The essence of a national innovation system Dr

The essence of a national innovation system Dr. Heikki Kotilainen Deputy Director General Tekes, the National Technology Agency Prague 30. 11. 2004

Dr. Heikki Kotilainen Deputy Director General l Dr. tech. in mechanical engineering and physical metallurgy, studies in Germany and Austria INNOVATION l Work in business and research l In Tekes since establishment 1983 l Responsible for international TECHNO cooperation, national SCIENCE LOGY programmes, funding l Industrial councellor in Boston U. S. (1993 -95) PUBLIC l Secretary General of EUREKA in FUNDING Brussels (1999 -2003) l Currently responsible for international innovation benchmarking and strategic planning

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 WEALTH DRIVEN ? INVESTMENT DRIVEN TECHNOLOGICAL ADVANCEMENT NATIONAL COMPETITIVENESS • INTERNATIONAL COMPETITION • TECHNOLOGY POLICY • TECHNOLOGY SUBSIDIES MANUFACTURING DRIVEN • RAW MATERIALS AS COMPETITIVE FACTOR • GROWING NATIONAL SURVIVAL DEMAND POLICY • INVESTMENT SUBSIDIES • LACK OF CONSUMER GOODS • INDEPENDENT INDUSTRIES • DOMESTIC MARKET 1945 • TECHNOLOGY& SOCIETY • POLICY FOR SOCIAL SCIENCES ? MARKET/INNOVATION DRIVEN • INTERNATIONAL COOPERATION • SKILLS AS COMPETITIVE FACTOR • INTRODUCTION OF NATIONAL INNOVATION SYSTEM • PRECONDITIONS FOR TECHNOLOGICAL&SOCIETAL ADVANCEMENT • RISK/VENTURE CAPITAL 2000 TTKK TM 19/HK 2. 3. 1999 © S&T Balance

Key questions concerning public innovation system l Institutional structures l what are the main organizations involved? l what is their role and function in policy design and implementation, and budget allocation? l what are the linkages among these organizations? l Organizational structures l what is the structure of individual organization? l what is the legal set-up of the main organization? l what are the funding instruments and how are they implemented? © S&T Balance Public innovation system

INNOVATION ROUTE THROUGH THE PUBLIC INNOVATION SYSTEM IN FINLAND MARKET ADAPTATION INDUSTRIAL APPLICATION FINPRO VENTURE CAPITAL • SITRA • FINNVERA PRIVATE/SEMIPRIVATE FINANCING • TEKES • ACADEMY OF FINLAND PUBLIC FINANCING SCIENCE & TECHNOLOGY POLICY COUNCIL R&D AND INNOVATION DEVELOPMENT POLICY PLANS, REGULATIONS, STANDARDS, LAWS MINISTRIES AND GOVERNMENT AUTHORITIES MARKET TE CENTRES SCIENCE PARKS • FINNISH INSTITUTE OF INVENTIONS • VTT • UNIVERSITIES • POLYTECHNICS R&D SUPPORT POTENTIAL INNOVATION SOCIAL & BUSINESS DEMAND

Planning and implementing of technology and innovation policy Government Parliament Science and technology policy council Annual budget (law) 3 year outlines Planning Ministries (Education, Trade&Industry, Finance etc. ) Annual objectives and agreements Implementing the policy Institutions (Academy of Finland, Tekes, Universities VTT, Sectoral Institutes) Annual & semiannual reports and feedback

BALANCE BETWEEN THE SCIENCE, TECHNOLOGY AND SOCIAL DEVELOPMENT MAINTAIN CLEAR NATIONAL FOCUS NATIONAL POLICY/STPC ADAPTING TO CUSTOMERS National Authorities (Science and University Community, Society) (The Business Community, Society) BOTTOM-UP REQUESTS MANAGE KEY DEMANDS © S&T Balance PROACTIVE VISION

The effectiveness of public R&D support ”Protection-Promotion-Policy” SCIENCE POLICY M AT UR BASIC RESEARCH THE BENEFIT OF SOCIETY NATIONAL PROGRAMMES IT Y OF TH E SO CI APPLIED RESEARCH ET Y TECHNOLOGY POLICY INDUSTRIAL R&D INNOVATION POLICY ALLOCATED PUBLIC MONEY DIRECT SUBSIDIES INDUSTRIAL POLICY THE SPEED OF IMPACT © S&T Balance

BERD/GERD of Finland 1981 - 2003 Innovation Policy % Technology Policy Science Policy © S&T Balance BERD/policies

R&D/GDP in Finland 1981 -2003 Innovation Policy % Technology Policy Science Policy © S&T Balance R&D/GDP, policies

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 © S&T Balance Guidelines

FACTORS IN THE DEVELOPMENT OF THE INNOVATION SYSTEM ORGANISATIONAL CONSIDERATIONS • LARGE ENTITIES UNDER CONSIDERATION • UNIVERSITIES AND SECTORAL RESEARCH AS A PART OF THE INNOVATION SYSTEM (human resources) • CENTRES OF EXCELLENCE FOR RESEARCH AND EDUCATION RESEARCH CONSIDERATIONS • SELECTIVE CHOICE AND PRIORISATION OF TOPICS • TECHNOLOGY PROGRAMMES FOR INDUSTRIAL CLUSTERS • MARKET ORIENTED RESEARCH (product development) • INTERNATIONAL COOPERATION • FOLLOW-UP AND EVALUATION INSTITUTIONAL CONSIDERATIONS © S&T Balance • GOVERNANCE (norms, rules, regulations, laws) • NETWORKING BETWEEN THE ACTORS (vendor/ distribution channels) • LEGITIMATION (creation of trust) • IPR PROTECTION • VENTURE CAPITAL INVOLVEMENT

