest, 278 of them made it to the semi-final, while 26 of them entered the final round and received a grant worth 300,000 rubles.
The annual Open Innovation Forum was held in No-vember 2015; during the five days of the proceedings 115 business events took place with over 200 speak-ers from more than 30 countries around the world. The Forum’s attendees discussed the influence ex-erted by technologies on operating efficiency, the ecosystem, education, health and the entertainment industry. First-stage Roadmaps of the National Tech-nology Initiative (NTI) were also presented at the Fo-rum (see below).
GenerationS, an annual federal accelerator for tech-nology startups, first took place in 2013 and in 2015 the number of applicants reached a record number of 2,566 from 14 countries, 141 projects were se-lected as participants for corporate accelerators in seven areas. Over 20 Russian corporations acted as customers and industrial partners for GenerationS, whose interests were upheld when the winners were selected and during the project acceleration pro-cess. GenerationS-2016, the active phase of which will continue from November 2016 until March 2017, will maintain the traditions of some acceleration con-cepts, like Smart City and Power&Energy, although other concepts are also expected to be incorporatedxv.
“The first stage of the planned restructuring allowed us to form more than 20 new research centers. Over 100 institutes, which have traditionally worked as part of the Russian Academy of Science, were engaged in the process. The first stage of this work has been completed. Now, the process of initiatives launched by our teams has been gaining momentum. To date, we have already received proposals on various forms of integration from 40% of the insti-tutes, so I think that new projects will likely take place. In each case we perform a detailed study of the proposed cooperation, and by no means are all of the initiatives approved. A project may only be implemented if there is a certain goal, which is clear to the scientific community and is supported by the Academy of Science. If it is some kind of routine association that is not capable of improving the quality of research, such projects will most likely be rejected”.
Mikhail Kotyukov, Head of the FASO, 2016 xi
“Today, four students from moscow signed employment contracts with moscow-based manufacturers providing them with the opportunity of future em-ployment after they graduate from a higher education institution, a college or a children’s science and technology park with such enterprises as Sputnix (a Russian manufacturer of microsatellite components and technologies), Compass (a developer of on-board navigation equipment for the Russian Air force and Space forces), AiTek (a developer of smart information systems), and Profilum (an IT company operating in the field of navigation through professions and education). The number of such contracts signed is expected to reach 50 before the end of 2016”.
Marina Rakova, the Head of the ASI Initiative New Model of Supplementary Education for Children and the chief ideologist of the Project for establishment of a network of Quantorium science and technology parks, 2016 xiv
Illustration No. 2.6. Restructuring of FASO institutes
Illustration No. 2.7. Quantorium children’s science and technology parks
24 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
Some other new important initiatives were also launched:
Implementation of New National Technology Initiative began:
The NTI Strategy is now being developed (see Illus-tration No. 2.8). The first draft strategy was worked out during the fifth Foresight Fleet in May 2016xvi. The NTI strategy included nine roadmaps, five of which (AeroNet, AutoNet, MariNet, NeuroNet, EnergyNet) have already been approved by the Presidium of the Presidential Council of the Russian Federation on Economic Modernization.
Pursuant to an assignment from the Russian Govern-ment, RVC has started to set up the NTI project of-fice in terms of project management, organizational, technical and expert-analytical support, information and financial support for the development and imple-mentation of scheduled events (roadmaps) and NTI projects.
In August 2016, RVC registered the NTI Support Fund with the aim of funding projects slated for imple-mentation in the roadmaps; the 2016 Federal Budget provides for about 8 billion rubles to be allocated for execution of NTI projects. For the time being, the fund has already approved funding for four NTI roadmaps approved by the Council for Economic Modernization (see above).
RVC and Skolkovo have signed a cooperation roadmap for 2016-2017, including cooperation under the NTI Strategy. The roadmap provides for the establishment of a joint venture fund, the launch of an investment con-sulting center, joint efforts for the development of inno-vation ecosystems and support of high-tech startupsxviii.
In line with IDS-2020, work is now underway to estab-lish state-run industry venture funds that are expected to promote faster development and modernization of top-priority industries.
In September 2015, the Ministry of Energy of the Rus-
sian Federation7 in cooperation with the Ministry of Economic Development and Rusnano developed a concept to create an industry fund for innovative tech-nologies in the Fuel and Energy Complex (FEC). The fund is designed to promote development of Russia’s fuel industry based on innovative solutions. Invest-ments in the fund are expected to be made gradually along with selecting higher-priority projects for the FEC under the roadmap for implementing innovative technologies and advanced materials in FEC market sectorsxix.
In January 2016, Rusnano established two new in-vestment funds with a focus on specific industries: (1) a USD 500 million fund established together with Chinese Zhongrong International Trust will be in charge of searching for projects in the electric pow-er and O&G sectors as well as microelectronics and biotechnologies; (2) a USD 2 billion fund established jointly with Indian NIIF will invest in dual-purpose high-tech solutions and products of the military in-dustrial complex.
In October 2016, the State Duma approved in the first reading a governmental draft law on extending tax benefits applicable to transactions involving securities issued by Russian high-tech companies. The prefer-ential personal and corporate income tax rate of 0%, which used to apply to income from the sale of shares in high-tech sector players after ownership for at least five years now also applies to bonds and units, while the ownership period and has been reduced to one year.
As regards the promotion of innovation in the mature business sector, the state continues to focus its efforts in the following areas:
A number of initiatives are being implemented under the state program For Industrial Development and Im-provement of Industrial Competitiveness. This state program was developed by the Ministry of Industry and Trade of the Russian Federation8 and is aimed at for-ward-looking establishment of innovative infrastruc-
The Director of young Professionals at ASI Dmitry Peskov, outlined the National Technology Initiative (NTI) Strategy at a plenary session of the strategic initiative forum Russia on the Global map until 2035. Challenges in the epoch of a new technology lifestyle” held on July 21 at the Exhibition of Achieve-ments of the National Economy.
“If we learn how to export to global markets the security solutions worked out by small NTI tech companies in cooperation with the relevant ministries, we will be able to conquer a market we could not even dream about as soon as 2020” – stated Dmitry Peskov.
his vision of 2035 vision encapsulates a world of decentralized networks capable of making humanity’s brightest dreams come true On the other hand, it will be a world of conflicting hierarchies that sells two things: fear and relief from this fear, i.e. a sense of security.
Dmitry Peskov noted three key criteria that can be used to identify NTI progress:
value-based management (value is more important that goals, people are more important than institutions, vision is more important than documents);
fast-track decision-making, which will become a competitive advantage for companies in 2035, means that the shift from idea to investment decision and project implementation will take days or even hours instead of a year of six months;
concentration and development of competitive solutions which leverage the country’s specific cultural features.
“Tapping into this rationale, i.e. building trust with a focus on speed, concentration and our specific cultural features, NTI markets and our joint solutions may well account for 50% of the Russian economy by 2035” – Dmitry Peskov stressed xvii
Illustration No. 2.8. National Technology Initiative Strategy
25NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
ture to be used as the framework for developing new industrial sectors as well as lowering regulatory bar-riers and ensuring parity conditions when marketing innovative products. In 2015-2016:
2.3 billion rubles was subsidized for engineering de-velopment and establishment of over 30 engineering centers;
Geographical Information System (GIS) was designed for industrial parks to enhance their investment ap-peal;
investment loan interest rates and R&D expenditures are also subsidized.
The Government has launched a new phase in the im-plementation of Innovative Development Programs (IDPs). This phase calls for updating of the programs and implementation of a more efficient expert opin-ion-based evaluation system for their fulfillment. The working group in charge of this phase has issued a number of recommendations for state-owned compa-nies that should be kept in mind when finalizing IDPs:
state-owned companies should, in particular, link IDP measures to long-term technological trends and use advanced international experience as a bench-mark for estimating their KPIs;
state-owned companies are advised to work out their IDPs with a long-term view taking into account po-tential business diversification, while special atten-tion should be paid to commercialization of their solutions on the global market and maximum possi-ble increment of export of civilian innovative products as well as maximum possible import substitution and expanding the list of available funding tools;
when developing and updating their IDPs, companies are also advised to seek guidance from the relevant experience of state-owned corporation Rusatom9 and Aeroflot, which have already proven their innovative development programs to be the most efficient.
according to methodology guidelines worked out by the Ministry of Economic Development together with the Expert Council attached to the Russian govern-ment and development institutions, program quality evaluation will be added to KPIs for innovative activ-ities, which, in turn will then be included in a com-pany’s long-term development program and the top management incentive system.xx
At the same time, it is worth noting that, in 2015-2016, the government made a substantial effort to innovate the largest companies – many new initiatives were launched, including, above all, the following:
In May 2016, the Agency for Technological Development was established in order to increase the number of li-cense agreements stipulated and, consequently, the number of joint ventures aimed at sharing technolo-gies, to improve competitiveness of Russian companies by way of modernization and technological upgrade as well as to increase exports of products other than nat-ural reserves with a focus on technology transfers.
Russian Export Center (REC) was formed as a “sin-gle-window system” for state support to exporters. REC
also includes the Russian Agency for Export Credit and Investment Insurance (EKSAR) and Roseximbank JSC. The key functions of the single window REC are: finan-cial (lending, insurance, warranties) and non-financial support (consulting and information services) to ex-porters, especially those operating in top-priority sec-tors, such as: machine building (including automotive), agricultural complex, IT, microelectronics, consumer goods, FEC and chemical industry, construction and the wood processing industry.
The Industrial Development Fund (IDF) began to oper-ate in 2015. IDF was established in 2014 by initiative of the Ministry of Industry and Trade as a tool for modern-ization of the Russian industrial sector, launching new manufacturing facilities and promoting import substi-tution. The Fund provides preferential co-funding for projects aimed at development of high-tech products, technical re-tooling and rolling out production facilities employing the best available technologies:
For industrial projects carried out by large enterpris-es, the fund offers loans ranging from 50 to 500 mil-lion rubles at a 5% interest rate with a term of up to seven years;
In 2016 a total of 11.3 billion rubles out of the avail-able budget of 23.7 billion rubles was allocated for implementation of approved projects.
Pursuant to the Federal Law “On industrial policy” in 2015 a special investment contract was introduced as a mechanism to ensure a stable tax and regulatory en-vironment and to provide state support for investors. Pursuant to the Federal Law “On industrial policy” in 2015 a special investment contract was introduced as a mechanism to ensure a stable tax and regulatory en-vironment and to provide state support for investors. The special investment contract (SPIC) is an agreement between an investor and the state, which sets forth the investor’s obligations to launch production of industri-al products within a fixed term, and obligations of the Russian Federation to guarantee a stable tax and regu-latory environment, and to provide incentives and sup-port. (see Illustration No. 2.9)
In March 2016, the Government signed Order No. 475-r, which requires the state-owned enterprises (SOEs) listed in the Order to purchase innovative products from representatives of small and medium-sized en-terprises. The list comprises 90 SOEs, including SPC Dzerzhinsky Ural Wagon Plant, Russian Roads SOE, Gazprom, Federal Grid Company of the Unified Energy System, Aeroflot – Russian Airlines, Russian Railroads, Federal Hydro-Generating Company – RusHydro, Ka-lashnikov Concern, and Rosneft Oil Company.
The Ministry of Industry and Trade has initiated a pro-gram for support of worldwide patenting. The Program suggests subsidizing official patent fees. The cost of a patent fee for a Russian company currently averages 234,000 rubles at the stage of international registration plus 603,000 rubles at the stage of national registration, for a total of 837,000 rubles, while the Program helps to slash the amount in halfxxii.
In July 2016, the Ministry of Economic Development and the National Research University Higher School of Eco-
26 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
nomics (NRU HSE) launched the National Champions Project. The project is designed to ensure above-aver-age growth of national leading export-oriented private high-tech companies and the establishment of Rus-sia-based transnational companies on the basis of pri-vate market players. The project aims to roll out over 10 Russia-based private high-tech companies capable of showing sales volumes of at least 500 million dollars each. A yet, there are no plans to allocate additional funds from the state budget, although the program par-ticipants will be provided with administrative resources allowing them to obtain existing export support tools through development institutions (such as cheap loans, warranties, insurance) and trade representativesxxiii.
In other areas, international activities should be men-tioned:
Implementation of the Information Society Program de-veloped “to create an integral and efficient system for employment of information technologies where the na-tion will receive the maximum benefits”, continuesxxiv. In 2016, 121 billion rubles was allocated for program de-velopment. The best evidence of successful implemen-tation of the Program will be the upgrade of Russia’s in-dex in international ratings assigned based on the level of information and telecommunication technologies as well as the growth in number of citizens using state services on a daily basis. By 2020, the proportion of the population expected to use state e-services is expected to reach 85% vs. 11% in 2010. The program consists of the following four parts with a total budget of 1.2 trillion rubles until 2020:
“Information and telecommunications infrastructure in the information society and related services”, which provides for various telecommunications services;
“The information environment” aimed at develop-ment of the mass media;
Security Aspects in the Information Society” address-ing Internet-related threats;
“Information State” aimed at developing e-govern-ment and information services in such areas as healthcare and education.
The ministers of Science, Technologies and Innovations
of BRICS countries at their meeting held in October 2015, approved a BRICS working plan until 2018 in the sphere of science, technology and innovation, agreed to create a platform for coordinating their work and es-tablished a direct communications channel between all interested parties in the following areas:xxv
prevention and elimination of natural disasters (“monitoring and early forecasting”): Brazil (National Center for Monitoring and Early Warning of Natural Disasters” – Cemaden);
water resources and water pollution abatement: Russia (technology platform for sustainable environ-mental development);
geospatial technologies and their application for further development: India (National Spatial Data Infrastructure – DST); development of information and communication technologies (ICT) and deci-sion-making systems (DMS) based on geospatial technology for management of risks associated with natural disasters and climate change as well as for appropriate flexible planning of further development in order to achieve a sustainable ecosystem;
new and renewable energy, energy efficiency (LED lighting as part of SSL): China (Ministry of Science and Technologies);
astronomy: the Republic of South Africa (National Re-search Foundation)
In summary, the state’s main actions over the past two years (and earlier) are shown in the table (see Illustration No. 2.10). We have not included actions concerning state management (or “sundry” initiatives), since we are only interested in ascertaining which economic agent groups experienced the strongest effect from the innovation pol-icy.
We would also like to point out that we have mentioned only the most remarkable actions suggested by our ex-perts and resulting from our own research.. This list can-not be regarded as complete but rather reflects an at-tempt to demonstrate the balance between the chosen activities, i.e. the focus, the main areas of actions under-taken, what worked and was most vividly recalled by ex-perts.
“SPIC is a tool used to implement the general policy of import substitution in Russia. One of the key tasks of this policy is to expand the scope of products “made in Russia”. This refers not to the country of origin, which is quite a complicated issue, but the country of manufacturing, which, in many cases, has less stringent conditions for a number of products, instead of confirming Russia as the country of origin.
The new state regulation is more loyal towards products manufactured under this label. for example, pending compliance with a number of requirements, a company is entitled to participate in government procurement or act as a supplier of goods to state-owned companies. It is a global trend today to purchase locally manufactured goods. There are three ways to obtain the ‘made in Russia’ status, and SPIC as one of them. A company can sign it and be eligible to use the status in advance even if not all of the required operations are carried out.
In turn, according to the Industrial Development fund, SPIC is as agreement signed with the state outlining a financial investor’s obligations to implement their project in the territory of Russia. Thus, the investor commits to manufacture certain products as well as to pay local taxes, to achieve a certain level of localization, etc”.
ГGazeta.ru, “Russia to Support Mercedes-Benz”, 2016 xxi
Illustration No. 2.9. Special Investment Contract
27NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
The summary table clearly shows that until 2015 the greatest efforts were devoted to supporting science and startups, namely such initiatives that managed to change the innovation landscape as: RAS restructuring, estab-lishment of development institutes, construction of sci-ence and technology parks, implementation of NEI, and development of NTI. At the same time, considerable at-tention was also paid to mature business, primarily in terms of planning (IDPs), targeted incentives and grants.
Over the past two years the balance has significantly shift-ed to mature business, especially large enterprises – we can see various initiatives aimed at providing companies with real opportunities to gain support and addressing various aspects of business, such as patenting, export, government procurement, and new large-scale projects. The effect from stimulating this area is still not entirely clear, but it is definitely visible taking into account stron-ger initiatives.
Illustration No. 2.10. The State’s actions in innovation policy (2010-2015)
Before 2015 2015-2016 (new)
Research & Higher Education Institutions
• RAS Reorganization • State-sponsored programs: 5-100, Applied Science
b.A., fundamental Science Research• Establishment of federal Agency for Scientific
Organizations (fASO), Russian Science foundation (RSf), Advanced Research foundation (ARf), Scientific Research Center Zhukovsky Istitute
• Improvement of funding mechanisms (amendments to federal Law No. 270)
• funding under the Program for Science and Technology Development
• Restructuring of federal Agency for Scientific Organizations (fASO), establishment of federal Test Center (fTC)
• merger between Russian foundation for humanities (Rfh) and Russian foundation for fundamental Research (RffR)
• federal Law and minimization of prescriptive man-agement
• Development of a network of science and technology parks for children
Startups
• Construction of innovative territorial clusters: Skolko-vo, Innopolis, mSU Valley
• Establishment of Development Institution System • Implementation of NEI• Development of NTI• funding under the state-sponsored program on
Economic Development and Innovation Economy• Events: Open Innovations forum, Startup Village,
GenerationS
• Development of NTI Strategy• NTI Project Office• funding of NTI Roadmap• RVC and Skolkovo cooperation roadmap• Industry venture funds• Tax breaks for stock ownership
Mature Businesses
• Development and further actualization of IDPs, implementation of KPIs
• Approval of incentives for innovative businesses (approx. 70)
• Engineering development subsidies• Subsidizing investment loan interest rates and R&D
expenditures
• Establishment of Technology Development Association (TDA), Russian Export Center (REC)
• Establishment of fID, launch of project funding • Implementation of Special Investment Contract (SPIC)
mechanism • mandatory state procurement from Smb • Support of worldwide patenting• National Champions Project
1 It should also be noted that numerous measures were taken in re-lation to mature companies, although in this case the main issue will be their low actual efficiency; the senior staff of the relevant companies note that they are aware of many measures, but they not actually feel any effect from these measures.
2 Further, respectively, Skolkovo, RVC, Rosnano, the Innovation As-sistance Fund, the Fund for Infrastructure and Educational Pro-grams, and VEB Innovations
3 See, for example, Methodological Materials for the Development (Updating) of Innovative Development Programs of Joint Stock
Companies with State Participation, State Corporation and Federal State Unitary Enterprises, Higher School of Economics, 2015.
4 Hereafter - MinFin
5 Hereinafter - the Ministry of Science
6 Hereinafter - the Ministry of Economic Development
7 Hereinafter referred to as the Ministry of Energy
9 Hereinafter referred to as the Ministry of Industry and Trade
9 Hereinafter referred to as Rusatom
Source: bCG analysis
28 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
The review of innovation policy in recent years, includ-ing 2015-2016, set out in Section 2.2. of this report,
shows that the state, although being active in all five ar-eas outlined in the beginning of Section 2.2., initially was and still remains focused on:
(1) supporting science and education;
(2) providing favorable conditions to entrepreneurs and venture investors;
(3) providing targeted financial and non-financial sup-port to startups.
Only in recent years has the state begun to vigorously promote innovations at large enterprises, the effect of which, however, has not yet been recorded in the dash-board.
Can it be the policy focus on the academic and business environment that hinders the innovation activity? Chanc-es are that science, education, innovation environment and startups, even if established and supported, either do not necessarily promote innovative activity as a whole, or do but with a big time lag which has not yet been over-come.
Evidently, such a lag is a characteristic for education and fundamental research activity. The time lag between re-search results and an innovation technology developed on the basis of such research, quantified based on avail-able experience, ranges from 6 (Mansfield 1998)xxvi to 17-23 (Morris et al 2011)xxvii years.
It is noteworthy that both fundamental science and the state’s active position in organizing and funding scientific surveys are undoubtedly necessary and vital. Research-ers note a material payback from fundamental research which will only rise over time and eventually reach up to 700% (Gruss 2009)xxviii. In particular, the analysis by the Stanford University estimates annual return on the in-vestment made in the fundamental stem cell research at 120% to 236% during the 30-year payback period (Stan-ford 2004) xxix.
Nonetheless, scientific activity, even if well-organized and generously funded, is not capable of yielding a quick effect in and of itself. It is important to see not only the findings of specific research but also its general effect on the innovative ability of the country’s economy as well. Needless to say that such effect will require a much lon-ger timeframe, even decades.
The focus of the innovation policy on creating a favorable business environment should apparently yield quicker results at least due to the initial aims of startups and venture investors at obtaining a rapid and evident result. Yet, startup activity also demonstrates a delayed effect. The transition from creation and enhancement of a fa-vorable environment to a tangible inflow of commercial innovations from successful high-tech companies may take quite a long time.
High-tech startups are undoubtedly a good source of the most “disruptive” innovations capable of essentially modifying technological paradigm and economy struc-ture. This is often the reason for longer periods required for finding ideas and entrepreneurs, for launching their businesses and raising funds, for designing a prototype and, finally, scaling up business. Furthermore, as regard the ecosystem, its establishment and entrenchment re-quire not only a favorable environment but also evidence of invariability of the environment, stability of the condi-tions offered by the state, including periods of economic recession, financial crisis and other external stress.
In addition, it should be noted that at each stage of the “innovation swirl” (see the 2015 Report) the process of business initiative development is likely to slow down and/or stop, which, in turn, may result in the slowdown of startup ecosystem development. Only 3% of patents will actually reach the commercialization phase one way or another (Key 2011)xxx. Moreover, not all of the patents will pay back as startups. At the next stage (early survival and subsequent scaling-up) of the “swirl” 90% of start-ups will fail (Griffith 2014) .
Supporting startups and venture investors, in turn, col-lides with the problem of an “open-loop innovation sys-tem” that was described in our 2015 Report and sum-marized in Section 1. Technological solutions and their developers keep leaving our country striving to nest in the existing innovation hubs moved by a general centrip-etal force without sufficient domestic demand that could help withstand that force.
Success in arranging a favorable environment and even targeted support to startups still fail to diminish the at-tractiveness of the existing global hubs. Entrepreneurs tend to find themselves in a familiar social environment and to be closer to investors and target markets. This is why it is critical to create extra beneficial conditions and allow for a longer period in maintaining a solid reputation as an alternative attractor in order to restrain the existing centripetal force and encourage entrepreneurs to refrain from migrating to the existing hubs.
Such seemingly unrestrained migration of entrepreneurs to California is not only Russia’s problem but is also typ-ical for countries with a highly developed innovative en-vironment such as Australia. Moreover, even other areas of the US traditionally deemed attractive for talents (like Boston) suffer from an outflow of entrepreneurs to Cali-fornia (see Illustration No. 2.11).
The problem of “brain drain” to innovation hubs is in-tensified by low demand for innovative solutions from mature Russian business, especially large enterprises. As estimated by businesses themselves and taking into account total investments in intangible assets, actual demand for technologies and innovation in Russia re-mains quite weak. In the 2015 Report we provided the data reflected in the Illustration No. 2.12 and supporting
2.3. WHY IS THERE NO INNOVATION BREAKTHROUGH?
29NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
the idea that the demand for technologies in Russian is low. This claim is also reaffirmed by many experts and by IDS-2020 (See Illustration No. 2.13).
0,3
1,7
2,7
2,9
3,5
3,7
4,2
4,4
4,4
4,5
5,0
5,2
5,8
6,2
6,4Sweden
Switzerland
South Korea
Ireland
france
Austria
finland
Netherlands
Israel
Great britain
Germany
Australia
Italy
Chile
Russia Investments in intangible assets, 2014 (% of GDP)Source: National accounts of OECD countries (main aggregates 2007-2014)
Illustration No. 2.12 Low demand for technologies in Russia
Given such low demand for new solutions from the exist-ing businesses, it is only natural that Russian research-ers and entrepreneurs would look for their customers on foreign markets. Expert employees of venture funds, who were interviewed for the purposes of this Report, confirmed that a high-tech startup may only be viewed as attractive if it pursues the strategy of early entry into
global markets. At the same time, the strategy of enter-ing the domestic market is not read as a true-to-life de-velopment scenario. “The Russian market is too narrow for a modern startup” – this is a widely used argument which also implies, among all, the idea of low demand from Russian business for innovations.
Raising startups under the pressure of low domestic de-mand from innovations does not lead to increased activi-ty but to outflow of technologies to foreign markets from where they will be reimported by Russian consumers as end-user products. As a result, Russia’s venture market, although being quite internationally competitive in terms of investments, does not match the size of the economy. These findings were also represented in the 2015 Report (see Illustration No. 2.14).
Therefore, there is every reason to assume that Russia’s state innovation policy is unlikely to show quick and ev-ident results (“quick wins”) for the following three rea-sons due to its focus on the academic and business en-vironment:
changes in fundamental science and education are geared towards the long period;
creating favorable innovative environment will result in higher innovative activity but with a time lag;
with low domestic demand, supporting high-tech proj-ects and startups provides a limited effect.
“for Australian start-ups dreaming of making it big in the US, the transition time from launching to jumping on a pan-Pacific flight seems to be getting shorter all the time. This week, flightfox, a Sydney business that proactively searches for the best flight deals on behalf of customers, was accepted into famed US accelerator y Combinator, after raising a hefty $800,000. The move comes just a few short months after the business was chosen by Startmate, the Australian accelerator, to be part of its 2012 program. The headlong rush to America isn’t without its downsides, as Startmate founder Niki Scevak eloquently put it in his StartupSmart blog this week, pointing out that Silicon Valley isn’t a “magical kingdom of start-ups.” but that hasn’t stopped a growing number of Aussie ventures from aiming big and setting their sights firmly in the direction of California, and beyond.”
Startup Smart, “10 Aussie start-ups gunning for Silicon Valley”, 2012 xxxii
“<…>This has certainly been Scribd and Parse co-founder Tikhon bernstam’s experience; he argues that Silicon Valley has a much richer offering than merely the cash injected from investors’ fat wallets.
“It’s not just about the money, it’s the people that help you when you’re going astray,” he said. “That’s incredibly valuable, because it’s very easy without help to go in the wrong direction for a long time.
We started Scribd in boston, but in San francisco, in mountain View and Palo Alto, you feel this completely different energy, in the sense that there are many smart people that have done so many amazing things, and they’re all happy to talk to you, and give you advice, and you’re a first-time founder and you have no idea what you’re doing,” he said.
This was one of the key drivers behind the move to California for Australian-founded online document collaboration startup Nitro, with the company’s founder and CEO Sam Chandler arguing that the move to San francisco from melbourne was more about connections than funding.
“When we made that decision, it wasn’t just about capital; it was also about accessing talent,” Chandler told TechRepublic. “The bay Area’s culture — there’s an openness to new things, an embracing of new things in the bay Area that is unlike anything else. It’s not just about money.”
TechRepublic, “Less is more for Australian startups”, 2014 xxxiii
Illustration No. 2.11 Attractiveness of global innovation hubs
30 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
“Where we allocate budget funds to finance early development of a product but fail to put the product to mass production due to low domestic demand, we, in fact, finance technological growth of our rivals that are eager to buy our innovations and launch large-scale manufacturing of products to be then sold to our consumers”.
D. Belousov, Center for Macroeconomic Analysis and Short-term Forecasting (CMASF), quote from HSE release “Foreseeing the Future”, 2014 xxxiv
“Our country is a country of big business – largest part of markets is governed by state monopolists unmotivated to grow and compete with other com-panies – they feel good anyway. They are not interested in startups as an instrument of development or a source of new business ideas. These companies lack demand for innovations at a strategic level.”
G. Bikkulova, Director of Development at RVC, Expert, 2016 xxxv
Today, the responsiveness of business entities to technological innovations remains very low. In 2009, only 9.4% of all Russian industrial companies developed and implemented technological innovations, which is substantially lower than in Germany (71.8%), belgium (53.6%), Estonia (52.8%), finland (52.2%) and Sweden (49.6%). The share of businesses investing in purchasing new industrial technologies accounts for 11.8% of all companies. The share of expenditure on technological innovations in the total production cost of shipped goods, work and services incurred by Russian manufacturers accounts for 1.9% vs. 5.4% in Sweden, 3.9% in finland and 3.4% in Germany.”
Russia’s Innovative Development Strategy until 2020 xxxvi
Illustration No. 2.13. Weak responsiveness of business to innovations
Illustration No. 2.14 Correlation between the size of the venture market and the economy
0.44
...
Venture investments as % of GDP as of 2014
Venture investments in USD mln as of 2014Greece Slovenia
Estonia
IsraelUSA
Canada
South KoreaSweden
Great britain
Japan1
franceGermany
Australia
Spain
finland
RSA1
Switzerland
Netherlands
Norway
Ireland
hungaryNew Zealand
Austria
PolandCzech RepublicLuxembourg
SlovakiaItaly
PortugalDenmark
Russia
0.08
0.06
0.04
0.02
00.1 1 10 100 1 000 10 000 100 000
1Data on Japan and South Africa as of 2013
Source: Eurostat Databases (European Labour force survey)
31NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
“<…> According to research conducted within the framework of the monitoring Survey of Innovative behavior of the Population implemented by the higher School of Economics (hSE), 9.6% of the grown up population can be considered inventors. One third (32.5%) of them, however, have never heard anything about innovations but this does not stop them from inventing. Notably, the bulk of their innovations – from garden tools to autonomous energy supply systems – are intended either for their personal use or as help for their family and friends.
“The main reason for user innovations, such as household inventions is neither the goal to enter the market nor commercialization. This is what distin-guishes them from the traditional model of innovative activities where the company plays a central role. Commercial success for a firm is a matter of survival, while for a user (either a firm or an individual) the main motivation is satisfying their needs,” explains co-author of the project Associate Professor of the hSE Institute for Statistical Studies and Economics of Knowledge Konstantin fursov.
The user and traditional innovations are conceptually opposed to each other. Over the past few years, at least five countries conducted a survey similar to the one by the hSE. having compared their results and statistical data, “Kommersant money” reached the conclusion that the fewer the number of patent applications in a country – the larger the number of inventors. Thus, in our sample, it was South Korea (1.5%) that ranks second in the world in terms of the number of patent applications per million economically active inhabitants (8,700 annually). In terms of patent activity, Russia ranks last on our list, while it is number one in terms of the inventiveness of its population.
A similar situation has been observed with respect to such statistical indicator as the proportion of investments by commercial entities in total domestic R&D investments. The leaders of our research by this indicator are Japan and South Korea (77% and 75%, respectively, according to the Global Innovation Index), while Russia lags behind all other countries under review (27%)”.
“Mother Wit for Domestic Consumption”, Kommersant Money, 2016 xxxvii
Illustration No. 2.15 Inventors in Russia
So, what focus of the innovation policy will make it pos-sible to convert the progress achieved in recent years
from improving the innovative environment into stronger innovative activity, especially in the shortest possible time with a tangible effect?
This question may be answered through the process of elimination. As it can be seen from the previous Section, focusing solely on the academic environment, venture investments and startups will not likely help to achieve quick success. In fact, there are only two areas left to be explored: individual inventors and mature business.
Individual inventors – i.e. people devoted to inventions (or the so-called “garage innovations”) which pursue their own aims (although they may be commercially motivated but lack the ambitions required to grow them into a large business) and outside any organized projects – form the basis for generating a flow of ideas suitable for further commercialization. According to expert estimates, almost 10% of the adult population are involved in one form or another of inventing things (see Illustration No. 2.15).
Not all inventors of new technology products become technology entrepreneurs, launch startups or raise venture investments – but the invention stage is near-ly mandatory for startups that intend to introduce their breakthrough ideas to the world and that have a modest support base amid existing technologies and operating businesses.
The problem with inventors targeting inventors under the innovation policy is the same as in the case of science and startup targeting – namely, the waiting period is too long before the first commercial results are obtained. In
this case, time is required to change the public’s cultur-al patterns. Innovations should be assigned the status of a “serious occupation” that could potentially lead to commercial success. Ready-made inventions should be introduced to the market by their creators to the market, including the capital market; for this purpose, making a profit on an invention coupled with its commercialization should become a key prerequisite in the creative process both for investors and the State.
In Report-2015, we devoted an entire section to the im-portance of cultivating a positive public attitude towards the process of creation and creators of something new, i.e. a favorable social environment aimed at promoting creatively thinkers and active people who can turn their ideas into commercial products. We noted that an unfa-vorable social attitude towards scientists and innovators has deep cultural roots and any material and enduring changes will require a long time, perhaps even as long as several generations. This, however, does not mitigate the significance of the task but removes inventors from the list of agents capable of providing a “quick win”.
