The essence of a national innovation system

Dr. Heikki Kotilainen

Deputy Director General

Tekes, the National Technology Agency

Prague 30.11.2004

Dr. Heikki KotilainenDeputy Director General

Dr. tech. in mechanical engineering and physical metallurgy, studies in Germany and Austria

Work in business and research In Tekes since establishment 1983 Responsible for international

cooperation, national programmes, funding

Industrial councellor in Boston U.S. (1993-95)

Secretary General of EUREKA in Brussels (1999-2003)

Currently responsible for international innovation benchmarking and strategic planning

INNOVATION

SCIENCETECHNO

LOGY

PUBLIC FUNDING

The essence of a national innovation system

•Innovation system and policy•Operational aspects

•Impelementation of the policy•Finnish solution

•Conclusions

THE POLICY DEVELOPMENTS IN FINLAND

?

1945

•LACK OF CONSUMER GOODS

•INDEPENDENT INDUSTRIES•DOMESTIC

MARKET

•RAW MATERIALS ASCOMPETITIVE FACTOR•GROWING NATIONAL

DEMAND•INVESTMENT

SUBSIDIES

MANUFACTURING DRIVEN

•INTERNATIONAL COMPETITION

•TECHNOLOGY POLICY•TECHNOLOGY

SUBSIDIES

INVESTMENT DRIVEN

•INTERNATIONALCOOPERATION

•SKILLS AS COMPETITIVEFACTOR

•INTRODUCTION OFNATIONAL INNOVATION

SYSTEM•PRECONDITIONS FOR

TECHNOLOGICAL&SOCIETAL ADVANCEMENT•RISK/VENTURE

CAPITAL

MARKET/INNOVATION DRIVEN

•TECHNOLOGY&SOCIETY

•POLICY FORSOCIAL SCIENCES

SURVIVAL POLICY

WEALTH DRIVEN ?

2000

TTKK TM19/HK 2.3.1999

TECHNOLOGICAL ADVANCEMENT

NATIONAL COMPETITIVENESS

© S&T Balance

Key questions concerning public innovation system

Institutional structures what are the main organizations involved? what is their role and function in policy design and

implementation, and budget allocation? what are the linkages among these organizations?

Organizational structures what is the structure of individual organization? what is the legal set-up of the main organization? what are the funding instruments and how are they

implemented?

© S&T Balance Public innovation system

TE CENTRES

FINPRO

SCIENCE PARKS

POTENTIAL INNOVATIONSOCIAL & BUSINESS DEMAND

INNOVATION ROUTE THROUGH THE PUBLIC INNOVATION SYSTEM IN FINLAND

MARKET

MARKET ADAPTATIONINDUSTRIAL APPLICATION

R&D SUPPORT

•VTT•UNIVERSITIES

•POLYTECHNICS

PUBLIC FINANCING

•TEKES•ACADEMY OF FINLAND

•TEKES•ACADEMY OF FINLAND

PRIVATE/SEMIPRIVATEFINANCING

R&

D A

ND

IN

NO

VA

TIO

N

DE

VE

LO

PM

EN

T

MIN

IST

RIE

S A

ND

GO

VE

RN

ME

NT

AU

TH

OR

ITIE

S

PO

LIC

Y P

LA

NS

,R

EG

UL

AT

ION

S,S

TA

ND

AR

DS

,LA

WS

SCIENCE & TECHNOLOGY

POLICY COUNCIL

INNOROUTE3/HK 6.5.1999

•FINNISH INSTITUTEOF INVENTIONS

© S&T Balance

•SITRA•FINNVERA

•SITRA•FINNVERA

VENTURE CAPITAL

Planning and implementing of technologyand innovation policy

3 year outlines

Ministries(Education, Trade&Industry, Finance etc.)

