“This report to the OECD on the New Nature of Innovation is an important milestone. It representsfour significant philosophical departures. From a traditional “firm centric view” of innovation, thisstudy moves us to a “personalized, cocreated view” of innovation, from the centrality of the firmto the centrality of the individual. Secondly, it demonstrates the institutional interdependenciesin innovation process where specialized skills are sourced from around the world. Thirdly,innovation is seen not as episodic but interactive, iterative and continuous. Finally, this is a callfor democratizing innovation.Consumers not just institutions will have their share of voice inthe innovation process. The entire ecosystem of suppliers, nodal firms and consumers will beinvolved in the creation of value. Collaborative capacity will be critical for innovation. This is a boldand timely departure from the traditional view. I recommend it for policy makers, managers andstudents of management”C.K. Prahalad, Paul and Ruth McCracken Distinguished University ProfessorRoss School of Business, The University of MichiganThe “New Nature of Innovation” report establishes the drivers and principles haping a changingworld of innovation. Throughout the report, one notices the boundary spanning quality ofcontemporary innovation. It is as if innovation can act as an influential new bridge acrossorganizations -- suppliers and customers, research institutions and companies, public and private,governmental and non-governmental – and a significant new bridge across countries. It is about“we” and “them” building together the new bits of possible futures. The value creation potentialof such co-innovation is unparalleled in history. The New Nature of Innovation can guide policymakers, managers, and entrepreneurs to the realization of such potential: The potential of a betterWorld.José SantosProfessor of Practice in Global Management, INSEAD“The New Nature of Innovation provides helpful insights in how innovation has changed in recentyears. It also provides helpful thinking on how governments should respond to these changes andstrengthen innovation. The study provides useful input for OECD’s work on innovation, includingthe OECD Innovation Strategy that will be delivered in 2010.”Dirk Pilat, Head, Structural Policy Division,Directorate for Science, Technology and Industry at the OECD.

PrefaceIntroductionChapter 1. Setting the Scene1.1 Introduction1.2 Transformation Of Societies1.3 What is new?1.4 Four Drivers of Innovation1.5 Policy ImplicationsChapter 2. New Drivers of Innovation2.1 Drivers of Innovation and the Related Innovation Principles2.2 Co-Creating Value with Customers and Tapping Knowledge from UsersPrinciple 1: Co-creating Value with CustomersPrinciple 2: Users’ Involvement in Innovation Processes2.3 Global Knowledge Sourcing and Collaborative NetworksPrinciple 3: Accessing and Combining Globally-Dispersed KnowledgePrinciple 4: Forming Collaborative Networks and PartnershipsPrinciple 5: Dynamics between Large Companies and Entrepreneurs2.4 Global Challenges as a Driver of InnovationPrinciple 6: Environmental Concerns Create New Business OpportunitiesPrinciple 7: Needs in Developing Countries Drive Innovation2.5 Public Sector Challenges as a Driver Of InnovationPrinciple 8: Welfare System Concerns Drive Innovation2.6 Technology’s New RolePrinciple 9: Technology’s Role as an Enabler of InnovationChapter 3. Shaping New Innovation Policies3.1 Understanding the Innovation Policy Environment3.2 Visiting Seven OECD Countries3.3 Policy Implications

3.3.1 Creating new knowledge

3.3.1.1 New knowledge institutions or transformed institutions3.3.1.2 Research3.3.1.3 Education3.3.1.4 Facilitating knowledge sharing3.3.1.5 Global perspective

3.3.2 Smart regulation

3.3.3 Intelligent demand

3.3.3.1 Public procurement3.3.3.2 Platform and systemAppendix 1: National Innovation Strategies in Seven OECD CountriesAppendix 2 National Innovation Strategy QuestionnaireReferences

A new nature of innovation is emerging. In order to formulate appropriate innovation policyencompassing a new nature of innovation, it is important to understand how the nature ofinnovation is changing. Innovation is no longer mainly about science and technology. Firms caninnovate in other ways. Co-creation, user involvement, environmental and societal challengesincreasingly drive innovation today. Collaborative, global networking and new public privatepartnerships are becoming crucial elements in companies’ innovation process.This report is funded jointly by the Danish and Finnish governments and analyzes new emergingforms and new areas of innovation and how governments are responding to the new nature ofinnovation. The study is a contribution to the ongoing OECD innovation strategy work.We are convinced that a better understanding of the new nature of innovation, supported by casestudies from both the private and public sector, will inspire the way in which we think innovationand create the best conditions for our countries to become global leaders on innovation.

Introduction/This study is a contribution to the OECD Committee for Industry, Innovation, and Entrepreneurship(CIIE). It is an input to the new OECD innovation strategy which will be presented in 2010 andfocuses on identifying and describing new ways in which companies work and the need for atransformed business environment – a New Nature of Innovation.The study relies heavily on the work of the Paul and Ruth McCracken Distinguished UniversityProfessor of Strategy C.K. Prahalad at Ross School of Business, University of Michigan andProfessor of Practice in Global Management Jose Santos at INSEAD. We would not have beenable to complete this study without their help. Their engagement has been outstanding, and FORAwould like to thank both of them for their valuable and irreplaceable contributions.We would also like to thank the business professors, innovation experts and company managerswho have contributed with their expertise and help when identifying and compiling the businesscases. A complete list of contributors can be found at the beginning of Chapter 2.On our travels visiting countries with innovation policies that reflect the new nature of innovation,we were grateful to be able to meet with some of the most prominent policy makers and policyexperts. We are very grateful to our national counterparts and CIIE colleagues who helpedsetting up interesting meetings in Washington, Ottawa, Berlin, London, Helsinki and Canberra.A special thanks goes to Saul Japson, Matthew Lucas, Fernando Galindo, Matthias Marx andMatthew Squire. A complete list of policymakers who we visited and spoke to can be found at thebeginning of Chapter 3. Their insights have given us inspiration for formulating policy suggestionsrelevant to the OECD innovation strategy.The Finnish Ministry of Employment and the Economy and the Danish Authority for Enterpriseand Construction have funded the study, and we thank them for their contribution. The UK-basedNational Endowment for Science, Technology and the Arts (NESTA) has participated in the initialphase of the study.The following FORA personnel have developed the project:Jørgen Rosted, Director of FORACharlotte Kjeldsen, Creative DirectorTanja Bisgaard, Manager of Policy AnalysisGlenda Napier, Manager of Policy AnalysisIn addition, a number of FORA colleagues have provided valuable contributions throughout theprocess. These colleagues include:Lise Andersen, AnalystJosefine Campbell, AnalystThomas Ebdrup, AnalystHenrik Lynge Hansen, AnalystCasper Høgenhaven, External ConsultantRikke Blæsbjerg Nielsen, Research AssistantCopenhagen, September 2009An online version of the report can be found at www.newnatureofinnovation.org.