Therefore, targeting mature business and intensive stimulation of the latter’s innovative activities is an area that could offer potential for achieving stronger results. It is the mature business today which, although accounting for the bulk of the economy, remains the worst devel-oped – for example, in Russia this area comprises only one third of all patents unlike its international peers from leading countries, where mature business dominates in terms of patent activity (see Illustration No. 2.16). This fact shows the enormous potential for transformation of the corporate sector.
2.4. BIG BUSINESS IN RUSSIA: SLEEPING GIANTS
32 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
Exactly what type of existing businesses should be taken as the primary target, given that a quick reaction is re-quired? Should the State focus either on small business, medium-sized companies or large enterprises?
Small business is marked by insufficiently elaborated organizational structure and is exposed to the strong, or even dominating, influence of its founder. At the same time they are not necessarily new or innovative. On the contrary, mature small businesses are most likely tradi-tional and often family-run. In this report we do not study this group as a priority target for innovation police for the evident reason of their small total size and non-applica-bility in terms of a “quick win”. Nevertheless, it is worth noting that they may also play an important supporting role in innovative infrastructure: for example, the avail-ability of advanced urban services is an important factor in attracting creative young people.
Medium-sized business, especially its promising tech-nology section – the so-called “gazelles”, is a far more attractive target when it comes to using innovation pol-icy tools. The State is already taking steps to develop this sector. Thus, in July 2016 the Ministry of Econom-ic Development together with NRU HSE announced the National Champions Project (see Section 2.2). Another competition, TechUp, has been held annually over the last few years and is designed to seek out and find those gazelles. In 2016, the Ministry of Economic Development plans to select 30 leading companies, which will then be provided with various means of support, including, above all, continuous supervision and assistance and support in overcoming different administrative barriers.
However, unlike leading innovation countries, the pro-portion of medium-sized business in Russia is very low – under 21% (see Illustration No. 2.18). Russia’s medi-um-sized business has yet to gain the necessary critical
mass for a quick and firm “answer” to the innovation pol-icy. It is noteworthy that a similar problem also exists in leading countries where the results demonstrated by the “gazelles” in response to the measures implemented un-der the innovation policy, fail to comply with the required stability even if the speed is appropriate. An example is given in an abstract from the article referred to in the Illustration 2.17, where instability in operating results clearly stems from employment issues in high-growth gazelles.
The issue of overly slow institutional development of gazelles is even more relevant in Russia, where large-scale business is wary of entering into agreements with medium-sized companies due to the unpredictability of results that quite often depend on instant circumstances faced by the owner or management of such a gazelle. The measures prescribed by state policy may have zero effect given that a medium-sized business is more flexi-ble than a large enterprise and it can easily withdraw into the shadows, be reorganized or even be wound up.
Now, let’s take a look at large-scale business. In Rus-sia large enterprises make up the bulk of the economy, which is much bigger than in developed countries. When targeting large-scale business, Russia’s innovation pol-icy entity automatically covers nearly 80% of economy. Such a huge proportion of large enterprises already pro-vides a compelling reason to expend the utmost effort in innovation programs.
Furthermore, the Russian government holds ownership in a large number of big businesses, which, again, to a far greater extent than in other countries (see Illustration No. 2.19). Such direct ownership gives the State strong leverage for exerting control over and influence on en-terprises, particularly through resolutions adopted by boards of directors and shareholder meetings, especial-
0%
20%
Companies
Average by country
Individual inventors Research institutes/universities1 based on the analysis of top 1000 patents using bCG Quality Index
40%
60%
80%33%
6%
10%
3%1%
3%2%
4%
4%
4%
5% 7% 1% 5% 5% 3% 2% 1% 2% 13% 32%
4% 9%8% 11% 12% 17% 18% 19%
16%
11%
84% 96% 95% 92% 91% 90% 89% 87% 85% 85% 81% 81% 79% 71% 57%
34%
33%
100%Patents issued in 2011-2014
Source: BCG analysis, Thomson Innovations
Illustration No. 2.16. Weak patent activity of the Russian corporate sector.
33NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
ly as regards the appointment of a company’s manage-ment, investment and financial decisions. The speed of decision-making and implementation of such decisions is the main driver for “quick wins” in the innovation policy.
Both factors – namely, a large share of enterprises in the national economy and the State’s substantial owner-ship in large enterprises – make this group a particular-ly attractive target for the innovation policy. Illustration 2.20, which shows the three “forks” addressed above in this and previous Sections, represents a summary of ar-guments in favor of choosing large-scale business as a top-priority target for “quick wins” under the innovation policy.
Interestingly, such focus of the innovation policy on ma-ture, especially large-scale, business is also a recent trend in many leading innovation countries worldwide.
The innovation race has been gaining momentum, which makes participating countries search for ideas and tools capable of enhancing their technological develop-ment. The greater the role of large enterprises and the state-regulated sector in the national economy, the more attractive that sector becomes for promoting innovations.
Illustration No. 2.21 gives the examples of targeting large enterprises under the innovation policy in Europe-an countries that appear to be more relevant and attrac-tive in terms of comparison with Russia in the context of economic structure, rankings in innovation indices and/or upward dynamics of their ratings; thus, we made a choice in favor of Great Britain, Germany, Norway and Finland but the list could be expanded to other countries, including, apparently, countries outside Europe. A more detailed consideration of the situation in Great Britain is given in Illustration No. 2.22.
“young high-growth firms, or gazelles, have predominately been investigated with respect to their outstanding short-term performance. The paper at hand takes a different approach and analyzes their long-term performance in order to shed light on the sustainability of these job creator machines. Using the Danish Integrated Database for Labor market Research, we find that former gazelles are not able to sustain their performance head start in the long run. We show that gazelles are often outperformed by initially slower growing competitors, as they achieve lower employment growth, higher employee turnover, and lower survival rates in the long run. moreover, in the long term, rapidly growing startups show slower staff growth and a higher turnover rate of employees. We explain this counterintuitive observation by arguing that high initial growth rates impede the emergence of a stable and efficient routine structure in the newly founded venture, if the expansion is undertaken too hastily.”
“Heroes today - but what about tomorrow? Gazelles and their long run performance”, Pernille Gjerløv-Juel et al, 2012 xxxviii
Illustration 2.17. Unstable effect from targeting medium-sized businesses.
Illustration No. 2.18. Contribution of small, medium and large business to GDP of Russia and developed countries
Illustration No. 2.19. Government’s share in top 10 enterprises in various countries.
Russi
a
Korea
China UA
E
Russi
a
Indon
esia
malay
sia
Saud
i Arab
ia
India
brazil
Norw
ay
Thail
and
Singa
pore
franc
e
Irelan
d
Greec
e
finlan
d
Germ
any
Unite
d King
dom
Germ
any
Austr
alia
Swed
en
Switz
erlan
d
finlan
d
Israe
l
Norw
ay
Nethe
rland
s
Italy
Coun
try
averag
e
100%Share of GDP
80%
60%
40%
20%
0%
Note: Small business including micro-enterprises. Large businesses are companies with over 250 employees. Source: Eurostat (2012), ABS (2012), British Columbia's Statistical Service (2012), Asian Development Bank (2014), Rosstat (2015), BCG analysis
Note: Only countries with the share of the public sector >10% are shown. *Calculated as the average of the state shares in the revenues, asset value and capitalization amount of the top 10 companiesSource: "State-owned enterprises in the global economy: reason for concern?" P. Kowalski et al (2013).
100%State ownership in the top 10 companies*
80%
60%
40%
20%
0%
79% 42% 52% 49% 47% 42% 42% 41% 40% 40% 39% 37% 32%
21%
96%
88%
81%
69% 68% 67%
59%
50% 48%
37%
23%17% 16% 15% 13% 11%
58% 48% 51% 53% 58% 59% 59% 60% 60% 61% 63% 68%
SmEs
Large
busin
esse
s
34 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
Illustration No. 2.20. Targeting forks under the State’s innovation policy.
Illustration No. 2.21. Innovations in large/mature business as an important target for the innovation policy of European countries’
GII ranking in 2016 Key measures to support innovations in large/mature companies
UK 3• Creation of the Department for business, Energy & Industrial Strategy with the following
priority goals: – get the metal industry out of the crisis – build an atomic power plant
• The Eight Great Technologies program focuses on technologies, in which the country already has a considerable background
Finland 5• One of the objectives announced in the Research and Innovation Policy Review 2015–2020
is to ensure a more efficient use of R&D results by large companies• focus on support of innovations in large companies:
– “help large businesses to avoid the fate of Nokia”
Germany 10• The innovation strategy hightech-2020 focuses on supporting the existing competencies:
– continuous upgrade of major industries (automotive, engineering, chemistry) and companies
– advanced training and retraining – development of priority research areas
Norway 22• The innovation policy is based on providing industry support to “national champions”, in
which the government holds considerable stakes: – oil and gas (Statoil), TmT (Telenor), aluminium (Norsk hydro), fertilizers (yara), banks
(DnbNor), electric power (Statkraft), etc.
What to focus on?
Corporate sectorWhy:
The biggest lag is in corporate innovationsDevelopment of science and inventors has a delayed effect
Mature companiesWhy:
Development of startups is not efficient in the absence of business demand for technologies “Disconnected innovation system”
Large businessesWhy:
High share of large businesses in the economyHigh share of public sector provides direct levers Will have an effect on SMEs via creating demand for their products and developing an SME ecosystem around large manufacturers
Science and inventors
Startups and early-stage companies
SMEs
Source: BCG analysis
The key question is how to turn the large business into an innovation driver
1
2
3
35NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
It is worth emphasizing that the actions undertaken to support innovations in big business may not replace co-operation with other agent groups that make up the sci-entific, educational, entrepreneurial and business envi-ronment. Hence, similar or even greater attention should be paid to these areas. Innovation of big enterprises is the correct way to accelerate innovative development by targeting a large and directly controlled share of the economy; such innovation cannot on its own put the economy on a new footing, since the largest number of most creative people prone to action tend to be concen-trated outside the large corporate sector. This environ-ment, namely universities and startups, is also the cra-dle of most breakthrough and ultimately the most valued solutions. The only things required for this purpose are time and support, including from large-scale business.
Big business amid the current technology transformation is able to provide within the shortest term real commer-cial demand for the academic and business environment. This will make it possible to obtain a synergetic effect in existing operations with hi-tech startups, the innovative environment and increase the efficiency of stimulating the venture. On the other hand, an improved environment and scientific area will improve incentives for innovations and efficiency of R&D at large companies.
This is why, with the focus of the innovation policy on supporting innovations within the existing business en-vironment, the State can create a mechanism for accel-erating innovative development, both for business and the economy as whole, thus promoting a “fusion” of the innovation system and development around large-scale business of innovation ecosystems made up by research-ers and startups, as well as by well-informed users, me-
dia-content generators, etc.
Illustration No. 2.23 shows Google’s Innovation Ecosys-tem as an example (based on Harvard Business Review as of 2008)xli.
However, the issue of promoting innovative development in big enterprises should not be underestimated. In Re-port 2015 and at the end of the previous Section we diag-nosed and highlighted weak responsiveness of Russian business to innovations and its technological underde-velopment in general. This is especially applicable to big enterprises well known for their sluggishness and com-mitment to deeply rooted organizational and operational principles, technologies and research methods which are not considered to possess destructive potential.
The problem of successful innovation in large companies is no secret and has been the object of considerable re-search. Yet, in Russia this issue is even more acute giv-en the State’s high degree of business ownership, which implies direct intervention on the part of the State, thus reducing even further the management’s appetite for change. The beneficial ownership of state companies is highly dispersed (among all citizens) and, therefore, one of the main concerns is the agency dilemma, where the managers are incapable of approving their own agenda as if they were the owners. Furthermore, given that their agenda may seriously differ from the one suggested by shareholders since the managers’ interests focus on de-riving short-term profits, on the one hand, and, on the other hand, on expanding their “business empire” – quite often to the detriment of the company’s long-term value.
The best illustration to the existing problem is the state’s virtual inability to “force” big business to take a new path
Illustration No. 2.22. Shift in priorities of the innovation policy in Great Britain as an example
Efficiency of the exclusive bottom-up approach has been questioned at different levels, including among governmental experts, for quite a long time now. for example, in may 2014, NESTA Agency’s expert wrote: “big business is often rather overlooked in when it comes to innovation policy, which, it has been argued, focuses too much on startups. Improving the UK innovation ecosystem demands that we move beyond a fetishism around entrepreneurs and growth (particularly when linked to an erroneous celebrating of soaring self-employment figures) and add to our focus the role that big businesses are really playing in the innovative ecosystem”.xxxix
After voting for the exit of Great britain from the European Union and after Prime minister David Cameron’s resignation, the new Prime minister Theresa may stated her intention to rethink the approach to innovation policy. The key idea of the reform is to switch from supporting competences and entre-preneurship to the concept of “industrial strategy” and even “industrial policy” (particularly, furthering the clean energy concept) – a term and ideology, which has always been far from popular among the Conservatives. As a result, in July 2016, the Department of business, Innovation and Skills – the ministry in charge of innovation policy – was renamed the Department of business, Energy, and Industrial Strategy (bEIS). Innovations, or more precisely, the policy direction denoted by this word, were excluded from the ministry’s task list, while the mission of creating skills and competences was delegated to the Department of Education.
The newly appointed minister Gregory Clark described his vision for his objectives as follows: “I am thrilled to have been appointed to lead this new de-partment charged with delivering a comprehensive industrial strategy, leading government’s relationship with business, furthering our world-class science base, delivering affordable, clean energy and tackling climate change.” xl
his first tasks will include resolving the crisis in the steel industry and making a final decision about whether to build a new nuclear power plant at hinkley Point.
Experts have expressed diverging opinions on the new priorities. Thus, some of them have misgivings about the term “industrial policy” bearing in mind the fact that the term was discredited in the 1970s. Conversely, other experts strongly welcomed the return of the State to participating in the development of cooperation with large-scale businesses.
BCG Research, new releases (see links in the text)
36 2. fROm CREATING CONDITIONS TO PROmOTING GROWTh: PRObLEm DEfINITION
of accelerated innovative development by implementing the Innovative Development Programs (IDPs) and Long-term Development Programs (LDPs) described in Sec-tion 2.2.
Thus, as we can see, the main issue to be addressed under the innovation policy is how to make large enter-prises become innovative. How to awaken the sleeping giants? The next section is devoted to this problem and we shall see that this question can be answered with due regard to the specific features of each sector as we study possible ways and means some business sectors to in-novate using research and studies based on the success-ful experience gleaned from other countries’.
Google’s innovation ecosystem
The Google platform
Media Consumers
Advertisers Innovators
Media companies, individualsCreate informationStimulate consumer interestfoster creation of communitiesProvide delivery mechanism for targeted ads
Over 1 million companies and individualsDeliver relevant ad content to search-identified usersGenerate a major revenue stream for Googlehelp monetize new offerings
132 million unique visitors per day(as of 11/2007)Search for information on areas of interestConsume advertising content and advertised productsValidate appeal and test performance of Google innovationsContribute ideas for improvements of Google product
Mashup software creators andvendors, Google engineers, open source communityTogether, make up a diverse product development and improvement networkDevelop new applications that help retain consumersGenerate revenue for themselves and for GoogleDistribute Google technologies
Illustration No. 2.23. Google’s Innovation Ecosystem (2008)Source: harvard business Review 2008 xlii
37NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
3
38 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
Which innovation tools of big companies at the gov-ernment’s disposal have proven their efficiency? In
this report, we will survey industry and technology ex-perts, specialists in innovation and industrial policy, and take a deep dive into the experience of various countries and industries to reveal viable universal recipes, i.e. those applicable to various countries and industries, as well as to the various stages of technological and overall economic development. This makes it possible to avoid, to a certain extent, such situations, where a recipe does not work when applied to new conditions or a new indus-try with its unique characteristics and status.
For the purposes of this research, we suggest to focus our attention on four industries that, first, are important for the Russian economy; second, have a potential for in-novations; and third, are in different competitive and eco-nomic situations. Such approach will demonstrate the efficiency of the industrial policy as such, regardless of the specific features of any particular sector. The focus industries are:
oil and gas - upstream;
agriculture;
transport engineering, the study of which will cover:
road transport;
civil air transport.
The industries selected are primarily characterized by major Russian companies, which constitute the subject of this report. Thus, the upstream oil and gas sector is dominated by the largest players of the Russian econ-omy - Gazprom, Lukoil and Rosneft. The automotive industry is also strongly consolidated, and its leading manufacturers are AvtoVAZ, GAZ, Sollers, KAMAZ, and AVTOTOR Holding. Consolidation is even stronger in the civil aircraft industry with its two major groups – UAC and Russian Helicopters. The agricultural sector, on the other hand, is quite fragmented, but here as well there are some major players, such as Sodrugestvo Industries, Miratorg Agricultural Holding and Cherkizovo Group.
The relative size, consolidation degree and size of the state’s stake in the oil and gas industry are such that to envisage practical applicability of this report we sim-ply must include this sector in the scope of our analysis. Evidently, successful efforts in introducing innovations to the oil and gas industry will have the maximum effect in terms of magnifying the impact on the entire economy.
To avoid all the known convergence and overlaps, the second industry we pick is not from among energy and commodity-based sectors, but lies further downstream in the production chain. At the same time, it should demonstrate a favorable response to the innovation poli-cy. In particular, such industry should have a potential for organic growth of international sales, which will create an almost unlimited market, and will not require invest-
ments to acquire existing foreign assets, but will neces-sitate rapid innovative development to gain a competitive advantage. Those conditions are met by manufacturing industries, among which we select transport engineer-ing as those most familiar to a wide range of consumers. To remind, our focus is on two subsectors of transport engineering - the road transport and air transport in-dustries.
Agriculture is considered as the industry that has ben-efited the most from the import substitution policy and that has huge potential both in terms of extensive growth and breakthrough innovation-based development (such as precision farming, genetic engineering, etc.). This in-dustry is quite fragmented, which, hypothetically, reduc-es the economy of scale when applying innovation policy tools to each specific company, i.e. it is the least respon-sive to the innovation policy. On the other hand, produc-tivity improvement in the agricultural sector is, among other things, a matter of national security and is viewed as a top priority for the government. Therefore, we would like to check applicability of the tools we selected for in-novation in agriculture and clarify what we mean by in-novation in this case.
3.1. IMPACT ON BIG BUSINESSES: INDUSTRY EXAMPLES
39NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
It is no surprise that we observe low innovative activity in all industries selected for our analysis. All those in-
dustries have operated in their current form for quite a while - since the Soviet era - and have not seen any major breakthrough developments since then. Lack of innova-tions affects the production performance and, ultimately, causes a loss of competitive edge both in international and Russian markets.
As a result, the government has to intervene and protect the largest industry players using administrative bar-riers, which, in turn, has a negative impact on manag-ers’ incentive for change. Such a policy creates a spiral of deterioration in innovativeness and competitiveness, which drives large businesses into a situation where a “smooth” transition to a technological transformation is no longer possible, and aggressive and sometimes se-vere measures are necessary. Let’s analyze each of the industries separately.
The long history of prosperity of the conventional Rus-sian oil and gas sector – although disrupted at times by global financial crises – constituted until recently the highest barrier for industry development. As a general rule, commercial innovations do not emerge in compa-nies that are already performing well, as the search for and implementation of new solutions imply an expensive and risky process that makes sense only when the exist-ing solutions are clearly insufficient to stay competitive in the foreseeable future.
There is every reason to believe that the current oil and gas crisis is not of a financial, but of a technological na-ture. Wide implementation of technologies for production of shale oil and gas has radically changed the structure of the industry, allowing independent players to enter and exit the market en masse depending on the current busi-ness environment. Add to this other technological fac-tors, not yet very noticeable, but clearly posing a threat to conventional oil and gas production: this includes, in particular, alternative energy sources and electric cars.
Thus, for the first time in ages, oil and gas companies have faced the risk of long-term profitability decline and are forced to search for new technological solutions to remain competitive in new and not yet entirely clear tech-nological conditions. All global players are under the ne-cessity of carrying out research and innovations ranging from alternative energy sources to significant improve-ments to the existing production technologies.
Russian companies are no exception. R&D capex of Rus-sian players is lower than that of the global leaders, how-ever Rosneft and Tatneft manage to withstand the com-parison with them quite well. Moreover, in recent years Rosneft has rapidly increased its R&D expenditure and caught up with the global leaders in this regard, even
though there is no visible impact of the higher expen-diture on observable indicators, such as the number of patents. In the case of Tatneft, R&D expenditure results in a large number of patents.
However, the quality of those patents, measured by the number of reference to them in third-party patents, is very poor for all Russian companies as their patents are almost never sought for further developments in Russia or abroad, unlike the patents of foreign companies (see Illustration 3.1). Hypothetically, this could be due to the formal approach to R&D at Russian companies, where R&D activities (especially, FEED) are mostly designed to achieve reporting and tax benefits, while the actual out-put technologies are either already obsolete, or simply irrelevant. Another reason may be the incompatibility of Russian and international R&D standards. In any case, we do not see innovative activity in the Russian compa-nies that would be consistent with global efforts to sup-port the overall technological transformation of the oil and gas industry.
Meanwhile, the lack of innovations in the Russian oil and gas industry may lead to a significant decline in produc-tion as soon as the mid-term. Thus, in accordance with the forecasts set forth in the Energy Strategy of Russia until 2030xliii, within 10 years the difference between the scenarios of readiness and unreadiness of Russian oil and gas companies to develop tight and offshore oil re-serves will amount to 32 Mt, i.e 6% of the country’s total production (see Illustration No. 3.2). At the current oil prices, this difference translates into total revenue of ap-proximately 12 billion dollars per year.
The situation in the Russian transport engineering sector – both in the automotive and aircraft engineering – is fundamentally different due to historically much stronger international competition as compared to the oil and gas sector, which led to considerably stronger market pres-sure forcing companies to search for and implement new technological solutions to improve their product and/or reduce the prime cost.
In such a tense environment, any delay in innovations – even for 1 year – results in a dangerous lag. Yet, Russian auto and aircraft manufacturers systematically under-spent on the search for new solutions compared to in-dustry standards, and therefore the quality of their R&D output is close to zero (see Illustration No. 3.1).
Such a policy and the lack of strategic vision have re-sulted in the lack of modern cars, civil aircrafts and their components in the Russian market, and more important-ly, in the absence of related services and infrastructure. The logical result was the loss of competitive edge by Russian auto and aircraft manufacturers in the domestic market with no significant wins in international markets
3.2. LACK OF INNOVATION ERODES BIG COMPANIES’ COMPETITIVE POSITION
40 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
Gm ford
Rena
ultToy
otaPe
ugeo
tKa
mAZ VW
Avtova
zGA
ZSo
llers
SollersGAZ
R&D e
xpen
ditur
e % of
reve
nue
Numb
er an
d qua
lity o
f pat
ents
gran
ted
6%5,1 4,8 4,6
3,83,4
2,6 2,5
1,2
0,0 0,0
4%
2%
0%
0,8%
0,6%
0.2%
0,4%
0.0%0 20 40 60 80
Rosn
eftSta
toil
CNOO
Chevr
onEx
xonmo
bilSh
ellTa
tneft bP
Gazpr
omLu
koil
CNPC
0.8% 0,7
0,6 0,60,5
0,4 0,40,3
0,2 0,2
0,0 0,0
0.6%
0.2%
0.4%
0.0%
Airbu
s
boein
g
Embra
er
bomb
ardier UAC
Russi
an he
li
Russian Helicopters3
6% 5,9 5,6
3,5
2,0
Agus
ta
2,1
1,21,4
4%
2%
0%
before 2012 – 0.4% or less
Gm
Number of citations per patent1
Number of patent families / revenue2
1Adjusted to the patent age. 2Total over 2006-2015. 3Revenue for 2013-2015, extrapolated for 2006-2015.
Number of patent families / revenue2 Number of patent families / revenue2
Number of citations per patent1 Number of citations per patent1
ford
bmW
Toyota
hyundai
Nissan
VW
KamAZ AvtoVAZ
0,8%
0,6%
0.2%
0,4%
0.0%0 5 10 15 20 25
boeing
Shell
Exxonmobil
Chevron
CNPCCNOOGazpromRosneft
Lukoil
Tatneft
bP
Statoilmarathon
EmbraerAirbus
bombardier
1,0%
0,8%
0,6%
0.2%
0,4%
0.0%0 1 2 3 4 17
Источник: годовые отчеты компаний, Thompson Innovation, анализ BCG
UAC3
Illustration No. 3.1. Patents and R&D in Oil&Gas, Automotive Engineering and Aircraft Engineering
Illustration No. 3.2. Future competitive edge loss in the Oil&Gas, Automotive Engineering and Aircraft Engineering industries
100 95
The share of Russian vehicles (excl. assembly) in the Russian market (%)
82
61
35
5328
31 16 1915 11 10 10 8
61
139
173CIS
4353
83
36
30 2721 23
50
02000 2005 2010
Aerof
lot
Russi
a S7 Utair
Ural
yamal
Pobe
da
2015
100
Aeroflot Group fleet (%) Long-term forecast of oil production in Russia, 2012-2040 (mt)
50
0 00 01foreign
02 03 04 05 06 07 08 09 10 11 12 13 14 15
200Export of AvtoVAZ, Sollers and GAZ �(K units)
100
150
50
02000
Source: Rosstat, UAC, Ministry of Energy of the Russian Federation, Aeroflot’s annual report
2005 2010 2015
Automotive: loss of domestic market and lack of position
in the international market
Aviation: Russian airlines choose
foreign suppliers for fleet renewal
Oil: lack of innovations will
cost 6% of production in 10 years
Other
600
500
32 mt(6%)
550
450
4002010 2020 20252015 20352030 2040
Russian
75 76 72 65 64 64 58 48 36 27 9 9 13 12 12 11
25 24 28 35 36 36 42 52 64 73 91 91 87 88 88 89
20030
5 3
fleet of Russian air companies (units, 2015)
100
150
50
0152 78 66 33 37 26 12
Scenario of poor appetite for developing heavy and offshore oil reserves
Scenario of Energy
Strategy-2035
41NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
(except, perhaps, for some markets of the CIS and other developing countries).
The proportion of Russian car manufacturers in the Rus-sian market dropped from almost a full monopoly (95%) in 2000 to a mere 20% in 2014. And even this modest share would not exist without government protectionism. The country’s market share showed some growth (up to 23%) only in 2015 driven by a sharp price increase in foreign-made cars after ruble depreciation, while export sales are still next to nil (see Illustration No. 3.2).
Civil aircraft manufacturers, operating in a much less protected domestic market, have almost totally lost their positions to large international players, while technolog-ical obsolescence and wear of domestic-made aircrafts led to their replacement, mainly by Boeing and Airbus products (see Illustration No. 3.2).
The situation began to improve only in 2012, when United Aircraft Corporation commissioned the Sukhoi SuperJet 100, the first Russian mass-produced aircraft since the Soviet era. In June 2016 the Russian aircraft industry (Ir-kut corporation, also a member of the UAC) presented the MC-21, the first Russian mid-range airliner to com-pete with Airbus A320 and Boeing 737, although serial production of this aircraft has not yet begun.
The situation in agriculture differs from both the oil and gas and the engineering sectors. The main barrier to innovations in the oil and gas industry is what we may call “excessive well-being” and unwillingness to foresee future issues; while in transport engineering sector it is gradual degradation during the Soviet years followed by the inability to withstand global competition. Meanwhile, Soviet/Russian agriculture (for the sake of specificity, we shall focus on grain crops) has shown low yields already starting from the post-war period. Yields started to rise only in 1980s (see Illustration No. 3.3)xliv, then dropped off steeply in the 1990s and resumed growth only in the 2000s. And yet, the bulk yield changed only very slightly due to cropland shrinkage.
In turn, the low yield and low labor productivity were due to the poor levels of mechanization and overall techno-logical support. Together, those issues caused low at-tractiveness of the industry and the lack of skilled work-force (see Illustration No. 3.4).
Some Russian experts note yet another reason for the historically extensive character of the domestic agricul-tural sector – it is the relatively low price of agricultural lands, making it more cost-effective to expand croplands rather than improve yields. This situation in Russian ag-riculture is radically different from, for example, Europe-an agriculture, where the price of land is very high, and thus implementation of technological solutions is more economically justified.
Until recently, no one cared about innovation expendi-tures of Russian agricultural producers – except for some kinds of produce (e.g. poultry), as the flow of cheap im-port made agricultural players worry about their survival. However, this situation changed with the introduction of sanctions and launch of the import substitution policy that protects the domestic market from foreign produc-ers and provides financial support to domestic players. Both the actual profitability of the existing agricultural companies, and the expected return on new projects have risen sharply. At the same time, the sanctions cut off sources of cheap finance for agriculture, thus making government support necessary (see Illustration No. 3.5).
However, additional funds have not yet resulted in a tech-nological transformation of the agricultural sector, but have been spent to increase asset utilization (e.g. tractor utilization - see Illustration No. 3.4) and, often, to pro-duce a low-quality imitation of agricultural produce from European countries. Given the need to direct the new funds to innovative development, the President of Russia instructed the government to develop and approve a sci-ence and technology development program for the Rus-sian agricultural sector for 2017-2025.
40 300
250
200
150
100
50
0
Wheat yield, hundred kg/ha Gross grain yield, mt
30
20
10
01900 1940 19601920 20201980
USA (hundred kg/ha)Russia (hundred kg/ha)Russia (mt)
Illustration No. 3.3. Wheat yield and gross grain yield in Russia and the USASource: see reference in the text
42 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
Illustration No. 3.4. Low agricultural mechanization
100Average grain crop yield, hundred kg/ha, 2014
80
60
40
200 1 500 2 000 1990 1995
118 112103 96
88 84 78 76 75 78 77 7978
2000 2005 2010 2015500
Russia
moldova
Number of tractors per farm, 2005-2009 (latest available data) Source: World Bank; Rosstat
Canadamexico
belarus RomaniaUkraine
brazil
bulgaria
Lithuania
Estoniafinland
Spain
Poland
Portugal
Norway
Greece
Luxemburg
Sweden
franceChile
Denmark
hungary
SlovakiaCzech Republic
Egypt
USA
belgium
Netherlands
Ireland
Paraguay
1 000
15Number of tractors per thousand ha of cropland
5
1011 11 10
9 87 6
6 5
344
5
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
20140
150Total cropland, mn ha
50
100
0
Illustration No. 3.5. Agriculture amid sanctions
“The profitability of the Russian agricultural sector without government support reached 10%,” said Deputy Prime minister Arkady Dvorkovich, speaking at the moscow financial forum.
According to mr. Dvorkovich this indicator was less than 5% not so long ago. he explained that higher profit was due to the improved efficiency of the grain business.
Earlier, the minister of Agriculture Alexander Tkachev said that the production of grain was profitable throughout Russia with profitability ranging from 10 to 100 percent depending on the region.
In his speech at the financial forum, Arkady Dvorkovich also mentioned that Western sanctions were harmful to the Russian agricultural business that could no longer turn to international financial markets for cheap funding.
“Our response is only aimed at mitigating the damage inflicted against agriculture. And we are providing just enough support to offset the damage,” emphasized the Deputy Prime minister.
“Profitability of agriculture without government support has grown...”, Agronovosti, 2016 xlv
43NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
In the previous section we showed that large business-es in Russia are currently demonstrating low innovative
activity. At the same time, our analysis of the current state and technology development trends in the focus industries proves that there are opportunities for inno-vative development already in the medium term. Those problems should be solved rapidly and successfully to support the competitive ability of those industries in the long term.
In the upstream oil and gas sector, for example, there are several areas for innovative development. One of top priorities for all oil and gas players is to increase oil re-covery ratio at the existing fields from the current 27-30% to the global 35-40%1. This will require active use of en-hanced oil recovery methods, which implies localization of relevant technologies, such as multi-stage hydrofrac-turing and directional drilling.
The second group of innovations required to support pro-duction volumes concerns the development of tight re-serves. Among Russian companies there are examples of successful innovations in this area, such as the experi-ence of Tatneft in extracting hard-to-recover bituminous oil. Development of the Bazhenov formation may become a breakthrough project. Gazprom Neft is carrying out projects to study the formation, and in June 2016 the company finished boring a horizontal hole, thus imple-menting the full cycle of process solutions for extracting shale oil2.
It should be noted, however, that industry experts have not formed a uniform position regarding the possible impact of development projects related to the Bazhenov formation . The tax policy is one of the key development drivers for those areas.
The third possible area for innovations is the creation of internationally competitive non-capital intensive prod-ucts in the areas where Russia already has competen-cies, such as software development, geophysics, sen-sors, and electronics.
The global automotive industry is undergoing rapid changes driven by increasing penetration of information technologies in car systems a rapid tightening of environ-mental standards resulting in development of hybrid and electric cars. Our experts believe that Russia has every chance of finding its niche in this market. We distinguish three promising areas for Russian innovations: connect-ed car technology, advanced driver assistance systems (ADAS), electric/ hybrid cars and unmanned vehicles for application in agriculture and the mining industry. Rus-sia has preconditions for further development in each of these areas: LADA Connect project has been launched; electric car prototypes have been created; KAMAZ and GAZ are developing unmanned vehicles; start-ups are
emerging to develop ADAS and connected car technol-ogy.