Annual objectives and agreements

Institutions(Academy of Finland, Tekes, Universities

VTT, Sectoral Institutes)

GovernmentParliament

Science and technology policy council

Annual & semi-annualreports

and feedback

Planning

Implementingthe policy

Annual budget(law)

BALANCE BETWEEN THE SCIENCE, TECHNOLOGY AND SOCIAL DEVELOPMENT

MAINTAIN CLEAR NATIONAL FOCUS

MANAGE KEY DEMANDS

PROACTIVE VISION

(Science and University Community, Society)

BOTTOM-UP REQUESTS

ADAPTING TO CUSTOMERS

(The Business Community, Society)

Mukula 15/HK 2.6.1999

NATIONAL POLICY/STPC

National Authorities

© S&T Balance

The effectiveness of public R&D support

TH

E B

EN

EF

IT O

F S

OC

IET

Y

THE SPEED OF IMPACT

BASIC RESEARCH

NATIONAL PROGRAMMES

APPLIED RESEARCH

INDUSTRIAL R&D

DIRECT SUBSIDIES

SLO1/HK 7.4.1999

MATURITY OF THE SOCIETY

ALLOCATED PUBLIC MONEY

SCIENCE POLICY

TECHNOLOGY POLICY

INDUSTRIAL POLICY

© S&T Balance

INNOVATION POLICY

”Protection-Promotion-Policy”

BERD/GERD of Finland 1981 - 2003

50

55

60

65

70

75

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

%

Science Policy

Technology Policy

Innovation Policy

BERD/policies© S&T Balance

R&D/GDP in Finland 1981-2003

0

0,5

1

1,5

2

2,5

3

3,5

4

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

%

Science Policy

Technology Policy

Innovation Policy

R&D/GDP,policies

© S&T Balance

Guidelines and Prerequisites for Establishing Innovation Policy

•Main target: High return of R&D investment•Secure sufficient industrial R&D investment

•Do not copy – no directly adaptable features

•Environment is dynamic – create a continuous process

•Iterative process- questions & answers – solutions

•Consider methodology – not single tasks. Single tasks can serve as concrete examples for the creation

of process/methodology

•Statistical data

•Auditing the innovation infrastructure

Guidelines© S&T Balance

FACTORS IN THE DEVELOPMENT OF THE INNOVATION SYSTEM

•LARGE ENTITIES UNDER CONSIDERATION•UNIVERSITIES AND SECTORAL RESEARCH AS A PART OF THE INNOVATION SYSTEM (human resources)•CENTRES OF EXCELLENCE FOR RESEARCH AND EDUCATION

ORGANISATIONALCONSIDERATIONS

•SELECTIVE CHOICE AND PRIORISATION OF TOPICS•TECHNOLOGY PROGRAMMES FOR INDUSTRIAL CLUSTERS•MARKET ORIENTED RESEARCH (product development)•INTERNATIONAL COOPERATION•FOLLOW-UP AND EVALUATION

RESEARCHCONSIDERATIONS

•GOVERNANCE (norms, rules, regulations, laws)•NETWORKING BETWEEN THE ACTORS (vendor/ distribution channels)•LEGITIMATION (creation of trust)•IPR PROTECTION•VENTURE CAPITAL INVOLVEMENT

INSTITUTIONALCONSIDERATIONS

Pres/factors innovation system

© S&T Balance

SUMMARY

CHARACTERISTICS OF FINNISH INNOVATION POLICIES

Networking among all relevant actorsCooperation (triple helix)System approach, large entities (value chain)

e.g. clusters under considerationHighly targeted approach and clearly defined

goalsStrong technology orientationRegional aspects, not policy – networking

instead of subsidies

Vinnova årsmöte

Multiplication of public money in the innovation system

Short term investment

Long term investment

GovernmentParliamentMinistries

GovernmentParliamentMinistries

Funding agency•grants•loans

•equity funding

Funding agency•grants•loans

•equity funding

UniversitiesResearch institutes

UniversitiesResearch institutes

Cumulative tax

Public finance

New technology, knowledge, skills

Businesses, employment

Venturecapital

Pres/Multiplicatioon publicmoney(c)S&T Balance

Prerequisites for administration involvement in R&D

•Business and research understanding

•Genuine interest in facilitating development

•Trust by industrial community

•Trust by research community

•Money and funding opportunities

Admini.involvement

State Incentives: The Business Perspective*

If the program is a grant, is the grant made directly to the company, or is it given to a locality, which in turn will pass along the incentive to the investor in some fashion?

What are the terms of the grant? Although the idea of a grant generally implies no responsibility to pay it back, there may be some that do expect payback.

What obligations does the grant carry for the firm, both financial, and non-financial?

