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Introduction
In former times, economies were largely based on the production of goods for local
markets, using the two factors of production: capital and labour. Mass globalisation has
brought about growing competition, forcing companies to produce goods with higher
performance and at lower cost. This started the knowledge economy, in which smarter
tools and machines expanded possibilities; knowledge became the third factor of
production. Workflows were designed more intelligently, and the training and education
of employees assumed ever greater importance. Today, technical know-how and
improved skills, particularly in the field of Information and Communication Technology
(ICT), have made existing work processes far more efficient.
Yet we have not mentioned the most important development in the economy. The real
changes are now taking place in the so-called innovation economy, in which besides
capital, labour and knowledge creativity is the fourth principal factor of production. The
emphasis on creativity makes the difference. In a knowledge economy logic is
predominant, while in an innovation economy everything revolves around imagination.1
In an innovation economy, processes are not only designed more efficiently (with
knowledge-intensive solutions), above all they are made more effective (with creative
solutions). Innovation starts therefore with management of ideas. Florida (2003)
correctly argues that creativity becomes the principal driving force behind economic
growth, and Brown (2003) concludes that innovation itself needs to be innovated.
We can best describe the innovation economy as a creative knowledge economy. An
apt description of the activities in an innovation economy is creative enterprise
with knowledge (Berkhout, 2000). It is not just a question of creativity or knowledge
or enterprise. It is the combination that counts: creativity and knowledge and
entrepreneurship that is what makes the innovation economy so powerful.
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In the introduction to this Special Issue, the first author argues that in large
companies strategic planning plays a dominant role in innovation management. To
minimise risks, innovation projects are managed according to a top-down strategic plan,
representing a linear stage-gate process along the innovation path. It is important to
realise that in this model, organisation of the multi-disciplinary workflows within and
between the innovation teams is not addressed. In the following, this aspect will obtain
ample attention.
The history of the development of innovation models is often divided into three
generations (Liyanage et al., 1999; Miller, 2001; Rothwell, 1994; Roussel et al., 1991;
Chiesa, 2001). In the traditional linear model (first generation), innovation is represented
by a pipeline of sequential processes, which starts at pure scientific research and ends
with commercial applications. This 1G model, however, incorporates market information
very late in the process, so that commercial applications are often merely technical
inventions and therefore often not adopted by the market. Next, second-generation
models emerged, which focus on the flow of information originating from the market,
essentially reversing the linear pipeline of the first generation. Here, science is replaced
by the market as the source of innovation, and processes are still largely seen as
sequential steps. A major disadvantage of the 2G models is that there is too much
emphasis on market-driven improvements of existing products (optimisation), resulting in
a large variety of short-term projects.
In the last decade, third-generation models have been introduced that show less
linearity owing to feedback paths in the chain. In these models, investments in innovation
are closely linked to company strategy. Third-generation models can be seen as open
R&D models, emphasising product and process innovation (technical), and neglecting
organisational and market innovations (non-technical). This means that 3G innovation
models tend to focus on the companys new technological capabilities rather than
including solutions for institutional barriers and societal needs. Table 1 summarises the
characteristics of the current generations of innovation models.
Table 1
Generation
Characteristics
First
Technology push, linear process with markets at the end of the pipeline, scientific
freedom is very important, no strategic goals, no chain management
Second
Market pull, linear process with science at the end of the pipeline, contract
research is very important, weak ties with corporate strategy, little emphasis on
chain management
Third
Combination of technology push and market pull, innovation projects are linked to
R&D and company goals (open R&D), strong emphasis on chain management
Note:
For more detail, see, Ortt and Smits in this special issue
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The need for new organisational concepts is acknowledged by emphasising skills for
managing networks with specialised suppliers as well as early users.
With the addition of feedback paths, models of dynamic systems often referred to as
regimes are represented by interconnected cycles and (work) processes become
cyclical.3 It presents the basis for modern control and is the precondition for operating
in a flexible manner; it also presents the inspiration for human creativity and is a
necessary condition for sustainability. Thanks to feedback, (human) actors are constantly
confronted with the consequences of their actions, preferably through in-built early
signals. In that way quick adjustments can be made in the event of surprises. The
cyclical architecture also ensures that mistakes can be learned from, a very important
property of innovation.