1.1IntroductionInnovation is a driving force of welfare and contributes to increasing the standard of living. Thiswork addresses new forms of innovation taking place in the private sector - within companies aswell as between companies. A public perspective is taken by exploring the policy implications of anew nature of innovation.The work and the assumptions on which it rests have been discussed with both innovationexperts and policymakers around the world. The purpose of the discussion has been to testhypothises as well as collect most recent policy experience. It is noteworthy that when discussingthe work and the understanding and meaning of a new nature of innovation, the feedback hasbeen very positive. Most innovation experts and policymakers across countries have certainlybeen able to relate to the issues and agreed on the need to identify the policy implications relatedto a new nature of innovation.

1.2Transformation of SocietiesA new nature of innovation is emerging and reshaping public policy. Economic and financialstability is fundamentally important. Stabilising macro policies and efficient markets will still bedecisive for economic development, but will no longer be sufficient to ensure welfare and meetthreatening global challenges.In the innovation economy, a more responsive public sector and a comprehensive set of micropolicies are central in order to reap the benefits from a new nature of innovation.The globalised world and the connectivity created by digitalisation changes society and are alsochanging public policy. Several forces underpin the ongoing structural transformation of societies.The centrality of the individual opens new possibilities for micro consumers, micro producers andmicro innovators and investors. In the globalised and digitalised world, all have the possibility tobe connected and act, allowing individuals to participate more actively in society.Activeness and symbiotic relationships are occurring as informed customers are empowering thescene and forcing companies to react. Even the biggest companies do not possess the resourcesor the ability to act alone. In the emerging new nature of innovation, a multitude of skills arerequired for solving complex challenges – which is why partnerships and collaborative networksarise and symbiotic relationships are created between transnational companies, micro companiesand public institutions.

Interdependence of institutions occurs as no single institution is able to act and innovate on itsown. As partnerships and collaborations are formed between companies, organisations and thepublic sector, new innovation ecosystems emerge, and networks are created between all types ofinstitutions.Companies are moving away from a traditional supplier base towards supply webs and thecreation of nodal firms. Governments are partnering up with companies and are including them increating new solutions to the delivery of public services.Companies and institutions are going away from control towards influence and away fromownership towards access.Wealth creation through innovation will be the dominant way of creating progress for anincreasingly larger population. Wealth creation and better welfare must take place using fewerresources for more people, which calls for continuous innovation in interactive and iterativeprocesses including big companies, entrepreneurs and public institutions.Governments will have to play a new role in the future. They must be responsive and able toengage in interdependent relationships with companies and organizations in the private sector.Governments must provide solutions to societal challenges by involving the private sector andrelying heavily on innovation.A new nature of innovation requires completely new, multidisciplinary skills and competencies,and the demand for these new human resources will be immense. Universities, educationalinstitutions and knowledge centres in particular must react and new institutions will appear toaddress a new nature of innovation.New partnerships will emerge and be crucial for future innovation. Government and publicinstitution participation in collaborative networks will be vital. Symbiotic relationships will challengemost public institutions and will call for new mindsets and competencies in the public sector.The private sector will provide new innovative solutions to a much larger extent because theyspot a market for it. In addition, new partnerships will emerge between firms of different sizes inknowledge hubs, regionally, nationally and across the globe.Public institutions must adapt to the conditions in a new nature of innovation. They will beinterdependent of other actors and must also be ready to move away from control-based policyformulation towards more influence-based.Regulation must be used more intelligently. Governments will invoke innovation and achievewin-win situations by using innovative regulatory and regulatory-like designs to direct users andproducers towards a more innovative behaviour.

This will still be the case in a new nature of innovation, so what is new?In the past, technology and competition were the main drivers of company innovation. Companieshad an “inside-out” way of thinking. Based on internal resources, they designed new products andservices and used marketing to persuade consumers to purchase.Companies defined their role in society in accordance with the industrial paradigm. In this system,the political system set the legal framework and defined the rules, while companies could optimisetheir business as long as they complied with the rules.Technology has always played an important role in driving innovation, and it will continue to doso in the future, but for many companies technology will gradually move from being a driver ofinnovation to becoming an enabler of innovation. Today there are new drivers of innovation whichare gaining importance and becoming just as important as technology once was.In the future, companies will need to become more open; i.e. to learn from their customers,collaborate with others and assume greater social responsibility. If they fail to do so, they will notsurvive. While companies will still optimise their business, globalisation and the digital technologyhave changed the rules of the game.A new global openness implies that citizens from all over the world are potential customers,and that high quality resources can be found all over the world. From a company’s perspective,this will change innovation. A deeper understanding of user needs will be an important driver ofinnovation, and new technology will enable companies to come up with entirely new solutionswhere companies and customers co-create value and create unique individual experiences. Ina new nature of innovation, we will see a new balance between technology-driven, competitive-driven and user-driven innovation – with much more emphasis on the users. We will see newbusiness thinking and new business models where companies assume a much higher level ofsocial responsibility.A new nature of innovation is taking place at the micro level. One should not expect policyimplications on the macro level. Still, an interesting question is: how important are policies at themicro level? Hopefully this study will shed some light on this question.