Recently, the domestic aircraft industry has come up with several projects that may be quite competitive in the global marketplace, such as the above-mentioned SSJ-100 and MC-21. It is necessary to support further devel-opment of the existing projects and continue developing aircrafts for niche segments of civil aviation, where com-petition is less fierce. Another area for innovations is the supply of high-tech components, such as failure-proof fuel systems, to international manufacturers. Russia already has successful examples of such cooperation – thus, Irkut corporation supplies components to Airbus.
In the agricultural sector we can see two major areas for innovation. First, development and implementation of novel process solutions, such as satellite tracking, ae-ro-monitoring, precision agriculture, and industrial pro-cess automation. Currently, the most developed area in Russia is the satellite tracking and provision of analytical findings on its basis. The second promising area is the development of domestic cattle and seed breeding. To-day, those areas are practically non-existent in Russia.3
3.3. WHAT TO STRIVE FOR? OPPORTUNITIES FOR INNOVATIVE DEVELOPMENT
1 Source: Report on “Import substitution in the Russian oil and gas sector” and other data of the Ministry of Energy, Schlumberger
2 Source: Gazprom Neft is the first Russian company to implement a complete process of shale oil extraction to develop unconventional reserves, August 29, 2016, http://www.gazprom-neft.ru/press-cen-ter/news/1114411/?sphrase_id=748674
3 See for example: https://regnum.ru/news/2169901.html
44 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
In this section, we will attempt to identify the main bar-riers for the development of innovation, which affect big
business either directly or indirectly. We have broken these problems into four main areas (see Illustration No. 3.6):
domestic hurdles facing big business;
market obstacles
barriers for innovative development of suppliers;
barriers related to regulation and state support.
DOMESTIC HURDLES FACING BIG BUSINESSDomestic hurdles for the development of innovation at large companies are focused on two areas: the manage-ment’s lack of motivation for long-term growth of the company and (partially related to the first hurdle) the com-pany’s inability to implement innovative ideas.
Almost all of the industry experts we surveyed pointed out that the main problem is the lack of management’s accountability for the company’s development over the medium term. There are several reasons for this. First, the low predictability of the economic environment and the short-term nature of management’s contracts results in a reduction of the planning horizon as all key targets slat-ed for implementation are short term in nature. Second, declared innovative plans are of long-term nature, which means that the current management is not directly respon-sible for the end result. Medium-term innovative develop-ment plans do not exist, or there is no actual responsibility for their implementation. Thus, the main priority becomes that of resolving operational tasks and maximizing profit in the short term. Such a situation wreaks havoc on innovative projects with an implementation horizon of 5-10 years, i.e. beyond the medium-term planning horizon.
One result of this is another key barrier – management is not interested in promoting an innovative agenda. Even at state companies, where there are officially approved IDPs and LDPs, including issues related to innovative de-velopment, it is not possible to make innovation a priority for the management, since there is no responsibility for the implementation of these plans. The only instance when an executive of a large company was fired “for fail-ure to implement innovation programs” – the dismissal of Alexei Fedorov from United Aircraft Corporation (UAC) – may have also involved other more serious reason1.
Thus, many examples of successful development of in-novation at large companies are directly associated with personal ambitions and the management’s motivation for phasing in change. Nowadays, however, the management of large companies is comprised of people with a more
conservative mindset, who aim to maintain the status quo and are interested, among other things, in lobbying state support measures that ensure the perpetuation of the current model, and not innovative development.
The end result of management’s lack of incentive for in-novation and its short planning horizon is that companies have no systematic experience in implementing innova-tion. The long-term lack of innovative spirit leads to two problems that can be observed within companies.
The first is the lack of executives who possess the skills required to successfully implement innovation, including management of changes, risks, large-scale results, and or-ganizing a culture of constant improvement. This problem is felt most acutely in agriculture (see Illustration No. 3.7).
“People are the main and only problem. We cannot move forward and begin to work until we have the right people. And right now we don’t. We’ve tried hiring foreigners, but they do not fit into our environment”.
Maxim Basov, General Director or Rusagro, FIRRMA, 2016 xlvii
Illustration No. 3.7. Lack of qualified executives in agriculture
The second problem is that internal processes at large companies are focused on short-term operating tasks and are not geared towards phasing in innovation. This refers to at least two processes: management of innovation and procurement.
Frequently, companies lack an innovation management system; for example there are no clear-cut or transparent criteria for selecting innovation projects as part of project management. This, for example, tends to promote a cul-ture of fear at companies that innovation cannot be suc-cessfully implemented and that employees will face sanc-tions from the management at a later time. As a result, it is safer not to undertake anything, since sanctions will not be taken for not acting. Consequently, companies have no interest in implementing even their own initiatives.
Similar problems can be seen in the procurement system, which is focused on the price of supply and not the quality of the proposed goods, thus undermining potentially inter-esting innovative ideas. Such processes do not work well when it comes to the procurement of non-standard prod-ucts for which there is no way to make a direct compari-son in terms of price analogs. This makes it very difficult to tender services for the development of prototypes, or components used to produce them, which are required to perform R&D. As result, this hinders the development of innovation at companies.
3.4. WHAT ARE THE HURDLES? BARRIERS TO INNOVATION
45NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Supp
ort
and r
egula
tion
Enter
prise
s (lar
ge bu
sines
ses)
Cons
umer
s an
d mar
kets
No st
rateg
ic ap
proac
h to i
ndus
try st
anda
rdsNo
hard
comm
itmen
ts to
cut s
uppo
rt for
chron
ic los
s mak
ersLa
ck of
supp
ort fo
r inno
vation
inclu
ding t
he ex
port
of hig
h-tec
h prod
ucts
Purch
asing
proc
edure
s and
requ
ireme
nts fo
r indu
strial
sa
fety p
reven
t inno
vation
activ
ity
Limite
d num
ber o
f sub
contr
actor
s due
to th
e vert
ical
integ
ration
of la
rge bu
sines
sNo
fund
s for
innova
tion
high b
arrier
s to e
ntry
mana
geme
nt do
es no
t prom
ote in
novat
ion ag
enda
No m
id-ter
m res
pons
ibility
No co
mpete
ncies
for R
&D m
anag
emen
tInt
ernal
proce
sses p
reven
t inno
vation
devel
opme
nt
No in
centi
ves fo
r inno
vation
and c
oope
ration
devel
opme
nt in
the SD
O pric
ing sy
stem
No co
mpeti
tion w
ith fo
reign
comp
anies
, even
in
the Ru
ssian
mark
etNo
comp
etitiv
e offe
ring f
or exp
ort
Supp
liers
an
d con
tracto
rs
Источ
ник:
анали
з BCG
Illustr
ation
No. 3
.6. Ba
rriers
for t
he de
velop
ment
of inn
ovati
on
Sourc
e: BC
G ana
lysis
46 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
MARKET OBSTACLESA serious hurdle is the fact that the prevailing domestic mar-ket model for doing business does not create the conditions required to develop innovation. For example, let’s examine the current pricing system for state defense orders:
First, pricing based on cost recovery and the stipulation of short-term contracts with annual price review results in a lack of incentive for lowering the cost. Thus, raising productivity per employee amid fixed profitability (cost-plus model) leads to a reduction in the company’s profit when reviewing the cost of the contract for the next year.
Second, the current 20% + 1% pricing rule (profit under a state defense order contract cannot exceed 1% of the cost of payment for the items purchased and subcon-tracting and 20% of in-house expenses) directly moti-vates companies to achieve maximum vertical integra-tion and reduce subcontracting. This, in turn, hinders the innovative development of suppliers.
Another problem in the domestic market is the lack of competition with foreign companies even on the Russian market. For example, a survey of experts in the aviation industry showed that a stable volume of state defense or-ders, for which access is limited to only a few companies, aside from the above-mentioned negative factors also re-duces incentive to manufacture civilian products. In the oil and gas industry, there is often a lack of competition for access to field development. In agriculture, the count-er-sanctions are limiting access to foreign products on the Russian market, thus lowering incentive for manufactur-ers to raise efficiency.
In a number of cases, such a situation has caused large domestic companies to focus excessively on the Russian market. This ultimately leads to problems in exporting goods due to the lack of competitive supply relative to global producers. In the aviation industry, an example could be the low level of service and after-sales support: speed in the supply of components, availability of pilot training centers, etc. (Illustration No. 3.8).
Outside the above-mentioned industries an example may be cited from another segment of transport engineering – locomotive production. Most procurements on foreign markets are made under life cycle contracts, while Rus-sian companies do not yet have standard operations in that model, especially due to the lack of service and repair units abroad. It should be noted that such contracts have already begun to be used in Russia, for example when components for the Moscow subway were purchased in 2014.2 xlix
BARRIERS FOR INNOVATIVE DEVELOPMENT OF SUPPLIERS Large companies are not always responsible for the de-velopment of innovation. Global experience shows that in
a number of industries, it is suppliers and subcontractors, most of which are small and medium-sized businesses, are innovation drivers. For example, in the oil and gas sector small oil service companies are the ones that work out new, innovative solutions. In Russia these compa-nies could also be a source of innovation, but the existing mechanisms for them to deal with large companies hin-ders their innovative development.
One of the main barriers is surplus vertical integration of large companies in a number of industries, such as avia-tion (see Illustration No. 3.9). In such holdings, competen-cies are arranged in such a way to ensure fully integrated production, as a result of which there is hardly any subcon-tracting. Experience in the development of major global companies, for example Boeing and Airbus, shows some opposite trends: large companies perform only the key functions, such as conceptual design, whereas the remain-ing stages of production are assigned to subcontractors. As the example of these companies shows, increased compe-tition among suppliers urges them to continuously improve their products and seek constantly to achieve innovation.
Another factor that is limiting the development of suppli-ers for a number of industries is high entry barriers. For example, in aviation such barriers may include licensing and certification for aircraft designers. Without a doubt, the complexity and risks in operating aircraft mandate stringent regulation of the approach to admitting new players, but UAC could play a new role here: for example by holding tenders among independent companies and further providing financial and technical support for the winners. Other barriers include dual-use technologies. First, the high proportion of such technologies in the avia-tion industry prevents the industry from opening up to out-side players (suppliers, design offices). Second, the fact that intellectual property is owned by the RF Ministry of Defense considerably limits access to it.
Another problem mentioned by representatives of all the above-mentioned industries is the lack of innovative means on the part of suppliers and subcontractors.
There are various reasons for this situation. For example, in the automotive industry this is the result of a substantial de-cline in the domestic market. A considerably different sit-uation has arisen in the oil and gas sector. In recent years, amid high oil prices oil and gas companies often hired large foreign oilfield service companies and hardly ever turned to local players. This led to a shortage of domestic suppli-ers capable of providing enhanced recovery techniques and business development solutions. Thus, domestic oilfield service companies essentially saw their profit cut in half in 2013 compared to global peers (see Illustration No. 3.10).
Starting in 2014, after a sharp decline in oil prices and the imposition of technological sanctions, oil companies be-gan to turn increasingly towards local players. However,
“Spare parts are mainly delivered from abroad, there is a waiting period of about a month, by comparison: boeing and Airbus components arrive within 24 hours <...>. Sukhoi Civil Aircraft has a reliability rating of four breakages per 1,000 hours of flight time, while boeing has two breakages”.
Vedomosti “Aviation companies do not fly much on the Sukhoi SuperJet 100”, 2016 xlviii
Illustration No. 3.8. A example of problems with SSJ-100 service
47NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
the lack of activity during the period of predomination by foreign companies led to a situation where domestic oil-field service companies had neither the facilities nor the staff to meet this type of demand. Thus, despite the need for innovative products, large companies today are reluc-tant to participate in the development of subcontractors, for example, co-investing in R&D or suppliers or guaran-teeing demand for a certain product.
BARRIERS RELATED TO REGULATION AND STATE SUPPORTThe state plays an important role in promoting develop-ment amid the prevailing situation in Russia. However, we can see a number of major problems in the state’s policy as such. One of them is the lack of a strategic approach to industry standards, as shown by the state’s lack of a clear-cut action plan relative to the existing differences
between Russian and international standards as regards the promotion of Russian standards, mutual alignment of standards to simplify exports, or their differentiation to protect the domestic market.
In terms of innovations this results in two problems. First, the difference between Russian and international stan-dards constitutes a substantial barrier for the develop-ment of exports. Second, a number of industry standards have not been revised for a long time and do not meet modern requirements (see Illustration No. 3.11).
Another problem is that there are no strict obligations to lower support for chronically loss-making manufac-turers. The state’s policy currently focuses on promoting demand or covering the losses of large companies. Such measures, while reaching support goals for social stabil-ity, lower the management’s incentives to raise efficiency or improve the quality and volumes of products sold (see Illustration No. 3.12).
Integrator(OEM)
Final integrator
(OEM)
Vertically integrated company
limited cooperation
Source: Ministry of Industry and Trade, expert interviews, BCG analysis
World
Level 1(packages and systems)
Level 2(assemblies and units)
Level 3(parts and components)
Level 4(feedstock and materials)
Russia
Illustration No. 3.9. A comparison between the aviation production chain in Russia and in other countries.
Eurasia Drilling Company
Investgeoservice PetroAlliance Gazprom Drilling Siberian Service Company
Petrotool Integra Group
Spetspetroservice
World average
Russian average
KATKoneft Center for horizontal
drilling
17%16% 16%
13%12% 11% 11%
10%8%
1%
х1,8
22%
13%
Operating profits of top-10 Russian oilfield service companies, 2013
Illustration No. 3.10. Operating profit of oilfield service companies in 2015
Source: SPARK Interfax, Thomson Reuters, Oil-gas.ru rating of oilfield service companies, company reports, media analysis, BGC analysis
48 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
100RUb bn
50
75
25
0Subsidies for gas engines
3
10
20 25
52 92
Scrappageprogram
Purchasing of vehicles
for government
purposes
Support of purchases
in theagricultural
sector
Leasing plan
subsidies
Labormarket support
Total
Source: Autostat (February 2015)
The only targeted support item indirectly related to technical upgrade of the automotive industry
Illustration No. 3.12. State support of the automotive industry (direct and indirect) in 2015It should be noted that in recent years the state has cre-ated a large number of tools aimed at developing inno-vation, including increased exports of high-tech products. Such tools include the Russian Export Center (REC) and EKSAR, which is part of REC Group, the adoption of state
programs such as “Development of Industry and Improv-ing its Competitiveness”, as part of which, for example, support is planned for R&D and the expansion of produc-tion competencies.
However, a survey of industry exports and analysis of the implementation of these state programs shows that some support programs, which are important for industry de-velopment, are not being executed (see Illustration No. 3.13). For example, a program aimed at resolving an im-portant issue in the aviation industry – developing service maintenance – was not carried out on schedule. In addi-tion, support of Russian exports is considerably less than in other countries (see Illustration No. 3.14).
Another barrier to innovation is the ongoing contradiction between the current procurement procedures (including Federal Law 223 and Federal Law 44), industrial safety re-quirements and innovation activity, as well as lengthy pat-enting procedures, thus limiting innovative activity.
Non-compliance with AP MAK and EASA/FAA hinders the development of exports in the aviation industryNon-compliance with the Russian standard AP mAK and EASA/fAA2 with European and American standards makes it necessary for aviation products and components to obtain additional validation, thus requiring some components to be redesigned. Such a process considerably increases the timeline and cost of entering foreign markets.
furthermore, there are no harmonized requirements for the system of management quality and audit standards. Such differences result in overlapping processes of product certification. for example, GOST R EN 9100 “Aerospace series. management quality system. Requirements.“ is close to AS/EN 9100, but there are no audit, evaluation and certification standards.
In addition, Russia has not managed to implement ICAO environmental standards. In 2016 the ICAO developed new CO2 emission standards which provide for terminating use of all SSJ-100 aircraft, including the current model.
“The position of the Russian aviation industry is being worked out. On the agenda is the issue about what emission level could be painlessly adopted so that the Russian aviation industry is not isolated”.
O Panteleev, ex. director of “Aviaport, Rossiiskaya gazeta”, The Sky Will Set a Filter”, 2016 l
Obsolete GOST national standards, construction standards and regulations hinder growth of Russian roadsKey GOST national standards, construction standards, and other standards applicable to road construction were developed in the 1960s and do not meet modern requirements. As a result, highway parameters are calculated using an obsolete method that does not reflect the structure of modern traffic and load of the road network.
It could take years to work out the new statutory framework, since the suitable approach would be to study and adapt foreign standards. Avtodoroga experts are preparing proposals to use finnish and Swedish design and construction standards.
“The system was disrupted and as a result the traffic has become chaotic, with a number of technical committees having been set up, including small ones that are concerned with one type of work and huge committees like a technical committee for construction, which is concerned with all aspects of our habitat. Each fiefdom now does its own documents and there is a huge problem when it comes to streamlining them between sectors and regions”.
A. Tsernant, dep. General Director of Research Institue for Transport Construction. RBC “Development of Russian roads hindered by obsolete GOST national standards and construction standards.li
Illustration No. 3.11. Examples of problems with industry standards
1 See, for example: https://lenta.ru/articles/2011/02/01/oak/2 Department of Transport and Development of Road Transportation
Infrastructure for the City of Moscow, annual reports of Trans-mashholding
49NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Exports insured by the leading export credit agencies
Export credit support by the leading EXIM banks
2015, % of non-fuel1 exports (USD bn) finnvera(finland)
NExI(Japan)
EKN(Sweden)Eximbank
(Turkey)
ExIAR
GIEK(Norway)
OeKb(Austria)
EDC(Canada)
K-Sure(Rep. of Korea)
ECGC(India)
0 1% 2% 3% 4% 0 1% 2% 3% 4%
0,25%
0,37%
0,73%
0,85%
0,90%
1,80%
2,00%
2,61%
3,25%
0,03% 0,29
5,02
5,19
4,18
2,02
6,54
10,12
10,70
64,34
7,38
20152, % of non-fuel1 exports (USD bn) Eximbank
(Turkey)SEK
(Sweden)fEC
(finland)Kexim
(Rep. of Korea)EDC
(Canada)OeKb
(Austria)ECN
(Norway)Eximbank
(India)JbIC
(Japan)
Roseximbank
0,14%
0,42%
0,93%
0,97%
1,05%
1,70%
2,03%
2,32%
3,59%
0,02% 0,19
3,80
4,55
2,21
5,56
14,72
34,14
4,61
12,41
20,18
1Export, except for line 27 of Goods Nomenclature for foreign Economic Activities (TNVED)/ Comtrade. 2for Russia and Japan, as of 2014.
Source: annual reports of agencies and banks; BCG analysis
Illustration No. 3.14. Comparison of the amount of export support in Russia and in other countries
State program “Development of industry and raising its competitiveness”. Sub-program “Auto-motive Industry” Part of this program was a plan to expand the suppliers of components, especially the development of bearings . however, the planned measures were not fulfilled due to the lack of funding from the federal budget. furthermore, this problem – the low quality of components – was highlighted by industry experts as one of the most important factors constraining the development of innovation.
The same program also planned to support R&Dliii but the relevant measures were not carried out. The reason was the lack of applications from companies In our opinion, this shows that the process for receiving state support is overly bureaucratized.
State program “Development of the aviation industry for 2013-2015”One of the areas of state support includes development of service maintenance in the aviation industry – one of the main barriers for development of industry exports. In particular, the plan called for creating service centers in early 2016 in a broad effort to provide support. however, based on the results of the first six months of the year, the planned events were not fulfilled: the logistics operator and the authorized scientific center were not established. State funding was confirmed only in the third quarter of 2016 lv
Source: BCG analysis
Illustration No. 3.13. An example of unimplemented state programs
1. Export, except for line 27 of Goods Nomenclature for foreign Economic Activities (TNVED)/ Comtrade. 2. for Russia and Japan, as of 2014.Source: annual reports of agencies and banks; BCG analysis
50 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
In the previous section, it was shown that barriers for the development of innovation are associated both with the
internal problems of large companies and external fac-tors. In this section, we will show what capabilities the state has to resolve the existing problems. The proposed measures are again grouped into four main areas (see Illustration No. 3.15).
removal of internal barriers;
development of suppliers and subcontractors;
removal of hurdles on the part of markets;
amendment of regulations and state support for inno-vation
REMOVAL OF INTERNAL BARRIERSIn the previous section, we outlined four main problems facing the development of innovation inside large compa-nies. To resolve the first problem – the lack of responsi-bility in the medium term – it will be necessary to make the management interested in the company’s long-term development. After analyzing successful global and Rus-sian experience, we have identified two ways to resolve this task.
One solution for state companies would be their partial privatization. In addition, the best way to ensure suc-cess would be to search for an interested strategic in-vestor that has the capabilities and the skills required to ensure long-term development of the company. A nota-ble example of the implementation of such a mechanism is the privatization of Kalashnikov concern: in a matter of just two years the company managed to improve its financial performance and significantly expand its line of proposed goods.
Another tested and tried way to create incentives for long-term development of companies is to provide op-tions for employees: an employee who holds an option in the company’s shares has a vested interest in the long-term growth of their value and will therefore have a greater incentive to implement long-term projects on a horizon of 5-10 years. Meanwhile, given the short-term nature of managers’ current contracts (no more than three years), it will be necessary to perpetuate the term of the option so that it will not end after the validity term of the manager’s employment contract expires.
One guideline in creating a long-term employee incen-tive system for innovation is by making it end-to-end in nature. The incentive system should be applicable to all upper levels of management (top management), both to mid-level managers and the company’s key experts.
In cases when it is not possible to offer stock options (for example, in non-public state companies) it will be neces-
sary to develop options programs pegged not to the value of the company but to its various departments or innova-tive businesses (spin-offs).
In Russia this mechanism has already been used by a number of innovation companies. Such companies as Yandex, Mail.ru Group Limited, and AFK Sistema uses options to reward their employees. In particular, AFK Sistema’s long-term incentive program was launched in 2010 and was recently extended until 2017 (see Illustra-tion No. 3.17).
It should be noted that in 2015 such concepts were in-troduced in the Civil Code as “the option to stipulate an agreement” and “options agreement”, thereby removing one of the key obstacles in using this incentive mech-anism3. However, for successful use of options as a means of incentive at state companies it will be neces-sary for some of the company’s shares to be in free float. This means that partial privatization is necessary.
Phasing in this incentive mechanism at state companies should promote an influx of valuable executives from pri-vate companies. Private companies will begin to make broader use of such incentive program in order to retain key employees. Thus, this method could be implemented not only at state companies but also at private compa-nies.
It should be noted that innovation incentives need to be offered not only to the company’s employees, but also members of the board of directors. This is particularly relevant for state companies where civil servants repre-sent the interest of the main shareholder - the state. In cases where an options model is not applicable (for ex-ample, when limited incentives are available to civil ser-vants), alternative long-term incentive methods should be worked out.
Aside from the solutions directly related to the above-mentioned issues, during preliminary hearings of the report experts noted than innovation management at state companies through KPIs is inefficient, since there is no real responsibility and the sanctions prevent them from being implemented. The failure to meet KPIs has no affect on a manager’s future career. In order to re-solve this issue it will be necessary to work out and im-plement ways to make background checks and gauge the prior performance of employees when appointments are made. In this way, a manager’s track record should become a part of is CV, as it reveals the actual results and sets the stage for future appointments on grounds of personal merit.
The user of manager incentives for the company’s long-term expansion should help make innovation a priority. This will help partially solve the second problem - the lack of innovation on the management’s agenda. How-
3.5. WHAT CAN BE DONE? MEASURES TO PROMOTE INNOVATION
51NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Supp
ort
and r
egula
tion
Enter
prise
s (lar
ge bu
sines
ses)
Cons
umer
s an
d mar
kets
Strate
gic re
vision
of in
dustr
y stan
dards
, harm
oniza
tion /
diffe
rentia
tion
vs. wo
rld st
anda
rds as
requ
ired
Introd
uce a
dvanc
ed st
anda
rds/ q
uality
mark
sCo
ordina
te lar
ge pl
ayers
to joi
ntly d
evelop
tech
nolog
ies th
e ind
ustry
requ
ires
Devel
op ta
rgeted
incen
tives
to su
pport
high
-tech
expo
rtIm
prove
purch
asing
proce
dures
and i
ndus
trial s
afety
requir
emen
tsUs
er exp
erien
ce au
dit of
supp
orting
mea
sures
Devel
op a
compe
titive
comp
onen
t mark
et:
devel
op in
tegrat
ors, a
ttract
forei
gn in
vestor
s, org
anize
comp
onen
t man
ufactu
rers i
n sep
arate
busin
ess un
its wi
th P&
L resp
onsib
ility
Long-t
erm co
opera
tion o
f large
busin
esses
and s
uppli
ers:
long-t
erm co
ntract
s, acc
ess to
intel
lectua
l prop
erty,
access
to te
sting
area
s and
testi
ng fa
cilitie
s for
certif
icatio
nRe
covery
of ce
rtifica
tion e
xpens
es
Optio
n prog
rams f
or sen
ior an
d midd
le ma
nage
ment,
inc
entive
s from
corpo
rate v
entur
e fun
ds’ pr
ofits
CEO t
alent
pool
progra
m foc
used o
n inn
ovatio
n Loc
alize
R&D o
f forei
gn co
mpan
ies as
a ma
rket e
ntry c
ondit
ionLon
g-term
moti
vation
of bo
D mem
bers
Co-fin
ancin
g of c
orpora
te ven
ture f
unds
Perso
nnel
trainin
g prog
rams in
cludin
g top
man
agem
ent
Partia
l priva
tizatio
n of s
tate-o
wned
comp
anies
Chan
ge the
SDO p
ricing
: use
long-t
erm co
ntract
s, cha
nge t
he "2
0-to-1
" rule
Create
clear
guide
lines
for us
ing lif
e-cycl
e con
tracts
in
state-
owne
d com
panie
s
Supp
liers
an
d con
tracto
rs
Источ
ник:
анали
з BCG
lllus
tratio
n No.
3.15.
Meas
ures a
imed
at pr
omoti
ng in
nova
tion
Sourc
e: BC
G ana
lysis
52 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
ever, implementation of the above measures is by no means sufficient. The upper management needs to have the necessary competencies and be personally motivat-ed when it comes to introducing innovation. An execu-tive management pool should be formed in order to find candidates for upper management positions. Such a pool can be formed only by shifting towards innovation the existing pool of executives under the auspices of the President of Russia, or by setting up a similar executive pool. Meanwhile, this register should be available both to state and private companies. Notably, the experts indi-cated that this pool currently exists only on paper. Thus, in future it will be necessary to make concerted efforts to foster executive development, for example, through advanced training programs, international internships,
etc. based on international experience (see Illustration No. 3.18). The resolution of these two main problems will offer incentives for managers to change processes and develop the competencies needed for innovation. The state’s role in this process is to spearhead support pro-grams as required in the main areas, i.e. executive devel-opment and the acquisition of operating competencies.
The continuation and expansion of existing HR training state programs should include:
active promotion of collaboration between large com-panies and institutions of higher education; such pro-grams will allow companies to hire the most compe-tent employees;
В Kalashnikov Concern was established in 2013 on the basis of NPO Izhmash. State-owned Rostech1 retained a 51% stake in the company, while private investors received 49%. This year saw the adoption of a development strategy until 2020, including an investment program worth over 4.5 billion rubles.
The important changes include expansion of the range of products2: development and production of speed boats (delivery of high-speed landing vessels (bK-16) and assault vessels (bK-10) for the ministry of Defense), development and production of UAVs, and the development of remote-controlled military modules.
Large-scale optimization of production was also carried out. five main production workshops were upgraded: the current range of machine tools was updated, the premises were renovated and cutting-edge IT solutions were implemented. Investments totaled over 3 billion rubles in 2014-2015. moreover, a unified logistics center was established instead of 33 old-style warehouses. A lean manufacturing program was launched in or-der to reach the goal of cutting in half the cost of production. As a result of this program, for example, the time required to deliver an order was
reduced and work in progress was cut by 20% in 2015.
These measures made it possible for the concern to improve its financial performance considerably. Thus, for example, in 2014 the company man-aged to break even in terms of net profit for the first time in seven years. The company also managed to quadruple its order book of exports to USD 230 million amid sanctions (ban on deliveries to the USA and Europe) by refocusing on the markets of Africa, Asia and Latin America
The financial indicators of the concern in 2013-2015 are shown below.
Net income, bn rublesRevenue, bn rubles
2.3 2.9
8.2
2.1
-1.92013 2014 2015
-0.3
Illustration No. 3.16. Privatization of Kalashnikov concern
Illustration No. 3.17. Application of options programs in Russia
Yandex Mail.ru Group JSFC Sistema
Program type • Employee Stock Ownership • Restricted stock units • Employee Stock Ownership
Program conditions• A new program until 2026• 15% of company stock are reserved
for the stock option program
• A new program until 2022• 5% of stock are reserved for the
stock option program
• A new program until 2017• ~1-3% of stock are reserved for
the stock option program
Participating employees
• Top management• mid-level managers • most valuable employees
• Top management• mid-level managers • most valuable employees
• Top management• mid-level managers
Sources: company reports, press search, BCG analysis
Privatization of the concern led to widespread change at the company, enabling it to considerably improve its financial performance
Source: annual reports and press releases of Kalashnikov concern, BCG analysis
53NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
advanced training support programs, including those held at special training centers or financial support for training in Russian or foreign educational institutions;
creation of conditions for attracting foreign employees: offering tax breaks, cutting red tape, for example, as regards issuance of visas, work permits, etc.
The key focus should be programs to develop skills of top management and the Board of Directors, such as programs involving exchange of experience (for example, Sberbank University).
Another mechanism for state support of expanding competencies at large companies could be localization of R&D at international companies. Based on the suc-cessful experience of other countries, the state should embrace the following promotion measures:
legislative regulation at the industry level, for example requiring a certain degree of localization as a criterion for admission to the market;
provide tax breaks;
co-fund R&D, especially in the area of fundamental re-search;
establish clusters as part of certain projects/areas;
provide protection for intellectual property;
develop professional competencies, for example, by opening training centers.
Some successful examples include the experience of Norway and Malaysia in the localization of R&D in the oil and gas industry.
The example of Norway illustrates the viability of legisla-tive regulation. In the 1980s the government established localization of at least 50% of the R&D as a prerequisite for issuance of a field development license. Furthermore, companies were awarded tax breaks for R&D carried out inside the country. Given high taxes in the Norwegian oil and gas industry, this move was another incentive for lo-calization. As a result, Norway managed to become a leader in offshore oil production.
The example of Malaysia shows that international compa-nies can be attracted by creating a favorable investment climate. The government’s work on implementing The National Program for Transformation of the Economy included the task of localization for international oilfield service companies with efforts focused on four main ar-eas:
help in building mutual relations between overseas and local players, including the promotion of local oil-field service companies on international markets;
develop professional competencies calibrated with ad-vanced industry requirements, and establish training and development centers;
interact with peer agencies in other countries: UK Trade & Investment, Scottish Development Interna-tional, Energy Industry Council, Innovation Norway and Greater Stavanger Economic Development;
harmonize legislation and regulation.
As a result of this work over a period of two years (from
2012 to 2014) Malaysia managed to raise about USD 490 million of foreign investment and localize the R&D of six international oilfield companies.
The establishment of corporate venture funds is an im-portant and viable way to promote innovation. This mech-anism makes it possible to single out the innovation man-agement process from among the company’s processes by reducing the influence of inertia and conservatism in the overall corporate governance system. An analysis of similar funds shows that aside from developing the main business, they are also geared towards expanding new areas. Thus, for example, the corporate venture funds of international companies in the oil and gas industry are designed to seek out and develop technology related to alternative energy, biofuel, and smart power supply grids (see Illustration No. 3.19).
It should be noted that the state has already worked out measures to support corporate venture funds. Needless to say, it will be necessary to continue these initiatives, including active participation in co-funding corporate venture funds. To expedite implementation of this mech-anism at state companies, we suggest directly incentiv-izing the upper management to roll out such funds, for example, by carrying over interest from profit.4
DEVELOPMENT OF SUPPLIERS AND SUBCONTRACTORSIn the previous section we identified three main barriers that prevent suppliers and subcontractors from turning into innovation drivers. They were all related to the ex-isting mechanism for their interaction with big business.
In order to resolve the first problem – excess vertical integration of big business – it will be necessary to de-velop a competitive components market as part of large vertically integrated companies. For example, in the avi-ation industry this refers to tier 2-4 suppliers. We have identified three possible measures that the state could take to encourage them to open their procurement.
First, it will be necessary to create incentives to raise ef-ficiency and lower costs all across the production chain. To achieve this, we suggest identifying component man-ufacturers and breaking them down into business units with their own financial reports. This should also help instill in the managers of these business units a sense of responsibility for the financial performance of the various divisions and therefore an incentive to find the best possible suppliers of goods to lower the cost of pro-duction and seek out alternative sales markets to boost revenue. The state’s role in this process is to guarantee implementation among state companies, while innova-tive development programs could become a policy tool.
