Regional innovation policy with(out) clusters:

A plea for a differentiated and combined network approach to stimulating innovation

Oedzge Atzema & Evert-Jan VisserUtrecht Universitye.visser@geo.uu.nl

Regional innovation policy with(out) clusters:

A plea for a differentiated and combined network approach to stimulating innovation

Oedzge Atzema & Evert-Jan VisserUtrecht Universitye.visser@geo.uu.nl

StructureStructureStructureStructure

1. Problems of cluster-based policies

2. Innovation strategies of firms:– Types– Bottlenecks

3. Policy implications

4. Regional innovation policy?

5. Annexes: additional information (hand-out only)

1. Problems of cluster-based policies

2. Innovation strategies of firms:– Types– Bottlenecks

3. Policy implications

4. Regional innovation policy?

5. Annexes: additional information (hand-out only)

1. Cluster-based policies1. Cluster-based policies1. Cluster-based policies1. Cluster-based policies

At leat four key problems:

1. Risk of strategic failure

2. Risk of collective failure: imitation, overinvestment, competition on costs in stead of innovation

3. Hard to create clusters:– Necessary condition: presence and strength of

local self-augmenting processes– Sufficient conditions: industry and regional

features

At leat four key problems:

1. Risk of strategic failure

2. Risk of collective failure: imitation, overinvestment, competition on costs in stead of innovation

3. Hard to create clusters:– Necessary condition: presence and strength of

local self-augmenting processes– Sufficient conditions: industry and regional

features

Cluster policies (continued)Cluster policies (continued)Cluster policies (continued)Cluster policies (continued)

4. High opportunity costs:

– Overlooking the bottlenecks associated with each of the following innovation strategies of firms:

1. Constructing global pipelines2. Boosting local buzz3. Standing alone (relying on intra-firm

learning)

– Overlooking their potential when they are combined (comes back later)

4. High opportunity costs:

– Overlooking the bottlenecks associated with each of the following innovation strategies of firms:

1. Constructing global pipelines2. Boosting local buzz3. Standing alone (relying on intra-firm

learning)

– Overlooking their potential when they are combined (comes back later)

2. Innovation strategy types2. Innovation strategy types2. Innovation strategy types2. Innovation strategy typesStage

Source

Invention Development Adaptation Marketing

 Internal

       

  

External 

 

Local

Traded        

Untraded        

 

Global

Traded        

Untraded        

Stand-alone strategy

Local buzz strategy

Global pipeline strategy

BottlenecksBottlenecksBottlenecksBottlenecks

Stand alone strategies:

• hard to combine efficient use and effective search of knowledge

• difficult to keep track of fast developments

• risk of making wrong choices / need to adapt and update them (dynamic uncertainty)

• lack of strategic capacity and trust in the necessity and utility of innovation

Stand alone strategies:

• hard to combine efficient use and effective search of knowledge

• difficult to keep track of fast developments

• risk of making wrong choices / need to adapt and update them (dynamic uncertainty)

• lack of strategic capacity and trust in the necessity and utility of innovation

Bottlenecks (continued)Bottlenecks (continued)Bottlenecks (continued)Bottlenecks (continued)

Local buzz strategies:

• insufficient ‘cognitive distance’ • social nature of local networks, short-term

mindedness, local memberships of associations, etc.

Global pipeline strategies:

• miss frequent ‘face2face’ dialogue to assimilate, filter and adapt global knowledge to (local) markets.

Local buzz strategies:

• insufficient ‘cognitive distance’ • social nature of local networks, short-term

mindedness, local memberships of associations, etc.

Global pipeline strategies:

• miss frequent ‘face2face’ dialogue to assimilate, filter and adapt global knowledge to (local) markets.