1.4Four Drivers of InnovationThe emerging new nature of innovation has a number of critical characteristics which differentiatefuture innovation from the innovation of the industrial era. Four drivers will gradually transform themanner in which companies innovate and for each driver new innovation principles will arise. Thefour drivers are:1. Co-creating value with customers and tapping knowledge about users2. Global knowledge sourcing and collaborative networks3. Global challenges as a driver of innovation4. Public sector challenges as a driver of innovationThe four drivers illustrate important new trends or areas where something new is emerging.Until recently, these trends have developed on a small scale within unique companies or niche

markets. What is new is that more and more companies are reacting to the changing conditionsfor business and are beginning to innovate in new ways. In other words, they are changing theirstrategies and business models.No single company will react to all of the trends described. However, we believe that ifcompanies want to remain innovative and competitive, they will have to adapt to today’s businessenvironment in one way or another as will be described in the nine innovation principles.In Chapter 2, each principle will be illustrated by business cases that seize the new era ofinnovation. The business cases should be regarded as signals of emerging trends of practice. Thecase studies should be able to be used as examples of changes that can take place across allsectors.Co-creating Value with Customers and Tapping Knowledge from UsersCompanies have to open their innovation processes. They must listen carefully to customersand address needs based on the customer’s terms – not the company’s. Information andcommunication technology (ICT) will be a key enabler in co-creating unique value with individualcustomers and in enhancing the experiences of the consumers. ICT enables companies to co-create with many customers simultaneously. Companies will involve users in early stages oftheir innovation processes by tapping tacit or hidden knowledge from customers, and by findinginspiration in users’ new solutions to problems.In the industrial age, companies competed in the areas of production efficiency, low-costdistribution and persuasive marketing. In doing so, company innovation relied on internalresources, organized and efficient mass production, and the use of branding and marketing tospot new markets. Today, insight into customer needs and behaviour must be an integral part of acompany’s strategy and business model.Companies must listen and have dialogue with customers and give them access to all kinds ofinformation, platforms and company systems. Companies must be transparent and evaluate riskwith their customers. In doing so, companies will co-create unique experiences in collaborationwith individual customers, as well as with many different customers at the same time. Theemergence of new ICT has made this possible at a very low cost - sometimes at nearly zero cost.Tapping hidden knowledge from customers and involving users in the beginning of innovationprocesses requires different knowledge and competencies than has previously been necessaryfor innovation. To understand how new generations think and act may require a whole new set ofskills or even a new company culture.Global Knowledge Sourcing and Collaborative NetworksCompanies will form collaborative networks and engage themselves in binding innovationpartnerships. No single company – regardless of size – will possess all the knowledge andresources needed to innovate on its own. Therefore, companies will have to access and combineglobally-dispersed knowledge on a larger scale than ever seen before.Transnational companies have always sourced knowledge globally, but in the future even thesmallest companies will have the opportunity to source knowledge on a global scale. This will benecessary to respond to global competition.Previously, companies usually searched for knowledge from renowned experts and institutions.Today, with some sector variation, companies locate knowledge from a wide range of sources,even from individuals with a background and location that may appear less than obvious, but who

nonetheless are highly relevant when attempting to solve a specific challenge.The new global search for knowledge bears important policy implications. In the industrial era, thefree movement of commodities and capital was, and still is, crucial, but in the global innovationeconomy the free movement of knowledge workers will also be critical. Codified knowledgecan be shared at a distance, but tacit or hidden knowledge can only be shared through physicalpresence.Global Challenges as a Driver of InnovationCompanies will constantly search for new business opportunities, and they will realize that globalchallenges such as climate change, the supply of clean water, epidemics and social needsconstitute a huge new market. By creating new and more responsible and sustainable solutions,companies can cultivate new business opportunities. ‘Corporate social innovation’ may be animportant new business area for private companies and a core driver of innovation.Global challenges such as climate change, access to clean water and various social needs haveuntil now been regarded as political challenges and not as business challenges, implying thatthe responsibility for finding solutions rested with the political world. Companies responded torequests and demands put forward by public sector institutions by providing the required serviceor product.In the industrial age, companies focused on production and profit maximization within the existingdemarcation line between private and public. For the most part, companies did not innovate andcreate new solutions to meet global challenges.The private/public demarcation line is becoming increasingly blurred and is being challengedby a myriad of companies, in particular leading global companies. They find new businessopportunities by designing new solutions to problems caused by mankind’s behaviour.This should not be regarded as charity, as companies maintain their economic focus and look forrevenue opportunities. But companies may be forced to change their business culture. They haveto listen to and form partnerships with other companies, non-governmental organizations (NGOs)and governments. They need to open up their innovation processes and create new solutions incollaboration with their partners.The blurring line between public and private demands has repercussions for the role ofgovernments. Governments will have to play a greater role in collaboration and will sometimesform partnerships with private companies. This requires a new set of skills and perhaps also a newculture in the public sector.Changes of this nature can probably not be commanded from the top but must take place in morecollaborative ways. How should the political system facilitate such a cultural evolution?Future regulation must provide space for both companies and policymakers to create commonsolutions, but how can these solutions be found when future innovations might be unknown?The idea of creating lead markets will stimulate innovation. If there is widespread support to solvean environmental or social problem and a political will for action, governments may formulategoals and create sufficient trust for private companies to react and to innovate.Public demand is considerable and remains important to economic activity and could be used in astrategic way to stimulate corporate social innovation.

