Elsevier

Technovation

Volume 25, Issue 6, June 2005, Pages 609-619
Technovation

A system failure framework for innovation policy design

https://doi.org/10.1016/j.technovation.2003.11.002Get rights and content

Abstract

This article sets out a policy framework for implementing ‘system of innovation’ (SI)-based strategies. On the basis of a literature review on system failures, the study designs an SI-policy framework that can provide policy makers with practical leads how to design, analyse and evaluate policy measures in the field of innovation. The functioning of the framework is illustrated on the basis of an evaluation of Dutch cluster policy. From this illustration, it can be concluded that the SI-framework provides helpful leads for policy design and evaluation and renders more specific policy recommendations than the generally used market failure approach.

Introduction

In recent years, the system of innovation approach (SI) (see e.g. Edquist et al., 1998) has become more popular, both in the scientific and policy arena. According to the SI approach, innovation is an interactive, non-linear process in which actors, e.g. firms, interact with a manifold of other organisations (e.g. research institutes, customers, authorities, financial organisations) and institutions (e.g. IPR, regulations, culture). This complex process, characterised by reciprocity and feedback mechanisms, determines the success of innovation (e.g. Freeman, 1987, Freeman, 1988, Lundvall, 1992, Nelson, 1993, Edquist, 1997). By identifying the interactions between actors and institutions, the SI approach uncovers the actors and mechanisms that lead to successful innovation that were left untouched by the market imperfections’ approach, thereby offering a greater potential for identifying where public support should go (e.g. which actors to address), and is more helpful for policy makers from a practical and specific point of view (Edquist et al., 1998). By introducing this alternative view on innovation, the SI literature has given way to the identification of new rationales for government intervention, the so-called system failures.

In our view, the current approach still under-exploits its potential for providing practical guidelines and/or rationales for policy makers. This article therefore aims at developing a clear-cut categorisation of failures that can serve as a rationale for innovation policy design. We will illustrate the functioning of such a policy framework by discussing examples of the Dutch cluster policy.

The paper is organised as follows. Section 2 presents a short overview of important contributions to the SI literature. In Section 3, we reframe the system failure framework by distinguishing between actors (players) and rules (institutions). In Section 4, we design a SI-policy framework that enables policy makers to analyse and address systemic failures in their innovation systems (whether they are national, regional or e.g. a cluster). In 5 Using the SI-policy framework, 6 An illustration of the SI-policy framework: two projects from the Dutch cluster programme (1994–2002), we then illustrate the framework on the basis of two cluster initiatives in the Netherlands. Finally, in Section 7, we draw conclusions on the value of the developed framework.

Section snippets

Important contributions to the SI literature

The basic conceptual underpinnings of the SI approach are, first, that innovation does not take place in isolation. Interaction is central to the process of innovation, i.e. interaction between actors such as firms, universities, intermediaries, etc. Central to the concept of interaction are both cooperation and interactive learning (Lundvall, 1992). A second assumption is that institutions are crucial to economic behaviour and performance (Smith, 1997). Legal (e.g. regulation and law) and

Reframing the system failure framework

In the literature, helpful leads were found on how more clarity could be achieved in the system failure scheme. Most authors acknowledge that much of the confusion in the SI approach results from its terminology. This, since the term ‘institution’ is often used to mean ‘organisation’ in common usage, whereas economists in the institutionalist tradition have a more specific usage—institutions correspond to rules, while organisations are players (Bryant, 1999: p. 73). We found this distinction

System failures in the SI-policy framework

On the basis of our literature review and the reframing of the system failure framework along the lines of actors and rules/failures, we have arrived at the following conceptualisation of the system failures. The categorisation aims at providing a detailed description of causes, thereby making it possible to analyse where bottlenecks exist and to design policy measures accordingly.

Using the SI-policy framework

The systemic failures as presented cannot be addressed directly, or by one actor alone. If policy makers want to use the framework, they will have to address groups of actors to make changes in the innovation system possible. By using the framework as a tool for analysis, policy makers can identify: (1) where systemic failures occur (e.g. a lack of entrepreneurial spirit hinders innovation), and (2) which actors should be addressed to make change possible (e.g. promote an entrepreneurial spirit

An illustration of the SI-policy framework: two projects from the Dutch cluster programme (1994–2002)

In the early 1990s, the Netherlands decided, as one of the first countries, to adopt a cluster perspective as part of its innovation policy. Inspired by Michael Porter’s ‘Competitive Advantage of Nations’ (1990), the Netherlands has been among the first to change its industrial, sector-based policy approach into a cluster-based approach. Starting as a novel concept, numerous cluster studies followed in order to make clusters more transparent, both to firms as to policy makers. In 1993, the

Conclusion and discussion

This paper aimed at designing a policy framework based on the system of innovation approach because, in our view, the current approach still under-exploits its potential to provide practical guidelines and/or rationales for policy makers. Based on a review of the SI-literature, a framework was designed that enables a clear-cut distinction between the different forms of system failures, and the actors that should be involved to address these failures. This enables policy makers to analyse,

Acknowledgements

The authors would like to thank Patries Boekholt of Technopolis, Amsterdam, and the Dutch Ministry of Economic Affairs for allowing them to use the data presented in this paper. The authors thank Paul Beije and Nachoem Wijnberg for their comments on an earlier version of the article.

Rosalinde Klein Woolthuis is a business research associate at the Erasmus University in Rotterdam and a free-lance consultant in the field of economic policy and innovation. She obtained a Ph.D. on her research on high-tech interorganisational relationships and worked as a consultant for Technopolis in the field in cluster- and innovation policy for several years. Research interests include interorganisational relationships, trust, innovation and their role in economic development.

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    Rosalinde Klein Woolthuis is a business research associate at the Erasmus University in Rotterdam and a free-lance consultant in the field of economic policy and innovation. She obtained a Ph.D. on her research on high-tech interorganisational relationships and worked as a consultant for Technopolis in the field in cluster- and innovation policy for several years. Research interests include interorganisational relationships, trust, innovation and their role in economic development.

    Maureen Lankhuizen works as senior consultant for the Dutch Economic Centre for Small and Medium Sized Enterprises. Before that she worked as a consultant for Technopolis, an international research and consulting organisation focussing on science, technology and innovation policy. Her Ph.D. thesis (MERIT/University of Maastricht) deals with the problems associated with the internationalisation of innovation systems in Eastern Europe. Part of her research was conducted at the World Bank in Washington, DC. Research interests include international comparisons of national systems of innovation, science policy, and innovation in SMEs.

    Victor Gilsing works as assistant professor at the Technical University Eindhoven and received his Ph.D. degree from the Rotterdam School of Management. His thesis deals with sectoral innovation patterns and interfirm networks. Research interests include evolutionary theories on innovation and cluster development. He worked for more than 5 years at the Dutch Ministry of Economic Affairs in the field of innovation policy and before that worked for Unilever where he held several international positions in the field of innovation and business-to-business marketing.

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