SUMMARY CHARACTERISTICS OF FINNISH INNOVATION POLICIES l Networking among all relevant actors l Cooperation (triple helix) l System approach, large entities (value chain) e. g. clusters under consideration l Highly targeted approach and clearly defined goals l Strong technology orientation l Regional aspects, not policy – networking instead of subsidies Vinnova årsmöte

Multiplication of public money in the innovation system Government Parliament Ministries Public finance Funding agency Cumulative tax Short term investment Venture capital • grants • loans • equity funding Businesses, employment Long term investment Universities Research institutes New technology, knowledge, skills

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* l 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? l 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. l What obligations does the grant carry for the firm, both financial, and non-financial? l If the incentive involves debt financing, how does the state view the debt in the hierarchy of corporate obligations? l If debt finance, who is the actual lender and who sets the terms? l If a participation loan, what are the composite terms? l Who sets uinderwriting criteria for the loan, and what are they? l Does the incentive carry any matching requirements, and what are they? l For all types of incentives, what are the requirements in terms of job creation, investment leveraging and/or tax revenue generation? l What are the reporting requirements? l 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 in the society COMPLIANCE with national and international legislation EFFECTIVE Implementation Speed is crucial! FLEXIBLE adaptation to rapidly changing environment TRANSPARENCY of criteria and processes UNDERSTANDABLE and PREDICTABLE operation CONTINUOUS EVALUATION of results and processes WIDE ACCEPTANCE in the society FEEDBACK

DEFINITION OF INNOVATION CUSTOMERS INNOVATION BUSINESS MARKETS IMITATION INVENTION RESEARCH, KNOWLEDGE, IDEA, TECHNOLOGY © S&T Balance BUSINESS MODELS ”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, 2004 Innovation def.

RESEARCH AND INNOVATION New knowledge Curiosity Business models Customer needs Research Innovation R&D WORK Linear model Scientific excellence ”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, 2004 Turnover/earnings Growth and Employment Meet R&I

RESEARCH PARADIGMS Old paradigm (Linear model) BASIC RESEARCH APPLIED RESEARCH DEVELOPMENT New paradigm (Concurrent model) Basic research DEMAND Applied research Development PROBLEM SOLVING BUSINESS OPTIONS MARKET SOCIETAL & BUSINESS CHALLENGES SCIENTIFIC UNDERSTANDING TECHNOLOGICAL SOLUTIONS TTKK TM 15/HK 2. 3. 1999 © S&T Balance

The Interface of Research and Industry • CURIOSITY • KNOWLEDGE CREATION • SCIENTIFIC EXCELLENCE • PUBLICATIONS INDUSTRY TECHNOLOGY TRANSFER RESEARCH • CUSTOMER NEEDS • MARKET&MARKETABILITY • STRATEGY • PRODUCT PORTFOLIO • R&D PORTFOLIO • COMPETENCE • MONEY&FINANCING • IPR • REVENUES R&I interface

PRIORITIES OF THE INNOVATION SYSTEM SUPPLY RESEARCH Case: Finland FACILITATOR PUBLIC FINANCE QUALITY: APPROPRIATE STANDARD NATIONAL PROGRAMMES RELEVANCE VENTURE CAPITAL EFFECTIVENESS IPR PROTECTION DEMAND ENTERPRISES ARTICULATION OF NEEDS APPROPRIATE TECHNOLOGY ABSORB NEW TECHNOLOGIES Pres/ priorit, innovation system

Technology programmes Steering • enterprices l 23 on-going programmes in 2004 with a total extent of EUR 1. 2 billion l a programme lasts typically Grants 3– 5 years Tekes Synergy l annually 2000 company • preparin Networking g participations • co-ordi- Concurrent development l annually 800 research unit nating Part financing participations • decision making l Tekes usually finances Grants Loans - 60– 80 % of university Capital projects loans - 25– 50 % of company Company R&D projects Public research projects Implementation of results of public research is based on parallel execution and networking with company projects. #54280

Funding flows of Tekes funded R&D projects between large companies, research organisations and SMEs Annual average 2000 - 2002 Million euros 11 Large companies Universities Public research centres Project volume SMEs 17 90 6 30 Tekes Funding flows to/from large companies • Tekes funding to R&D projects of large companies • Large companies projects buy • • • + 30 research services from research - 17 organisations Large companies projects use - 6 SMEs as subcontractors Large companies co-finance - 11 public research projects Net flow - 4 Large companies (more than 5 000 employees) receive 8 % of Tekes total funding and 13 % of Tekes business R&D funding. Large companies co-finance Tekes R&D projects in universities, public research centres 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 an has important externalities in: • knowledge transfer between large companies and research organisations • development of SMEs as subcontractors and strategic partners of large companies DM 58774 05 -2003 Copyright © Tekes

Networking in corporate R&D projects funded by Tekes Share of networked projects, % Total corporate R&D projects Subcontracting from research institutes Part of technology programme International cooperation Large company subcontracting from SMEs DM 58620 08 -2003 Copyright © Tekes

The Main Factors of Operations by the National Innovation Agency • Speed and Efficacy (concurrent development) • Trust (independent, centralized decision making) • Expertise (human resources)

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 © S&T Balance

Dr. Heikki Kotilainen Thank you for your kind attention! www. tekes. fi