Second, the state could raise the quality of products through suppliers not used by large companies, thus diversifying procurement by large companies through drawing foreign investments into the development of do-mestic component manufacturers and establishing joint ventures with Russian suppliers. This will also encour-age greater exports of high-tech products through joint entry into foreign markets. Possible state measures to raise foreign investments are described above in detail
54 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
Saud
i Ara
bia: c
orpo
rate
acad
emies
China
: for
eign c
ompa
nies
UK: p
racti
cal t
raini
ngs
GE cr
eates
a Te
chnic
al Ac
adem
y in p
artn
ersh
ip wi
th TV
TC to
exten
d th
e poo
l of b
est t
echn
ical t
alent
s in S
audi
Arab
ia (20
12)
Stat
e-ow
ned e
nter
prise
s in C
hina a
ctive
ly ad
opt p
racti
ces a
nd ta
lents,
tra
in em
ploye
es ab
road
and h
ire be
st pe
ople
from
multi
natio
nal a
nd
inter
natio
nal c
ompa
nies i
n Chin
a
UK go
vern
ment
prom
otes
prac
tical
traini
ng in
priva
te fir
ms an
d cov
ers
50-7
0% of
costs
relat
ed to
the e
mploy
ment
of un
ivers
ity gr
adua
tes
GE si
gned
a str
ategic
partn
ership
agree
ment
with t
he Te
chnic
al an
d Voc
ation
al Tra
ining
Corpo
ration
(TVT
C) to
estab
lish a
tech
nical
acad
emy i
n Sau
di Ara
bia.
The a
cade
my wi
ll ann
ually
train
150 t
alents
selec
ted fr
om th
e grad
uates
of Sa
udi
Arabia
tech
nical
unive
rsitie
s. Th
ey wil
l be a
ble to
acqu
ire ex
tende
d skil
ls in
the
key a
reas l
ike m
ainten
ance
and r
epair
of ga
s turb
ines,
electr
ical m
otors
and
gene
rators
that
are cr
itical
to the
effic
ient g
enera
tion o
f elec
tricity
.
Succ
essfu
l grad
uates
will b
e offe
red th
e opp
ortun
ity to
join
GE's
busin
ess i
n the
gro
wing G
E Sau
di fam
ily to
supp
ort th
e exp
andin
g ene
rgy se
ctor in
Saud
i Arab
ia.
Gover
nmen
t offic
ials d
ispatc
h tale
nted y
oung
peop
le ove
rseas
for a
dvanc
ed
educ
ation
and r
esea
rch ex
perie
nce t
o exp
ose t
hem
to top
inter
natio
nal s
tanda
rds
of sc
ience
and t
echn
ologic
al kn
ow-h
ow.
Chine
se st
ate-o
wned
enter
prise
s (SO
Es) a
re co
mmitte
d to a
chiev
e inte
rnatio
nal
marke
t lead
ership
; curr
ently
they
aim to
hire
Chine
se na
tiona
ls wh
o work
abroa
d an
d in m
ultina
tiona
l Chin
ese-b
ased
corpo
ration
s.
Chine
se SO
Es of
fer fin
ancia
l ince
ntives
for t
he pr
omisi
ng em
ployee
s of in
terna
-tio
nal fi
rms,
includ
ing hi
gher
guara
nteed
salar
ies an
d attr
activ
e pre-
IPO st
ock
purch
ases
.
moreo
ver, th
e SOE
s attr
act m
iddle-
age e
mploy
ees o
f inter
natio
nal c
orpora
tions
wh
ere th
ey rea
ched
their
caree
r limi
ts by
offeri
ng m
ore au
thority
and s
elf-fu
lfill-
ment
oppo
rtunit
ies.
The g
overnm
ent la
unch
ed ex
tensiv
e cam
paign
s and
diffe
rent in
itiativ
es, in
cludin
g the
mos
t rec
ent “
Thou
sand
Talen
t Prog
ram” t
o rec
ruit b
ack t
o Chin
a exp
eri-
ence
d ind
ividua
ls wh
o can
take
on le
aders
hip ro
les in
China
’s S&T
(scie
nce a
nd
techn
ology)
syste
m.
In the
scop
e of K
nowle
dge T
ransfe
r Part
nersh
ips, c
ompa
nies c
an hi
re for
temp
o-rar
y proj
ects
unive
rsity
gradu
ates/p
ost-g
radua
tes or
acad
emic
staff
to ad
opt n
ew
proce
sses a
nd ac
quire
new k
nowle
dge b
oth fo
r the
comp
any a
nd fo
r the
acad
emic
partn
er. Th
e gove
rnmen
t part
ially
assu
mes t
he ris
ks an
d cove
rs 50
-70%
of th
e ret
entio
n cos
ts.
Thes
e proj
ects
help
the sc
ientis
ts to
impro
ve the
quali
ty of
resea
rch wo
rk, wh
ile
the co
mpan
ies ac
hieve
practi
cal fi
nanc
ial re
sults
(on a
n aver
age,
progra
m pa
rtici-
pants
reco
rd Gb
P 1 m
n prof
it grow
th).
With
the us
e of t
he fr
ee Gr
adua
te Tal
ent P
ool s
ervice
, the e
mploy
ers ca
n adve
rtise
practi
cal tr
aining
oppo
rtunit
ies fo
r grad
uates
.
The p
rogram
was
laun
ched
in 20
09 to
bette
r prep
are gr
adua
tes fo
r emp
loyme
nt in
the lo
ng ru
n. Pra
ctica
l train
ing in
the s
cope
of th
is pro
gram
is off
ered i
n UK
comp
anies
opera
ting i
n man
y ind
ustrie
s.
The g
overnm
ent e
valua
tes pe
rform
ance
with
the us
e of a
web
-bas
ed m
onito
ring
dash
board
.
"TVT
C is p
roud t
o tea
m wit
h GE,
a worl
d-cla
ss tec
hnolo
gy co
mpan
y, to
train
the en
ginee
rs an
d tec
hnici
ans w
ho wi
ll form
the c
orners
tone o
f the
Saud
i ene
rgy in
dustr
y of t
omorr
ow. T
he ag
reeme
nt ref
lects
TVTC
's str
ategy
to bu
ild pa
rtners
hips w
ith th
e priv
ate se
ctor t
o imp
lemen
t pro
grams
that
supp
ort Vi
sion 2
020,
Saud
i Arab
ia's i
nitiat
ive to
prom
ote
divers
ificati
on, c
reate
new j
obs a
nd dr
ive ov
erall w
elfare
.”
Ali Bi
n Nass
er Al-
Ghafi
s, Gove
rnor o
f TVT
C (201
2)
4,000
6,000
Corpo
rate a
dvertis
ing pe
r qua
rter, 2
014-
2015
2,000 0
2,572
2Q 20
143Q
2014
4Q 20
141Q
2015
2Q 20
153Q
2015
4,045
1,822
1,444
1,620
2,723
Sourc
e: htt
p://w
ww.ge
news
room.
com/pr
ess-re
leases
/ge-es
tablish
es-tec
hnica
l-aca
demy-p
artner
ship-t
vtc-gr
ow-sa
udi-t
echnic
al-tal
ent-po
olSo
urce:
http:
//cha
pman
cg.com
/news
/thou
ght-l
eaders
hip/20
15/01/
the-w
ar-for
-talen
t-in-
china
; http
://www
.china
busin
essrev
iew.co
m/cre
ating
-an-in
novat
ive-ta
lent-p
ool/
Sourc
e: ht
tps://w
ww.th
eguard
ian.co
m/ne
ws/da
tablog
/2011/
nov/1
1/stud
ent-fin
ance-
emplo
yeeben
efits,
https
://www
.gov.u
k/perf
orman
ce/bis
-gradu
ate-ta
lent-p
ool-gr
aduate
-em
ployer
-regis
tratio
ns
Illustr
ation
No. 3
.18. I
ntern
ation
al ex
perie
nce i
n imp
lemen
tation
of th
e exe
cutiv
e poo
l
55NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Illustr
ation
No. 3
.19. A
n exa
mple
of co
rporat
e ven
ture f
unds
in th
e oil a
nd ga
s ind
ustry
Corp
orat
e ven
ture
fund
Objec
tive
Inves
ted ca
pital
Prior
itize
d tec
hnolo
gies
Shell
Tech
nolog
y Ven
ture
sAc
celer
ated d
evelop
ment
and d
eploy
ment
of ne
w tec
hnolo
gies,
mostl
y in e
xplor
ation
and p
roduc
tion
areas
$1 bn
1mo
stly i
n exp
lorati
on an
d prod
uctio
n area
s
Chev
ron T
echn
ology
Vent
ures
Identi
ficati
on of
tech
nolog
ies to
stren
gthen
key
opera
tiona
l acti
vities
and u
ncove
r new
grow
th op
portu
nities
$2
50 m
n Oil
and g
as, a
lterna
tive e
nergy
, nove
l mate
rials,
IT
and c
ommu
nicati
ons
Ener
gy Te
chno
logy V
entu
res
Devel
opme
nt of
next-
gene
ration
energ
y tec
hnolo
gies
$300
mn
Rene
wable
energ
y sou
rces,
energ
y perf
orman
ce,
fossil
fuels
, nuc
lear t
echn
ologie
s
AE Ve
ntur
esAd
optio
n of b
est p
ractic
es fo
r acc
elerat
ed an
d mo
re ext
ensiv
e com
merci
alizat
ion of
clea
n ene
rgy
produ
ction
solut
ions
$120
mn (
inves
ted so
far)
biofue
l and
energ
y effic
iency
Tota
l Ene
rgy V
entu
res
Inves
ting i
n cha
lleng
ing re
voluti
onary
“new
energ
y” tec
hnolo
gies o
f the
futur
eNo
data
Rene
wable
energ
y sou
rces,
energ
y effic
iency,
was
te ma
nage
ment
Stat
oil Te
chno
logy I
nves
t /
Ener
gy Ca
pital
Mana
geme
nt
findin
g tec
hnolo
gies t
o imp
rove o
perat
ional
perfo
rman
ce of
Stato
il in o
il and
gas,
or ren
ewab
le en
ergy s
ource
s$9
0 mn2
Explo
ration
and p
roduc
tion a
reas,
some
rene
wable
en
ergy s
ource
s
Saud
i Ara
mco E
nerg
y Ven
ture
sWo
rldwid
e inv
estm
ents
in pri
oritiz
ed te
chno
logies
to
acce
lerate
devel
opme
nt an
d lau
nch i
n Sau
di Ara
biaNo
data
Oil an
d gas
prod
uctio
n and
proc
essin
g, ren
ewab
le en
ergy s
ource
s, en
ergy e
fficien
cy, w
ater
1 base
d on t
he Co
ller C
apita
l’s ST
V acq
uisitio
n pric
e. 2 En
ergy C
apita
l man
agem
ent n
ot inc
luding
STI in
vestm
ents
Sourc
e: cor
porate
web-s
ites, t
argete
d pres
s sear
ch, BC
G ana
lysis
56 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
as measures required to localize the R&D of internation-al companies.
Third, the state should provide support to integrators of technological solutions. This will make it possible to remove the gap between the needs of big business (ready-made components/assemblies) and the capabili-ties of SME innovative companies (parts/components). It should be noted that this area was mentioned as one of the areas in the draft strategy for the scientific develop-ment of Russia in the long termlvi.
An example that illustrates the successful expansion of subcontracting is the experience of development and production of the Sukhoi Superjet 100 regional aircraft. This project was innovative not only based on the tech-nical component of the aircraft, but also in the way that work was organized and incentives for the engineering and design operations. Specifically, component suppli-ers were sourced on a tender basis, including foreign manufacturers. However, the most indicative issue is the design process of the aircraft: the design office Sukhoi Civil Aircraft was only in charge of the conceptual design, while detailed design was assigned for development to dedicated centers, for example, TsAGI (Central Aero-Hy-drodynamic Institute. Zhukovsky). For details see Illus-tration No. 3.20.
The state’s initiatives in this area include a new strate-gy for development of the aviation industry until 2025, developed by the Ministry of Industry and Trade, which contains the projects required to resolve the above-men-tioned issues.
The second problem – lack of funds for innovations – can be resolved by developing long-term cooperation between the large business and innovation program pro-viders. Examples of such cooperation include: sign-ing of long-term contracts to supply high-tech products, providing access to intellectual property, co-funding of R&D, technological support, such as providing access to field test sites/stands and ensuring quality standards. The state should play an active role in this process and use different tools to create incentives for large enter-prises. Such tools may be: regulation, including antitrust regulation, financial incentives, setting KPIs for IDPs of state companies, coordinating a dialog between big busi-nesses and suppliers.
South Korea can be referred to as a successful exam-ple of implementing such measures. In 2010, the South Korean government initiated the Cooperative Develop-ment Program aimed at incentivizing large enterprises to invest in the development of their suppliers and sub-contractors. As a negative incentive, the state has tight-ened its legal arsenal and enhanced control over legal
Experience in developing the Sukhoi Superjet 100 – a successful example of limiting vertical inte-gration and expanding subcontractingThe project began with the establishment of Sukhoi Civil Aircraft in 2000 Sukhoi, which before this had been concerned for nearly 70 years exclusively with military hardware, decided to open a civil division the purpose of which right from the start was to create a global product for the global market.
The idea of a global product which involved competitive selection not only of domestic component suppliers but also foreign competitors, was a revolu-tionary concept for the Russian aviation industry. This decision required dramatically rethinking the entire approach to aircraft design, work ethic in the design office, staff requirements, and first and foremost, an understanding of the certification standards for civil aviation aircraft.
The need to create a competitive product on the global market in a short period of time led to a complete reassessment of the approach used for the technical design of aircraft. The prevailing industry practice of designing aircraft with complete integration of all technical solutions provided by a single design office was no longer suitable for the new environment. for this reason, it was decided to outsource the detailed design as the most work-intensive, although it did not require the highest qualification. In our report, we examine the approach used for design based on the example of a key part of the aircraft design – its wing.
When designing the wing of the SSJ-100, the designers of Sukhoi Civil Aircraft entered into close cooperation with scientists of TsAGI and SibNIA as leading global centers of aviation science. The work was arranged as follows: Sukhoi Civil Aircraft was placed in charge of the overall wing concept (its size, blueprint shape and target parameters, such as the level of supporting features and aerodynamic quality plus the requirements for manufacturing techniques), while TsAGI scientists were in charge of its profile using 3D CDf optimization methods. based on this collaboration with TsAGI to determine the optimal wing profile, Sukhoi Civil Aircraft designers conducted the ideal design, i.e. embodying the optimal wing profile in design structures, the frame designs and fitted it with mechanical devices. Using a similar approach, work was arranged with SibNII to optimize wing mechanization. This approach to design made it possible to dramatically reduce the timeframe for development and lower design risks by harnessing the computing power of TsAGI and unique wing profile optimization techniques.
It should also be noted that an innovative approach was used in designing the SSJ-100 which involved paperless design and production start-up, as result of which the stage of experimental production was altogether eliminated. The digital blueprints of the aircraft were immediately submitted for serial production at a plant in Komsomolsk-on-Amur, which was retrofitted with advanced CNC machine tools, thanks to which the first flight model was built using technology which was as close as possible to mass production. After mass production was launched this process was repeated for launch of the SSJ-100LR model, which has major differences in terms of its frame design. The first experimental aircraft was built without halting the conveyor belt and once testing was completed the plant switched over to manufacturing SSJ-100LR models without any disruption in the production cycle.
Source: interview with industry experts, BCG analysis
Illustration No. 3.20. Experience in developing the Sukhoi Superjet 100
57NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
In 2010, the South Korean government, after a large scale survey among suppliers and subcontractors (mostly Smb) of big enterprises, arrived at the conclusion that it was necessary to support them and to change the nature of their cooperation with big business, such as unjustified understatement of price or failure by big business to comply with payment terms.
With a view to improving the situation, the state launched the Cooperative Development Program aimed at increasing the share of subcontractors in the added value of large companies. Reaching that goal was made the top-pri-ority task for the fair Trade Commission. As a result, the state has tightened its legislative framework and enhanced control over legal compliance on the part of large enterprises. The main focus was on unjustifiably low prices by big business, making it easier for suppliers and subcontractors to raise prices in case of higher prices for materials, as well as stronger protection of suppliers and subcontractors’ intellectual property. In addition, the fair Trade Commission espoused the concept of signing Cooperative Develop-ment Contracts between large enterprises and suppliers and subcontractors.
furthermore, the government has worked out the Cooperative Development Index specifically calculated for 56 major companies based on quantitative (such as number of cooperative development contracts signed) and qual-itative factors (such as interviewing suppliers and subcontractors). The leaders of the rating will be provided with incentives from the state, such as; state support for R&D, tax breaks, subsidies, etc.
Implementation of the above measures resulted in a higher priority of the task among large enterprises. Today, most of them have set the following KPI targets for cooperative development:
ranking in the Cooperative Development Index, amount of R&D support for suppliers and subcontractors, number of cooperative development contracts, volume of technological support for suppliers and subcontractors.
below are examples of successful implementation of support programs for suppliers and contractors at big companies
Samsung Cooperative development contracts signed with 5,200 suppliers in
2011. financial support totaling USD 5.7 billion in 2011, including R&D
support worth USD 1.7 billion free access to intellectual property and technology
LG free access to 5,200 patents technological support, such as the availability of an industrial 3D
printer
Hyundai cooperative development contracts signed with 1,585 suppliers in
2011 USD 3.9 billion in financial support, including USD 2.3 billion for
R&D in 2011 establishment of a group of 300 members to support suppliers’
R&D activities
Source: annual reports of companies, Korea Fair Trade Commission (KFTC), BCG analysis
Illustration No. 3. 21. Cooperative Development Concept in South Korea
compliance in pricing (antitrust laws) and protection of suppliers’ intellectual property. As a positive incentive, the state worked out the Cooperative Development Index which ranks large companies in terms of their involve-ment (SOI) in cooperation with suppliers. The companies topping the rating will be provided with benefits from the state, including tax breaks. As a result of the newly im-plemented policy, successful development of suppliers has become a top-priority task for large enterprises (see Illustration No. 3.21).
One of the main barriers to accessing orders from big businesses is product certification under industry stan-dards. This issue is particularly crucial for state defense procurement. The state needs to elaborate mechanisms aimed at facilitating the certification process, such as re-covery of expenses incurred for certification of products and plants, similar to the programs applied in different regions to reimbursement of expenses for ISO certifica-tion.lvii
REMOVING MARKET OBSTACLES In the previous Section we described key barriers on both Russian and foreign markets that may hinder the implementation of innovations. The main obstacle for in-novations on the Russian market is the existing system
of pricing for state defense procurement, where there is a lack of incentive to improve efficiency and develop subcontracting. One possible solution to this problem is to implement anindexed pricing approach, namely long-term contracts with a fixed base-period price for the first five years with subsequent annual indexation at an agreed rate. Pursuing this strategy will provide companies with greater flexibility thanks to cancellation of annual reports on actually incurred expenses. This, in turn, will promote higher efficiency of such companies in a number of ways, including stronger cooperation.
As can be seen from the previous Section, the lack of competitive exporting options at large enterprises is due to relatively low (compared to foreign peers) service quality and hardly any experience in stipulating long-term contracts, for example, such as a life-cycle con-tract. The state can solve this problem by creating on the Russian market a favorable environment similar to the one that exists on foreign markets. For example, it could be helpful to increase procurement volumes by signing life-cycle contracts. This measure, if introduced, along with positive experience of dealing with such contracts, will also help domestic companies to upgrade the quality of their services and after-sales support. This will also help to switch from price competition to efficiency com-petition and total cost of ownership (TCO).
Promoting long-term cooperation between big business and suppliers in South Korea
58 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
Complete implementation of this mechanism in state en-terprises requires development of specific methodology instructions for its applicability, such as methods of cal-culating the value or a standard for such a contract. It is worth noting that the Ministry of Economic Development, together with the Ministry of Finance and the Federal Antimonopoly Service (FAS) have already proceeded to develop this issuelviii.
Needless to say, the state should also provide support for exports of high-tech products. We will address this issue in the next section.
UPGRADE OF REGULATION AND STATE SUPPORT FOR INNOVATIONGenerally speaking, the state is required to play a more active role in developing industrial policy with a key focus on innovative development. As was outlined in the pre-vious Section, the state today lacks a strategic approach to industrial standards. The first step towards resolv-ing this problem involves revising the existing industri-al standards. For this purpose, each industry should be required to determine its future strategy for developing industrial standards. In a number of sectors, such as aviation, it is necessary to align Russian and internation-al standards in order to facilitate the export of products. It is also advisable that Russian standards be aligned rather than adapted to international standards. On the contrary, some areas, such as energy machinery mak-
ing or telecommunications sectors, require promoting domestic standards, In some sectors, the state may de-velop and implement consciously differentiated domestic standards in order to protect the Russian market.
Another applicable measure would be to launch a “quali-ty mark” as the state’s guarantee of high product quality. At the same time, however, the actual ability of an indus-try to introduce and, where required, implement support programs should also be borne in mind. Some of Rus-sia’s industries can already share their success stories of implementing such new standards. For example, a new standard for associated gas utilization rate can be cited as a good example in the oil and gas sector (see Illustra-tion No.3.22).
Nevertheless, implementation of industrial standards cannot resolve all of the industrial hurdles. Some is-sues, such as enhancing the oil recovery ratio (ORR) in the oil and gas sector, require fundamentally new tech-nical solutions. Nowadays, Russian big companies tend to resolve such issues on their own. Global experience shows that cooperation of companies aimed at solving industry-wide problems (such as design and develop-ment of technologies or eliminating disruption in produc-tion chains) is a far more efficient way to find a solution. Implementation of such initiatives in Norway and Great Britain’s oil and gas sector may be cited as examples of two different approaches.
The example of Norway illustrates the top-down ap-
Implementation of new standards for increasing the volume of associated gas utilization is a good example of successful implementation of technological standards in Russia“Today, after nearly three years since the approval of the document, we can confidently say that the system is a sort of “carrots and sticks” offered by the ministry of Natural Resources and Environment of the Russian federation6 and has proven to be very efficient.”
S. Donskoy, head of the Ministry of Natural Resources (Ministry of Natural Resources 2015)
In 2012 Russia was a global “leader” (along with Nigeria and Iran) in terms of associated petroleum gas flaring. In order to improve the situation, in late 2012 the Russian government approved a Resolution designed to increase the volume of associated gas utilization, including a sharp increase in charges for hazardous emission and deduction of expenses incurred for construction of utilization facilities from applicable charges for hazardous emission.
Implementation of this standard resulted in a higher utilization rate, despite rising production.
80(bn cub. m)
Production
Associated petroleum gas production and flaring in Russia in 2000-2015 Associated petroleum gas recovery 2000-2015
flaring
40
60
20
02012 2013 2014 2015
90(%)
78
84
72
66
602012 2013 2014 2015
Source: Analytical Center for the Russian Government, Russian Federal State Statistics Service, Resolution No. 1148 of the Russian Government as of November 8, 2012, BCG Research
Illustration No.3.22. Implementation of a new standard for associated gas utilization rate
59NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
proach where the state plays the major role, namely: set-ting long-term development targets, KPIs, coordinating cooperation between the key industry players, allocating funds for innovations, creating the necessary ecosystem by vigorously involving local suppliers and the scientific community in the process (see Illustration No. 3.23).
On the other hand, the example of Great Britain demon-strates the bottom-up approach, where big business acts as the main driver, while the state’s role is only to ensure a productive dialog between the major sector players (see Illustration No. 3.24).
It goes without saying that the state should continue its existing programs for export support, R&D funding and using other tools to support innovative companies. Ac-cording to experts, the only limits to the advantages of such projects are set by the challenges in applying them. One problem arises from their inconvenience (complexity of procedures for receiving support, excessive reporting requirements and slow interaction). Another problem is that the tools for such projects are focused on SMB com-panies, while specific issues at large enterprises are not addressed. Therefore, it seems necessary to revise the existing range of support tools with due regard to their
viability and ease of use while paying special attention to sufficient adaptability and applicability to large enter-prises.
In addition to financial support, it is vital to develop regu-latory and administrative support institutions (for exam-ple, support in patenting). This will help to cut expenses incurred in passing through all necessary stages and to reduce the period for launching innovative products into commercial use. In this area, the focus can be on revising the tools used by support institutions with regard to their applicability to large enterprises.
Taking into account the above-mentioned barrier arising from conflicting regulations, it is necessary to consider the possibility of making amendments to the existing laws and regulations governing procurements in order to adjust procurement standards and procedures (including Federal Laws No. 223 and 44), industrial safety and in-novative activity requirements, and to reduce time-con-suming patenting procedures for promoting innovative activity.
Implementation by the state of more stringent require-ments to be met by big businesses for receiving financial
The PETROMAKS 2 project in Norway is an example of vibrant state coordination of general industry taskshistorically, in Norway the state plays the key role in the development of the oil and gas sector. for this reason, most projects are initiated and implement-ed on a top-down basis. In 2004, the Norwegian government launched a 10-year development program for attaining an optimal oil resource management known as PETROmAKS. This project has become one of the key instruments for developing the industry and implementing the long-term development strategy7. Its main focus was on the innovative development and industrial realization of such projects with the state playing the leading role in it – first of all, it selected long-term targets and set the industry’s KPIs for recovery efficiency, environmental standards and safety of oil recovery. In addition, the state played a leading role in implementation. first of all, it set long-term goals and KPIs both as regards the efficiency of production, as well as environmental and safety standards.
furthermore, the state financed both fundamental and applied innovations. Over the decade of the program implementation, budget funds were allocated to more than 400 projects involving more than 450 scientists. Under this program, funding and support were also provided to other projects that were not connected with oil recovery (up to 30% of the funds allocated by the Committee).
In addition to the above, the state’s task was to ensure successful implementation of financial projects in order to create a favorable ecosystem by forming consortiums of oil recovery companies, oilfield service companies, component suppliers, scientific and financial institutions.
The program proved to be efficient and resulted in the decision to launch its successor, PETROmAKS 2. As of early 2016, the program portfolio was comprised of 95 active projects and was worth USD 35 million allocated from the budget.
below are examples of funded projects:
Source: Research Council of Norway, Oil & Gas in the 21st Century (OG21) Strategy, PETROMAKS / PETROMAKS 2 Programs, BCG Research
Illustration No. 3.23 Implementation of the PETROMAKS 2 project in Norway
• Project for studying technologies of employing wind energy in offshore oil fields
Consortium leader
Partners
State financing
Scientific partner (independent research organization)
• Project for studying icing environment on the Arctic shelf
Consortium leader
Partners
State financing
Oslo University
60 3. hOW TO AWAKEN ThE ChAmPIONS? mAKING bIG COmPANIES INNOVATIVE
support should become the main difference in the new financial support model compared to the current sit-uation. This goal can be achieved by transitioning from the principle of financing an industry as a whole to the principle of supporting each innovative project individu-ally. Such an approach will make it possible to switch from the annual practice of covering “budget holes” at large enterprises to targeted support of truly competitive projects and solutions. Such differentiation will create incentives for a company’s managers to enhance indus-trial efficiency, namely by modernization, development of subcontracting, pursuing lean manufacturing principles, and will help to refocus manufacturing on producing more competitive and innovative products.
Illustration No. 3.15. represents a summary of the pro-posed measures.
PILOT is a joint initiative between the British oil and gas industry and the stateThe work group for this project was formed to implement joint projects aimed at addressing general industrial issues in the oil and gas sector and sup-ported by the state in order to promote competitiveness of the national oil and gas industry, ensure energy security and set up a dialog between market players and the state.
The projects are developed by work subgroups based on specific areas, such as: innovations and technologies, regulation and licensing, environment and sustainable development, etc.
below are examples of successful PILOT projects:
Industry Technology facilitator (ITf) is a partnership of 32 oil producers and oilfield service companies designed for joint development of technologies the oil and gas industry. ITf projects cover all levels of oil production, for example:
fULLWAVE is an initiative for implementing a technology of full-wave tomography in oil and gas field exploration; Dura Drilling is a project for developing a next generation high Speed Dual String (hSDS) drilling system; etc.
LOGIC is the headquarters for implementing all jointly coordinated projects aimed at boosting workforce efficiency at offshore fields VantagePOb is a system for offshore personnel tracking in order to ensure logistics efficiency, personnel and site safety and safety of emergency
service personnel; flightshare is an initiative designed for offshore personnel to share excess seat capacity on North Sea helicopter flights; Standardization of oil and gas production contracts.
Source: the government of Great Britain, including the report UK Oil and Gas Business and Government Action, Oil and Gas Authority, BCG analysis
lllustration No. 3.24. PILOT Project in Great Britain
1 Hereinafter referred to as Rostech2 Including purchases from outside manufacturers3 Amendment to the Civil Code of the Russian Federation, Article
429.2 and Article 429.3 4 Carried interest5 Shared growth6 Hereinafter referred to as the Ministry of Natural Resources7 Oil & Gas in the 21st Century Strategy
61NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
4
62 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
The government’s innovative management system re-quires control and incentive tools to function efficiently.
One such tool is the system of key performance indica-tors (KPIs). The KPI system is a management tool that has made its way into government management from the corporate world, where it has been widely adopted since the 1980s. An increasing number of government organi-zations around the world are adopting this perspective to-day. The best-known examples of countries that are using KPIs as project management tools are Malaysia, Australia and the UK. Russia’s government management system is no exception in terms of the KPI system: performance indicators are being implemented in various government organizations.
Two main goals that follow the adoption of the KPI sys-tem are measuring results and increasing the motivation of responsible persons. Setting measurable goals makes it possible to evaluate progress toward their achievement, as well as the effectiveness of activities relative to peers or competitors. This information, in turn, helps to deter-mine areas that are lagging and correct them in a timely manner. More than anything else, this is why KPIs have gained such popularity as a motivational tool: compensa-tion is tied to the results of an individual employee, busi-ness unit or organization. KPIs, bonuses and promotions are now combined into a unified personnel evaluation and compensation system.
One of the pillars of the KPI system’s development is limiting the number of indicators, which further highlights the impor-tance of rigorous selection. KPI metrics must meet four key criteria, which we will discuss in detail in the next section.
(1) KPIs must be vitally important for achieving the or-ganization’s goals. When selecting alternative KPIs, it is important to focus on what is most important. This will often be the indicator that requires the most at-tention and concentration of resources for improve-ment.
(2) KPIs should be controllable: the responsible person should be able to influence the result.
(3) KPIs should be reliably measurable: their score should be able to be conveniently and transparently calculated.
(4) KPIs should be tamper-proof: the person responsible for their implementation should not be able to distort the actual results.
The KPI system can already be found in many government innovation planning documents, first and foremost in IDS-2020. KPIs are also included in the Innovative Develop-ment Programs for state companies (IDPs), Long-term Development Programs (LDPs), innovative development institute strategies, state and federal targeted programs, and industry development programs.
In Report 2015 (see chapter 9), the tasks for creating an
organizational and functional model for the innovative de-velopment management system outlined the roles of most of these documents. In this section, we focus on them from a KPI analysis perspective.
The foundational document is the Innovative Develop-ment Strategy (IDS-2020). In its current iteration, IDS-2020 offers 45 target indicators for implementation in ac-cordance with eight basic strategic directions:
forming innovative activity competences, innovative business, effective science, innovative government; innovative infrastructure, involvement in the global innovative system, innovative territory, financing.
Each of the indicators has proposed target values for 2020, however no responsible persons have been named for achieving these indicators. Responsible persons are assigned not to the KPIs, but rather to the main activities for implementing IDS-2020, which are established in the implementation plan for the period. Note that most of the activities have several federal executive bodies that are collectively responsible and there is no evaluation of the activities’ contribution toward achieving the KPI.
Innovative Development Programs (IDPs) are implement-ed by companies that are partially managed by the state, according to a list1 of more than 60 companies. They inde-pendently select innovative activity KPIs and establish tar-get values for the KPIs based on the Ministry of Economic Development’s methodological recommendations. As such, innovative KPIs may differ significantly between companies.
One of the initiatives from 2016 was to integrate inno-vative KPIs (IKPIs) in the Long-term Development Pro-grams (LDPs) of state-linked companies2. The proposal is to combine three or four IKPIs according to the innovative life cycle stage. The companies themselves develop the IKPIs based on the Ministry of Economic Development’s recommendations. The remuneration of top management at companies is planned to be pegged to this indicator.
The various government programs for innovative develop-ment and economic modernization do not use a standard-ized methodology for setting innovative KPIs. Most of the programs have established responsible parties and target indicators, however their cascading principles may vary.