Foreign aid has been established and implemented in accordance with the industrial society’sdemarcation line between the public and the private sector. Emerging needs in developingcountries may provide a new and important business opportunity and thus calls for a revisionof the guiding principles behind foreign aid. Foreign aid could and should to a greater extentstimulate and facilitate collaboration and partnership between private companies, internationalorganisations, NGO’s and governments in both developed and developing countries.Public Sector Challenges as a Driver of InnovationThe demand for innovation in public services would appear obvious. However, the difficulties alsoseem quite substantial. Citizens look for more individualized welfare services of higher quality, butthe amount of resources allocated to the welfare system are under pressure, and the system’sability to innovate can be questioned.These challenges open a huge territory for private companies if they can find ways for innovatingwith the owners of welfare institutions, but the path into public services is a road with manypolitical obstacles. Across all OECD countries, there are political priorities in terms of economicand social equality but also in terms of efficiency and individual freedom.This cross pressure underlines the need for a discussion of how private companies can beinvolved in innovating the welfare system without affecting the delicate political balance betweeneconomic and social equality on the one hand and efficiency and quality for individuals on theother hand.In line with the changing demarcation line between the public sector and the role of privatecompanies in creating public services, the public sector and the welfare system can be importantdrivers of innovation for the business community.

1.5Policy ImplicationsThe changing nature of innovation is expected to have far-reaching policy implications. At thesame time, only few countries have experience with formulating and implementing broad-basedinnovation policies. As a result, a common understanding of the policy implications has not yetbeen established.An attempt has been made to identify new forms of innovation policy. Based on country visitsand dialogue with innovation experts and policymakers, some practical policy implications of anew nature of innovation have been outlined. These implications are described in more detail inChapter 3. A brief overview of the suggested new policy areas are presented below.Governments should:– Build knowledge and competencies necessary for a new nature of innovation to flourish– Introduce smart regulation– Use intelligent demandGovernments could enhance innovation by investing heavily in new knowledge and competenciesthat are necessary for a new nature of innovation to get a stronghold.

The existing national innovation system is built around science and technology. Dominantinnovation policies have consisted of subsidising private science and technology, governmentinvestments in science and technology, support to technology transfer and efficient IPR rules.New technology will still be crucial for national innovation and wealth, while existing nationalinnovation systems must be strengthened and developed in the light of an emerging global marketfor technology and global knowledge sharing.In a new nature of innovation, businesses need access to knowledge beyond science andtechnology. Companies need access to explorative knowledge about user needs and behaviouron a global scale. They need competencies to design new concepts and platforms for co-creationand competencies to tap unacknowledged knowledge from users. They need access to a widerange of disciplines such as social science, human science and arts, enabling e.g. designersand architects who have business understanding to work in multidisciplinary teams with naturalscientists and engineers.It can be argued that a majority of companies in the future will invest more in this kind ofknowledge and competencies than in science and technology.To meet such a demand from companies requires very responsive universities and research andeducational institutions, but it also requires heavy investment from governments.Governments could introduce smarter regulation. Global challenges such as climate change, cleanwater, epidemics and social needs can only be addressed by a combination of innovation andregulation.To find the right balance between regulation and innovation requires smart public sectorpolicies. The government must set new and demanding standards, but the timing must dependon technological possibilities. When regulatory authorities do not have enough knowledgeto introduce smart regulation, it requires collaboration with research institutions and privatecompanies to design and implement smart regulation.Trusting partnerships between regulating authorities and private companies could presupposea new culture and new competencies in the public sector, as well as the willingness to allowexperiments and to participate in them.Smart regulation demands deep public understanding of problems and possibilities, and stronggovernment leadership.Government could use public demand more intelligently. The public sector and especiallythe welfare system are under pressure. There are severe budgetary constraints and a lack ofinnovation capacity in the public sector.Governments could open the public sector for private innovators. Public procurement could bedesigned more intelligently to enhance private innovation, and public institutions and privatecompanies could form innovation partnerships and create new welfare services.Intelligent public demand also requires willingness to perform experiments, deep understandingand government leadership.In Chapter 3, case examples on government investment in new knowledge, smart regulation andintelligent demand can be found.

This chapter presents new drivers of innovation and the underlying nine innovation principles.Each of the innovation principles are based on evidence of new innovation behaviour. In order toillustrate the emerging behaviour, we have used business cases to describe what is new and whatsome companies from all over the world are doing today. The business cases should be seen asnew, albeit “weak signals” of forms of innovation.In order to identify and describe the nine principles of a new nature of innovation, we havereceived valuable input and guidance from a range of people (Box 2.1)Box 2.1: Business Professors and Innovation Experts Contributing to the StudyC.K. PrahaladProfessor of Corporate Strategy, University of Michigan Ross School of Business,University of Michigan, USAJose SantosProfessor of Practice in Global Management, INSEAD, Fontainebleau, FranceM.S. KrishnanProfessor of Business Information and Technology, Ross School of Business, Universityof Michigan, USAEric von HippelProfessor of Management of Innovation, MIT Sloan School of Management, USAPaal Smith-MeyerHead of New Business Group at LEGOLars Bo JeppesenAssociate Professor, Copenhagen Business School, DenmarkFrederik WiedemanPartner at ReD Associates, Denmark

2.1Drivers of Innovation and Innovation PrinciplesThe centrality and connectivity of individuals made possible by digital technology and theinternet opens new business opportunities for companies. Innovation Principle 1 describes hownew business models emerge where companies and customers co-create value and individualcustomers get unique experiences. Innovation Principle 2 illustrates how companies use newmethods to tap hidden knowledge from users in order to design new solutions.The complexity of both new technology and co-creation with many customers in real time meansthat no company can rely on their own resources and innovate alone. InnovationPrinciple 3 describes how companies need to access and combine globally-dispersed knowledge.Innovation Principle 4 describes how companies form collaborative networks and innovationpartnerships. It is not only large companies that source globally, but also small companies. Thedynamic of small companies, entrepreneurs – and their partnerships with large companies – isdescribed in Innovation Principle 5.Co- creation, tapping hidden knowledge from users, global knowledge sourcing and innovationpartnerships are drivers of innovation in themselves, but they also enable companies to explorenew business areas.Designing new solutions to meet growing global challenges is already a new business for somecompanies and will be a new field with a large potential for many companies in the future.Innovation Principle 6 describes how environmental concerns are a driver for innovation, whileInnovation Principle 7 describes how needs in developing countries are drivers of innovation.Designing new solutions to meet emerging pressures on the welfare system can also be a largepotential business area for company innovation. This is described in Innovation Principle 8.Innovation Principles 1 to 8 represent new forms of innovation where companies create newsolutions to meet real needs. The innovation process is no longer company-centred and inside-out innovation, but user-centred and outside-in innovation. New solutions can often be created byexisting technology or new combinations of existing technology where technology is not the driverof innovation but the enabler. This new role of technology is described in Innovation Principle 9.The nine Innovation Principles are summarized in Box 2.2.