In summary, cyclic interaction is a prerequisite for the model of dynamic systems as
well as for the network structure of competitive organisations: start quickly, adjust
quickly and learn quickly.
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Cyclical interaction is the basis for modern control and a precondition for
operational flexibility. It is also the inspiration for creativity and a necessary
condition for sustainability
Inside-out
B
Outside-in
Figure 2 shows two linked basic units the double loop in which technological
research plays a central role. The cyclical interaction processes for the development
of new technology take place in the so-called technical-oriented sciences cycle (the
left-hand side of Figure 2) with the help of a wide range of disciplines from the
hard sciences.4 Technological research in this cycle is a multi-disciplinary activity: a
package of different disciplines from the hard sciences is needed to develop a new
technology (many-to-one relationship). Similarly, the cyclical interaction processes
for the development of new products take place in the integrated engineering cycle (the
right-hand side of Figure 2). Modern product development is a multi-technology activity:
a package of different often patented technologies is needed to develop a new product
(many-to-one relationship). Like multi-disciplinary science, here too we see that many
different skills are needed to be successful. Experience shows that the skills of specialised
suppliers play an important role in making the engineering process successful.
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Scientific
exploration
Technological
research
Technical-oriented
sciences cycle
Product
development
Integrated
engineering cycle
Figure 2 visualises that in the sciences cycle technological research is driven by new
scientific insights: science push. Figure 2 also shows that in the engineering cycle
technological research is driven by new functional requirements in product development:
function pull. The dynamics in technological research are therefore driven by both new
scientific insights and new functional requirements. In technological research, scientists
and engineers must constantly inspire one another (Stokes, 1997). To achieve this,
research must be organised in a different manner. The Technological Top Institutes
(TTIs) in The Netherlands are a good example of how this can be addressed: scientists
from the hard sciences work together with engineers from industry to create new
technical functions (products). The European Commission of the EU has recently
announced plans to start a TTI at European level, based on the push and pull in Figure 2.
It is important to realise that the concept products is used here in the widest sense:
everything we design and make. Hence, it includes immaterial products such as
databases, computer software, financial instruments, governmental regulations and
governance models. This means that the concept technology is also used in the widest
sense: knowledge both implicit and explicit on how to design and make products in
the widest sense. Broadening the concept of technology and product is characteristic of
the fourth-generation innovation concept.
Figure 3 again shows two linked cycles, but in this case it is the world of human needs
rather than the world of technology that plays the central role. The cyclical interaction
processes for the development of new insights into emerging and receding socioeconomic
trends (market transitions) take place in the so-called social-oriented sciences cycle
(left-hand side of Figure 3) with the help of a wide range of different disciplines from
the soft sciences.5 With these insights new sociotechnical solutions can be developed
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faster and with less economic risk. Anticipating successful market transitions is very
much a multi-disciplinary activity: a package of different disciplines from the soft
sciences is needed to explain and predict transitions in markets in a scientific manner and
to establish new solutions while knowing what the underlying socioeconomic forces are
(many-to-one relationship). This is often called futures research.
Figure 3
The dynamics around market transitions (changes in demand for and supply of
sociotechnical solutions) are driven by the cyclical interaction between new
scientific insights in socioeconomic processes (left hand side) and new investments
in product-service combinations (right-hand side).
Scientific
exploration
Social-oriented
sciences cycle
Market
transitions
Product
development
Differentiated
service cycle
Likewise, the cyclical interaction processes required to serve the changing society
with new product-service combinations take place in the differentiated service cycle
(right-hand side of Figure 3). Experience shows that in this cycle, early users play an
important role in making the innovation process successful (Von Hippel, 2005); this
means using the creativity of customers. It is interesting to note that in recent years the
services sector has expanded considerably, not only because of the greater demand for
services from the consumer but also because industry has outsourced many of its support
processes. This trend is still going on. If a branch of industry disappears, it is important to
realise that the accompanying services would disappear with it.