For example, the Ministry of Industry and Trade is respon-sible for the “Industrial Development and Improvement of Industrial Competitiveness” state program. The program has a list of 20 top-level KPIs, as well as 159 KPIs at the subprogram level. Some of the KPIs are part of IDS-2020, for example exports of Russian hi-tech goods, technologi-cal innovative costs, and R&D costs. That said, there is only partial cascading of the target values from government programs down to the subprogram level, and the IKPIs do not cascade to industry. The KPIs are also not clearly
4.1. INNOVATION KPIS IN RUSSIA TODAY
4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
63NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
bound to responsible persons. The status of subprogram stakeholders in achieving KPIs has not been defined, and the Ministry of Industry and Trade has also been made re-sponsible for implementing all of the subprograms, i.e., there is effectively no KPI cascading.
Other government programs propose setting target values at the top level with a high-level list of people responsi-ble for achieving the KPIs. For example, the “Science and Technology Development” state program (responsible: Ministry of Education and Science) has set the target at 2.46% for the KPI “Specific weight of the Russian Feder-ation in the total number of scientific publications in the world indexed in the Web of Science database” in 2020 for 13 organizations (including the Ministry of Education and Science itself, as well as the FASO, RAS, etc.). However, there is no breakdown of quantitative targets among the responsible parties for 2017-2020.
Innovative KPIs are also included in the charter docu-ments of innovative development institutions, initiatives of federal executive bodies responsible for innovative development, and industry strategies.
Innovative development institutions independently set KPIs in compliance with their primary regulatory acts and inter-nal documents regulating their work. For example, RVC has three KPI levels: long-term (through 2020), medium-term (for three years) and short-term (annually). When develop-ing the medium- and long-term KPIs, RVC takes into ac-count IDS-2020 priorities. Likewise, Skolkovo independently forms strategic objectives and KPIs that the Fund’s Board approves. In this case, the starting point for KPI formation is the “Creation and Development of the Skolkovo Innovative Center” subprogram of the “Economic Development and Innovative Economy” state program, including eight KPIs.
The Ministry of Economic Development’s innovative devel-opment initiatives also include setting KPIs. For example, the initiative to develop innovative territorial clusters pro-poses methodological materials for developing and im-plementing programs for their development and regional cluster policy, proposing cluster-level IKPIs.
Although industry strategies do not usually focus on de-veloping innovative activity, they can also include IKPIs with quantitative goals. The development strategy for the chemical and petrochemical complex includes R&D ex-penses. There is no KPI cascading (the Ministry of Indus-try and Trade and the Ministry of Energy are responsible for implementing the strategy).
All of these documents fit together into the system of plans and responsible parties for carrying them out, and all of them to some extent or another share the following three main types of problems hindering the effective setting of KPIs.
(1) There is often no responsible party for achieving the KPI defined. The KPIs are rarely connected to respon-sible parties, which makes it impossible to use KPIs as motivational tools, only as monitoring tools (for exam-ple, in the current version of the IDS, responsiblity is set for the activity). In cases when responsible parties are actually assigned, there is usually no delineation of individual responsibilities, i.e., a KPI has a high-level list of responsible parties. The absence of mechanisms to assign individual consequences for failing to achieve collective goals erodes responsibility.
(2) KPIs are not synchronized between the various doc-uments. There may be contradictions between the same KPIs in different initiatives. For example, the “Number of citations per 1 publication of Russian researchers in scientific journals indexed in the Web of Science database” is listed as a target KPI in both IDS-2020 and the “Science and Technology Develop-ment” state program (subprogram 1. ”Fundamental Scientific Research”). The target value for 2020 in IDS-2020 – in both the current and updated versions – differs from the values in the state program by more than two times: IDS-2020 requires four citations per article, while the state program requires 1.8.
(3) Overall, the system has too many KPIs and does not prioritize them. In such situation, it is difficult to de-termine what the responsible organization should fo-cus on, which leads to poor motivation and an inability to achieve the desired goals.
Aside from the above-mentioned government documents, the Report 2015 also had its own KPI-Set and measure-ment perspective dashboard. As a reminder, the dash-board offers 75 KPIs for monitoring trends in innovative development in Russia versus leading countries.
Given such a wide range of initiatives proposing IKPIs, as well as the abovementioned areas for system optimization, it can be concluded that there is a need to consolidate the disparate efforts of many actors: prioritize and harmonize KPIs, and cascade them down to the responsible parties.
It is important to note that work is currently underway to up-date a number of documents regarding setting KPIs. In the updated version of IDS-2020, which is currently being ap-proved by the Government, responsible parties are assigned to KPIs, and a cascading perspective has been proposed (5 of 38 KPIs have been distributed among agencies by industry).
As part of the IDS update, the IKPI development require-ments have been updated: they should take into account LDP goals and KPIs, relevant state programs, industry strat-egies, and other strategic planning documents. Companies that are implementing IDSs and LDPs must include inte-grated innovative activity KPIs in the IDSs, thereby achieving uniformity of the top-level KPIs. Of the IKPI’s weighting, 30% comprises “updated IDS quality (in the year developed/updated) or IDS implementation (in recent years)”3.
There remains an acute need to optimize the system de-spite the initiatives that have begun. Based on the underly-ing KPI system principle of limiting the number of top-lev-el KPIs, we propose selecting a short list from the total range of KPIs available of the critical KPIs that will help us measure the most important innovative activity metrics.
1 Approved by the Presidium of the Presidential Council for Econom-ic Modernization and Innovative Development of Russia on 17 April 2015 .
2 Government-owned corporations and joint-stock companies in which the Russian Federation has a total stake exceeding 50%, nearly 50 of the 91 listed.
3 KPI recommendations for innovative activity included in LDPs and KPI systems used to motivate the management in state-owned companies and the Ministry of Economic Development.
64 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
Give the KPI requirements discussed above, we have formulated our task as follows: choose a small num-
ber of KPIs (5-10) that will address the key problems fac-ing innovative development. We will refer to them as the "main attack avenue".
We have chosen the “main attack avenue” KPIs in three steps, which we outline below and show in Illustration No. 4.1. We further explore each of them in greater detail.
(1) As a starting point, we used the innovation pyramid, a concept introduced in Report 2015. Recall the pyr-amid’s structure: it is made up of nine layers, five of which are the foundational layers that support innovation, three are the middle layers that define innovative activity, and the top layer, economic con-sequences. Not all nine layers are equally suited for setting KPIs, first of all due to their varying degrees of control and measurability. We choose only those layers that are suited to the task at hand.
(2) From there, in order to choose the most important parts of the pyramid, we introduce the understand-ing of the “innovative system critical path,” i.e., the sequence of its bottlenecks, each of which restrains the development of the next. By identifying the bot-tlenecks and analyzing their interdependencies with-in the pyramid, we form three critical paths for find-ing the “main attack avenue”.
(3) The final step is choosing KPIs that are capable of measuring the elements of the critical paths that have been selected.
STEP 1: CHOOSING AN INNOVATION PYRAMID LAYERAs mentioned above, the innovation pyramid is made up of three large blocks. The pyramid’s foundation includes KPIs for institutions, knowledge, culture, infrastructure
and markets. The middle includes drivers of innovative development, innovative activity and innovative results. At the top are the economic consequences of innovation.
When searching for “main attack avenue” KPIs, we ex-cluded all of the fundamental layers of the pyramid, ex-cept for knowledge, for two reasons. First, most of the KPIs at these levels are difficult to reliably measure. In practice, surveys are used, but their accuracy and objec-tivity are seriously limited. Second, it is impossible to as-sign specific responsible parties that are able to directly control most of them.
We also excluded the top of the pyramid. Similar to the foundation, it is impossible to assign specific responsible parties for top-level KPIs, as too many factors influence them. Furthermore, their contribution to innovative activ-ity growth has a long lag time, and they are also strongly influenced by a number of ‘non-innovative’ factors (e.g., capital ratios).
As such, we propose to focus on the middle of the pyra-mid. The middle elements are suitable for setting KPIs for the following reasons:
most middle-level KPIs can be measured statistically;
they can be assigned specific responsible parties;
it is possible to definitively determine the interdepen-dencies among KPIs, which helps choose the most im-portant ones in the next step (see below).
STEP 2: IDENTIFYING CRITICAL PATHSAs discussed at the beginning of the chapter, KPIs should indicate what is really significant. In order to focus on the truly important elements of an innovative development sys-tem, i.e., those areas that most require the government’s attention from the perspective of trend acceleration and closing the gap with the leading innovative countries, we propose the “critical path” concept. Recall that we define
4.2. CHOOSING THE “MAIN ATTACK AVENUE”
Elements of the innovation pyramid
43 elements29 elements
16 elements10 KPIs
Select innovation pyramid layers
Step 1 Step 2 Step 3Identify critical
pathsSelect KPIs KPIs for key directions
Illustration No. 4.1 Three steps in choosing “main attack avenue” KPIs
Source: BCG analysis
65NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
the critical path as the sequence of bottlenecks in the inno-vative system that limits its development the most.
In order to identify the sequence of bottlenecks, we first rely on a high-level analysis of the interdependencies among innovation pyramid elements. The effect at each layer of the innovation pyramid is described by a series of KPIs on the innovation dashboard. For ease of analy-sis, similar KPIs can be grouped into larger pyramid el-ements. Following this methodology, we have identified 43 elements (see Illustration No. 4.2). These elements influence one another, though the nature of the influence depends on the layer of the pyramid. The following ob-servations can be made:
(1) All foundation layer KPIs influence all middle layer KPIs. For example, the institutional environment or culture has a substantial influence on KPIs along the entire innovative funnel in the middle layer of the pyramid.
(2) In the middle layer of the pyramid, the primary in-terdependencies between elements can be mapped, but they are fairly complex and confusing (see Illus-tration No. 4.2).
(3) The top of the pyramid is determined by activity on all middle layers of the pyramid along the entire innova-tive funnel.
In order to formulate the critical paths themselves, we begin with the key resulting element, for which we have chosen innovative product export. For all elements that influence it directly, we evaluate the extent to which Rus-sia is lagging behind the leading countries on innovative development (we used either dashboard data or expert evaluations for this). We propose that the element (or elements) with the most lag has the greatest limiting effect on those above it. We repeat the process at this bottleneck. The process is repeated until we reach the end, i.e., the element that is influenced solely by KPIs from the foundation of the pyramid. The sequencing of bottlenecks that we receive from this analysis is the crit-ical path. Experts then refined and confirmed the result.
An example can be found in Illustration No. 4.3. Innova-tive product export (top block in the illustration) is only influenced by manufacturing in this system, so we think this element falls on the critical path. From there, the interdependencies are more complex. Innovative product manufacturing is influenced by three factors: total num-ber of innovative companies, headcount, and productivi-ty. The dashboard shows that the gap with comparable countries is the largest for the number of innovative companies (more than 3x), therefore this is the narrowest bottleneck and should be added to the critical path. We further analyze the elements that determine the number of innovative companies.
Note that in most cases, the bottlenecks are immediate-ly visible, as their gap can reach 10-30x, compared with 2-3x for the remaining factors. However, in some places there are several bottlenecks. For example, the low num-ber of startups is influenced by both the narrow access to commercialization ideas and the low venture investment volume. Our discussions with experts have led us to the conclusion that both elements are bottlenecks, which splits our critical path.
This gives us three branches that form the bottleneck sequencings that limit the country’s innovative develop-ment the most. We call them the three critical paths of innovative development (see Illustration No. 4.3), which merge at the “Total number of innovative companies” and lead to the resulting KPI that is oriented on the country’s external economic development: innovative product ex-port.
Entrepreneurial path - from invention to startup.
This path is connected to the development of innovative activity among private inventors, i.e., primarily with the number of ideas and inventions that can be commercial-ized. The number of innovative ideas that are ready for commercialization is one of the two necessary conditions for the emergence of startups, along with the venture market. The starting point for the first path is the num-ber of commercialized ideas, which is measured as the percent of inventions that have been patented by individ-uals. The leading countries outpace Russia by 9x on this measure. It is important to continue working on this path by fostering the emergence of and increasing the activity levels of inventors, boosting their social status, and pro-moting science, technology and entrepreneurialism (see Report 2015).
Venture path - from demand for technology to startups
The second path is focused on investment as a vital con-dition for the emergence of startups. We view demand for ready-to-use technology as the starting point. This de-mand is what determines whether investors - primarily private - are ready to enter the venture capital market. As such, it is important to look not only at the overall venture investment volume, but also at its sources: pri-vate and state investment. Based on OECD data, Russia lags behind the leading countries 8x in overall venture investment volume as a share of GDP, and more than 10x in private investment. Improving venture capital market efficiency requires boosting the government venture cap-ital multiplier (i.e., the amount of private investment per ruble of government investment).
Corporate path - from research to innovative compa-nies
The third branch of the critical path is related to inno-vative development activity at mature companies. The quality of a country’s research base and the efficiency of its R&D spending determine its level of patent activity. Measured as the number of international patent appli-cations, Russia lags behind the leading countries by 30x (2014 WIPO data1). There is a similar lag in the overall number of international patents received that provide protection in foreign jurisdictions. Despite the sizeable lag in number of international patents, the overall num-ber of mature innovative companies in Russia is closer to the benchmark countries (3.4x when measured as the share of innovative companies in the total number of manufacturing companies). This is readily explainable: the number of international patents per innovative com-pany in Russia is also lower.
The improvement in this path is primarily due to the de-velopment of the overall research base, as well as re-search cooperation between scientific institutes and business. Support measures concern both developing
66 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
R&D
expen
diture
eff
icien
cy
R&D e
xpend
iture
in the
public
sec
tor
Privat
e vs.
publi
c R&D
exp
endit
ure
Numb
er of
resea
rch pa
pers
Availa
bility
of pr
ivate
finan
cing
Cultu
re
Availa
bility
of pu
blic f
inanc
ing
Involv
emen
t in in
ventio
ns
Comp
etitio
n
Envir
onme
ntal p
olicy
Electr
ic po
wer
Logis
tic se
rvice
sICT
Instit
ution
sInfra
struc
tureCu
lture
Mark
ets
Know
ledge
Other
institu
tions
Innova
tion i
nfras
tructu
re
Custo
ms re
gulat
ion
Quali
ty of
resea
rchEd
ucati
onRe
searc
hers
and e
ngine
ers
Availa
bility
of
techn
ologic
al en
trepre
neurs
R&D
expen
diture
Dema
nd fo
r rea
dy-to-
use
techn
ology
% of
comm
ercial
ized
ideas
Availa
bility
of re
ady-
to-co
mmerc
ialize
idea
s
Numb
er of
matur
e inn
ovativ
e co
mpan
ies
head
coun
t of
innova
tive
comp
anies
Total
numb
er of
innova
tive c
ompa
nies
Dema
nd fo
r inn
ovativ
e prod
ucts
Numb
er of
licen
ses
obtai
ned
Amou
nt of
non-
forma
lized
know
-how
Numb
er of
paten
ts
% of
corpo
rate
paten
ts
Privat
e vs.
publi
c ven
ture
inves
tmen
ts
Amou
nt of
publi
c ven
ture
inves
tmen
ts
Ventu
re inv
estm
ent
amou
nt
Labo
r prod
uctiv
ityGlo
bal le
aders
hip in
inn
ovatio
n mark
ets
manu
factur
e of
innova
tive p
roduc
tsEx
port
of inn
ovativ
e pro
ducts
Rese
arch
coop
eratio
nNu
mber
of pa
tent
appli
catio
nsEm
ploym
ent
in R&
DNu
mber
of inn
ovativ
e st
artup
s
Illustr
ation
No. 4
.2. M
ain in
terde
pend
encie
s amo
ng el
emen
ts of
the in
nova
tive p
yrami
dSo
urce:
BCG a
nalys
is
67NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Quali
ty of
resea
rch
Numb
er of
citati
ons
per 1
artic
le 3x
Numb
er of
resea
rch pa
pers
Quali
ty of
resea
rch re
sourc
es
Scien
tific a
nd te
ch. pu
blicat
ions
per US
D 1 of
GDP (
PPP)
3x
R&D e
xpen
diture
effic
iency
Privat
e vs.
publi
c ven
ture i
nvestm
ents
Privat
e RUb
per 1
publi
c RUb
7x
R&D e
xpend
iture
% of
GDP
Numb
er of
licen
ses ob
taine
d
Amou
nt of
non-
forma
lized
know
-how
Numb
er of
paten
t app
licati
ons
PCT p
atent
appli
catio
nspe
r USD
1 of
GDP (
PPP)
29x
Total
numb
er of
paten
ts PC
T pate
nts pe
r US
D 1 of
GDP (
PPP)
R&D e
xpend
iture
in the
publi
c sect
or%
of GD
P0,6
х
Availa
bility
of pr
ivate
finan
cing
Amou
nt of
publi
c ven
ture
inves
tmen
ts%
of GD
P3х
Involv
emen
t in in
ventio
ns
% of
the po
pulat
ion0,5
х
% of
comm
ercial
ized i
deas
% of
inven
tions
pa
tented
by in
dividu
als~9
хAvaila
bility
of
ready-
to-co
mmerc
ialize
ide
as
Reco
gnitio
n of t
he pr
estig
e of
entre
prene
urship
Notes
. Sam
ple co
untrie
s: fin
land,
Germ
any, N
orway,
South
Korea
, Swit
zerlan
d, Un
ited K
ingdo
m, Ne
therla
nds,
Israe
l, Irel
and,
Italy,
Chile
, Aus
tralia
, USA
, Can
ada,
China
�Th
e colo
r cod
ing co
rresp
onds
to th
at of
the Na
tiona
l Rep
ort 20
15, b
ut we
also
use t
he da
rk red
color
to m
ark st
atisti
cal in
dicato
rs wit
h a ga
p of >
5x.
1. Ave
rage i
ndica
tors o
f the 1
5 sam
ple co
untrie
s vs.
Russi
a’s in
dicato
rs (st
atisti
cal an
d mixe
d). Ca
lculat
ed ba
sed on
the d
ata fo
r the l
ast pe
riod a
vailab
le.
Dema
nd fo
r rea
dy-to-
use
techn
ology
Inves
tmen
t in in
tangib
le as
sets
as %
of GD
P7х
Privat
e vs.
publi
c ven
ture
inves
tmen
tsPri
vate R
Ub pe
r 1 pu
blic R
Ub11
х
Ventu
re inv
estm
ent a
moun
t
% of
GDP
8х
Numb
er of
innova
tive s
tartup
s
Per 1
mn o
f the
ab
le-bo
died p
opula
tion
7х
37x
Share
of co
rporat
e pate
nts
% of
the to
tal nu
mber
of PC
T pate
nts
Numb
er of
matur
e inn
ovativ
e com
panie
s%
of ind
ustria
l com
panie
s3x
Total
numb
er of
innova
tive c
ompa
nies
% of
indus
trial c
ompa
nies
3x
manu
factur
e of
innova
tive p
roduc
ts%
of the
outpu
t 1,5
х
Expo
rt of
innova
tive p
roduc
ts
% of
GDP
5x
Produ
ctivit
y of in
novat
ive
comp
anies
Vs. th
e tota
l labo
r prod
uctivit
y1,2
х
head
count
of inn
ovative
comp
anies
Vs. th
e aver
age c
ountr
y-lev
el he
adco
unt o
f com
panie
s 0,3
х
1,8х
Numb
er of
corpo
rate p
atents Corp
orate
critic
al pa
thVe
nture
critic
al pa
thEn
trepr
eneu
rial c
ritica
l path
Sourc
e: Na
tional
Repor
t on I
nnova
tions
in Ru
ssia-2
015, B
CG an
alysis
Russi
a’s ga
p vs.
peer
coun
tries1 ba
sed o
n the
size
of ec
onom
y, N tim
es3x
No nu
meric
al es
timati
on, c
ritica
lity is
base
d on e
xpert
judg
emen
t
Illustr
ation
No. 4
.3. L
ogica
l map
of in
terde
pend
encie
s betw
een i
nnov
ative
syste
m ele
ments
68 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
research centers in big business, as well as external centers that are already working with or could potentially work with business. Researchers need to be encouraged to intensify their search for new technological solutions.
STEP 3: CHOOSING “MAIN ATTACK AVENUE” KPIS After identifying the critical paths, which helped us find the main criterion for KPI selection - importance for achieving goals - we needed to choose those elements that satisfied the remaining requirements and are suit-able for use as KPIs.
For each of the elements on the critical paths, statistical metrics were proposed for measurement purposes. We selected these metrics primarily based on data from IDS or the dashboard. We came up with a list of more than 20 KPIs. Their suitability was evaluated based on the three KPI selection criteria that we discussed at the beginning of the chapter: they should be controllable, measurable and tamper-proof.
Controllable means that the party responsible for the KPI should have control tools that allow them to direct-ly influence the result. The share of ideas that can be commercialized is difficult to control, because there is no responsible party with the necessary tools to control whether private inventors patent their designs.
Measurable implies that statistical data are available from a reliable source. When selecting among sever-al alternatives, we gave preference to those metrics that are measured in the Russian statistics on science and innovation. Statistics on innovation in Russia are in methodological compliance with the generally accepted international standards and are regularly updated. Rus-sian companies’ weak understanding of the methodology has an impact on the quality of statistics, but this can be corrected with additional training, and there is already successful experience in this area2.
Tamper-proof is the most important KPI selection prin-ciple because KPIs are intended to motivate responsible parties to achieve real results, rather than to artificially reach target values by creating the appearance of activity. China can serve as an excellent example here, as it set a KPI on the number of national patents, which led to a sharp spike in the metric because people in the country began patenting intellectual property that was outside the state innovative policy’s focus (for example, tradition-al medicine recipes).
After evaluating each metric using the three criteria, we reduced the list to 10, which can be seen in the table be-low (Illustration No. 4.4), and the number of elements on the critical path to nine, due to the lack of reliably mea-surable metrics for several elements. For example, the “private to state venture ratio” and “number of startups” elements were excluded.
As such, one KPI was proposed for each of the remaining “main attack avenues,” with the exception of “innovative product manufacturing.” We propose leaving two KPIs for this element, both of which are related to the key inno-vative statistic: specific weight of innovative goods and specific weight of innovative technology spending. The
third most important metric in the innovative statistics is specific weight of organizations engaged in innovative activities (also included in the target KPI list). An overall listing of the proposed KPIs can be found in Illustration No. 4.4.
1 World Intellectual Property Organization2 "Overall, the experience in Russian regions where work was car-
ried out to explain to businesses how to correctly fill out the innova-tion surveys is evidence of its effectiveness. After receiving survey forms that were filled out more completely and correctly, these regions saw a one-year increase in innovative product volume and innovation spending of 1.5-2x" – "System of evaluating and moni-toring innovative development in Russian regions", I.M.Bortnikov, et al., "Innovative economy", 2012 (https://www.hse.ru/pubs/share/direct/document/85057531)
69NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Key direction KPIs for the key direction Source Controlla-bility
Measurabil-ity
Impossibility of manipula-
tion
Source of inputs
Export of innovative products
Export of Russian high-tech products, USD NR1 - federal Customs
Service
Manufacture of innovative products
Share of innovative products, operations and services in the total volume of products shipped, opera-tions and services performed, %
NR IDS Rosstat
Share of costs on technological innovation in the total volume of products shipped, operations and services performed, %
- - Rosstat
Total number of innovative companies
Share of innovative organizations in the total number of organizations reviewed, %2
NR IDS Rosstat
Venture investment amount
Total venture investment amount, RUb NR - RVCA
Demand for ready-to-use technology
Ratio of investment in intangible assets to GDP, %3 NR - Rosstat
Total number of patents
Number of patents recieved abroad under the PCT procedure (national phase entries)4
NR5 - WIPO
Number of patent applications
Number of patent applications submitted by residents under the PCT procedure5
NR6 - WIPO
Quality of research
Number of citations per 1 publi-cation of Russian researchers in scientific journals indexed in the Web of Science
- IDS Thomson Reuters
Number of research papers
Share of Russian publications in the total number of scientific publications in the world indexed in the Web of Science, %
- IDS Thomson Reuters
1. Normalized to GDP in the National Report. 2. Corresponds to Rosstat’s indicator “Innovative activity of organizations — share of organizations, which introduced technological, organizational and marketing innovations in the reported year among the total number of organizations reviewed”. The National Report uses the “Share of innovative companies in the total number of industrial companies”. 3. Rosstat’s indicator “Intangible assets” (normalized to GDP) is used. 4. 2b- Grant for PCT national phase entries. Normalized to GDP (PPP) in the National Report. 5. 1b- PCT national phase entries. Normalized to GDP (PPP) in the National Report.
Source: National Innovation Report 2015, Innovative Development Strategy 2020, BCG analysis
Illustration No. 4.4. List of “main attack avenue” KPIs
70 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
After determining the list of CPI areas for the “main attack avenue” it will be necessary to frame the ap-
proach to cascade them to level of responsible parties. This task essentially involves continuation of the work begun under the updated IDS-2020 (as noted above, IDS-2020 proposes cascading five indicators to the re-sponsible parties on a sectoral basis). As is the case in IDS-2020, we refer to Federal Executive Bodies (FEBs) (specifically sector ministries), innovative development institutions (in various legal forms) and state corpora-tions as parties responsible for KPIs.
The following guidelines are suggested when framing KPIs:
1) when developing KPI target indicators for the inno-vation strategy long-term (five years and more) and short-term (from one to five years) planning horizons should be taken into account;
2) when developing target indicators it will be neces-sary to take into account the existing resources of the responsible party and its ability to impact KPIs;
3) responsibility should be assigned for the implemen-tation of measures taking into account the time lags required to fulfil the programs (such responsibility is usually of long-term nature);
4) to reach such long-term target indicators, the fol-lowing conditions will be required to take the follow-ing measures:
a. such target indicators should include dialog - the iterative process of adjusting target indicators, action plans and resources allocated to ensure their alignment;
b. for this purpose, FEBs (state corporation)/devel-opment institutions should be able to adjust the action plan and approve it on an annual basis, thus providing flexibility on a horizon of five years or more in selecting the tools used to reach up-per-level targets;
5) set long-term target indicators by industry/economy as a whole for the 10 selected KPIs, it will be neces-sary to single out the 10 organizations and agencies that make the biggest contribution to their achieve-ment and are capable of working out, proposing and implementing their own action plans:
a. Innovative activity, patenting and technology de-mand – six industry ministries (Ministry of Indus-try and Trade, Ministry or Energy of Russia, the Ministry of Transport of Russia, the Ministry of Agriculture of Russia and state corporations Ro-satom and Roscosmos.
b. Scientific research work – Ministry of Education and Science
c. RVC venture fund;
6) on the short-term horizon, the responsibility of the above-mentioned organizations and agencies for
reaching target industry indicators should depend on where the failure occurred;
a. affiliates/subsidiaries: full and personal responsi-bility of the management of 10 organizations and agencies;
b. private companies: the above-mentioned 10 agencies are responsible for implementation of state policy target goals and making proposals to adjust them if the plan does not reach the target indicators;
c. FEBs affiliated with a state corporation: respon-sibility should lie with the management of these state corporations, while the 10 above-mentioned agencies should likewise be responsible for im-plementation of state policy.
For example, in application of the KPI “Export of Russian high-tech goods” the proposed cascading will look as fol-lows (see Illustration No. 4.5):
1. as for the economy as a whole, the Russian govern-ment is responsible for correctly developing the tar-gets and providing the tools and resources required to meet the targets;
2. at the industry level, KPIs are cascaded to the Min-istry of Industry and Trade as well as Roscosmos. Furthermore, they are responsible in the short term for reaching target indicators for implementation of state policy and identify deviations in target KPI indi-cators. In the long term, the Ministry of Industry and Trade is responsible for reaching target goals
3. at the company level, the Ministry of Industry and Trade as well as state corporations are responsible for reach-ing target indicators for their affiliates. For other areas of industry efforts should be made only to reach target indicators related to implementation of state policy and for monitoring and to identify deviations in target KPI.
Delineation of responsibility for long-term fulfillment of the 10 “main attack avenue” KPIs on an industry basis is shown Illustration No. 4.6.
We shall now see what the decomposition of a quanti-tative industry target for specific state institutions looks like in the above-mentioned structure “Export of Russian high-tech goods” provide an apt illustration of such an indicator1. To do this, we take a number of proposals re-garding their future trends.
As a starting point we take historical data from the Federal Customs Service of Russia. We consider the total volume of high-tech exports from1H 2014 - 1H 2016 as per TN VED codes according to the approved list of codes for high-tech products. We also consider the ratio of the indicator to GDP in current prices.
This relationship is one of the dashboard indicators. Russia currently lags behind the 15 leading innovative countries by about 4x. We use the trends in this rela-tionship to send targets, considering two main options: best-case and baseline scenarios
4.3. CASCADING KPIS
71NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
in the best-case scenario we expect color of the dashboard traffic light to be green. This means that the volume of Russia’s high-tech export products as a percentage of GDP should be at least 75% of the average for comparable coun-tries (in other words, the country average should not exceed that of Russia by more than 1.3x, tak-ing into account growth in the leading countries. in the baseline scenario we set the target for Russia to reach the yellow light on dashboard by 2030. In this case, the volume of Russia’s high-tech exports as a percentage of GDP should reach at least 50% of the average for comparable countries (the country average should not exceed that of Russia by more than 2x, also taking into account growth in the lead-ing countries.
We use the GDP growth forecast provided by the Minis-try of Economic Development.
We expect growth in the proportion of high-tech prod-ucts in GDP vs. comparable countries to increase by 3.3% annually until 2030. This increment is based on the forecasts for absolute growth in high-tech exports – up 9% (according to HSBC data) and GDP growth of 5.5% per year (IMF).
We believe that the proportion of high-tech products split between special-purpose goods (“closed” ex-ports) and civilian products remains stable. Thus, we lock in the 2015 proportions for the entire time period. Likewise, we think that the relationship between indus-tries overseen by the Ministry of Industry and Trade, and products manufactured by Rosatom will remain at the 2015 level.
Based on these proposals, we are able to calculate tar-get indicators and the proper rate of growth. As a result, we found the target value of high-tech exports to be 21.5 trillion rubles under the baseline scenario and 32.3 tril-lion rubles under the best-case scenario in 2030 (see Il-lustration No. 4.7). In order to reach these figures, the average annual growth of exports in absolute terms in 2017-2030 should be 18% under the baseline scenario and 21% under the best-case scenario. These figures look quite ambitious in the current environment, where this indicator is in decline.
It should be noted (principle 4(a) above that the target indicators calculated in this way cannot be placed in front of the responsible parties “as is”. They can only serve as “input” for the iterative W-shaped planning process, which guarantees that the output targets are reachable and underpinned by specific plans, initiatives and re-sources for their achievement. The key steps in this pro-cess are shown in Illustration No. 4.8.
We would like to clarify two key issues at the end of this section which came to light during expert discussions on the preliminary version of this report.
First of all, an important comment was made, the es-sence of which is that the proposed 10 KPIs (macro-level KPIs) cannot be used to set targets and cascade respon-sibilities, at least not in the current system. Targets can and should be set only using KPIs at the instrumental level. It was proposed to create matrix or algorithm to support transition from the 10 macro KPIs to KPIs of the
instrumental level. We agree with this, but only partially. Needless to say, it is important to set instrumental KPIs, and these targets will arise as part of the specific plans and initiatives for reaching macro-level targets. Essen-tially, the proposed W process is also an algorithm which makes it possible to translate macro-level targets into instrumental KPIs. However, we think it is also important to set targets on the macro level, otherwise there is a risk of lapsing into imitation of activity, i.e. of generating inefficient projects and “successful” implementation of targets without actual movement in the right direction.
Second, as regards setting targets on the government level, it was proposed to set targets for Russia’s position in the Global Innovation Index and technological compo-nents of the Global Competitiveness Index. We support this proposal: if a similar target gains sufficient politi-cal support it could actually encourage innovative activity in the same way as a growth target on Doing Business rating nowadays actually determines the agenda for im-proving the investment climate, primarily in the regions.
1 We will measure this indicator as Export of Russian high-tech goods, USD Classification of high-tech products according to Min-istry of Industry and Trade Order No. 1597 dated October 3, 2013
72 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
Other
ind
ustrie
s Sp
ace i
ndus
try
ind.
