Issue 16 spring 09

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eIQ Action Points – rethinking public policy in the light of open innovation

Dr Frédérique Sachwald is head of the business R&D unit at the French Ministry of Higher Education and Research in Paris. The business R&D unit manages the French R&D tax credit scheme. She is also involved in a number of studies and working groups on the strategy and evaluation of France’s research and innovation policy. She is the French delegate to the OECD Committee for Science and Technology Policy and a member of the EU Commission expert group.

Sachwald was formerly head of economic studies at IFRI (French Institute for International Relations, Paris). She has published extensively in the fields of international economics and innovation studies. She has taken a particular interest in the development of global production and innovation networks by companies and their impact on trade, knowledge flows and local economies. Her latest report deals with open innovation among companies and its consequences for public policies.

Open innovation, the idea that companies will create future generations of products and services as much through partnerships, licensing and corporate ventures as through their own efforts, has become an increasingly well-known concept since it emerged from the US earlier this decade. The OECD found open innovation sufficiently compelling to conduct a study between 2006 and 2008, to which France contributed. This was the first opportunity to consider how national public policy could be affected by the diffusion of open innovation and to consider the specific case of France. This work provided useful insights during the ongoing preparation of the National Research and Innovation Strategy, which involves thematic working groups. The group debating the French innovation ecosystem includes academics, companies, technology transfer organisations and policy makers. The group has been discussing various proposals to strengthen the French ecosystem, including those discussed below. 

The first question is whether open innovation is a worthwhile approach.

Does open innovation mean less R&D?

Some in the research community fear that open innovation could result in both less R&D within companies and less support for academic research. In fact, companies that are using open innovation successfully keep investing in internal R&D, in order to nurture their ability to absorb new technology and their capability to take advantage of partnerships. It is also important to have internal R&D to attract the kind of senior scientists that can choose good partners and structure worthwhile collaborations.

In the context of open innovation, companies are attracted to academic research as a necessary source of the frontier results they want to access. They tend to seek out the best talent they can find at the world level, and public policies have been recognising the importance of promoting excellence in academic research. In France, for example, the Agence nationale de la recherche was created in 2005 precisely to promote excellence by selecting research projects on a competitive basis.

There are some concerns in France that open innovation may be a way for foreign companies to exploit local technology. Some feel that efforts to nurture start-ups, an important part of a rich open innovation ecosystem, are wasted, since some of the most successful get bought by American or other foreign companies that take the technology, and the benefits it brings, across the Atlantic.

Studies suggest that companies that engage in open innovation are more successful innovators than those that don’t

However, economic and management studies conducted in several countries suggest that companies that engage in open innovation are more successful innovators than those that don’t. Open innovation enables firms to access a much wider range of knowledge and ideas than their in-house capabilities can generate. Openness to external inputs can reduce the cost and accelerate the process of innovation. More fundamentally, openness may allow firms with established markets and technologies to achieve successful radical innovation when incremental innovation is insufficient to keep up with the competition. The globalisation of open innovation networks increases firms’ ability to access different knowledge and environments. Global networks can thereby become powerful vehicles for knowledge hybridisation or for reducing the cost of innovation. And despite the idea that open innovation is just for large companies, studies from the Nordic countries show that SMEs can take advantage of open innovation practices. It follows, therefore, that it is worth considering whether to adapt public policies to encourage and support it.

Thinking about policy

Open innovation is relatively new to the research and innovation policy community, so we have limited practical experience of the impact it should have on policy design. Nevertheless, policy instruments have already changed as the result of some open innovation practices. For example, policies have been adapted to the increasing use of R&D partnerships, and in France, to the promotion of public/private partnerships and clustering. What’s new is better understanding of the role of openness throughout the innovation process. Open innovation requires an adaptation of the overall ecosystem, to allow for public-private partnerships, but also for the development of knowledge markets as well as dynamic start-ups. An open innovation perspective also clearly emphasises the role of demand as a driver of the innovation process. There is widespread recognition of the increasing role that demand for innovation can play, and the resulting need to emphasise the connections between demand pull and technology push.

For clusters to work at the frontier of emerging technologies, global connections are vital

The open innovation paradigm thus helps update our understanding of innovation processes and can help strengthen some existing policy instruments. Take clustering, a strong part of French policy to increase the competitiveness of its companies by gathering them into regions where they can collaborate amongst themselves and with public research and higher education more effectively. The ‘pôles de compétitivité’  have been designed to concentrate and stimulate French innovation capabilities in a number of fields, in order to compete as nodes in global networks. For such clusters to work at the frontier of emerging technologies, global connections are vital since companies look for global reach in the open innovation networks they build. The French ‘pôles de compétitivité’  now work at strengthening their European and global connections. For example, System@tic, an ICT cluster, has built partnerships with Point One in the Netherlands and BICC-net in Munich. It strengthens its network in Europe and is also opening an office in Boston. Public policies can contribute to such efforts by stimulating the ability of clusters to nurture global connections, and by providing incentives for doing so.

The open innovation perspective also contributes to the increasing attention being devoted to the role of demand and customers in ‘pulling’ innovation. As a result, a number of national and international policy circles are discussing demand-oriented policy instruments. At the EU level, the ‘lead markets’ initiative is one such recent instrument. At the national level, the evolution of public procurement criteria is being considered as a way to promote demand for innovation.