In the sciences cycle, market transitions are seen as a dynamic socioeconomic process
in which the changing demand for product-service combinations is determined by the
dynamics of the needs and concerns of society. On the other hand, in the service cycle
market transitions are seen as a dynamic commercial process in which the change in the
supply of product-service combinations is determined by the innovative capacity of the
business community. In an innovation economy both components, scientific insight into
changing demand (left-hand side of Figure 3) and commercial investment in changing
supply (right-hand side of Figure 3), should be constantly inspiring and reinforcing
one another.
In industrial innovation programmes a lot of implicit knowledge concerning
technological research is created in the engineering cycle, and the task of the hard
sciences cycle is then to make this knowledge explicit. Likewise, a lot of implicit
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knowledge about market research is created in the service cycle and the soft sciences
cycle then has the task of making this knowledge explicit. The explication of implicit
knowledge is a crucial role for science in innovation.
No equivalent of the aforementioned TTIs has yet been established with the aim
of trying to understand, influence and exploit the regime of socioeconomic changes.
This confirms the current imbalance between investment in knowledge of emerging
technology and in knowledge of emerging markets, where markets are seen as an integral
part of society. The recent Franco-German initiative to create a European top economic
institute as a counterpart to the American Institute for International Economics presents a
too-limited view on this issue. Insight into societal changes cannot be created from an
economic point of view only.
System model showing the fundaments of the innovation economy, a circle of mutually
influencing dynamic processes: the Circle of Change. In the model, changes in science
(left) and industry (right) and changes in technology (top) and markets (bottom) are
cyclically interconnected. Here, entrepreneurship is given a central role.
Hard knowledge
infrastructure
Technological
research
Integrated
engineering cycle
Technical-oriented
sciences cycle
Scientific
exploration
Entrepreneurship
Product
development
Differentiated
service cycle
Socal-oriented
sciences cycle
Soft knowledge
infrastructure
Manufacturing and
processing industry
Market
transitions
398
The first striking feature of Figure 4 is that the architecture is not one of a chain but of a
circle: innovations build on innovations. Ideas create new developments, successes create
new challenges and failures create new insights, and so the creation of value is constantly
accumulating. New macroeconomic instruments are needed to preserve the strength of
the dynamics in the circle. Large-scale failures like the recent dotcom debacle shake
confidence in the innovation economy and cause investment capital to become scarce.6 In
terms of CIM: the processes of change are decoupled. The economy enters a phase of
stagnation in which companies focus on more of the same at lower cost (life-cycle
management) until confidence returns and investment capital becomes available again to
spur innovation. The dynamics in the circle then accelerate again.
Figure 4 also shows that the proposed model portrays a system of dynamic processes
Circle of Change with four creative nodes of change: scientific exploration,
technological research, product development and market transitions. More importantly,
though, between these nodes there are cycles of change which ensure that the dynamic
processes in the nodes influence each other; in other words, they inspire, correct and
supplement each other (first-order dependency).
This produces a system of linked cycles, which in turn also influence each other
(higher-order dependencies). The result is a more or less synchronised regime of
interconnected dynamic processes that spark a creative interaction between changes in
science (left-hand side) and industry (right-hand side), and between changes in
technology (top) and market (bottom). In a successful innovation economy, there will be
few barriers between nodes and cycles: institutions and organisational structures facilitate
the change processes (Volberda, 1998). Throughout the circle there is a continuous
exchange of ideas and concepts, of knowledge and information, of capital and labour, of
products and services, and of technical and socio-economic values.
Note that autonomous social transitions manifest themselves in markets as changes in
the need for products and services (the demand). Such societal changes stimulate
innovation. On the other hand, autonomous technological developments generate new
products and services (the supply). Such technological changes change society. It is the
cyclic interaction of both innovation drivers that will create maximum economic and
social value.