Box 2.2: The Nine Innovation PrinciplesCo-creating value with customers and tapping knowledge from usersInnovation Principle 1: Co-creating values with customersInnovation Principle 2: Users’ Involvement in Innovation ProcessesGlobal knowledge sourcing and collaborative networksInnovation Principle 3: Accessing and combining globally-dispersed knowledgeInnovation Principle 4: Forming collaborative networks and partnershipsInnovation Principle 5: Dynamics between large companies and entrepreneursGlobal challenges as a driver of innovationInnovation Principle 6: Environmental concerns drive innovationInnovation Principle 7: Needs in developing countries drive innovationPublic sector challenges as a driver of innovationInnovation Principle 8: Welfare system concerns drive innovationTechnology’s new roleInnovation Principle 9: Technology’s role as an enabler of innovationIn the description of each of the nine innovation principles, the same template is used. First, abrief presentation of the principle is outlined. Then, characteristics from the previous period arementioned, followed by a discussion of the emerging signs of change illustrated by businesscases. Then, the gradual changes that are occurring are illustrated, and finally some visibleconsequences are drawn up.

2.2Co-creating Value with Customers and TappingKnowledge from UsersThe individual consumer is being placed at the locus of innovation today. This leads to a shift inthe focus of innovation towards providing individuals with unique and customised experienceswhen they purchase products and services. For this experience to be meaningful, companies willhave to understand their user’s behaviour and include them early on in the innovation processto provide them with solutions that satisfy their needs. As consumers and users become moreinformed, and are able to exchange and utilise globally-available knowledge, they are placinghigher demands on products and services delivered by companies as well as the public sector. Atthe same time, the world is becoming flat - offering all individuals the possibility of participating inthe economy and value creation.

Principle 1. Co-creating Value with CustomersThe PrincipleIn the new age of innovation, companies will co-create unique individual solutions withcustomers.1The number of customers each company can co-create with might, in some cases,be virtually unlimited.Of course, there has always been a market for unique products, but this has tended to target arelatively small and exclusive customer group, and has been costly and time-consuming.Companies will need to use digital platforms to handle a lot of customers at the same time (in real-time). In addition, companies must collaborate with other companies through different networks,sometimes forming partnerships.The Previous PeriodIn the industrial era, business strategies were mainly company-centred. Companies used theirown resources to develop products and services and competed mostly on price and quality.This competition on cost led companies into the mass production of unified products andservices. The more identical products or services a company could create, the lower the unit costsand the higher the earnings. To compensate for this, companies invested heavily in sales andmarketing to convince or persuade customers that they needed a specific commodity or service.In the last couple of decades, price competition has also led companies to concentrate on theircore competencies, leading to increased vertical disintegration and fierce competition amongsuppliers.Today, every company has access to mass production and more efficient value chains, making itincreasingly difficult to win on price alone.Signs of ChangeCustomers have always had a need for individualised products and services. The revenuelimitations derived from customers’ purchasing power. Highly-individualised products were mainlyluxury goods, only affordable to a minority. However, today’s technology and digitisation reducesthe production and distribution costs of many products and services, making it possible for anincreasing number of customers to purchase individualised products or services.Digitisation, technical production, and production in networks make it possible to produceindividual solutions which take into consideration the specific needs of individual customers.Digital technologies and Web 2.0 provide companies with a platform to interact with individuals allover the world at low cost. Technology also makes it possible to produce unique solutions at littleextra cost.The value of having a cardiac pacemaker is changing – going from the value created by thepacemaker itself, to the value created around the services connected to the pacemaker in anetwork of suppliers.Case 2.2.1 : Medtronic CareLink Monitor

The medical company Medtronic Inc. has developed a system that enables physiciansto check patients’ implanted cardiac devices via the internet. The patient can hold anantenna over his implanted device in order to collect data. The data is captured bythe antenna, downloaded by the monitor, and transmitted to the Medtronic CareLinkNetwork. Physicians can review patients’ data, and patients can check on their ownconditions and grant access to family members or other caregivers.The patient with a cardiac device can now be monitored from anywhere in the worldthrough a network of doctors in various locations. With information technology andwireless communication, a pacemaker becomes part of a network that includes thepatient, doctor, other experts, hospitals and family. The pacemaker is no longer justa product. It is the nexus of a network. The value of the pacemaker derives from theexperience and the ongoing sense of security and peace of mind that it provides thepatient.Source: Prahalad & Ramaswamy (2004)The Medtronic’s CareLink system goes beyond the cardiac device itself and unleashesopportunities for an expanding range of value creation activities. The technology platform cansupport a wide range of devices and remote monitoring/diagnostic systems, potentially used formonitoring blood sugar readings, blood pressure, brain activity and other important physiologicalmeasures.The creation of unique solutions is not limited to digital products. Within several other industries,companies are co-creating value with their customers in order to deliver a unique experience forthe customer.To enhance competitiveness, the tyre manufacturer, Bridgestone Tyres, has been piloting an earlyversion of a new co-creation service in Europe, developed around a new business model.Case 2.2.2 : Bridgestone TyresBridgestone has initiated a pilot project where the focus of their business is no longeronly the sale of tyres but added services which enhance the value of buying and usingtyres. The tyres have incorporated sensors, which register the usage and the mileage.Instead of selling the tyres as a product on its own, the tyres are leased based on usage.When sensors are incorporated in the tyres and they relay data to a central data server,Bridgestone can (in real time) register what condition their customers’ tyres are in.Hence they can inform the customer when he needs new tires, check the pressure orsigns of rough usage.As a consequence, the customer receives a driver experience, instead of just tyres.Bridgestone is moving away from being a product manufacturer to becoming a serviceprovider, providing a co-created service to the end users.Source: Prahalad & Krishnan (2008)The revenue is based on the tyre usage. It is a move from selling resources, to leasing andaccessing the resources. Companies collaborate in networks in order to create total solutions tocustomers’ needs.