Young innovative firms

Start-ups play an important role in open innovation, but they require an adequate ecosystem to develop and interact with incumbents. In the United States, the large venture capital market played an important role in the development of open innovation. This active market has generated a continuously-renewed stock of start-ups available for acquisition; and their very existence has influenced the way large companies envisage their technological renewal and their entry into new markets. Similarly, the systematic use of licensing, into and out of the company, depends on the development of markets for technology, which in turn requires a favourable environment in terms of intellectual property and information.

In Europe, ecosystems are less favourable to the development of high-tech start-ups and their interactions with incumbents to stimulate emerging sectors. Since the 1990s, European policymakers have been trying to adapt the ecosystems to allow stronger growth of innovative start-ups.
                  
In France, for example, public policies have efficiently created a favourable ecosystem for the creation of innovative firms. One such policy has facilitated the creation of companies by public researchers. However, these innovative young firms tend to remain very small. Although public funding does help start SMEs, what they need most is access to public and private markets. An open innovation perspective again underscores the role of demand. From this perspective, start-ups clearly need early access to market. As a result, they need an ecosystem in which both large companies and the public sector routinely accept that it is OK to buy from them. The French Passerelle programme is one recent instrument designed to promote such behaviour. An agency called Oséo Innovation provides public funding as an incentive for a large company to cooperate with an SME to bring an innovation to market and then purchase the new product or service. The public funding reduces the risk for the large company so that it more readily becomes the first client of the new product or service. Efforts are also being made to make it possible for public procurement agencies to buy from innovative SMEs.

Public policies can also help SMEs take advantage of open innovation by sorting out intellectual property issues. In Europe, one option is to give stronger backing to the community patent, to simplify and reduce the costs of patents for smaller companies, and also to make it easier to transfer technology from public laboratories to private companies. We need a strong patent system that costs less to use and which maintains the quality standards necessary to make it a worthwhile instrument.

Technology transfer

Open innovation implies that industry will get more of its new technology from public-sector research organisations. So it’s important that the process of transferring technology from academia to industry is as efficient as possible.

We have more than 80 universities in France, some of which are already pooling resources for teaching and research to strengthen their academic performance. Efforts are also being made to pool technology transfer capabilities. From a strategic perspective, technology transfer capabilities could be concentrated in perhaps a dozen offices that each serve several universities so that they offer more professional and efficient services.

These offices can take a more strategic role, concentrating on diffusing public research into the private sector. They can also help academics get better acquainted with the process of working with industry. As a result they would both better perceive opportunities to spin off their research results and develop a more realistic view of the value of their work.

A better understanding of R&D partnerships and funding criteria

As they develop global open innovation networks, companies seek out excellent research wherever they can find it. It is thus important for policy makers to have a good understanding of the dynamics of innovation networks in order to design adequate incentives. In particular, it may be important to distinguish partnerships aimed at radical innovation from those aimed at incremental innovation. In the case of fundamental research or radical innovation, it may be necessary to adjust the funding criteria of R&D programs to reflect the increasing priority of excellence.

Some European R&D funds ask that the projects they support offer both academic excellence and partnerships with institutions from several EU countries. The more recently launched European Research Council, which is meant to stimulate world-class academic research, focuses on excellence to select projects. Similarly, at the national level, it would be useful to check the alignment between incentives aimed at promoting R&D partnerships and the type of R&D or innovation that each policy instruments wants to support.

Global open innovation networks vs offshoring

The key reason for studying open innovation from a policy perspective is to see whether, by supporting it, we can improve innovation performance and, beyond that, the quality of life for citizens.

For example, global open innovation networks mean that non-European companies that invest in R&D within the EU contribute to the development of local capabilities but may send much of the economic and financial benefit back to their home countries. Despite this, EU countries compete to attract such ‘inward investments’, to gain the related benefits such as local activity and highly skilled jobs. We thus need to consider the dynamics of talent and knowledge circulation involved in the development of global open innovation networks. They may involve European companies sending R&D work offshore, be it the United States, India or China, in order to improve their innovation capability and their competitive position. Should the home country consider supporting that investment because of the overall benefit it is expected to bring?

This issue has already been raised in some European countries. Public policies tend to focus on supporting research that generates employment and added value in the home country. As global open innovation networks develop and knowledge becomes more mobile within these networks, countries may be able to draw increasing benefits from research done abroad. In such a context, it becomes relevant to consider whether it might be in the national interests to have policy instruments that support international R&D activities. This issue has not yet been fully explored and requires more work. It might be best considered at OECD and EU levels first, an effort that could also consider the R&D involved in facing global challenges.

Conclusion

When you look at research and innovation policies through the lens of open innovation, a number of things become clear. Academics and companies alike will seek out excellent partners to maximise their chances of success in research and innovation, so if you want to be an attractive partner, you need to focus on excellence.

Open innovation supports good science, but tends to activate its transfer from academic research to companies, and to reshape it, through specialisation and multi-disciplinary projects.

Public policies already support aspects of open innovation, but could be refined to do so more systematically by promoting knowledge exchanges throughout the ecosystem and with the world.

By increasing the return from our R&D investments, we could boost firms’ innovation performance, and our collective capability to address global challenges such as climate change and ageing.

by Frédérique Sachwald

head of the business R&D unit at the French Ministry of Higher Education and Research
frederique.sachwald@recherche.gouv.fr

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eiq-2009-016-0018