At a lower conceptual level of the model, it can be said that every node in Figure 4
represents a collection of different actors that form cyclical networks with other actors in
neighbouring nodes (Berkhout, 2000). So at this level it becomes apparent that innovation
processes take place along a circle with synchronised networks the so-called CIM
matrices in which knowledge suppliers, design firms, supply companies, production
companies, marketing organisations and early users reinforce each others activities (see
Figure 5). These open networks are increasingly empowered by new capabilities of the
information and communication sector. Institutional factors, in particular governmental
regulations, have a dramatic effect on the dynamics within and between the networks of
projects. Ultimately, institutional factors determine the maximum rate of circulation that
can be realised along the circle. Therefore, governments can exercise enormous influence
over this, in both a positive and a negative sense.
In the future, many innovations will be the result of combining technical capabilities
and customer needs from different sectors (transsectoral innovations). Fourth-generation
innovation models should be able to show that clearly (Berkout and Van der Duin, 2006).
In terms of CIM, take for example innovations in the healthcare sector that will be made
399
possible by new developments in the IC sector: the top half of Figure 6 (developments in
information and communication technology) focuses cyclically on the bottom half of
Figure 6 (needs and concerns in the healthcare market).
Figure 5
CIM in terms of a multi-disciplinary project organisation; representing ScienceTechnology (ST) teams and Technology-Product (TP) teams, Science-Market (SM)
teams and Market-Product (MP) teams. Together the project teams form an open
innovation network, being driven by the opportunities in the Circle of Change
(Figure 4).
Scientific
laboratories
Product
divisions
Technology
platforms
ST
TP
Technicaloriented
Market
groups
SM
MP
Customeroriented
Science-oriented
Figure 6
Business-oriented
Example of sector-crossing innovation. The upper part of CIM shows the innovation
activities of the Information and Communication sector (IC sector); the lower part
shows the innovation activities of the Healthcare sector (HC sector). The left-hand
part of CIM shows the science-based foresight activities directed towards new
opportunities; the right-hand part shows the business-driven development activities
directed towards new socioeconomic value. CIM reveals the necessity of cyclic
interaction between what is technically possible (the leading edge of IC) and socially
desirable (value creation by HC).
Hard-knowledge
infrastructure
New
IC technology
IC foresight
cycle
Scientific
exploration
HC-oriented
IC projects
Entrepreneurship
HC foresight
cycle
Soft-knowledge
infrastructure
Information and
communication industry
New HC
products/services
IC-based
HC projects
Changing
HC markets
400
Classification of innovations
The arena in Figures 4 and 5 shows that new innovations arise from previous generations.
New innovations are therefore a mixture of the old and the new and the ensuing changes
can therefore be large or small; the terms generally used are incremental and radical
innovations. This is not a very clear distinction. The CIM shows that innovations can be
divided into different classes. This classification may be more informative.
Class 1 innovations are the result of new developments in a single node. These might
involve existing product-service combinations where only the market concept is radically
changed. Examples are switching to internet shops, focusing on a different market
segment and responding to a new lifestyle.
Class 2 innovations are the result of new developments in two nodes. This might
involve the development of new product-service combinations together with a unique
market concept. Examples would include technical installations with intelligent sensors
connected directly to the internet (connected products). This new combination would
create significant added value since information about access, use/abuse and the physical
condition of installations becomes available wherever and whenever it is needed (early
warning signals). The result is that entirely new services become possible, which in turn
means that the traditional product-oriented market concepts will have to be replaced. A
wide variety of innovations can be expected in this area.7
Class 3 innovations follow from new developments in three nodes. They might
involve the development of new technologies, which in turn make new product-service
combinations possible, which for their part call for new market concepts. Many emerging
information and communication technologies will make spectacular Class 3 innovations
possible. Take the development of broadband communication technology, which will
bring about a revolution in healthcare, or developments in mobile identification
technology (RFID), which will bring about a major change in the battle against crime
and terrorism.
Class 4 innovations require new developments in four nodes. Science plays a crucial
role here. All important developments in the life sciences generate new knowledge for
new biotechnologies, which in turn set off a revolution in the development of new
product-service combinations in the pharmaceutical and food industries. But spectacular
progress is also being made in the nanosciences, where technical building blocks are on a
molecular scale. Nanosciences is yielding radical new knowledge for nanotechnologies,
which will in turn cause a revolution in the development of product-service combinations
in all technical-industrial sectors. An example would be nanotechnology for the new
energy era, characterised by internet-like decentralised networks.