If the incentive involves debt financing, how does the state view the debt in the hierarchy of corporate obligations?

If debt finance, who is the actual lender and who sets the terms? If a participation loan, what are the composite terms? Who sets uinderwriting criteria for the loan, and what are they? Does the incentive carry any matching requirements, and what are

they? For all types of incentives, what are the requirements in terms of job

creation, investment leveraging and/or tax revenue generation? What are the reporting requirements? What are the consequences if initial projections are not met?

* Directory of State Business Development Incentives, NASDA 2002

Acceptability of state aid and other incentives Acceptability of state aid and other incentives in the society in the society

COMPLIANCE with national and

international legislation

TRANSPARENCYof criteria and processes

EFFECTIVE Implementation

Speed is crucial!

FLEXIBLE adaptation to rapidly

changing environment

UNDERSTANDABLEand

PREDICTABLEoperation

WIDE ACCEPTANCE in the society

CONTINUOUS EVALUATIONof results and processes

CONTINUOUS EVALUATIONof results and processes

FEEDBACKFEEDBACK

DEFINITION OF INNOVATION

RESEARCH, KNOWLEDGE, IDEA,TECHNOLOGY

INVENTION

INNOVATION

IMITATION

BU

SIN

ES

S

Innovation def.© S&T Balance

”If innovation is the commercial application of existing knowledge in a new context,

technologically driven innovation is only one form of this. Innovation is distinct from

research, which results in new knowledgeand from the entrepreneurial function that

spots market opportunities for products and services. It is the result of the interaction of

these two functions””Innovate for a competitive Europe”,

A new Action Plan for Innovation, European Commission, 2004

CUSTOMERS

MARKETS

BUSINESSMODELS

RESEARCH AND INNOVATION

Scientific excellence Turnover/earnings

Growth and Employment

Meet R&I

Business modelsCustomer needs

New knowledgeCuriosity

R & DWORK

InnovationResearch

© S&T Balance

”If innovation is the commercial application of existing knowledge in a new context, technologically driven innovation is only one form of this. Innovation is distinct from research, which results in new knowledge and from the entrepreneurial function that spots market opportunities for products and services. It is the result of the interaction of these two functions”

”Innovate for a competitive Europe”,

A new Action Plan for Innovation,

European Commission, 2004Linear model

RESEARCH PARADIGMS

Old paradigm (Linear model)

BASIC RESEARCH APPLIED RESEARCH DEVELOPMENT

New paradigm (Concurrent model)

DEMAND

SCIENTIFIC UNDERSTANDING

TECHNOLOGICAL SOLUTIONS

PROBLEMSOLVING

BUSINESS OPTIONS

MA

RK

ET

Basic research

Applied research

Development

SO

CIE

TA

L &

BU

SIN

ES

S

C

HA

LL

EN

GE

S

TTKK TM 15/HK 2.3.1999© S&T Balance

The Interface of Research and Industry

•CURIOSITY

•KNOWLEDGE CREATION

•SCIENTIFIC EXCELLENCE

•PUBLICATIONS

•CUSTOMER NEEDS•MARKET&MARKETABILITY

•STRATEGY•PRODUCT PORTFOLIO

•R&D PORTFOLIO•COMPETENCE

•MONEY&FINANCING•IPR

•REVENUES

RESEARCH INDUSTRY

TE

CH

NO

LO

GY

T

RA

NS

FE

R

R&I interface

PRIORITIES OF THE INNOVATION SYSTEMCase: Finland

RESEARCH FACILITATOR ENTERPRISES

QUALITY:APPROPRIATE

STANDARD

RELEVANCE

EFFECTIVENESS

PUBLIC FINANCE

NATIONALPROGRAMMES

VENTURE CAPITAL

IPR PROTECTION

ARTICULATION OF NEEDS

APPROPRIATETECHNOLOGY

ABSORB NEWTECHNOLOGIES

Pres/ priorit,innovation system

SUPPLY DEMAND

Technology programmes

#54280

Steering• enterprices

Tekes• preparing• co-ordi- nating• decision making

Grants

GrantsLoansCapital loans

Company R&D projects

Public research projects

SynergyNetworking

Concurrent developmentPart financing

Implementation of results of public research is basedon parallel execution and networking with company projects.