The value of being taught is changing – going from the value created by access to a single teacheror tutor, to the value created around services individual students can obtain based on a network oftutors which are available online.Case 2.2.3: Tutor VistaTutor Vista connects students in the USA with tutors from India using a proprietarytechnology platform. The tutors are highly trained “independent contractors” who workwith Tutor Vista. For $100 per month and with an “all you can eat philosophy”,students in the USA can connect and be taught a wide variety of subjects at theirconvenience by a network of tutors.Students can access the service “on demand”; a tutor is available when the student isready. The student can pick “preferred tutors”. The scheduling algorithms seamlesslyconnect the students (based on grade and subject) with tutors. Tutor Vista makesconsiderable investments in IT platforms, focused analytics, tutor training anddeveloping academic content. The lessons are customized to student needs; thestudent can decide on the tutor, the time for the lesson, number of lessons and the levelof mastery they wish to achieve.This is personalized, co-created value. The firm does not employ any tutors; they are allcontractors. Tutor utilization differs based on their preferences. The tutor network spans100 cities in India. Resources are widely distributed, and the firm has unique access tothe tutors. The firm has established the standards of customer care.Source: Prahalad & Krishnan (2009)Tutor Vista had a customer base of Grades 1-8 (52%), grades 9-12 (28%) and college (20%), andmore than 600 tutors are involved.The creation of unique solutions can also be relevant in industries selling very “ordinary products”such as office stationary.To enhance competitiveness, United Stationers has built an information and logistical web aroundtheir suppliers, resellers and customers.Case 2.2.4: United StationersUnited Stationers is the largest broad line wholesale distributor of business products inNorth America with revenue of $ 4.6 billion in 2007. To enhance competitiveness, UnitedStationers has built an information and logistical web around their suppliers, retailersand customers.United Stationers built a project called “marketopia”, whose goal was to understandthe unique needs of each one of the retailers and help them tailor their operations toserve their customers better. Each retailer can have a unique product portfolio, focusedpromotion programs, and the ability to respond quickly to their customers’ demands.United Stationers sources their products from a large network of manufacturers whoalso provide a significant portion of the advertising and promotional budget .

Source: Prahalad & Krishnan (2009)Companies will innovate in a market of individual experiences where the value of the product liesin the interaction between customer and company. The individualised experience is realised inthe actual consumption of the solution, meaning that many people can have a unique experiencesimultaneously.The Gradual TransitionChanges in business models do not happen overnight. Some types of companies may never bea part of this transmission. But there is evidence that individual experiences will gain importanceamong globally-trading companies. Companies will produce solutions in networks, providingcustomers with individualised experiences. People will choose the individualised solution over thestandardised one.Television and news providers have been going in this direction for some time. Televisioncompanies and newspapers will begin to see themselves as content providers, allowingcustomers to create individual solutions based on their needs. Medical services will move in thesame direction. Treatments will be targeted to individual needs and lifestyles. Travel industrieswill develop individualised experiences by interacting with customers. It is not hard to imaginehow companies will partner to produce solutions for individual customers, driven by the growingcomplexity of customers’ needs.While there are examples of companies that have taken significant steps and reorganised theirinternal processes to cater to co-creating value with their customers, most companies will takeone step at a time. Companies can experiment within their organisations, starting with smallchanges. There is still a long way to go before most companies will be geared towards co-creatingunique individual solutions with customers.Visible ConsequencesToday’s generation is born in the digital ageand is used to accessing whatever they need,whenever they need it via the internet and other digital technologies. They spend time onsearching, reading, collaborating and organising everything from their MP3 files to social activities.They are not content to be passive consumers. Thus, this generation is increasingly satisfyingtheir needs for choice, convenience and customization by designing, producing and distributingproducts and services themselves. Hence, they love participatory collaborative business modelssuch as Threadless.com and comparable companies. Their expectations of what companiescan deliver vary significantly from previous generations. Companies will have to understand thisgeneration’s behaviour and demand for unique experiences.In 2000, two young t-shirt enthusiasts wanted to make their own online t-shirt designcompetitions. But instead of using a jury, they would let the designers themselves pick the winner.They founded the online community of Theadless.com, which is based on the democratic principleof letting the users decide what should be produced.Case 2.2.5: Threadless.comOn Threadless.com, designs can be submitted by anybody. Threadless.com receivesabout one thousand designs every week. Then, community members (now numberingaround 600.000) vote for the best design. The company picks nine shirts from the top100 to print.

In the beginning, the winner would get a free t-shirt with his/her design. Today thewinner is awarded with a prize of $2000 plus a gift certificate of $500 – while Threadless.com keeps the property rights.This kind of collective product development has become a larger success than thefounders had imagined. They are now considering launching a community for homeappliances. The case of Threadless.com illustrates a new kind of a business modelwhich is based on democratic values – democratic in the sense that it is the communitythat collaboratively decides which T-shirts should win, and democratic in the sense thatanyone can be a designer. The community members participate because it is fun tovote, and because they like the participatory value of the process.Source: Howe (2008)The new business model became a great success with sales of US$ 17 million in 2006.