Nucle
ar ind
ustry
Proce
ssing
indu
stry
Gove
rnme
nt
Priva
te bu
sines
s
Econ
omy
on th
e who
le
1. Or
ganiz
ation
s affil
iated
with
the m
inistr
y of In
dustr
y and
Trad
e outs
ide th
e peri
meter
of Ro
stech
So
urce:
bCG a
nalys
is
The M
inistr
y of
Indus
try
and T
rade
1
WHO
IS RE
SPON
SIBL
E FOR
THE A
CHIEV
EMEN
T OF A
TARG
ET IN
DICA
TOR
LEVE
L
Indus
tries
Vario
us co
mpan
ies
There
are
no hi
gh-te
ch
good
s und
er the
curre
nt cla
ssific
ation
of
the m
inistr
y of
Indus
try an
d Tra
de/fe
deral
Cu
stoms
Servi
ce
KPI c
ould
be se
t whe
n a c
lassif
icatio
n is
worke
d out
USD b
illion
US
D billi
on
USD b
illion
USD b
illion
USD b
illion
USD b
illion
US
D billi
on
USD b
illion
US
D billi
on
USD b
illion
US
D billi
on
Illustr
ation
No. 4
.5. Ca
scad
ing th
e KPI
Expo
rt of
Russ
ian hi
gh-te
ch go
ods
73NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Prop
ortio
n of
innov
ative
go
ods
Numb
er of
inno
vativ
e com
panie
s
Tota
l num
ber o
f pat
ents
Numb
er of
paten
t app
licati
ons
Quali
ty of
rese
arch
Quan
tity o
f res
earc
h
Volum
e of v
entu
re in
vestm
ents
Dema
nd fo
r rea
dy-to
-use
tech
nolog
y
Minis
tryof
Ener
gyMi
nistry
of
Comm
unica
tions
an
d Mas
s Med
ia
Minis
try
of Ag
ricult
ure
Expo
rt of
Russ
ian hi
gh-te
ch go
ods
KPI
Indus
tries
Minis
try
of Tr
ansp
orta
tion
Minis
try of
Educ
ation
Minis
try
of Co
nstru
ction
Prop
ortio
n of
expe
dit. o
n tec
h.inn
ovat
ions
Prod
uctio
n of
innov
ative
pr
oduc
ts
В тек
ущей
клас
сифи
каци
и отсу
тствую
т выс
окотех
ноло
гиче
ские
това
ры
State
Statis
tics
Agen
cy do
es no
t ga
ther in
novat
ion
data
on a
secto
ral
basis
Transp
ortati
onAg
ricult
ure an
d foo
d ind
ustry
ind.
Cons
tructi
on
and u
tilitie
s Te
lecom
and I
CTPo
wer in
dustr
y, oil
and g
as in
dustr
ySp
ace
ind.
Nucle
arind
.Pro
cessi
ng in
dustr
y (av
iation
, auto
motiv
e, etc
.)
Minis
try of
Ind
ustry
an
d Tra
de
Illustr
ation
No. 4
.6. KP
I cas
cadin
g sch
eme f
or res
pons
ible p
arties
So
urce:
BCG a
nalys
is
74 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
0
152535
2027
72%25%
2030
2020
32,3
2016
18,6
3%
10,6
10.6
2024
1.9 2014
Innova
tion e
xport
s — RU
b tn
Innova
tion e
xport
s — RU
b tn
21%
2.72.2
2015
0
1525600
18,5%
203021.5
25%
72%
2016
2027
4.2
3%
2.71.9 2014
8.4
2020
2024
2015
2.2
13.5
01020
2020
2015
2025
2030
х4,1
Innova
tion e
xport
s as %
of GD
P
х2,0
Russi
aPe
er co
untrie
s
01020
2030
2025
2020
2015
х1,3
х4,1
Innova
tion e
xport
s as %
of GD
P
Confi
denti
al da
taRo
satom
minis
try of
Indu
stry a
nd Tr
ade
Aggressive scenario Base case General assumptions
Sourc
e: Ro
sstat,
FCS,
IMF,
UN Co
mtrad
e, HS
BC, B
CG an
alysis
The gr
owth
of hig
h-tech
expo
rts sh
are in
the G
DP
of pee
r cou
ntries
is 3%
p.a.
Use t
he in
puts
of the
fede
ral Cu
stoms
Servi
ce
Use t
he fo
recas
t of t
he m
inistr
y of E
cono
mic D
evelop
ment
Retai
n the
expo
rt pro
portio
n of t
he m
inistr
y of In
dustr
y and
Trad
e / Ro
satom
/ ‘clo
sed’
export
Stead
y narr
owing
of th
e gap
start
ing fro
m 20
17
Russi
a is n
arrow
ing th
e gap
vs.
devel
oped
coun
tries,
from
4.1x t
o 1.3x
(corr
espo
nds
to the
gree
n colo
r of
the tr
affic
lights
on
the d
ashb
oard)
Russi
a is n
arrow
ing th
e gap
vs.
devel
oped
coun
tries,
from
4.1x t
o 2.0x
(corr
espo
nds
to the
yello
w colo
r of
the tr
affic
lights
on
the d
ashb
oard)
OUTC
OMES
ASSU
MPTIO
NS
Illustr
ation
No. 4
.7. Op
tions
for s
etting
deco
mpos
ition t
argets
for t
he in
dicato
r Exp
orts o
f Rus
sian h
igh-te
ch go
ods
75NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Strate
gy So
cial a
nd ec
onom
ic de
velop
ment,
be
nchm
ark an
alysis
, lon
g-term
vision
Gove
rnme
nt/
cons
ultat
ive bo
dy
Indus
try , R
osato
m,
Rosc
omos
, Mini
stry
of Ed
ucati
on an
d Scie
nce
RVC
form
ulatio
n of in
itial
long-
term
targe
t ind
icator
s
Deter
mina
tion o
f gap
, req
uest
for re
worki
ng
of pla
ns, a
djustm
ent
of ini
tial ta
rget in
dicato
rs
final
appro
val of
targe
ts,
actio
n plan
s, an
d all
ocati
on of
reso
urces
monit
oring
the i
mplem
entat
ion
of pla
ns an
d ach
ievem
ent
of tar
get in
dicato
rs
Imple
menta
tion o
f plan
s an
d ach
ievem
ent
of tar
get in
dicato
rs
Revis
ion of
exist
ing pl
ans,
devel
opme
nt of
new p
lans
Rewo
rking
of ac
tion p
lans,
reque
st for
reso
urces
Existi
ng ac
tion p
lans
actio
n plan
s
Illustr
ation
No. 4
.8. W
-proc
ess u
sed i
n sett
ing lo
ng-te
rm ta
rgets
for in
dustr
y orga
nizati
ons a
nd ag
encie
s
76 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
The analysis of practice in setting KPIs and the opin-ions of surveyed experts show that practical imple-
mentation of the model outlined in Section 4.3 may col-lide with a serious problem which can be resolved in the ways addressed below in this section. The problem lies in insufficient control over the achievement of KPI targets on the part of industry ministries.
Industry ministries emphasize three main reasons that could shed a light on such the insufficiency of KPI con-trol. The first problem, above all, is a shortage of re-sources. On the one hand, this can translate into insuf-ficiency of decision-making authority, and on the other hand – into a shortage of organizational resources, such as: projects, infrastructure, financial resources, workforce, which can be simultaneously employed by other agencies. The second problem lies in the limited influence of non-administrative levers, such as: mea-sures applied to private business may only have indirect effect on the industry and KPIs. The third problem is the excessive bureaucratic role of managers in large enter-prises and state corporations.
Let us focus on the most important of the above issues, i.e. the problem of shortage of resources available to industry ministries that are required to achieve their prescribed KPIs. To illustrate the problem, we will use two examples: the first is the example of insufficient en-titlement to make decisions; the second is an example about the shortage of organizational resources.
Insufficiency of decision-making powers implies that, together with the ministry directly supervising the sec-tor, the decision-making process for a wide range of is-sues also involves other government agencies. In such case, the responsibility for achieving KPIs is split and the KPI owner quite often loses its leading role. Thus, when implementing tax breaks or insurance benefits, the industry ministry is limited in its authority to the ex-tent to suggest potential amendments. The right to take a decision is also granted to other state agencies (such as the Ministry of Finance, Federal tax Service, State Duma) (see Illustration No. 4.9).
The shortage of organizational resources can be illus-trated by an example of Smart Grid, which could have become for the Ministry of Industry and Trade an instru-
ment to achieve KPIs set out in IDS-2020 (see Illustra-tion No. 4.10).
The Smart Grid or the Smart Grid for Electricity Supply is an integrated electric energy supply system notable for two key characteristics, namely: (1) application of a method of digital data processing and transmitting through a power grid and (2) connecting distributed en-ergy sources (including renewable sources) to the grid. The Smart Grid collects information on the manufactur-ing process and energy consumption, which allows for adjusting volumes of consumption and redistributing them depending on the existing needs.
Implementation of the Smart Grid entails a number of strong advantages over the traditional electricity supply system.
Automated metering, monitoring and control over energy transmission using smart metering systems, which help to improve metering accuracy and cut losses (including energy theft detection).
Reduced expenses for both suppliers and consum-ers. Using a multitude of distributed energy sources removes the need for expensive backup generators used to carry the peak load. A consumer is also enti-tled to choose tariff differentiation depending on the time of day.
Higher reliability and safety. In case of breakdown, a failing grid segment can be supplied with energy re-located from the neighboring facilities. The system also allows for remote monitoring and is designed to prevent breakdowns.
Two-way communication and inclusion of consumers into the system as energy producers: consumers in possession of their own energy generators may sup-ply such energy to the grid.
IDS-2020 sets for the Ministry of Industry and Trade KPIs for innovative product exports, including as part of such products, power engineering equipment (for ex-ample, smart meters, computer equipment, renewable energy source equipment such as: windmills, solar col-lectors, etc.), where the Ministry of Industry and Trade turns out to be one of the major beneficiaries of such Smart Grid projects given that development of energy
4.4. IMPLEMENTATION ISSUES: SHORT-COMINGS OF THE CURRENT SYSTEM
An example of responsibility split between an industry ministry and the ministry of finance could be the extension of reduced insurance premiums for IT companies. The ministry of Communications and mass media of the Russian federation1 worked out amendments to the Tax Code in order to extend reduced insurance premiums (from 30% to 14%). The ministry of finance for a long time disputed such extension referring to a shortage of budget funds and to this initiative conflicting with the long-term pension system development strategy. The amendments proposed by the ministry of Communications, however, managed to pass to the next level of approval only following the President’s instructions as of may 25, 2016 in which he voiced support for the idea to extend the reduced premiums for IT companies.
Source: Vedomosti lix
Illustration No. 4.9. Example of split responsibility for KPIs
77NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
projects inside the country are crucial for achieving KPI targets set for export of Smart Grid equipment.
The projects that are being implemented in Russia un-der the Smart Grid label do not include the Ministry of Industry and Trade as one of the members in charge, thus creating a gap between the interests of the latter as a beneficiary and the interests of those in charge. Thus, the Ministry of Industry and Trade cannot impact the scaling-up of standards and regulations that are necessary to develop Smart Grid technologies and, re-spectively, equipment manufacturing inside Russia.
For example, a number of2 Smart Grid pilot projects in-volve Russian Grids (ROSSETI) as the executive contrac-tor, while the Ministry of Energy and Reliable and Flex-ible Distribution Grid Consortium (with business and science representatives included) act as co-contrac-tors. And although the Ministry of Industry and Trade
is largely a beneficiary of this initiative, it does not take part in the implementation of such projects.
Since the agenda of pilot project participants does not completely match the agenda of the Ministry of Indus-try and Trade, there is a risk that not all of the targets set for innovative Smart Grid equipment exports will be achieved.
This problem can be illustrated with examples of al-ready completed projects. For example, according to Smart Metering project results in Perm suggested amendments to legal regulatory documents and tech-nical regulations and standards have never been made (see Illustration)
Therefore, within such configuration of project manage-ment and KPI target setting, the Ministry of Industry and Trade cannot be held fully responsible for export KPIs due to the lack of resources to be used as levers to pro-
The Smart Grid or the Smart Grid for Electricity Supply is an integrated electric energy supply system notable for two key characteristics, namely: (1) ap-plication of a method of digital data processing and transmitting through a power grid and (2) connecting distributed energy sources (including renewable sources) to the grid. The Smart Grid collects information on the manufacturing process and energy consumption, which allows for adjusting volumes of consumption and redistributing them depending on the existing needs.
Implementation of the Smart Grid entails a number of strong advantages over the traditional electricity supply system.
Automated metering, monitoring and control over energy transmission using smart metering systems, which help to improve metering accuracy and cut losses (including energy theft detection).
Reduced expenses for both suppliers and consumers. Using a multitude of distributed energy sources removes the need for expensive backup gener-ators used to carry the peak load. A consumer is also entitled to choose tariff differentiation depending on the time of day.
higher reliability and safety. In case of breakdown, a failing grid segment can be supplied with energy relocated from the neighboring facilities. The system also allows for remote monitoring and is designed to prevent breakdowns.
Two-way communication and inclusion of consumers into the system as energy producers: consumers in possession of their own energy generators may supply such energy to the grid.
The Smart Grid has been used abroad for quite a long time already: the concept runs successfully not only in Western countries, but also in China and India. The success of the technology implementation in the USA and EU is driven by a multitude of small and medium generating and supplying companies that tend to use standardized methods of communication and data transmission. In turn, in China the success of the Smart Grid implementation has been underpinned by the following two key factors: detailed regulatory documents and standards and a rapidly expanding hardware and software market.
In Russia, implementation of the Smart Grid is part of a number of state projects and documents, such as: EnergyNet roadmap of the National Technology Initiative (NTI); national project Intellectual Energy Systems, the Energy Strategy of Russia until 2030, Energy Efficiency and Industry Development state program, etc. Some elements of the system have already been launched (such as new relays and smart meters) and now it is only required to make them all work as a whole.
however, at the current stage, Smart Grid implementation is limited to a few pilot projects, such as:
In belgorod, helios automated lighting control system – launched in 2009;
In Perm, a project for installation of smart meters – implemented in 2010-2012;
In Ufa, a project for modernization of the electric grid complex under the Smart Grid initiative – in process since 2013 and partnered by Siemens;
In Kaliningrad, within the framework of EnergyNet, yantarEnergo launched in 2016 a pilot project to implement the Smart Grid system;
Within the framework of EnergyNet roadmap, other pilot projects are to be implemented in order to test different segments of the Smart Grid tech-nology (in Sevastopol, moscow, St. Petersburg, in the Urals, the Volga region, etc.).
Source: “Innovative development of the electric energy sector based on the Smart Grid concept” by B.B. Kobets, I. O. Volkova; “The Smart Grid in Russia; practices and prospects” Information Systems;
“Prospects and challenges of implementing Smart Grid technology in Russia” by B. A. Kunikeev, Engineering Bulletin
Illustration No. 4.10. Smart Grid Project
78 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
The Smart metering System (one of Smart Grid’s components) is an intelligent system for metering energy resources that employs two-way communi-cation meters installed on the consumer’s premises. The system is designed to collect and process grid statistics and aims to help operators predict problems and quickly find accurate grid control solutions.
The pilot Smart metering project was implemented in Perm in 2011-2012 with the direct participation of fGC UES, mRSK Ural and the ministry of Energy under supervision of the Presidential Council for Russia’s Economic modernization and Innovative Development. Within the framework of the project, over 50,000 were installed. The main focus of the project was as follows:
To design, implement and test a standard technical solution for installation of smart meters;
To detect systematic problems and options for their lawful settlement;
To develop and test methods for promoting effective electric energy consumption by end users;
To roll out and scale up the project throughout Russia.
As a result, only a few of the designated targets were achieved. Thus, recommendations were worked out for development and approval by federal agencies of legal regulatory acts aimed at governing the procedure and scope of data on resource consumption and availability of meters, as well as introducing higher tariffs for resources supplied without meters. Additionally, monthly power grid waste was reduced by 3.8 million kWh, off-the-meter consumption was eliminated and electricity supply volumes were measured based on actual consumption readings (vs. approved standards).
however, the key goal, namely rolling out and scaling up the project throughout Russia, has yet to be achieved. During project implementation, a number of problems were detected that hinder the expansion of Smart metering technology in Russia. The first reason is a lack of applicable technical standards, such as the lack of standard requirements for the last generation meters, lack of uniform data transfer protocols for meter manufacturers, lack of uniform federal system for a site or equipment identification within an information model. The second reason includes such regulatory gaps as: lack of legally established requirements for the system of fiscal electricity metering systems, irrelevance of data from the meters installed under the project in forecasting and estimating purposes, lack of legally established obligation of a grid company to install meters, inability to install smart meters at all sites with no exception in view of the restrictions envisaged under federal Law No. 261 “On Energy Efficiency”, according to which no new generation meters can be installed other than by the decision of the end user.
Source: Smart Metering project implementation results of MRSK Ural, Calculate-Save-Pay Project, Smart Metering Project– smartmetering.ru, “Smart Metering as part of the Smart Grid Concept” by I.M. Nesterov
Illustration No. 4.11. Smart Metering project
mote exports, i.e. to stimulate development of technol-ogies inside the country.
The issue of insufficient oversight of all available levers by the agency in charge of achieving KPIs should be re-solved for the purpose of optimization the organization-al structure of governing bodies. The next section aims to outline possible ways and means to achieve such op-timization based on the experience of other countries.
1 Hereinafter referred to as the Ministry of Communications and Mass Media
2 Shown as part of the roadmap of Energynet NTI
79NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
What is international best practice? By analyzing in-ternational best practice, we found three models -
they are briefly described in Illustration No. 4.12.
The first model is creating a strong industry ministry, i.e., consolidating sufficient resources in the industry executive body to manage and develop the entire indus-try. One successful example that demonstrates this ap-proach is Norway, where increasing the existing industry ministry’s authority facilitated the achievement of real results in developing the oil and gas industry (see Illus-tration No. 4.13). For example, the industry had a long-term goal of enhancing oil recovery from 46% to 68%, and the 60% threshold has already been passed.
It would have been difficult to achieve this result with the Ministry of Oil and Energy’s resources limited. However, it has a wide range of levers to directly influence the in-dustry. The most important lever is ownership of stakes in the largest state companies. Additionally, the Ministry issues licenses, regulates production taxes, as well as approves and has the ability to amend annual production and R&D plans.
This approach directly solves the main problem that is typical for industry ministries in many other countries, including Russia - a lack of resources to achieve KPIs - because the resources and management levers are con-centrated in a single industry ministry.
Creation of a special organizational structure for the task - a fundamentally different approach enabling the consolidation of the resources necessary to influence the industry. The government is flexible regarding the organizational structures in its agencies and can alter them in order to focus on solving top-priority tasks. The best example if this approach is the UK, where it has been applied at the level of individual industries as well as the broader economy. The Oil & Gas Authority (OGA) was formed to address a crisis in the oil and gas sector. Three main areas fall under its functional management: regulation, encouraging stakeholder collaboration, and promotion. The regulatory mandate is a key aspect of its success: the OGA issues licenses, meets with operators, resolves conflict, and can impose sanctions (see Illustra-tion No. 4.14).
4.5. HOW TO SET ACHIEVABLE TARGETS? GLOBAL EXPERIENCE
Illustration No. 4.12. Three international models for managing priority government tasks
Norway: strong industry ministry
United Kingdom: task-oriented structure
Malaysia: project approach
Resp
onsib
ility • Industry ministry
– ministry of Petroleum & Energy
• New structure
– Oil & Gas Authority
– Dept for business, Energy & Industrial Strategy
• Responsible ministry
– KeTThA1
– ministry of higher Education
KPI
• Growth of the average oil recovery index from 46% to 68%
• Increase in the volume of proven reserves to 5 bn barrels2 by 2015
• Reduction of the average OPEx per barrel by 30% by 2019
• Increase in the production by 250 mn bbl by 2021
• Amount of foreign investments in oil-field service industry, 6 JVs created by 2014
Key t
ool
• management of SOEs through boD/Super-visory board
• Concentration of state regulation tools required for the task
• Project management office reporting to Prime minister
– A roadmap to achieve KPIs
– Implementation tracking
– Impact on ministers’ careers
1 ministry of Energy, Green Technology and Water. 3. mn bOE
Source: Oil & Gas Authority, UK Government, Wood's report, PEMANDU, ETP Program, E. Lesley 2014, Norwegian Ministry of Petroleum and Energy, Norwegian Petroleum Directorate, Norwegian Office of the Auditor General, Norwegian Act 29 Nov.1996 No. 72 relating to petroleum activities and Regulations to Act relating to petroleum activities
80 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
In the UK, it is possible to create a special structure not only at the industry level, but also for the broad-er economy. For example, in July 2016 the Department for Business, Energy and Industrial Strategy was creat-ed to replace the Department for Business, Innovation and Competence. The organizational change came in response to changed economic policy priorities and the need to address the economic development issues that were most acute at the moment: in this case, industrial policy.
The ability to change the organizational structures of state agencies makes the management system flexible and capable of adapting relatively quickly to changing conditions. Giving structures the necessary mandate al-lows them to overcome the lack of resources that face industry ministries.
The third model for giving stakeholders access to the nec-essary resources is creating a project office. In recent years, the government management sphere has seen widespread adoption of the Delivery Units model, i.e., specially created supra-agency organizational units that promote the leadership’s agenda using a project model. This approach has been applied in the UK, Australia and Malaysia. One of the most successful examples of Delivery Units is Malaysia’s PEMANDU6 (see Illustration No. 4.15).
There are three main drivers of the PEMANDU project model’s success.
(1) First, the transformation program has a single own-er with broad powers (PEMANDU). It sets the ideol-ogy and project plans, coordinates roadmap and KPI development, facilitates cross-functional coordina-tion, and performs the work of the project offices.
Strong industry ministry as a pillar of Norway’s oil and gas industry developmentfrom the very beginning of oil production on the Norwegian shelf, the state has played a key role in the industry’s development. The Norwegian ministry of Oil and Energy has been responsible for maximizing value from production. It has every possible mechanism for achieving the tasks set before it.
first, the ministry creates the legal framework for the industry’s development, distributes production licenses (and has the authority to revoke licenses), and even has the right to amend companies’ production plans for oil fields, for example to change the production technology or replace foreign suppliers with domestic ones1. A notable example is the introduction of a mandatory requirement to localize at least 50% of R&D as a condition for receiving a production license.
Second, the ministry controls a stake in Statoil, Norway’s largest oil producer. Thus, it has direct levers to influence the company’s development strategy and can promote the necessary agenda.
Third, the Norwegian Petroleum Directorate, which is part of the ministry, is one of the oil and gas industry’s main investors in scientific research. The ministry finances large programs like DEmO 2000 and PETROmAKS/PETROmAKS 22.
Source: Ministry of Oil and Energy data, OG21 oil and gas sector development strategy, management report from the chief auditor of the Government of Norwaylx
A new structure for a new task: the British approachAs a result of the sharp decline in oil prices in 2014, oil and gas production from the UK shelf decreased. To address this issue, the government spun off the Oil & Gas Authority – a state company acting as an independent industry regulator – from the Department of Energy and Climate Change3.
The OGA’s role encompasses three main areas aimed at improving the efficiency of oil and gas production from the shelf. first, the OGA regulates the exploration and development of oil and gas fields on the shelf and along the coast. Second, the OGA plays an important role in fostering a culture of cooperation and collaboration among industry players, as well as in reducing production costs. The Authority works with all stakeholders: representatives from industry, government, trade associations, universities, etc. Third, the OGA promotes investment growth (primarily via reduced tax rates), increased export, and distribution system development.
The OGA was assigned broad powers to ensure that it could do the job. for example, it can impose fines of up to GbP 1 million, and in special cases up to GbP 5 million with the potential for exploration license revocation. The OGA also has the right to attend all significant company meetings and has access to all necessary company data.
Immediately after being spun off as an independent regulator, the OGA determined the critically important projects and areas for further development4, distributing their implementation along a three-year horizon through 2018. Going forward, as part of the 2021 development strategy5, it defined specific KPIs for each area, for example increasing production efficiency to 80%, reducing OPEx to 30%, and boosting production to 250 million barrels.
Source: UK Oil & Gas Authority reports and documentslxi
Illustration No. 4.13. Norwegian Ministry of Oil and Energy
Illustration No. 4.14. UK Oil & Gas Authority
81NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
PEMANDU - a vital tool in Malaysia’s transformationPEmANDU is an organization tasked with managing the results of malaysia’s transformation program. It was created at the initiative of malaysia’s new Prime minister, Najib Razak, who entered office in April 2009 and set ambitious goals to transform the country. The program’s goals are for malaysia to reach high-income status7 by 2020, i.e., to double gross national income per capita.
In September 2009, Najib Razak announced the creation of PEmANDU and appointed as its director Idris Jala, former head of Shell malaysia and malaysia Airlines.
PEmANDU is implementing the country’s transformation via two key programs:
Government Transformation Programme (GTP). The program’s main task is to improve the quality of life and make government management more effi-cient, including by drawing on private sector experience. The program includes seven National Key Results Areas (NKRAs), from improving the quality of life to reducing corruption.
Economy Transformation Programme (ETP). The program’s main task is to reach 6% annual economic growth (by 2020). ETP consists of two inseparable elements broken down into eight strategic reform initiatives and 12 National Key Economic Areas (NKEAs). The 12 NKEAs are essentially the drivers of the economy: “Oil, gas and energy,” “Palm oil,” “financial services,” “Tourism,” “Professional services,” “Electronics,” “Wholesale and retail trade,” “Education,” “Information and communications technology and infrastructure,” “Agriculture,” and “Kuala Lumpur - Klang Valley.” A total of 131 projects have been launched in these 12 NKEAs, and more than 60 promising projects have been identified for possible future implementation.
The effectiveness of PEmANDU’s project principle has already been proven by both programs:
GTP has helped significantly reduce crime rates (35%), make progress in the fight against corruption, and improve infrastructure and the quality of life in rural areas.
ETP’s overall annual KPI score exceeds 100%. In the four years from 2010 to 2014, 1.5 million new jobs were created, dependence on the oil and gas industry was reduced from 40.3% to 29.7%, and GDP growth reached 6% in 2014
Source: PEMANDU roadmap and annual reports
Illustration No. 4.15. Malaysia’s PEMANDU
(2) Second, the roadmaps are studied in great depth with clear goals, objectives, and delineation of re-sponsibility: the depth of the detail extends to the level of weekly planning, which ensures transparent and efficient implementation monitoring.
(3) Third, the existing model makes it possible to solve cross-functional problems at four levels: project taskforce, project office (PEMANDU), Steering Com-mittee, Prime Minister.
After discussing these three models with experts, we concluded that the first two models do not meet Rus-sia’s innovative development goals, though the project approach could become a real enabler for reaching that goal. Increasing the authority of industry ministries is essentially an analogue of creating state-owned com-panies: it does not correspond to the country’s current development stage. In Russia’s case, creating a structure for the task with a mandate to foster innovative develop-ment in the country would imply setting up a “ministry of innovation.” This would be difficult to implement because its mandate would conflict with those of the industry ministries.
However, forming a strong project office is a model that, with the correct approach and project structure, delinea-tion of responsibility and granting project stakeholders the necessary powers, could provide real results. Let’s take a closer look at Malaysia, where the current proj-ect office organizational model helps facilitate effective cross-functional collaboration and gives stakeholders access to the necessary tools and resources.
PROJECT OFFICE ORGANIZATION BEST PRACTICES: PEMANDU ANALYSISPEMANDU is formally accountable to the prime minister and is split into two structural units responsible for ETP and GTP, respectively. ETP is the most relevant: innova-tive development is one area of economic development.
A key differentiator of PEMANDU’s work is that the project work is organized in two levels. First, the Econ-omy Transformation Programme itself is essentially a megaproject that is managed by PEMANDU and the prime minister. The program is structured around 12 NKEAs, i.e., top-level projects. From there, an autono-mous project management system is formed within each of these areas. Each area has its own Steering Commit-tee and project office (PEMANDU uses the term Delivery Management Office), which coordinate the lower level projects (Entry Point Projects, or EPPs). Entry Point Proj-ects are organized as a taskforce with a single person responsible for project deliverables.
The prime minister serves as the chairman of PEMAN-DU’s board of directors. He evaluates the results of min-isters’ work in implementing key areas of the transfor-mation program for the period.
The PEMANDU director is appointed directly by the prime minister and is a cabinet member. He has a man-date to evaluate the activities of ministers responsible for implementing areas of the program jointly with the prime minister. The PEMANDU director takes part in “six eye” meetings: closed meetings of a minister, the prime min-
82 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
ister and the PEMANDU director to discuss work results. The director also monitors program implementation weekly using operational KPIs.
PEMANDU Economic Transformation Program Units (ETP Units) are comprised of teams formed around key NKEAs that work on an ongoing basis. PEMANDU’s pri-mary task is to coordinate all processes of the project work and act as a liason with the prime minister. During the program launch and structuring phase, PEMANDU staff are responsible for organizing work to select the main areas and project, in particular for organizing road-map development “laboratories” with the best minds from the public sector, business and communities of expertise for daily collaboration on the roadmaps over a period of 6-8 weeks.
PEMANDU staff play the leading role in the work of each area’s Delivery Management Office (DMO) from the perspective of cross-functional coordination and opera-tional support. The DMO requests information about the current status, prepares standard KPI reports, identifies problem areas, prepares and structures questions for submission to the taskforce. Metrics and key events from all projects are uploaded weekly to a high-level database that the cabinet of ministers has access to. Additional-ly, the DMO prepares a consolidated report for the area, as well as key questions for submission to the Steering Committee. PEMANDU staff can become involved in the course of the project where necessary in order to ad-dress cross-functional issues. In particular, in the event that any government structures do not wish to assist with project implementation, PEMANDU can suggest that they change their position, basing their recommendation on the project’s priority in the prime minister’s agenda.
The Steering Committee consists of key stakehold-ers from various ministries and government agencies, as well as business leaders. The Steering Committee makes strategic decisions about the course of project implementation, e.g., the need to reallocate resources, include or exclude projects from the area. The Steering Committee chairman is a minister from a relevant agen-cy responsible for implementing an area. The chairman is responsible for overall KPI achievement on projects within their area.
The organization coordinator is directly responsible for project implementation, and in most cases this should be a representative of business, not government. The EPP taskforce also includes other co-executives: stakehold-ers from government agencies and other companies.
It is important to highlight that when launching the pro-gram, all government stakeholders publicly pledge to use all available resources to achieve the established goals, which facilitates cross-functional communication. As noted earlier, cross-functional tasks are solved at four levels. Problems that cannot be solved at a lower level are escalated to a higher level. The escalation continues until the problem has been solved. Examples of how this mechanism works can be seen in Illustration No. 4.16.
One of the key success drivers of project-based PEMAN-DU’s approach is the elaboration of a step-by-step road-map implementation plan that includes key project mile-stones and KPIs. Projects and KPIs are formed based on
their contribution to the high-level program goal, which creates a transparent link between activities and top-lev-el goals. This feedback facilitates identifying and reacting to the causes for failure to achieve the established goals in a timely manner.
KPI development begins with setting the initial goal of annual gross national income (GNI) growth of 6% from 2010 to 2020. The choice of NKEAs is determined by the size of the industry, as well as its forecast GNI contribu-tion and job creation on a 10-year horizon. Within each area, the projects being considered are also evaluated based on their impact on GNI and job creation, as well as on the efficiency of state investment in the project. An ex-ample of the effect that the “Wholesale and retail trade” NKEA had on GNI can be seen in Illustration No. 4.17.
For each NKEA, operational KPIs and milestones are set during the roadmap "laboratory" phase for the ini-tial period that are drivers for the resulting metrics: GNI and job creation. Thus, the “Wholesale and retail trade” NKEA’s operational KPIs for the initial period of program implementation were:
Modernizing 100 small retailers via the TUKAR pro-gram8;
Creating five hypermarkets and 13 supermarkets;
Canceling import duties on select retail products.
Goals for the next period are established depending on the level of achievement of operational KPIs for the peri-od and the roadmap. This cycle of setting goals and eval-uating results repeats going forward.
1 Act 29 November 1996 No. 72 relating to petroleum activities, Reg-ulations to Act relating to petroleum activities
2 These programs are described in detail in previous sections3 Department of Energy and Climate Change4 Published in the report "Call to action: Six months on"5 OGA corporate plan 2016-20216 Performance management and delivery unit7 According to World Bank classifications8 TUKAR – Small Retailer Transformation Program
83NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Illustr
ation
No 4.
16. P
EMAN
DU or
ganiz
ation
al str
uctur
e and
prob
lem es
calat
ion m
echa
nism
Sourc
e: Ma
laysia
n Econ
omy T
ransfo
rmati
on Pr
ogram
me ro
admap;
Worl
d Ban
k repo
rt “Do
ing, L
earnin
g Bein
g: So
me Le
s-son
s Lear
ned fro
m Ma
laysia
"
1
Exam
ple: H
ealth
care
PMO
Prim
e Mini
ster
CEO P
EMAN
DU1
PEMA
NDU
Expo
rt of
gene
rics
Area
1 —
Healt
hcar
eAr
ea 2
—En
ergy
Area
12 —
Grea
ter Ku
ala Lu
mpur
area
...