3. Policy: goal setting3. Policy: goal setting3. Policy: goal setting3. Policy: goal setting

A differentiated and combined approach to innovation:

• addressing the specific needs of (actors using) the different innovation strategies

• combining the complementary knowledge effects of these strategies (Nooteboom’s cycle of discovery):

A differentiated and combined approach to innovation:

• addressing the specific needs of (actors using) the different innovation strategies

• combining the complementary knowledge effects of these strategies (Nooteboom’s cycle of discovery):

Consolidatie 

Vernieuwing

   

Reciprocation

DifferentiationInertia

Chaos

Exploitation

Exploration

 

         

Invention

Generalization

Consolidation

Elaboration: networksElaboration: networksElaboration: networksElaboration: networks

Organizational contexts for:1. Exploration:

– open, frequent but short-lived interactions– dense, flexible and decentralized networks– in or across firms, in (new) clusters or global

2. Exploitation:– well-defined, infrequent, long-lived interactions– well-structured, stable and centralized networks– in or across firms, in (mature) clusters, or GVCs

Transition in structural/spatial features of intra/inter-firm networks = key in innovation processes

Organizational contexts for:1. Exploration:

– open, frequent but short-lived interactions– dense, flexible and decentralized networks– in or across firms, in (new) clusters or global

2. Exploitation:– well-defined, infrequent, long-lived interactions– well-structured, stable and centralized networks– in or across firms, in (mature) clusters, or GVCs

Transition in structural/spatial features of intra/inter-firm networks = key in innovation processes

Goal 1: avoid competence trapsGoal 1: avoid competence trapsGoal 1: avoid competence trapsGoal 1: avoid competence traps

1. Inertia: getting stuck in exploitation. • Requires timely move to 2nd round of exploration• Stand-alone: interact with competitors, change managers,

suppliers and clients• Mature clusters: allow for entry (start-ups, relocation) and for

exit (global pipelines)

2. Chaos: in interactions with cognitively distant actors.• Requires e.g. accommodation or consolidation in face2face

settings• Global networks: e.g. localize linkages

1. Inertia: getting stuck in exploitation. • Requires timely move to 2nd round of exploration• Stand-alone: interact with competitors, change managers,

suppliers and clients• Mature clusters: allow for entry (start-ups, relocation) and for

exit (global pipelines)

2. Chaos: in interactions with cognitively distant actors.• Requires e.g. accommodation or consolidation in face2face

settings• Global networks: e.g. localize linkages

Goal 2: solve governance problemsGoal 2: solve governance problemsGoal 2: solve governance problemsGoal 2: solve governance problems

• WHY? Because of relational risks/problems:

1. lock-in: specific investments in understanding yield switching costs and dependence. Getting stuck in a relation, a network or region

2. unwanted spillover, depending on tacitness, absorptive capacity and cognitive distance

3. conservatism: insufficient dynamism of prospective partners4. Alliance innovation: a credence product?

• WHEN, HOW and WHO? Next slide..

• WHY? Because of relational risks/problems:

1. lock-in: specific investments in understanding yield switching costs and dependence. Getting stuck in a relation, a network or region

2. unwanted spillover, depending on tacitness, absorptive capacity and cognitive distance

3. conservatism: insufficient dynamism of prospective partners4. Alliance innovation: a credence product?

• WHEN, HOW and WHO? Next slide..

Elaboration: brokersElaboration: brokersElaboration: brokersElaboration: brokers

• WHEN? Timely. Context and path dependent transition requirements.

• HOW? Continuous updating and upgrading of market, technological and social knowledge.

• WHO? – when/how = too complex for public actors– private brokers: 1. Functions: enable small/infrequent transactions, filter

against spill-over, prevent unnecessary breakdown of trust, act as a boundary spanner, damage control

2. CV: experienced persons (so• Public roles: recruiting, start-up funding, monitoring

• WHEN? Timely. Context and path dependent transition requirements.

• HOW? Continuous updating and upgrading of market, technological and social knowledge.