Principle 2. Users’ Involvement in Innovation ProcessesThe PrincipleCompanies have started involving users at an earlier stage in the innovation process. Companiesare observing users to understand what problems they face and need solved, and are includingthem at the beginning of the innovation process2. By carefully planning user involvement in theinnovation process, companies get access to user knowledge which can be crucial for developingnew concepts and creating market-shaking innovation.Until recently, users were mainly involved in the later stages of the innovation process e.g. testingprototypes – often once the product was close to being ready for sale and marketing. This ofteninvolved forming focus groups to hear customers’ opinions of products, or asking users to testprototypes and products.‘Users’ can be other companies or end users. In some cases, a company will interact withother companies to gain knowledge on what solutions should be created, while in other cases acompany will involve the end-user in the development of the solution.In order to obtain the often hidden knowledge that users posses, they might be involved eitherindirectly in the innovation process (for example through user observations and user experiments),or they might be directly involved in innovating for the company (for example as advanced users).The Previous PeriodInvolving users in the development of products and services is nothing new in itself. For a longtime, firms have wanted to hear their users’ opinions on whether they like products – their shape,smell, the effect and so on. Based on user feedback, firms could improve or adjust their products.Competing on technology alone has become harder. New technology hotspots are sprouting up allover the world, increasing competition among companies. How can companies now differentiatetheir products if they have access to and offer the same technological solutions?

The new era of innovation is forcing companies to find new sources of innovation. Byunderstanding user behaviour and what problems users need solved, companies are able tocreate market-shaking innovations.Signs of ChangeIf companies understand the reason behind users’ behaviour, they can gain insights that willenable them to develop new concepts or platforms. In other words, companies will be able to gobeyond incremental innovations and aim for more radical innovations to take place through userinvolvement.Companies are rethinking their innovation processes and focusing more on the role of the user.Innovation is no longer only taking place in traditional R&D departments, where the main focus isdeveloping the latest technology. Innovation processes are starting with the user – understandingwhat problems users face and need solved – and understanding users’ behaviour which thengives clues about what products or services to develop. Users are being involved in earlier phasesof the innovation process - already when companies are identifying opportunity areas.While the inclusion of technology into products or services is taking place later on in theinnovation process, the inclusion of users is taking place at an earlier stage in the innovationprocess. The innovation process is becoming user-driven.Companies are focusing on a systematic innovation process and making strategic choicesregarding when and how to involve users. The innovation process can be divided into differentactivities, and it can be relevant to involve users in all of them. The innovation process can bedivided into two phases: the pre-innovation (or front-end) phase where companies focus on whatto offer, and the more traditional innovation phase where companies focus on how to offer it. Eachphase is comprised of several innovation activities. An innovation process does not always includeall possible activities and seldom is an innovation process linear, but iterative.The possible activities within the what phase are opportunity identification, data collection,pattern recognition and concept ideas. Users can be included in these activities through e.g.observations of users or experiments with users. Until recently, the pre-innovation phase wasrather limited and less systematic in most companies and would very seldom include users, butthis is changing rapidly. More companies are developing new innovation processes with new andadvanced methods for tapping user knowledge in the pre-innovation phase where new businessopportunities are explored.The possible activities within the how phase are conceptualisation, prototyping, test andimplementation. Users can be included in these activities by e.g. participating in focus groups,interviews or surveys to evaluate the products. Most companies have a long tradition for doingthis, but users can also be involved in the how phase by being a part of the company’s innovationteam, which is a rather new and demanding task3.

Companies are increasingly involving users in different ways in their innovation processes.Users can be involved in the innovation process indirectly – in other words they are not part ofthe company’s innovation team. Companies are tapping tacit knowledge from their users byemploying methods during the innovation process which previously have not been used forcommercial purposes, for example ethnographic methods. This can involve user observationssuch as living in peoples’ homes or shadowing them for a longer period of time, collecting diarieswith descriptions of users’ daily life, asking the users to take photographs of relevant situationsand so on. The data which is collected is analysed in order to understand the patterns of userbehaviour – a lengthy process which involves going through all the data and creating patterns ofuser behaviour. What all the methods have in common is trying to understand the users’ behaviourwhich the users themselves may not be able to articulate. What users say is one thing – what theydo is another.More and more companies experiment with involving users in new ways in the pre-innovationphase.In 2004, the Norwegian toothbrush producer Jordan was feeling the pressure from market giantsProcter & Gamble (Oral B) and Palmolive-Colgate (Colgate), whose R&D expenditure is higher thanJordan’s total revenue. By using various ethnographic methods in order to understand what dentalhygiene meant to their users, Jordan was able to create a new innovation platform and repositionits brand.Case 2.2.6: JordanJordan decided to focus on gaining knowledge about users in the Nordic countries byemploying ethnographic methods among others. 100 users from Denmark, Norway,Sweden and Finland participated in the studies. The users were given disposablecameras and asked to take photos of everyday routines related to hygiene and care. Theusers also had to write a diary where they described their morning and evening routines.The study of the users’ unacknowledged needs revealed that women in particular dividetheir routines into hygiene and care. Hygiene is related to everyday quick routines whichhave a short-term effect, while care is related to preventive measures that have a long-term effect. The toothbrush industry focuses primarily on technical hygiene solutionswhich are expensive to develop and which require high R&D budgets. Hence, therewas a potential for Jordan to move into the care category, creating a niche within thetoothbrush sector, and moving away from the costly technology race.A new innovation platform was developed, and a new brand position concept “Loveyour Teeth” was created. At the same time, a range of physical products were developed– products that women could carry with them at all times and which could be exposedeverywhere as a care product and not as a private hygiene product.Source: Hoegenhaven Consulting (2008)Two years after the new innovation platform was implemented, Jordan’s market share intoothbrushes increased from 61% to 70% in Norway, from 20% to 28% in Denmark, from 18% to23% in Sweden and from 20% to 23% in Finland.The German telecom company Deutsche Telekom provides another example of involving users inthe pre-innovation phase. Deutsche Telekom’s R&D lab has been using ethnographic research in