Medic
al / b
ioclus
ter
Stee
ring C
ommi
ttee
Inquis
ition
Thro
ugh P
EMAN
DU
In a t
eam
Othe
r pro
jects
4 lev
els of
coor
dinat
ion am
ong a
genc
ies
Key s
ource
of in
fluen
ce —
the
man
date
to as
sess
the pe
rform
ance
of
minis
ters
• Pr
oject
coor
dinat
or —
M
inistr
y of H
ealth
• mi
nistry
of In
terna
tiona
l Trad
e a
nd In
dustr
y•
Exter
nal T
rade D
evelop
ment
Corpo
ration
• Inv
estm
ent D
evelop
ment
Autho
rity (m
IDA)
• Co
mpan
ies: b
iocon
, hovi
d, Ra
nbaxy
, etc.
• Pr
oject
coor
dinat
or —
U
M Ho
lding
s•
...•
...•
minis
try of
Defen
se•
Unive
rsity
of ma
laya
• mi
nistry
of he
alth
• Ec
onom
ic Pla
nning
Unit
• ...
• In
2013
, there
was 1
mee
ting a
nd 18
issu
es on
the a
gend
a (wit
hin al
l area
s)•
A day
befor
e the
mee
ting t
he nu
mber
of iss
ues h
ad dr
oppe
d to 6
due
to the
last-
minu
te ag
reeme
nt of
the m
inistr
ies
• Th
e exp
ort KP
I with
in the
healt
hcare
area
was n
ot ac
hieved
due t
o the
prote
ction
ist
regula
tion o
f Indo
nesia
, the k
ey exp
ort m
arket.
The
expo
rt ba
rriers
were
remove
d by
using
diplo
matic
chan
nels
(mini
stry o
f fore
ign Af
fairs,
Exter
nal T
rade D
evelop
ment
Corpo
ration
— m
ATRA
DE)
• If t
here
is a p
roven
lack
of pr
oject
imple
menta
tion r
esou
rces,
PEmA
NDU c
an as
k the
mala
ysian
Inves
tmen
t Deve
lopme
nt Au
thority
(mIDA
) for f
inanc
ing ab
ove th
e plan
• Wh
en co
opera
tives
of sm
all fa
rmers
were
being
crea
ted (a
Palm
Oil p
rojec
t) the
tonn
age K
PI dro
pped
by 4.
5x du
e to t
he la
ck of
worki
ng ca
pital
in co
opera
tives
an
d farm
ers we
re rel
uctan
t to j
oin as
they
need
ed ca
sh. T
he te
am an
d loc
al ba
nks
agree
d on o
verdra
ft for
coop
erativ
es.
• Mi
nistry
of He
alth
• mi
nistry
of De
fense
• mi
nistry
of In
terna
tiona
l T
rade a
nd In
dustr
y•
busin
ess
• ...
11
1
12
3
44
1 Perfo
rman
ce m
anag
emen
t and
deliv
ery un
it2 Ec
onom
ic tra
nsfor
matio
n prog
ramme
3 De
livery
man
agem
ent o
ffice
DMO
3
• PEM
ANDU
•
minis
try of
healt
h
2
Thro
ugh S
teerC
o
3
84 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
0
50
100
150
200
57.2
107.822.2
45.2
40.42.19.9
165.0
Contribution to GNI by 2020 (myR bn)
4.124.3
modernizationprojects
Globalizationprojects
Innovationprojects
Confidential projects1
Total startup projects
business opportunities and growth vs. baseline
multiplier Total contribution
to GNI
GNI in 2009 GNI in 2020
Illustration No. 4.17 Components determining target GNI change
Source: Malaysian Economy Transformation Program roadmap
85NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Now that we have reviewed global experience in or-ganizing national innovative projects, we will turn
to Russia to look at how this knowledge might be most effectively applied in the country. Directly copying the mechanisms that have been successful in other coun-tries is unlikely to replicate their effectiveness, because we are not starting from scratch: we already have an in-novative policy organizational structure in place and have accumulated plenty of our own experience - both positive and negative - of implementing similar initiatives.
Generalizing the examples given above, we see two op-tions for setting up an innovative development project office in the country:
(1) as a “light project office” or organizational super-structure over the existing structures and initiatives, i.e., a kind of integrator of disparate projects and stakeholders, on one hand, and innovative develop-ment goals, on the other;
(2) as a “full project office” developing a new innovative project and providing a mechanism to implement is at interface with existing initiatives.
We describe these two options below. Note, however, that this report is not trying to decide which of the existing agencies and government bodies could play the roles outlined below (“higher consultative body” and “project office”). These questions should be addressed in the course of introducing the options presented below.
The first option is to create an organizational super-structure over the existing system that would play the role of coordinator for end-to-end KPI and project in-tegration. This organizational unit would essentially be a “light” project office whose task would be to ensure that the dozen “main attack avenue” KPIs are reached by monitoring the implementation of existing initiatives (acting as a “smart filter,” i.e., an open-minded and qual-ified evaluator of initiatives) and developing precise new initiatives where needed. The organizational implemen-tation mechanism used in this approach and stakeholder roles can be found in Illustration No. 4.18.
The mechanism for developing and approving initiatives includes several stages. The initial goals are formulat-ed by the project office itself (top-down approach). The project office then gathers information from responsi-ble ministries regarding existing measures and initia-tives that could contribute to reaching the established KPI goals. It analyzes whether the existing initiatives are sufficient to achieve the established goals, i.e., it essen-tially conducts a review of existing initiatives. If they are insufficient to achieve the KPIs, the current target values could be adjusted, or new measures could be developed. This brings the approved KPI target values into compli-ance with the measures being implemented.
In this case, it is important to note that the ministries themselves develop the new initiatives and implemen-
tation mechanisms, i.e., the project office does not get involved in the roadmap development process.
After the KPI targets have been approved, the project of-fice is responsible for regular monitoring: it updates the status of goal achievement quarterly, both overall and for each individual activity. As needed, the project office can demand that corrective measures be developed, and in the event of a systematic failure to reach the established goals, can escalate problems to a higher consultative body.
The second option is to form a “full” project office that is responsible for implementing innovative development projects and achieving the “main attack avenue” KPI tar-gets. Unlike the first option, a full project office is directly responsible for developing and implementing an entirely new project, i.e., it is essentially the project owner. The working mechanism in this option is shown in Illustration No. 4.19.
Goals are set by developing the overall project roadmap. The project office is responsible for coordinating road-map development, and must attract a wide range of stakeholders for this work: organizations responsible for implementing subprojects, including representatives of business, industry ministries and the community of ex-pertise. Parts of existing initiatives can also be integrated into the new project: integration methods should be dis-cussed at this stage. Key KPI targets and the subproject management structure, including Steering Committee membership, are also formed during roadmap develop-ment.
Note that there are two levels of project office staff in-volvement: first, at the overall project level, and second, at the subproject level. The project office’s primary role is coordinating and constantly monitoring project imple-mentation progress, with instructive support where nec-essary. The project office monitors subproject milestone progress weekly and helps develop corrective measures. In the event of a systematic failure to reach the estab-lished goals, the project office can escalate problems to the higher consultative body.
As part of the second option, we suggest structuring the project as follows: eight industry subprojects and two functional subprojects. Industry subprojects include in-novative development of the manufacturing industry, nuclear industry, aerospace industry, energy, oil and gas industry, telecommunications and ICT, construction and utilities, agriculture and food industry, and transport. The respective industry ministries will be the subproject owners. Functional subprojects include science and ed-ucation (owner: Ministry of Science and Education) and the venture market (owner: RVC).
The industry subprojects will have seven “main attack av-enue” KPIs: demand for ready-to-use technology, num-ber of patent applications, total number of patents, num-
4.6. PROJECT OFFICE: ORGANIZATIONAL OPTIONS
86 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
Illustration No. 4.18. Option 1 - “light” project officeSource: BCG analysis
Higher consultative body
SmartGrid
• Rosseti• ministry of Energy,
region, suppliers
…Ministry of Energy Ministry of Industry and Trade
Initiative
1
3
5
5
7
• Owner• Co-owners
1 • Sets preliminary KPI targets top-downReviews the existing initiatives of ministries and their contribution to target achievement, defines the gap•
2 • Instructs ministries to develop initiatives in order to bridge gaps• Proposes engagement of previously unengaged beneficiaries / resource holders in existing initiatives
3 • Develops new initiatives• fine-tunes the management system for existing initiatives
4 • Reviews the developed initiatives, sets final targets
5 • Directly implements the measures of the roadmap on a daily basis
6• Tracks the status of initiatives and target achievement on a quarterly basis
(in total and contribution of individual projects)• Requests development of corrective measures, escalates issues to the higher consultative body
7
• Reviews reports of ministries and the PmO (on a quarterly basis)Each ministry — once or twice a year; ‘lagging’ ministries — as required
• Determines consequences for target achievement / non-achievement• makes decisions on modifying targets and roadmaps, allocating resources to ‘own’ initiatives or gives similar
recommendations to other project owners
PMO
2
4
6
87NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Illustration No. 4.19. Option 2 - “full” project officeSource: BCG analysis
Higher consultative body
1
• Defines the program structure and the SteerCo setup• Develops roadmaps with the participation of federal executive
bodies, SOEs and the private sector• Sets KPI targets linked to specific projects• Defines coordination with existing initiatives:
include in roadmaps, cooperate, ignore
5• Reviews reports of the teams and the PmO on initiative status
(every 1–2 months on each initiative)• Allocates resources, rewards/punishes for results
6
• Tracks the status of individual projects (every week/month)• Tracks the achievement of end-to-end KPI targets• Gives a second opinion to the higher consultative body• Escalates issues with government bodies
7
• Reviews reports of ministries and the PmO (on a quarterly basis)Each subproject — once or twice a year; projects with problems — as required
• Determines consequences for target achievement/non-achievement• makes decisions on modifying targets and roadmaps,
allocating resources
2
3
4
• Approves the program structure, roadmaps and the SteerCo setup
• Directly implements the measures of the roadmap on a daily basis
• Tracks the status of milestones every week• Gives a second opinion to the SteerCo• Submits information to the head PmO
1
7
PMO
Subproject SteerCo
• Ministry of Energy,• ministry of Industry and Trade,
regions, Rosseti SOEsPrivate sector
• •
SmartGrid
• Rosseti • ministry of Energy,
region, suppliers
Initiative
• Owner• Co-owners
Subproject SteerCo
• Ministry of Industry and Trade• Engaged government bodies, SOEs
Private sector•
Subproject PMOSubproject PMO
Energy subproject Manufacturing Industry subproject
1
4
3
6
5
88 4. yOU CAN'T mANAGE WhAT yOU DON'T mEASURE: hOW TO SET AND AChIEVE TARGETS
ber of innovative companies, share of innovative goods, share of innovative technology spending, and Export of Russian high-tech goods. The KPI for the “Science and Education” subproject will be the quantity and quality of research papers, while that for the “Venture Market” subproject will be the venture investment volume. This system essentially copies the KPI cascading scheme (see Illustration No. 4.7), which is not surprising, given that the project structure is chosen so as to give the responsi-ble ministers a mechanism to achieve the targets for the “main attack avenue” KPIs that they have been assigned.
Each of the two options has its own strengths and weak-nesses, which ultimately boil down to the need to account for existing structures and initiatives. The strengths of the first option (superstructure) are:
it ensures that goals are compliant with the initiatives designed to achieve them without leading to a conflict of “old vs. new,” and without sparking an unproductive bureaucratic battle;
it gives the KPI owner a mechanism to attract the re-quired resources and counterparts (including from government organizations, state-owned companies, private business, etc.) that they lacked before in the absence of a high-level coordinating body;
it acts as a “smart filter” for existing initiatives, giv-ing and open-minded and qualified second opinion regarding their viability, which helps increase budget spending efficiency.
However, the first option also has its weaknesses:
the existing initiatives do not have a common owner (e.g., they could be curated by various committees or the president), which complicates the project office’s escalation mechanism and could potentially lead to conflict;
there is the possibility of conflicting goals between the “main attack avenue” and the original priorities of the existing initiatives, which could hinder their im-plementation.
The second option (full project office) has mostly the same strengths:
it ensures alignment between the goals and initiatives designed to achieve them, because potentially con-flicting initiatives and structures are only taken into account if they can be of use to the new project;
to the same extent as for the first option, it gives KPI owners a mechanism to attract the resources and counterparts that they need;
it allows relatively ineffective existing initiatives to be replaced with new ones that have been developed in line with best practice.
The second option’s weaknesses are:
unclear potential integration of the new programs and project offices with the existing initiatives and struc-tures, and potential difficulty interfacing with them;
the danger of competing with existing programs (NTI, state programs, and industry ministry projects).
Choosing one of the two options should account for not
only each of their strengths and weaknesses, but first and foremost should also be based on the established objectives, level of ambition, available government re-sources and specific economic conditions at the decision time; that is why this report does not give a priori prefer-ence to either of them, instead leaving room for a deeper analysis of the optimal structure.
We also note that regardless of the project office model that is chosen, implementing innovative projects requires efficient work with all stakeholder groups in the process: government bodies, state corporations and companies, development institutes, and private business. Stake-holders need to be involved both directly (via government bodies) and indirectly, through the positions of high-level federal executive authorities, directives from the Federal Agency for State Property Management, or by entering the initiative roadmaps.
89NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
A1APPENDIX 1. DAShbOARD mEThODOLOGICAL UPDATE: hARmONIZATION WITh IDS-2020
90
This Appendix aims to update dashboard indicators in compliance with IDS-2020 target indicators in order
to harmonize the two instruments and ensure consisten-cy of the findings resulting from the adjusted indicators. Total alignment of the indicators is not possible and is not required given that they are underpinned by different selection and calculation principles.
Dashboard indicators are designed to estimate Russia’s position compared to the target list of leading innovation countries. Therefore, the dashboard only includes the in-dicators that are updated on a regular basis by such in-ternational organizations as the OECD, World Bank, etc.
On the other hand, IDS-2020 indicators are primarily in-tended to set KPIs for state agencies in charge of inno-vation policy within their sectors, which is why there is no requirement for the IDS-2020 indicators to be inter-nationally consistent, since their main focus should be on the measurability, responsiveness and unambiguity of each of them.
As a result, the two sets of indicators constitute inter-secting, but not coinciding, aggregates:
Both documents contain identical indicators (or indi-cators with a slight difference in methodologies and/or data sources), although there are only a few of them – in this case no adjustment is required, although up-date of methodology or data source in any one of the documents is acceptable.
There are also similar indicators, i.e. those reflecting the same information but formulated otherwise or calculated by different methodologies. In this case, we will try to replace the indicator in the dashboard if there are any comparable data available on leading innovation countries.
Some of the indicators are represented in IDS-2020 but not included in the dashboard. In this case, we make a decision whether to include an indicator in the dash-board on an individual basis taking into account its conformity with certain criteria (such as applicability to leading countries, frequency, availability of statistical data, etc.)
Some of the indicators, on the contrary, were included in the dashboard but not in IDS-2020. In this case, no adjustment is required given that the update of the IDS-2020 indicators falls beyond the scope of this report.
Illustration No. A.1. reviews these groups of indicators and reflects our recommendations above. We suggest adding three IDS-2020 indicators to the dashboard, which will help us to increase the number of indicators applicable to both instruments from five to eight.
Below is a description of the three added indicators:
Education spending – yellow traffic light in the dash-board-2016, stable dynamics. It is important to note that this indicator includes total expenditures for ed-ucation. Provided that the 2015 dashboard had a simi-larly entitled indicator which, however, was calculated based on education expenditures incurred solely by the state we suggest renaming the latter “State education expenditures”, while the newly introduced indicator will remain “Education expenditures”.
Salary to teachers – a green traffic light in the dash-board, stable dynamics.
E-government development – yellow traffic light, neg-ative dynamics.
Detailed comparison tables for the dashboard indicators and IDS-2020 target indicators are shown in Illustration No. A.2.
APPENDIx 1. DAShbOARD mEThODOLOGICAL UPDATE: hARmONIZATION WITh IDS-2020
91NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
Illustr
ation
No. A
.1. Ha
rmon
izatio
n of d
ashb
oard
indica
tors w
ith ID
S-20
20 ta
rget in
dicato
rsSo
urce:
BCG a
nalys
is
NR in
dicat
ors
IDS i
ndica
tors
Prop
osals
on ha
rmon
izatio
n
Ident
ical In
dicat
ors
5ind
icator
s5
indica
tors
• No
actio
ns re
quire
d- 5
indic
ators
are co
mplet
ely id
entic
al
Simila
r Ind
icato
rs9
indica
tors
9ind
icator
s
• Ke
ep th
e NR m
ethod
ology
for 9
NR in
di-ca
tors t
o ens
ure co
mpara
bility
with
other
coun
tries
Indica
tors
exist
ing in
the I
DS, b
ut
miss
ing in
the N
R–
indica
tors
24 indica
tors
• Int
roduc
e 3 ID
S ind
icator
s into
the N
R•
Not t
o intr
oduc
e 21 I
DS in
dicato
rs as
they
have
no co
mpara
ble da
ta on
othe
r cou
ntries
Indica
tors
exist
ing in
the N
R, bu
t miss
ing
in th
e IDS
58 indica
tors
–ind
icator
s
• No
actio
ns re
quire
d — ha
rmon
izatio
n of N
R ind
icator
s only
TOTA
L72
38NR
indic
ators
harm
onize
d with
the I
DS
2020
8
92
Illus
tratio
n No.
A.2.
Comp
arat
ive ta
bles f
or th
e das
hboa
rd in
dicat
ors a
nd ID
S-20
20 ta
rget
indica
tors
IDS-
2020
indic
ator
NR In
dicat
or
Reco
mmen
datio
nNo
tesIde
ntica
l Indic
ator
s
Shar
e of in
nova
tive g
oods
, wor
ks an
d ser
vices
in th
e to
tal v
olume
of sh
ipped
good
s, wo
rk an
d ser
vices
(by
indu
stry)
Relat
ive sh
are of
inno
vative
good
s, wo
rks an
d serv
ices i
n the
tot
al vol
ume o
f goo
ds, w
orks a
nd se
rvice
sNo
adjus
tmen
t req
uired
– ide
ntica
l indic
tors
Shar
e of R
ussia
n high
-tech
nolog
y exp
orts
in to
tal
globa
l high
-tech
nolog
y exp
orts
Share
of hi
gh-te
chno
logy e
xport
s in g
lobal
high-
techn
ology
export
s No
adjus
tmen
t req
uired
– ide
ntica
l indic
tors
Tech
nolog
y exp
orts
Share
of in
tellec
tual p
ropert
y exp
orts i
n GDP
No ad
justm
ent r
equir
ed –
identi
cal in
dictor
s
Numb
er of
inno
vatio
n clus
ters p
rovid
ed w
ith fe
dera
l su
ppor
t afte
r 201
0 tha
t man
aged
to do
uble
high
techn
ology
expo
rts af
ter su
ch su
ppor
t was
prov
ided,
cumu
lative
tota
l
Numb
er of
innova
tion c
luster
s prov
ided w
ith fe
deral
supp
ort
after
2010
that
mana
ged t
o dou
ble hi
gh te
chno
logy e
xport
s aft
er su
ch su
pport
was
provi
ded,
cumu
lative
total
No ad
justm
ent r
equir
ed –
identi
cal in
dictor
sInd
icator
s will
be tr
acke
d star
ting f
rom 20
16
Stat
e edu
catio
n exp
endit
ures
Share
of st
ate ed
ucati
on ex
pend
itures
in GD
PNo
adjus
tmen
t req
uired
– ide
ntica
l indic
tors
Simila
r Ind
icato
rs
Relat
ive sh
are o
f inno
vatio
n org
aniza
tions
in th
e to
tal n
umbe
r of o
rgan
izatio
ns un
der r
eview
, % (b
y ind
ustry
)
Share
of in
novat
ion co
mpan
ies in
the t
otal n
umbe
r of
indus
trial c
ompa
nies
It is s
ugge
sted t
o reta
in the
NR in
dicato
rTh
e NR e
mploy
s UNE
SCO d
ata fo
r com
paris
on wi
th be
nch-
mark
coun
tries
Inter
nal R
&D ex
pend
iture
sSh
are of
R&D e
xpen
diture
s in G
DPIt i
s sug
geste
d to r
etain
the NR
indic
ator
Acco
rding
to di
fferen
t sou
rces.
The N
R emp
loys O
ECD d
ata
for co
mpari
son w
ith be
nchm
ark co
untrie
s , wh
ile ID
S-20
20
is ba
sed o
n info
rmati
on fr
om th
e fed
eral S
tate S
tatist
ics
Servi
ce
Numb
er of
Russ
ian un
ivers
ities
rank
ing am
ong t
op
200 g
lobal
unive
rsiti
es ac
cord
ing to
glob
al un
iver-
sity r
ating
s
Averag
e sco
re of
the co
untry
’s thre
e bes
t univ
ersitie
s in t
he
QS wo
rld un
iversi
ty ran
kings
It is s
ugge
sted t
o reta
in the
NR in
dicato
rNR
indic
ator is
more
indic
ative
in ter
ms of
Russi
a’s po
sition
co
mpare
d to b
ench
mark
coun
tries
Shar
e of p
rivat
e hou
seho
lds ha
ving b
road
band
Int
erne
t acc
ess
The i
ndex
cons
isting
of fiv
e part
s: 1)
numb
er of
fixed
tel
epho
ne lin
es pe
r 100
peop
le; 2)
numb
er of
mobil
e pho
ne
contr
acts
per 1
00 pe
ople;
3) in
terna
tiona
l Inter
net c
onne
c-tio
n cap
acity
(bps
) and
numb
er of
Intern
et us
ers; 4
) Sha
re of
privat
e hou
seho
lds wi
th co
mpute
rs; 5)
Share
of pr
ivate
hous
ehold
s with
acce
ss to
the In
terne
t
It is s
ugge
sted t
o reta
in the
NR in
dicato
rTh
e NR i
ndica
tor is
more
indic
ative
in ter
ms of
Russi
a’ su
fficien
cy of
ICT in
frastr
uctur
e
Wor
kfor
ce pr
oduc
tivity
(by i
ndus
try)
Adde
d valu
e per
manh
our
It is s
ugge
sted t
o reta
in the
NR in
dicato
rTh
e NR e
mploy
s GDP
per h
our w
orked
acco
rding
to pu
r-ch
asing
powe
r pari
ty (PP
P) in
fixed
price
s of 2
010,
while
IDS
track
s the
indic
ator fo
r 201
3 as 1
00%
93NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
IDS-
2020
indic
ator
NR In
dicat
or
Reco
mmen
datio
nNo
tes
Shar
e of e
xpor
ted in
nova
tive g
oods
, wor
ks an
d se
rvice
s in t
he to
tal v
olume
of go
ods e
xpor
ted by
ind
ustri
al an
d ser
vice o
rgan
izatio
ns, %
(by i
ndus
try)
Share
of hi
gh-te
chno
logy e
xport
s in G
DPIt i
s sug
geste
d to r
etain
the NR
indic
ator
The N
R emp
loys O
ECD m
ethod
ology,
while
IDS i
s bas
ed
on th
e fed
eral S
tate S
tatist
ics Se
rvice’
s data
on ex
porte
d inn
ovativ
e goo
ds, w
orks a
nd se
rvice
s as i
n form
No. 4
. It
is su
gges
ted th
at the
NG m
ethod
ology
be us
ed to
comp
are
data.
Russ
ia’s s
hare
in th
e tot
al nu
mber
of in
terna
tion-
al sc
ientif
ic pu
blica
tions
inde
xed i
n the
WEB
of
Scien
ce Da
taba
se
Numb
er of
scien
tific a
nd te
chnic
al (sc
ientifi
c and
engin
eer-
ing) p
ublic
ation
s per
billio
n PPP
$ GDP
. It i
s sug
geste
d to r
etain
the NR
indic
ator
The N
R emp
loys G
II as a
n ind
ex es
timati
ng th
e num
ber o
f sci
entifi
c and
tech
nical
publi
catio
ns, w
hile I
DS in
dicato
r inc
ludes
all p
ublic
ation
s in t
he W
Eb of
Scien
ce Da
tabas
e, inc
luding
thos
e rela
ted to
the h
uman
ities,
socia
l scie
nces
an
d arts
Numb
er of
quot
ation
s per
one p
ublic
ation
by Ru
s-sia
n res
earc
hers
in sc
ientif
ic pe
riodic
als in
dexe
d in
the W
EB of
Scien
ce Da
taba
seNu
mber
of pu
blica
tions
cited
at le
ast h
time
sIt i
s sug
geste
d to r
etain
the NR
indic
ator
It is s
ugge
sted t
hat t
he NG
meth
odolo
gy be
retai
ned g
iven
that in
forma
tion i
s not
availa
ble on
the c
ountr
ies un
der c
om-
paris
on re
quire
d und
er IDS
-202
0
Numb
er of
paten
t app
licat
ions f
iled b
y Rus
sian
appli
cant
s und
er in
terna
tiona
l pro
cedu
res
Numb
er of
paten
t app
licati
ons f
iled b
y Rus
sian r
eside
nts
unde
r PCT
proc
edure
s, pe
r 100
billio
n PPP
$ GDP
.It i
s sug
geste
d to r
etain
the NR
indic
ator
It is s
ugge
sted t
hat o
nly PC
T pate
nts be
inclu
ded,
as
obtai
ned u
nder
a more
glob
ally a
pplic
able
proce
dure
for
intern
ation
al pa
tentin
g. Ex
tendin
g the
indic
ator (b
y inc
luding
pa
tent a
pplic
ation
s file
d dire
ctly t
o a ta
rgeted
paten
t age
ncy)
will n
ot req
uire i
ts qu
antita
tive h
armon
izatrio
n with
IDS 2
010.
Used
in ID
S-20
20 bu
t not
in N
R
Aver
age s
alary
to te
achin
g sta
ff in
gene
ral e
duca
-tio
n ins
titut
ions a
s com
pare
d to a
vera
ge m
onth
ly em
ploym
ent in
come
in th
e rele
vant
regio
nIt i
s sug
geste
d to a
dd th
e ind
icator
in th
e NR
Relat
ive sh
are o
f stu
dent
s at g
ener
al ed
ucat
ion
instit
ution
s edu
cated
unde
r fed
eral
state
educ
ation
sta
ndar
ds (b
y 201
8 the
fede
ral s
tate
educ
ation
sta
ndar
ds w
ill ap
ply to
all G
1-8 s
tude
nts)
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Relat
ive sh
are o
f gra
duat
es em
ploye
d with
in on
e ca
lenda
r yea
r sinc
e gra
duat
ion in
the t
otal
numb
er
of gr
adua
tes ed
ucat
ed un
der t
he m
ajor h
igher
ed
ucat
ion pr
ogra
ms
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Relat
ive sh
are o
f stu
dent
s par
ticipa
ting i
n aca
demi
c co
mpeti
tions
and c
ontes
ts at
diffe
rent
leve
ls in
the
tota
l num
ber o
f stu
dent
s
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
94
IDS-
2020
indic
ator
NR In
dicat
or
Reco
mmen
datio
nNo
tesSh
are o
f pop
ulatio
n inv
olved
in lif
elong
educ
ation
(fo
r the
last
12 m
onth
s), in
the t
otal
numb
er of
inter
-vie
wees
aged
25-6
4 yea
rs
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Numb
er of
regis
tered
paten
t app
licat
ions f
unde
d fro
m th
e sta
te bu
dget
filed
by Ru
ssian
appli
cant
s, to
tal (
per i
nnov
ation
/indu
strial
prot
otyp
e)
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Numb
er of
Russ
ian pa
tents
for w
hich p
aten
t main
te-na
nce f
ee w
as pa
id No
t app
licab
le to
the NR
– no
avail
able
data
on th
e cou
n-trie
s und
er co
mpari
son
Numb
er of
paten
ts re
gister
ed as
exclu
sive r
ight
paten
ts No
t app
licab
le to
the NR
– no
avail
able
data
on th
e cou
n-trie
s und
er co
mpari
son
Inten
sity o
f exp
endit
ures
for t
echn
ologic
al inn
ova-
tions
in in
dustr
ial pr
oduc
tion (
shar
e of e
xpen
ditur
es
for te
chno
logica
l inno
vatio
ns in
the t
otal
cost
of go
ods s
hippe
d, wo
rk pe
rform
ed an
d ser
vices
pr
ovide
d (by
indu
stry)
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Shar
e of r
esea
rche
rs un
der 3
9 (inc
lusive
) yea
rs ol
d in
the t
otal
numb
er of
rese
arch
ers
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Aver
age s
alary
to re
sear
ch st
aff a
s com
pare
d to
aver
age s
alary
in a
relev
ant r
egion
of th
e Rus
sian
Fede
ratio
n
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Shar
e of h
igher
educ
ation
in in
terna
l R&D
expe
ndi-
ture
sNo
t app
licab
le to
the NR
It is s
ugge
sted t
hat t
he in
dicato
r sho
uld no
t be i
nclud
ed
since
high
er exp
endit
ures o
f the
secto
r do n
ot ne
cessa
rily
mean
bette
r inno
vative
devel
opme
nt
Shar
e of f
unds
gran
ted fo
r R&D
in th
e tot
al am
ount
of
mone
y allo
cated
from
all a
vaila
ble so
urce
s to t
he
leadin
g Rus
sian u
niver
sities
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Russ
ia’s r
ating
in th
e UN
Glob
al E-
Gove
rnme
nt
Surv
eyIt i
s sug
geste
d to a
dd th
e ind
icator
to th
e NR
Shar
e of p
opula
tion u
sing s
tate
and m
unici
pal
serv
ices i
n the
elec
tronic
form
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
95NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
IDS-
2020
indic
ator
NR In
dicat
or
Reco
mmen
datio
nNo
tesSh
are o
f wor
k-re
lated
regu
lation
s iss
ued f
or ci
vil
serv
ants
that
cont
ain ce
rtain
quali
ficat
ions c
riter
ia re
gard
ing fo
reign
lang
uage
skill
s in t
he to
tal n
um-
ber o
f wor
k-re
lated
regu
lation
s for
civil
serv
ants
who a
re re
quire
d to h
ave f
oreig
n lan
guag
e skil
ls for
th
e pur
pose
of th
eir jo
b dut
ies
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Numb
er of
newl
y esta
blish
ed sm
all in
nova
tion c
om-
panie
s sup
porte
d by t
he Fo
unda
tion f
or As
sista
nce
to Sm
all In
nova
tive E
nter
prise
s in S
cienc
e and
Te
chno
logy (
FASI
E)
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Numb
er of
inno
vativ
e pro
jects
by yo
ung r
esea
rche
rs
unde
r the
polic
y of e
nagin
g you
th (u
nder
28 ye
ars
old) in
inno
vativ
e ent
repr
eneu
rship
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Numb
er of
orga
nizat
ions a
cting
as us
ers o
f scie
ntifi
c eq
uipme
nt in
the s
hare
d scie
ntifi
c equ
ipmen
t ce
nter
s
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Numb
er of
engin
eerin
g cen
ters s
uppo
rted
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Fore
ign tr
ade t
urno
ver, f
or te
chno
logy
Not a
pplic
able
– in t
he NR
there
is a
techn
ology
export
ind
icator
Numb
er of
cons
titue
nt en
tities
of th
e Rus
sian
Fede
ratio
n tha
t wer
e pro
vided
supp
ort u
nder
new
prog
rams
of fe
dera
l sup
port
to co
nstit
uent
entit
ies
of th
e Rus
sian F
eder
ation
whic
h acti
vely
inves
t in
innov
ative
activ
ity, c
umula
tive t
otal
Not a
pplic
able
to the
NR –
no av
ailab
le da
ta on
the c
oun-
tries u
nder
comp
ariso
n
Inter
nal e
duca
tion e
xpen
ditur
esIt i
s sug
geste
d to a
dd th
e ind
icator
to th
e NR
It is s
ugge
sted t
hat In
terna
l edu
catio
n exp
endit
ures a
lso
be ad
ded a
s an i
ndica
tor, o
therw
ise on
ly sta
te ed
ucati
on
expen
diture
s can
be es
timate
d now
.
Inter
nal R
&D ex
pend
iture
s by s
ourc
e of f
inanc
ing
(bud
get/e
xtrab
udge
t)No
t app
licab
le to
the NR
– no
avail
able
data
on th
e cou
n-trie
s und
er co
mpari
son
IDS-2
020 s
ugge
sts st
udyin
g the
struc
ture o
f R&D
expe
ndi-
tures
base
d of t
he so
urce o
f fun
ding
Used
in N
R but
not in
IDS-
2020
58 da
shbo
ard in
dicato
rs tha
t do n
ot req
uire a
ny ad
justm
ents
given
that
the up
date
of the
IDS-
2020
indic
ators
falls
beyon
d the
scop
e of t
his re
port.
