Growth in innovation is crucial for the economy
WHILST change is usually a long drawn-out process that can take years if not decades to take effect, there is a revolution in the development of innovation that is slowly but surely changing the way that economies achieve competitive advantage in a rapidly changing global business environment.
During the late 19th and 20th centuries, the process of innovation was driven by businesses generating product ideas internally which they would then develop, manufacture and sell themselves.
As a result, they gained competitive advantage through heavy investment in research and development (R&D) and hiring the brightest people to get to market first.
Once this was done, companies would then protect their new products through aggressively controlling intellectual property to stop anyone else exploiting it.
This would then result in greater profits which could then be reinvested in more R&D and hiring more staff to develop more new products, thus creating a virtuous circle that led to a small number of large firms dominating key technology-based industries.
This looked set to continue for years to come until businesses started to realise that not only could not generate every idea internally, but that they could utilise external ideas to develop innovation and new paths to market.
This process, defined in 2003 by the American academic Henry Chesbrough as “open innovation”, meant that rather than just using intellectual property to develop its own products and services, a business could increase profits dramatically by working with others to exploit its full potential.
So rather than having only one part of an organisation – the R&D department – developing new technologies, products and services, open innovation has opened up access to a whole range of external actors – such as suppliers, customers, universities and even competitors – that has helped to profitably exploit new knowledge.
Certainly, for firms looking for every type of competitive advantage in the market-place, working closely with external partners not only helps to exploit their own ideas but, more importantly, enables them stay alert to new external opportunities in their business environment.
But whilst open innovation sounds like a perfect way for organisations to develop new ways of doing things, it can have its drawbacks. For example, by working with other external partners, there is the danger that the knowledge on which smaller companies rely for their competitive advantage could be lost to, or exploited by, larger and more well-resourced partners.
Of course, with knowledge increasing exponentially, many businesses can no longer afford to rely entirely on their own R&D but will, instead, need to buy or license ideas or inventions from other organisations if they are to prosper.
Unfortunately, those organisations which generate such knowledge, such as universities, are generally reluctant to share their intellectual property with local firms for the benefit of the nation. This is despite the fact that it is absolutely crucial for an economy to ensure that innovation grows and that knowledge is transferred into those businesses that are in a position to maximise its potential.
To make this happen, there is a critical role for policymakers to shape the environment in which open innovation can thrive although this is not always easy as it can cut across a range of areas such as education policy, labour market policy, business support and fiscal policy. As a result, any government intervention would need to be planned carefully.
Whilst there are specific initiatives that can be developed in the areas of intellectual property management and R&D, perhaps one of the most important areas where government can intervene is in the area of developing networking amongst organisations, as it allows businesses to understand where the gaps in knowledge are and how to fill them. More relevantly, it can act as the source of new ideas from a range of partners which can drive greater open innovation.
So what can government do to support such an open innovation network?
First of all, it can develop policies to support enterprises in assessing and improving their networking skills by fostering knowledge development and competences in these areas. This can be done by providing information or by disseminating best practices in open innovation practices which cur
rently is not been doing at any scale.
It can also directly target the interaction between open innovation partners by fostering partnerships and encouraging greater collaboration through funding innovation competitions.
Whilst it could be argued that organisations such as Innovate UK are encouraging such an approach, there is no formal process for such interactions. Indeed, regional organisations such as the Cardiff Capital Region or the North Wales Economic Ambition Board could support the creation of innovation intermediaries whose role is to bring various actors together to exchange knowledge, receive feedback and create relationships that benefit the region.
Finally, both the UK and Welsh governments, if they are keen to boost the innovative potential of businesses, could create financial incentives to boost R&D through open innovation and encourage businesses to adopt greater collaboration.
Therefore, open innovation can offer great opportunities for businesses large and small across the UK and one would hope that as we look to boost competitiveness after the Covid economy, policymakers will work together with universities and industry to develop an environment in which open innovation is not only encouraged but is fully supported for the benefit of our economy.