23 on-going programmes in 2004 with a total extent of EUR 1.2 billion a programme lasts typically 3–5 years annually 2000 company participations annually 800 research unit participations Tekes usually finances - 60–80 % of university projects - 25–50 % of company projects

Funding flows of Tekes funded R&D projects betweenlarge companies, research organisations and SMEs

DM 5877405-2003 Copyright © Tekes

Large companies (more than 5 000 employees) receive 8 % of Tekes total funding and 13 % of Tekesbusiness R&D funding. Large companies co-finance Tekes R&D projects in universities, public researchcentres and SMEs more than Tekes finances their projects.

This system is managed by Tekes funding criteria. The system increases the quality of R&D projects andhas important externalities in:

• knowledge transfer between large companies and research organisations

• development of SMEs as subcontractors and strategic partners of large companies

Annual average 2000 - 2002Million euros

Universities

Public research centres

SMEs

Large companies

30

Projectvolume

17 6

11

Tekes

90

Funding flows to/from large companies

• Tekes funding to R&D projectsof large companies

• Large companies projects buyresearch services from researchorganisations

• Large companies projects useSMEs as subcontractors

• Large companies co-financepublic research projects

• Net flow

+ 30

- 17

- 6

- 11

- 4

Networking in corporate R&D projects funded by Tekes

Share of networked projects, %

DM 58620 08-2003 Copyright © Tekes

0

20

40

60

80

100

1999 2000 2001 2002

Part of technologyprogramme

Subcontractingfrom researchinstitutes

Internationalcooperation

Large companysubcontractingfrom SMEs

Total corporateR&D projects

The Main Factors of Operations by theNational Innovation Agency

• Speed and Efficacy (concurrent development)

• Trust (independent, centralized decision making)

• Expertise (human resources)

Innoagency

Unique features of Finnish innovation system

Simultaneous implementation of following issues:

•Genuine and voluntary cooperation within Triple Helix

•High degree of concensus and implementation

•Funding simultaneously universities, research insititutes and industry to couple basic, applied research to development

•High degree of freedom for decision making

•In-house assessment of projects

•System for national technology programmes

•Genuine, holistic and simple system (few actors)

Uniqueness of FI system

CONCLUSIONS

•GOVERNMENT IS A FACILITATOR - NOT AN OPERATIVE ACTOR

•TECHNOLOGY MUST NOT DEPART FROM THE SOCIETAL DEVELOPMENT- OBJECTIVES FOR THE SOCIAL RESEARCH

- UTILISATION OF TECHNOLOGY IN SOCIAL AND SECTORIAL SCIENCES

•R&D FUNDING MORE FOCUSED ON- GOAL ORIENTED BASIC RESEARCH-MARKET ORIENTED DEVELOPMENT

-NETWORKING

•SECURING THE QUALITY AND QUANTITY OF RESEARCH RESOURSES- FOCUS ON EDUCATION

- RESEARCHER CAREER AS A RELEVANT OPTION

•CONSCIOUS ACTIONS REGARDING “CONCURRENT DEVELOPMENT”

•INTERNATIONAL COOPERATION AS A PRACTICAL TOOL - NOT AS A HOBBY

•GOVERNMENT IS A FACILITATOR - NOT AN OPERATIVE ACTOR

•TECHNOLOGY MUST NOT DEPART FROM THE SOCIETAL DEVELOPMENT- OBJECTIVES FOR THE SOCIAL RESEARCH

- UTILISATION OF TECHNOLOGY IN SOCIAL AND SECTORIAL SCIENCES

•R&D FUNDING MORE FOCUSED ON- GOAL ORIENTED BASIC RESEARCH-MARKET ORIENTED DEVELOPMENT

-NETWORKING

•SECURING THE QUALITY AND QUANTITY OF RESEARCH RESOURSES- FOCUS ON EDUCATION

- RESEARCHER CAREER AS A RELEVANT OPTION

•CONSCIOUS ACTIONS REGARDING “CONCURRENT DEVELOPMENT”

•INTERNATIONAL COOPERATION AS A PRACTICAL TOOL - NOT AS A HOBBY

Pres/conclus policy© S&T Balance

Thank you for your kind attention!

www.tekes.fi

Dr. Heikki Kotilainen