Innovations based on life sciences and nanosciences will change society so radically
that the overwhelming increase in technological possibilities (top half of Figure 4) will
have to be accompanied by a major effort to increase our understanding of societys
needs and, above all, societys concerns (bottom half of Figure 4). This will require a
great deal of cohesion in the development of knowledge in the bta and gamma sciences.
Innovations that are from the outset active throughout the entire Circle of Change
creative enterprise with bta and gamma knowledge are ranked in the very highest
category: Class 5. In this top league all cycles of change are linked to each other in the
innovation process, continuously driven by creative entrepreneurship, like playing chess
at all levels. That is an enormous challenge, but it is where the real opportunities lie.
401
Economic superpowers such as the USA and Japan, but increasingly also China and
India, are investing heavily in bio and nanosciences with the aim of creating five-star
innovations. That is why the aim of the Lisbon strategy of the European Union should not
only be to achieve more competition in the internal market but rather to seek more
cooperation. After all, innovations on this scale increasingly require megainvestments.
Moreover, the real competitors in these fields are outside Europe and attention should
therefore be focused entirely on cooperation in the internal market, and competition with
the external market (Berkout, 2006).
In a static society traditional institutions are principal barriers in creating value in the
circle of change, usually owing to outdated internal culture and structure. Figures 7 and 8
illustrate two notorious obstacles that are referred to here as scientific isolation and
technical arrogance.
Figure 7
techno
re
logical
search
Concurrent
engineering cycle
Technical-oriented
sciences cycle
Product
development
Scientific
exploration
Customised
service cycle
Social-oriented
sciences cycle
Soft knowledge
infrastructure
Manufacturing and
processing industry
Mar
tran
ket
sitions
402
Figure 8
Technological
research
Manufacturing and
processing industry
Concurrent
engineering cycle
Technical-oriented
sciences cycle
Scientific
Product
exploration
development
Social-oriented
sciences cycle
Soft knowledge
infrastructure
Customised
service cycle
Market
transitions
Scientific isolation refers to a society that may be excellent in scientific research, but still
underperforms economically because of a valorisation barrier between the science and
industry community (Figure 7). The two worlds make their own choices and plans, and
throw their wishes and results to the other side.
With technical arrogance we mean a society that can be excellent in designing and
developing technical functions but still underperforms socially because of a valorisation
barrier between engineering and utilisation (Figure 8). Both worlds make their own
choices and plans; here too they throw their wishes and results to the other side.
The failure of the Lisbon strategy of the EU has to be seen above all as a consequence
of the existence of these obstacles in the European socioeconomic system. The huge
emphasis on more research and more technology is therefore a far too one-sided and
simplistic approach. The cyclic process model shows that the real problem lies elsewhere.
Conclusion
403
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Notes
1
2
3
4
5
6
It is appropriate to quote Albert Einstein here: Logic brings us from A to B, but imagination
brings us everywhere.
Equilibrium processes play a key role in the old economy; in the new economy it is change
that counts.
A cycle consists of a succession of connected processes occurring repeatedly, each time with
new starting conditions and a shifting context. The dynamics in a cycle are determined by
cycle time and change per cycle.
Disciplines from the hard sciences include the areas of specialist knowledge in the natural and
life sciences.
Disciplines in the soft sciences include the areas of specialist knowledge in behavioural and
social sciences.
In terms of the process model, a financial black hole appeared in the service cycle at the
end of the last century, which means that the circle of the innovation economy was more or
less broken.
NEDAP N.V., a Dutch supplier of product-service combinations in areas such as security,
recently launched the virtual service assistant Bob, which monitors shops fitted with Nedap
anti-theft equipment 24 hours a day without losing its temper and without making a mistake.
Bob checks whether the systems are working, whether the personnel are following the agreed
security procedures, how many customers enter the shop and when they visit, etc.