• WHO? – when/how = too complex for public actors– private brokers: 1. Functions: enable small/infrequent transactions, filter

against spill-over, prevent unnecessary breakdown of trust, act as a boundary spanner, damage control

2. CV: experienced persons (so• Public roles: recruiting, start-up funding, monitoring

4. Regional innovation policy?4. Regional innovation policy?4. Regional innovation policy?4. Regional innovation policy?

• Towards a decentralized and multi-scale system of innovation geared towards firm-level strategies

• Regionalization?

1. Objectives: embedding firms in these ‘regions’ 2. Operation: the policy may involve inter-regional

coordination and may cross national borders3. Instruments: different starting conditions and

embedded knowledge of brokers4. Finance: public to private, and therewith central

to decentral

• Towards a decentralized and multi-scale system of innovation geared towards firm-level strategies

• Regionalization?

1. Objectives: embedding firms in these ‘regions’ 2. Operation: the policy may involve inter-regional

coordination and may cross national borders3. Instruments: different starting conditions and

embedded knowledge of brokers4. Finance: public to private, and therewith central

to decentral

Annex 1: Annex 1: Some conceptsSome concepts

Annex 1: Annex 1: Some conceptsSome concepts

Value chain

Cluster

Network

Diagonal linkage: bank, knowledge institute, consultant, machinery

Network type of linkage

Source: own elaboration based on Klein Woolthuis & Nooteboom 2005

Chains, networks, and clustersChains, networks, and clustersChains, networks, and clustersChains, networks, and clusters

Atmosphere, broadcasting, noise, buzz (Bathelt et al ‘03):• “Buzz refers to the information and communication

ecology created by face-to-face contacts, co-presence and co-location of people and firms within the same industry and place or region”

• Accidental and purposeful, personal and business• Continuously updated data turning into know-how• No investment: passive process/advantage• Different quality of buzz: multiple ties (friends,

agents, mentors, business partners) = different IC modes (negotiation, chatting, gossip, dialogue)

• Local absorptive capacity: language, institutions

Atmosphere, broadcasting, noise, buzz (Bathelt et al ‘03):• “Buzz refers to the information and communication

ecology created by face-to-face contacts, co-presence and co-location of people and firms within the same industry and place or region”

• Accidental and purposeful, personal and business• Continuously updated data turning into know-how• No investment: passive process/advantage• Different quality of buzz: multiple ties (friends,

agents, mentors, business partners) = different IC modes (negotiation, chatting, gossip, dialogue)

• Local absorptive capacity: language, institutions

BuzzBuzzBuzzBuzz

• A well-connected cluster to the rest of the world is beneficial for clustered firms in two ways:

1. Directly, for the firms accessing that knowledge (absolute absorptive capacity matters)

2. Indirectly, enjoying spillovers (relative absorptive capacity matters; Giuliani 2005)

• A well-connected cluster to the rest of the world is beneficial for clustered firms in two ways:

1. Directly, for the firms accessing that knowledge (absolute absorptive capacity matters)

2. Indirectly, enjoying spillovers (relative absorptive capacity matters; Giuliani 2005)

PipelinesPipelinesPipelinesPipelines

Annex 2:Annex 2:Examples of firms in the Examples of firms in the

Utrecht, Gooi & Eemland Utrecht, Gooi & Eemland region using global pipeline, region using global pipeline, local buzz and stand-alone local buzz and stand-alone

innovation strategiesinnovation strategies

Annex 2:Annex 2:Examples of firms in the Examples of firms in the

Utrecht, Gooi & Eemland Utrecht, Gooi & Eemland region using global pipeline, region using global pipeline, local buzz and stand-alone local buzz and stand-alone

innovation strategiesinnovation strategies

Example: global pipelinesExample: global pipelinesExample: global pipelinesExample: global pipelines

• MNE, IT hardware and services: increasing speed of innovation of clients. Involved in 350 global alliances. World: huge knowledge reservoir. Region unimportant for innovation.