96 APPENDIx 1. DAShbOARD mEThODOLOGICAL UPDATE: hARmONIZATION WITh IDS-2020
APPENDIX 2. KPIS fOR "mAIN ATTACK AVENUE": mEThODOLOGy DETAILS
A2
97NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
APPENDIx 2. KPIS fOR "mAIN ATTACK AVENUE": mEThODOLOGy DETAILS
Indica
tor
Corre
spon
ding
eleme
nt of
the
innov
ation
pyra
mid
Desc
riptio
n Da
ta
sour
ceAp
proa
ch to
deco
mpos
ition
Expo
rt of
Russ
ian hi
gh-te
ch
good
s, US
D Ex
ports
of in
novat
ive pr
oduc
ts
The i
ndica
tor m
easu
res th
e volu
me of
expo
rted g
oods
clas
sifiab
le as
high
-tech
prod
ucts
acco
rding
to
the lis
t app
roved
by th
e mini
stry o
f Indu
stry a
nd Tr
ade O
rder N
o. 15
97 da
ted Oc
tober
3, 20
13
“On a
pprov
al of
the lis
t of h
igh-te
ch pr
oduc
ts in
view o
f prio
rity ar
eas f
or mo
derni
zation
of th
e Ru
ssian
econ
omy”.
The i
ndica
tor do
es no
t inclu
de ex
ports
of se
rvice
s or s
oftwa
re
fede
ral
Custo
ms
Servi
ce
The i
ndica
tor is
deco
mpos
ed on
the b
asis
of the
forei
gn
Econ
omic
Activ
ity Co
mmod
ity No
menc
lature
(fEA
CN).
furth
er,
indus
try in
dicato
rs ref
er to
state
organ
izatio
ns an
d age
ncies
in
acco
rdanc
e with
their
indu
stry s
pecia
lizatio
n.
most
fEAC
N cod
es re
fer to
the m
inistr
y of In
dustr
y and
Trad
e, exc
ept f
or tho
se wh
ich re
fer to
Rosco
smos
and R
osato
m.
Shar
e of in
nova
tion g
oods
, wo
rks,
serv
ices i
n tot
al vo
lume o
f goo
ds sh
ipped
, wo
rks p
erfor
med,
serv
ices
prov
ided,
%
manu
factur
ing of
inno
vative
pro
ducts
The i
ndica
tor m
easu
res th
e prop
ortion
of in
novat
ive pr
oduc
ts in
the to
tal vo
lume o
f goo
ds pr
o-du
ced.
The c
alcula
tion i
s bas
ed on
OKVE
D data
publi
shed
by th
e Stat
e Stat
istics
Agen
cy (Ro
sstat)
on
the t
otal v
olume
of in
novat
ive go
ods,
works
, serv
ices a
nd th
e tota
l volu
me of
inno
vative
good
s, wo
rks, s
ervice
s rec
eived
when
orga
nizati
ons c
omple
te fo
rm No
. 4-In
novat
ion
Rosst
at
OKVE
D is u
sed a
s the
basis
for d
ecom
posin
g data
on th
e tota
l vol
ume o
f goo
ds, w
orks a
nd se
rvice
s per
state
organ
izatio
ns
and a
genc
ies in
acco
rdanc
e with
their
indu
stry s
pecia
lizatio
n.
furth
er, fo
r eac
h orga
nizati
on of
agen
cy the
relat
ive sh
are is
the
ratio
of the
two i
ndica
tors.
Shar
e of c
osts
for te
chno
-log
ical in
nova
tions
in to
tal
volum
e of g
oods
shipp
ed,
work
s per
forme
d, se
rvice
s pr
ovide
d, %
manu
factur
ing of
inno
vative
pro
ducts
The i
ndica
tor m
easu
res th
e prop
ortion
of an
orga
nizati
on’s c
ost t
o prod
uce i
nnova
tive p
roduc
ts in
the to
tal vo
lume o
f goo
ds pr
oduc
ed.
The c
alcula
tion i
s bas
ed on
OKVE
D ind
icator
s pub
lishe
d by
the St
ate St
atisti
cs Ag
ency
(Rosst
at) “c
osts
for te
chno
logica
l inno
vation
s or o
rganiz
ation
s” an
d the
“tota
l volu
me of
good
s and
servi
ces”,
rece
ived w
hen o
rganiz
ation
s com
plete
form
No.
4-Inn
ovatio
n
Expe
nditu
re on
tech
nolog
ical in
novat
ions -
show
n in m
oneta
ry for
m as
actua
l exp
ense
s, rel
ated
to the
perfo
rman
ce of
vario
us ty
pes o
f inno
vative
activ
ity, p
erform
ed on
the c
ompa
ny sca
le (in
dustr
y, reg
ion, c
ountr
y). Te
chno
logica
l inno
vation
costs
reco
rded i
n the
list m
ay inc
lude c
urren
t an
d exp
ense
s and
capit
al exp
endit
ures.
Rosst
at
OKVE
D is u
sed a
s the
basis
for d
ecom
posin
g data
on th
e tota
l vol
ume o
f goo
ds, w
orks a
nd se
rvice
s and
the t
otal a
moun
t of
expen
ses o
n tec
hnolo
gical
innova
tions
by st
ate or
ganiz
ation
s an
d age
ncies
in ac
corda
nce w
ith th
eir in
dustr
y spe
cializa
tion.
furth
er, fo
r eac
h orga
nizati
on or
agen
cy the
relat
ive sh
are is
the
ratio
of the
two i
ndica
tors.
Shar
e of o
rgan
izatio
ns w
hich
enga
ge in
inno
vativ
e acti
vity
in th
e tot
al nu
mber
of or
ga-
nizat
ions u
nder
revie
w, %
Total
numb
er of
innova
tion
comp
anies
The i
ndica
tor m
easu
res th
e prop
ortion
of in
novat
ion co
mpan
ies in
the t
otal n
umbe
r of o
rganiz
a-tio
ns st
udied
by Ro
sstat.
The
calcu
lation
is ba
sed o
n the
OKVE
D ind
icator
publi
shed
by (R
ossta
t) “sh
are of
orga
nizati
ons w
hich p
erform
tech
nolog
ical, o
rganiz
ation
al, an
d mark
eting
inno
vation
s du
ring t
he re
portin
g yea
r, in t
he to
tal nu
mber
of org
aniza
tions
unde
r revi
ew”.
Rosst
at
The i
ndica
tor is
deco
mpos
ed on
the b
asis
of OK
VED (
types
of
econ
momi
c acti
vity).
furth
er, in
dustr
y ind
icator
s are
group
ed
for st
ate or
ganiz
ation
s and
agen
cies i
n acc
ordan
ce wi
th the
ir ind
ustry
spec
ializa
tion.
Weigh
ted in
dustr
y ind
icator
s bas
ed on
turno
ver of
orga
nizati
ons
for ea
ch OK
VED w
ere us
ed si
nce n
o data
were
avail
able
on th
e nu
mber
of org
aniza
tions
unde
r revi
ew
Tota
l volu
me of
vent
ure
inves
tmen
ts, Ru
b Vo
lume o
f ven
ture i
nves
tmen
ts Th
e ind
icator
mea
sures
the a
ggreg
ate vo
lume o
f inves
tmen
ts on
the R
ussia
n ven
ture m
arket.
Data
are us
ed fr
om a
report
by th
e Rus
sian A
ssocia
tion f
or Ve
nture
Inves
ting “
Overv
iew of
the
marke
t of D
irect
and V
entur
e Inv
estm
ents”
RV
CA
The i
ndica
tor is
not d
ecom
pose
d
98 APPENDIx 2. KPIS fOR "mAIN ATTACK AVENUE": mEThODOLOGy DETAILS
Indica
tor
Corre
spon
ding
eleme
nt of
the
innov
ation
pyra
mid
Desc
riptio
n Da
ta
sour
ceAp
proa
ch to
deco
mpos
ition
Ratio
of in
vestm
ents
in int
angib
le as
sets
to GD
P, %
De
mand
for r
eady-
made
tec
hnolo
gy
The i
ndica
tor m
easu
res th
e rati
o of n
et bo
ok va
lue of
intan
gible
asse
ts on
the b
alanc
e she
ets of
co
mpan
ies to
Russi
a’s GD
P. Th
e ind
icator
is ca
lculat
ed on
the b
asis
of Ro
sstat
data
on th
e fina
n-cia
l perf
orman
ce in
dicato
rs of
organ
izatio
ns:
1.6.5.
“Ind
icator
s whic
h cha
racter
ize th
e prop
erty
and f
inanc
ial po
sition
of sm
all co
mpan
ies” a
nd 1.
32.3.
“Ind
icator
s whic
h cha
racter
ize th
e prop
erty
and f
inanc
ial po
sition
of co
mpan
ies”
Rosst
at
The i
ndica
tor is
deco
mpos
ed on
the b
asis
of OK
VED (
types
of
econ
momi
c acti
vity).
furth
er, in
dustr
y ind
icator
s refe
r to s
tate
organ
izatio
ns an
d age
ncies
in ac
corda
nce w
ith th
eir in
dustr
y sp
ecial
izatio
n.
Numb
er of
paten
ts re
ceive
d ab
road
thro
ugh t
he PC
T pr
oced
ure i
n the
natio
nal
phas
e
Total
numb
er of
paten
ts
The i
ndica
tor m
easu
res th
e num
ber o
f pate
nts re
ceive
d by R
ussia
n com
panie
s usin
g the
PCT
proce
dure
PCT (
Paten
t Coo
perat
ion Tr
eaty)
is an
agree
ment
on pa
tent c
oope
ration
. Purs
uant
to the
agree
-me
nt, an
“inte
rnatio
nal a
pplic
ation
” can
be m
ade i
n orde
r to f
acilit
ate on
e-tim
e pate
nting
or
future
exten
sion o
f the
valid
ity of
a pa
tent t
o terr
itorie
s whic
h adh
ere to
PCT (
over 1
40 st
ates).
WIPO
The i
ndica
tor is
not d
ecom
pose
d
Numb
er of
paten
t app
lica-
tions
using
the P
CT pr
oce-
dure
subm
itted
by re
siden
tsNu
mber
of pa
tent a
pplic
ation
s
The i
ndica
tor m
easu
res th
e num
ber o
f app
licati
ons u
sing t
he PC
T proc
edure
, whic
h are
receiv
ed by
Ru
ssian
comp
anies
.
PCT (
Paten
t Coo
perat
ion Tr
eaty)
is an
agree
ment
on pa
tent c
oope
ration
. Purs
uant
to the
agree
-me
nt, an
“inte
rnatio
nal a
pplic
ation
” can
be m
ade i
n orde
r to f
acilit
ate on
e-tim
e pate
nting
or
future
exten
sion o
f the
valid
ity of
a pa
tent t
o terr
itorie
s whic
h adh
ere to
PCT (
over 1
40 st
ates).
WIPO
The i
ndica
tor is
not d
ecom
pose
d
Numb
er of
quot
ation
s per
on
e pub
licat
ion by
Russ
ian
rese
arch
ers i
n scie
ntifi
c pe
riodic
als in
dexe
d in t
he
WEB
of Sc
ience
Data
base
Quali
ty of
resea
rch
The i
ndica
tor m
easu
res th
e num
ber o
f quo
tation
s per
one a
rticle
of Ru
ssian
autho
rs ind
exed i
n the
We
b of S
cienc
e. To
make
the c
alcula
tion,
we us
ed an
indic
ator f
rom re
ports
of th
e high
er Sc
hool
of Ec
onom
ics (h
SE) “
Scien
ce in
dicato
rs” (2
010,
2013
-16)
and t
he hS
E rep
ort “m
ain in
dicato
rs of
publi
catio
n acti
vity”.
The i
ndica
tor m
easu
res ar
ticles
in th
e foll
owing
area
s: ph
ysics,
biolo
gy, ch
emist
ry, m
athem
atics,
cli
nical
medic
ine, b
io-tec
hnolo
gical
resea
rch, e
ngine
ering
and t
echn
ology,
earth
scien
ce an
d sp
ace s
cienc
e. Jo
urnals
listed
in th
e SCI
and S
SCI in
dexes
are a
lso in
dexed
.
hSE,
Thom
-so
n Reu
ters
The i
ndica
tor is
not d
ecom
pose
d
Russ
ia’s s
hare
in th
e tot
al nu
mber
of sc
ientif
ic pu
blica
-tio
ns in
dexe
d in t
he W
EB of
Sc
ience
Data
base
Numb
er of
resea
rch pa
pers
The i
ndica
tor m
easu
res th
e prop
ortion
of pu
blica
tions
by Ru
ssian
autho
rs in
the to
tal da
tabas
e of
Web o
f Scie
nce p
ublic
ation
s. To
mak
e the
calcu
lation
, we u
sed a
n ind
icator
from
repo
rts of
the
highe
r Sch
ool o
f Eco
nomi
cs (hS
E) “S
cienc
e ind
icator
s” (20
10, 2
013-
16) a
nd th
e hSE
repo
rt “m
ain
indica
tors o
f pub
licati
on ac
tivity
”.
The i
ndica
tor m
easu
res ar
ticles
in th
e foll
owing
area
s: ph
ysics,
biolo
gy, ch
emist
ry, m
athem
atics,
cli
nical
medic
ine, b
io-tec
hnolo
gical
resea
rch, e
ngine
ering
and t
echn
ology,
earth
scien
ce an
d sp
ace s
cienc
e. Jo
urnals
listed
in th
e SCI
and S
SCI in
dexes
are a
lso in
dexed
.
hSE,
Thom
-so
n Reu
ters
The i
ndica
tor is
not d
ecom
pose
d
99NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
LIST OF ILLUSTRATIONSIllustration No. 1.1. Innovations as the only available source of growth ........................................................................................................... 7Illustration No. 1.2. Innovation dashboard (2015) .............................................................................................................................................. 8Illustration No. 1.3. Functional innovation policy model (2015)....................................................................................................................... 10Illustration No. 1.4. Main groups of initiatives proposed in Report 2015. ....................................................................................................... 12Illustration No. 2.1. Trends in Russia’s positions of the ratings Doing Business, Global Innovation Index, and Global Competitiveness Index . 15Illustration No. 2.2. Revised dashboard............................................................................................................................................................ 17Illustration No. 2.3. Overview of changes in dashboard indicators ................................................................................................................. 18Illustration No. 2.4. Interim results of Innovative Development Programs for state companies .................................................................. 21Illustration No. 2.5. The Prime Minister on the need to update IDS-2020. ..................................................................................................... 22Illustration No. 2.6. Restructuring of FASO institutes ..................................................................................................................................... 23Illustration No. 2.7. Quantorium children’s science and technology parks .................................................................................................... 23Illustration No. 2.8. National Technology Initiative Strategy ........................................................................................................................... 24Illustration No. 2.9. Special Investment Contract ............................................................................................................................................ 26Illustration No. 2.10. The State’s actions in innovation policy (2010-2015) ..................................................................................................... 27Illustration No. 2.11. Attractiveness of global innovation hubs ....................................................................................................................... 29Illustration No. 2.12. Low demand for technologies in Russia ........................................................................................................................ 29Illustration No. 2.13. Weak responsiveness of business to innovations ......................................................................................................... 30Illustration No. 2.14. Correlation between the size of the venture market and the economy ....................................................................... 30Illustration No. 2.15. Inventors in Russia ......................................................................................................................................................... 31Illustration No. 2.16. Weak patent activity of the Russian corporate sector. .................................................................................................. 32Illustration No. 2.17. Unstable effect from targeting medium-sized businesses. ......................................................................................... 33Illustration No. 2.18. Contribution of small, medium and large business to GDP of Russia and developed countries................................ 33Illustration No. 2.19. Government’s share in top 10 enterprises in various countries. .................................................................................. 33Illustration No. 2.20. Targeting forks under the State’s innovation policy....................................................................................................... 34Illustration No. 2.21. Innovations in large/mature business as an important target for the innovation policy of European countries’ ...... 34Illustration No. 2.22. Shift in priorities of the innovation policy in Great Britain as an example ................................................................... 35Illustration No. 2.23. Google’s Innovation Ecosystem (2008) ........................................................................................................................... 36Illustration No. 3.1. Patents and R&D in Oil&Gas, Automotive Engineering and Aircraft Engineering ........................................................ 40Illustration No. 3.2. Future competitive edge loss in the Oil&Gas, Automotive Engineering and Aircraft Engineering industries ............. 40Illustration No. 3.3. Wheat yield and gross grain yield in Russia and the USA ............................................................................................... 41Illustration No. 3.4. Low agricultural mechanization ...................................................................................................................................... 42Illustration No. 3.5. Agriculture amid sanctions .............................................................................................................................................. 42Illustration No. 3.6. Barriers for the development of innovation ..................................................................................................................... 45Illustration No. 3.7. Lack of qualified executives in agriculture ...................................................................................................................... 44Illustration No. 3.8. A example of problems with SSJ-100 service ................................................................................................................. 46Illustration No. 3.9. A comparison between the aviation production chain in Russia and in other countries. ............................................. 47Illustration No. 3.10. Operating profit of oilfield service companies in 2015 .................................................................................................. 47Illustration No. 3.11. Examples of problems with industry standards ............................................................................................................ 48Illustration No. 3.12. State support of the automotive industry (direct and indirect) in 2015 ........................................................................ 48Illustration No. 3.13. An example of unimplemented state programs ............................................................................................................ 49Illustration No. 3.14. Comparison of the amount of export support in Russia and in other countries ......................................................... 49lllustration No. 3.15. Measures aimed at promoting innovation ..................................................................................................................... 51Illustration No. 3.16. Privatization of Kalashnikov concern ............................................................................................................................. 52Illustration No. 3.17. Application of options programs in Russia .................................................................................................................... 52Illustration No. 3.18. International experience in implementation of the executive pool ............................................................................... 54Illustration No. 3.19. An example of corporate venture funds in the oil and gas industry ............................................................................. 55Illustration No. 3.20. Experience in developing the Sukhoi Superjet 100 ....................................................................................................... 56Illustration No. 3.21. Cooperative Development Concept in South Korea ...................................................................................................... 57Illustration No. 3.22. Implementation of a new standard for associated gas utilization rate ........................................................................ 58Illustration No. 3.23. Implementation of the PETROMAKS 2 project in Norway............................................................................................. 59lllustration No. 3.24. PILOT Project in Great Britain ........................................................................................................................................ 60Illustration No. 4.1. Three steps in choosing “main attack avenue” KPIs ...................................................................................................... 64Illustration No. 4.2. Main interdependencies among elements of the innovative pyramid ............................................................................ 66Illustration No. 4.3. Logical map of interdependencies between innovative system elements ..................................................................... 67Illustration No. 4.4. List of “main attack avenue” KPIs ................................................................................................................................... 69Illustration No. 4.5. Cascading the KPI Export of Russian high-tech goods .................................................................................................. 72Illustration No. 4.6. KPI cascading scheme for responsible parties ............................................................................................................... 73Illustration No. 4.7. Options for setting decomposition targets for the indicator Export of Russian high-tech goods ................................. 74Illustration No. 4.8. W-process used in setting long-term targets for industry organizations and agencies ............................................... 75Illustration No. 4.9. Example of split responsibility for KPIs ........................................................................................................................... 76Illustration No. 4.10. Smart Grid Project .......................................................................................................................................................... 77Illustration No. 4.11. Smart Metering project .................................................................................................................................................. 78Illustration No. 4.12. Three international models for managing priority government tasks ......................................................................... 79Illustration No. 4.13. Norwegian Ministry of Oil and Energy ........................................................................................................................... 80Illustration No. 4.14. UK Oil & Gas Authority ................................................................................................................................................... 80Illustration No. 4.15. Malaysia’s PEMANDU ..................................................................................................................................................... 81Illustration No. 4.16. PEMANDU organizational structure and problem escalation mechanism .................................................................. 83Illustration No. 4.17. Components determining target GNI change ............................................................................................................... 84Illustration No. 4.18. Option 1 - “light” project office ....................................................................................................................................... 86Illustration No. 4.19. Option 2 - “full” project office ......................................................................................................................................... 87Illustration No. A.1. Harmonization of dashboard indicators with IDS-2020 target indicators ...................................................................... 91Illustration No. A.2. Comparative tables for the dashboard indicators and IDS-2020 target indicators ....................................................... 92
100 APPENDIx 2. KPIS fOR "mAIN ATTACK AVENUE": mEThODOLOGy DETAILS
i. The Conference Board Total Economy Database, 2015 (https://www.conference-board.org/data/economydatabase/index.cfm?id=27762)
ii. National Report on Innovations in Russia, issue No. 1, RVC, 2015 (https://www.rvc.ru/upload/iblock/b70/NROI_RVC.pdf) iii. Strategy for Innovative Development until 2020 of the Ministry of Economic Development. 2010 (http://government.ru/docs/17169/)iv. "Australian key innovation indicators datacard", Department of Industry, Innovation and Science (http://www.industry.gov.au/
innovation/reportsandstudies/Documents/AustralianKeyInnovationIndicatorsDataCard.pdf)v. Strategy for Innovative Development of the Russian Federation for the Period Until 2020, Analytical Center for the Government of
the Russian Federation, 2014, (http://ac.gov.ru/files/attachment/4843.pdf)vi. “Innovation KEI: guidelines for state companies”, Open Government website, 2016 (http://open.gov.ru/events/5514994/)vii. http://open.gov.ru/events/5515292/viii. “Innovative development programs for state companies will be subject to independent expert review”, Open Government, 2016
(https://www.vedomosti.ru/technology/news/2014/12/30/medvedev-poruchil-aktualizirovat-strategiyu-innovacionnogo)ix. “On Progress in the Implementation of Russia’s Innovative Development Strategy for the Period until 2020, the Russian Govern-
ment, 2014 http://government.ru/news/16196/)x. Draft Strategy for Scientific and Technological Development of the Russian Federation until 2035, Ministry of Education and Sci-
ence, 2016 http://sntr-rf.ru/upload/iblock/4c6/%D0%A1%D0%9D%D0%A2%D0%A0%2005.05.2016_редакция%2022.pdf)xi. Head of the FASO: “About 40% of institutes under the Agency’s jurisdiction support the idea of a merger”, TASS, 2016 (http://tass.
ru/pmef-2016/article/3372656) xii. Arkady Dvorkovich: The consolidation of the RFH and the RFFR will increase the volume of interdisciplinary research’, FASO of
Russia, 2016 (http://fano.gov.ru/ru/press-center/card/?id_4=36911)xiii. “Concept of the draft Federal Law “On scientific, scientific and technical, innovative activity in the Russian Federation”, Ministry of
Education and Science of the Russian Federation, 2016 (http://минобрнауки.рф/документы/7894/файл/7100/1.pdf)xiv. “Children’s science and technology parks Quantorium with a total area of over 1,000 sq m opened in Moscow”, ASI News, 2016
(https://asi.ru/news/60092/)xv. On GenerationS Projects”, RBK, 2016. (http://generation-startup.ru/about/)xvi. “FORESIGHT FLEET 2016 submitted 70 projects for the NTI Strategy”, Agency for Strategic Initiatives (ASI), 2016 (https://asi.ru/
news/52127/) xvii. Dmitry Peskov: “The NTI Strategy is a technology of free sale of content and security on the global market”, ASI, 2016 (https://asi.
ru/news/57241/)xviii. "RVC and Skolkovo Foundation sign a roadmap for coordination”, RVC, 2016 (http://www.rvc.ru/press-service/news/compa-
ny/87592/)xix. “The Ministry of Energy of the Russian Federation discussed creating an industry fund for innovative technologies in the FEC”,
Ministry of Energy of the Russian Federation, 2016 (http://minenergo.gov.ru/node/2056)xx. “Innovation Development Programs of state-owned companies shall be subject to independent expert review”, Open Government,
2016 (http://open.gov.ru/events/5515292/)xxi. “Russia to Support Mercedes-Benz”, Gazeta.ru, 2016 (https://www.gazeta.ru/auto/2016/09/07_a_10181327.shtml)xxii. “The Ministry of Industry and Trade to subsidize worldwide patenting of Russian inventions”, GMP News, 2016 (http://gmpnews.
ru/2016/08/minpromtorg-subsidiruet-patentovanie-rossijskix-razrabotok-za-rubezhom/)xxiii. Medium-size business went sort of unnoticed’, Expert, 2016 (http://expert.ru/2016/07/15/chempionyi/) xxiv. “State-supported Information Society Program for 2011-2020”, 2011 (http://minsvyaz.ru/ru/activity/programs/1/)xxv. “Meeting of the Ministers of Science, Technology and Innovation of BRICS countries”, Analytical Center of ICISTE, 2015 (http://
mniop.ru/vstrecha-ministrov-briks-po-voprosam-nauki-tehnologiy-i-innovatsiy-stran-briks.html) xxvi. "Academic research and industrial innovation: An update of empirical findings", Edwin Mansfield, Research Policy 26 1998
773–776 (http://sjbae.pbworks.com/f/Mansfield_1998.pdf)xxvii. "The answer is 17 years, what is the question: understanding time lags in translational research", Zoë Slote Morris et al, J R Soc
Med December 2011 vol. 104 no. 12 510-520 (http://jrs.sagepub.com/content/104/12/510.full)xxviii. "Basic Research Is the Key Driver of Innovation", Peter Gruss, MaxPlanckResearch Special 2009 г. (https://www.mpg.de/799746/
W000_Viewpoint_006-009.pdf)xxix. "Proposition 71: California Stem Cell Research and Cures Initiative", Laurence Baker et al, Analysis Group Economic Impact Anal-
ysis Report, 2004 г. (http://www.analysisgroup.com/uploadedfiles/content/news_and_events/news/proposition_71_report.pdf)xxx. "One simple idea", Stephen Key, McGraw-Hill, 2011 г. (https://www.allbusiness.com/97-percent-of-all-patents-never-make-any-
money-15258080-1.html)xxxi. "Why startups fail, according to their founders", Erin Griffith, Fortune, 2014 г. (http://fortune.com/2014/09/25/why-startups-fail-
according-to-their-founders/)xxxii. "10 Aussie start-ups gunning for Silicon Valley", Oliver Milman, Startup Smart, 2012 г. (http://www.startupsmart.com.au/advice/
growth/10-aussie-start-ups-gunning-for-silicon-valley/)xxxiii. "Less is more for Australian startups", Leon Spenser, TechRepublic, 2014 г. (http://www.techrepublic.com/article/less-is-more-
for-australian-startups/)xxxiv. "Foreseeing the Future", HSE, 2014 (https://prognoz2030.hse.ru/press/124321392.html)xxxv. “Ask me How”, Expert, 2016 (http://expert.ru/ural/2016/36/sprosi-menya-kak/)xxxvi. Strategy for Innovative Development until 2020 of the Ministry of Economic Development.2010 (http://government.ru/docs/17169/)
SOURCES
101NATIONAL REPORT ON INNOVATIONS IN RUSSIA-2016
xxxvii. “Mother Wit for Domestic Consumption”, Kommersant Money, 2016 (http://www.kommersant.ru/doc/3058997)xxxviii. "Heroes today - but what about tomorrow? Gazelles and their long run performance", Pernille Gjerløv-Juel et al, 2012 г. (file:///C:/
Users/Khaliullin%20Alexey/Downloads/gazelles.pdf)xxxix. "Rethinking the role of big business in the UK's innovation ecosystem", NESTA blog, 2014 г. (http://www.nesta.org.uk/blog/re-
thinking-role-big-business-uks-innovation-ecosystem)xl. "Industrial strategy welcomed as part of government's new business policy", The Guardian, 2016 (https://www.theguardian.com/
politics/2016/jul/14/industrial-strategy-welcomed-as-part-of-governments-new-business-policy)xli. “Reverse Engineering Google’s Innovation Machine", Bala Iyer and Thomas H. Davenport, Harvard Business Review, 2008 (https://
hbr.org/2008/04/reverse-engineering-googles-innovation-machine).xlii. "Reverse Engineering Google’s Innovation Machine", HBR, 2008 (https://hbr.org/2008/04/reverse-engineering-googles-innova-
tion-machine)xliii. Energy Strategy of Russia until 2030. Russian Ministry of Energy, 2009. (http://minenergo.gov.ru/node/1026)xliv. “Development of the Russian economy over 100 years: 1900-2000. Historical series, century trends, institutional cycles”, Sim-
chera V.M., 2006 http://www.library6.com/3596/item/322900); "Grain crop yields in Russia, 1795-2007", Rastyannikov V.G., Deryu-gina I.V, 2009 (http://www.library6.com/3596/item/314111); Rosstat, FAOSTAT
xlv. “Profitability of agriculture without government support has reached 10 percent”, Agroinfo, 2016 (http://agroinfo.com/2309201602-rentabelnost-selskogo-xozyajstva-bez-gospodderzhki-vyrosla-do-10-procentov/)
xlvi. Decree of the President of Russia “On measures to implement the state science and technology policy for the benefit of agricul-tural development”, RF President Website, 2016 (http://kremlin.ru/acts/news/52572)
xlvii. Maxim Basov, Rusagro On Tech Days “We’re looking for people”, Firrma, 2016(http://www.firrma.ru/data/s_opinion/8823/)xlviii. Aviation companies do not fly much on the Sukhoi Super Jet 100", 2016 (https://www.vedomosti.ru/business/arti-
cles/2016/05/16/641064-sukhoi-superjet)xlix. “Annual report of Transmashholding for 2014-2015” (http://ru.railfgk.ru/media/70829/annual_report_2014.pdf)l. “The Sky will Set a Filter”, Rossiiskaya Gazeta, 2016 https://rg.ru/2016/02/09/v-ikao-vyrabotali-novye-ekologiches-
kie-standarty-dlia-samoletov.html)li. “Development of Russian roads hindered by obsolete GOST national standardsand construction standards (http://www.rbc.ru/
economics/11/04/2011/5703e5f79a79473c0df1cb1d)lii. State program “Promoting the development of Russian manufacturers of bearings”, RF Government, 2014,(http://programs.gov.
ru/Portal/programs/passport/17)liii. “State program Subsidies for Russian producers of wheeled vehicles as compensation for R&D expenses and experiments con-
ducted for wheeled vehicles under the sub-program Automotive Industry of the RF state program State program Development of Industry and Raising its Competitiveness (other budget allocations)”, Russkaya Gazeta, 2014 (https://rg.ru/2014/12/23/avto-site-dok.html)
liv. Portal of RF state government programs (https://programs.gov.ru/Portal/programs/quarterMonitoring16&quarter=2&type=pgp&id=E3320825-A4E9-4DFB-B74F-044F8911CB2D&detail=0)
lv. RF Government Resolution No. 648 dated July 9, 2016 (http://government.ru/media/files/3bPQAbmcAXEWswkAcdQWQH-K2qIOyDDtp.pdf)
lvi. “On the Strategy for the scientific and technological development of Russia in the long term, 2014. (http://regulation.gov.ru/proj-ects#npa=49964 http://sntr-rf.ru/)
lvii. Reimbursement of certification expenses”, 2016 (http://www.worldico.org/ico/iso.html); “Subsidies for partial compensation of expenses incurred for receiving an international certificate” (http://dnpp.mos.ru/subsidies-for-partial-compensation-of-expens-es-connected-with-the-receiving-of-the-international-cer.php); Section 2.3 of Resolution No. 201 of the St. Petersburg Govern-ment as of March 23, 2016 (https://gov.spb.ru/law?d&nd=537991049&nh=1)
lviii. "State enterprise procurements may revive”, 2016 (http://fas.gov.ru/press-center/fas-in-media/detail.html?id=46405)lix. Reduced Rate for Russian software developers to be extended for six years”, Vedomosti, 2016 (http://www.vedomosti.ru/technol-
ogy/articles/2016/08/30/654926-stavka-rossiiskih-softa); “Ministry of Finance against benefits for IT”, Vedomosti 2016 (https://www.vedomosti.ru/technology/articles/2016/03/14/633330-minfin-vozrazhaet-protiv-it-lgot)
lx. "Report on government regulation of the oil and gas industry", Government of Norway, 2016 (http://www.norskpetroleum.no/en/, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/15593/4016-mou-app1.pdf), "Oil and gas sector development strategy OG21", Government of Norway, 2016 (http://www.forskningsradet.no/servlet/Satellite?blobcol=url-data&blobheader=application%2Fpdf&blobheadername1=Content-Disposition%3A&blobheadervalue1=+attachment%3B+file-name%3DOG21Bookletteknologiogmilj.pdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1274467401079&ssbinary=true ), "Chief auditor’s report", Government of Norway, 2016 (https://www.riksrevisjonen.no/en/Reports/Documents/AnswerMinister.pdf)
lxi. OGA Corporate Plan 2016-2021 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508803/OGA_Corporate_Plan_March_17th.pdf) , Call to action: six months on (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/458591/OGA_Call_to_Action_Six_Months_on.pdf), OGA overview (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/499160/OGA_Review.pdf), OGA site (https://www.ogauthority.co.uk/regulatory-framework/powers-sanctions/)
![Baranova, Yulia V. Russia in the field of innovations in ... · emphasis on information and communication technologies, software, and nano- and biotechnologies [2]. At the regional](https://static.fdocuments.net/doc/165x107/5b5da4e67f8b9ad2198ed682/baranova-yulia-v-russia-in-the-field-of-innovations-in-emphasis-on-information.jpg)