• Same sector, medium-sized firm: improves downstream competitiveness of clients; upstream organizational change follows. Make explicit, digitalize, decouple, circulate, new meanings and knowledge. Internal and network sources of innovation: partners in Sweden, USA (IBM, Microsoft: leader firms), UK, Australia, Southeast Asia. Face2face contact required, region unimportant for innovation.

• MNE, IT hardware and services: increasing speed of innovation of clients. Involved in 350 global alliances. World: huge knowledge reservoir. Region unimportant for innovation.

• Same sector, medium-sized firm: improves downstream competitiveness of clients; upstream organizational change follows. Make explicit, digitalize, decouple, circulate, new meanings and knowledge. Internal and network sources of innovation: partners in Sweden, USA (IBM, Microsoft: leader firms), UK, Australia, Southeast Asia. Face2face contact required, region unimportant for innovation.

Example: local buzzExample: local buzzExample: local buzzExample: local buzz

• Decentralized bank. Motivates other firms to engage in MVO. E.g. problem (of misbehaving youngsters with foreign background) solved jointly (labour market options and experience). Leader firm: positive externalities (safety, ethnic reputation) partly internalized (financial status of clients, future clients). Depends on willingness to invest of others. Creates awareness, common vision.

• Advertising company: multi-media, multi-scale, for SMEs. Local processes, sense of belonginess and participation: attract advertising. Key alliance with local FC and broad-casting firm. Proximity, regional identity and creativity to link local actors beyond soccer = advertising turnover.

• Decentralized bank. Motivates other firms to engage in MVO. E.g. problem (of misbehaving youngsters with foreign background) solved jointly (labour market options and experience). Leader firm: positive externalities (safety, ethnic reputation) partly internalized (financial status of clients, future clients). Depends on willingness to invest of others. Creates awareness, common vision.

• Advertising company: multi-media, multi-scale, for SMEs. Local processes, sense of belonginess and participation: attract advertising. Key alliance with local FC and broad-casting firm. Proximity, regional identity and creativity to link local actors beyond soccer = advertising turnover.

Example: standing aloneExample: standing aloneExample: standing aloneExample: standing alone

• Software maker. Demand oriented innovation. Spin-off firm innovating on the basis of internal resources. Networks, clusters, region: unimportant for innovation. “What we do and how we innovate is not related to our location. We can do it everywhere, as long as we have good people. We have a good reputation, so good people want to work for us”. Does not mean that the firm can go anywhere at any time. Location of offices close to residence of skilled workers.

Source: Atzema & Visser 2005b

• Software maker. Demand oriented innovation. Spin-off firm innovating on the basis of internal resources. Networks, clusters, region: unimportant for innovation. “What we do and how we innovate is not related to our location. We can do it everywhere, as long as we have good people. We have a good reputation, so good people want to work for us”. Does not mean that the firm can go anywhere at any time. Location of offices close to residence of skilled workers.

Source: Atzema & Visser 2005b

Annex 3: stages in the cycle of discoveryAnnex 3: stages in the cycle of discoveryAnnex 3: stages in the cycle of discoveryAnnex 3: stages in the cycle of discovery

• Invention = creation of something new: a novelty

• Consolidation: filtering the novelty: eliminating redundant elements, improving parts. Leads to a dominant design

• Generalization: applying the newly consolidated design in a variety of contexts

• Differentiation: making minor adjustments in those contexts (where different requirements may exist)

• Reciprocation: mirroring (one’s approach/process/product) with another; making hybrids

• Accommodation (not on slide 8): restructuring of cognition, organization, skill

• Invention = creation of something new: a novelty

• Consolidation: filtering the novelty: eliminating redundant elements, improving parts. Leads to a dominant design

• Generalization: applying the newly consolidated design in a variety of contexts

• Differentiation: making minor adjustments in those contexts (where different requirements may exist)

• Reciprocation: mirroring (one’s approach/process/product) with another; making hybrids

• Accommodation (not on slide 8): restructuring of cognition, organization, skill