order to understand user behaviour and develop products based on user insights.Deutsche Telekom decided to target the growing segment of 50+ year-old users of landlinetelephones. Their R&D lab, T Labs, applied a user-driven design process, resulting in a successfullandline telephone for elderly people.Case 2.2.7: Deutsche TelecomThe R&D department of Deutsche Telecom has a unit, called T Labs, which isspecialised in applying user-driven design methods on R&D problems.T Labs engaged 20 people from the target group (50+ years old) to do a selfobservation, where they documented their calling habits, behaviours, desires andvisions. Four people from the target group evaluated information architecture related toa telephone as well as the telephone navigation menu. Based on the user insights, thenavigation menu was considered too complicated. The target group appreciated design,requiring the telephone to be a nicely-designed home appliance. The functions of thenew telephone were reduced to basic functions with a focus on voice telephony. Thedata from the study has been used to design specific features which appeal to the 50+segment. There is direct access to main functions on the first menu level, three quickdial keys for important contacts, a large display with high contrast, a hard key for volumecontrol during a conversation, visual indication of incoming calls by a light-emittingdiode, and an elegant design combined with modern energy-efficient technology.Source: FORA (2009)The phone was launched in September 2008 and in addition to appealing to the elderly users,became popular among the average family.Users can also be involved in the innovation process by being an active part of the innovationteam – participating in developing innovations for the company. These types of users have first-hand knowledge when it comes to using a product or service and have their own ideas abouthow to develop or create innovations that are more radical. We refer to these types of users as‘advanced users’. The users can either be hired by the company to participate in the developmentof innovation, or the user can voluntarily participate by, for example, virtual participation.Companies often involve groups of users in the form of user communities that exist via theinternet.Digital products such as computer games can be developed via online communities by advancedusers. The American software company Valve was among the first companies to involve acommunity of game players in the strategic development of a new computer game.In 1998, the American software company Valve wanted to create a popular computer game in ahighly competitive market. By sourcing information from advanced game users and letting theusers participate in creating a new game, Valve was able to launch a new type of computer gamenever seen on the market before: Counter Strike.Case 2.2.8: Valve SoftwareWhen Valve released their new computer game Half Life, they also decided to make

80% of the game codes available for modification by users. The code was restricted,requiring the use of the core engine of Half Life, thus making the original game theplatform for building modifications and playing new versions of the game. Valve alsoreleased a number of tools to the online user communities to match the publication ofthe game code.In order to find the most popular modified version of the game, Valve tracked thevarious communities and identified which modifications were played the most. Valvepicked the most popular version of the game, and hired one of the core members of themodification team to continue the development of the game in-house at Valve.While the original game Half Life is a linear first-person shooter game, the modificationCounter Strike is a team-based, multiplayer game taking place in realistic settings.Source: Associate Professor, Jeppesen, L.B. (2008)Valve packaged the modification of their original game and released it as a new commercial game,Counter Strike. Contrary to other computer games where sales fall after a year or two, CounterStrike’s sales increased year after year. In total, Counter Strike has sold more than 11 million unitsand made an estimated profit of US$ 300 million.Some companies are strategically localising and involving advanced users in their innovationprocesses when developing new products or services. Eager users are invited in to thecompanies’ innovation departments in order to develop something new together with thecompany.In 2006, Lego decided to include advanced users in the creation of the next generation ofMindstorm.Case 2.2.9: Lego MindstormLego picked four advanced users of Lego Mindstorm from the active Mindstormscommunity to work together with Lego on developing the next generation of theproduct. The advanced users had knowledge and insights which Lego themselves didnot have in-house. The users became part of the Lego innovation team, through virtualproject room, but gave up their IP rights to Lego and did not receive a salary.During the development of NXT the online user panel (MUP Mindstorms User Panel)expanded to over 110 memebers. The impact of the collaboration with the advancedusers were improved features, a new sensor, blogs, books and a new way of workingwith the fan community which today are common practise across LEGO and had 50projects in 2008.The new version, Mindstorm NXT, has a microprocessor that can be programmed usinga PC or a Mac. Users can create a program and download it to their Mindstorm robots,giving the robot a life of its own, autonomous from the computer.Lego Mindstorm received two awards within the first few months after launch.Source: FORA (2009)Lego Mindstorm received two awards within the first few months after launch.

While there are examples of companies inviting advanced users to participate in the innovationprocess and develop ideas together with the company, there are also examples of users whocome up with great ideas or inventions without companies being involved. These users arereferred to as lead users4. They innovate to solve their own problems, not with the prospect ofcommercialising the idea. However, if a company gets hold of the idea later on, the lead userinnovation might be put into mass production (such as in the case of the baby jogger from theUS).At most hospitals, doctors and nurses create new equipment in order to provide their patientswith improved medical care. This is also the case at Massachusetts General Hospital, but herethe hospital has also created a department where these innovations are gathered and potentialproducers are pursued if an innovation is thought to have commercial value.Case 2.2.10: Massachusetts General HospitalMassachusetts General Hospital has developed an internal R&D lab, which supportsideas from medical staff. They provide the clinicians with help to actualise the idea, andthe lab initiates contact with companies who can produce and take the innovation to thebroader market.This is a source of new opportunities for companies: They can reduce their R&D costby collaborating with lead users, and they can get access to radical innovations, whichare based on a real market need. For example, Sigma Pumps has commercialised anintelligent drug infusion pump for anaesthesia, which was developed by one of thehospital’s physicians. The pump can dispense the proper dose of medicine to patients.Earlier pumps had been prone to drug-dosing calculation errors –sometimes leading tofatal results.Source: ReD Associates (2009) & von Hippel (2006) & Associate Professor, Jeppesen,L.B. (2009)Sigma Pumps saw annual sales increase from $8 million to $80 million while another companythat also commercialised the pump Alaris, saw the pump bring in $700 million in sales.While it seems that companies are rapidly increasing involvement of advanced users in their pre-innovation phase, it remains to be seen how widespread a phenomenon it will be for companiesto rely on lead users in early stages of the innovation process, and focus internal resources on thelater phases instead.The Gradual TransitionAs more and more companies are able to compete on technology, user-driven innovation isbecoming an increasingly important dimension of competition.Already in the 1980s, some companies started to include methods for understanding userbehaviour in their innovation processes. Rank Xerox is probably one of the first companies toemploy methods such as user observations in order to understand the problems their usersexperienced and lever those findings in the development of new products.The following decade saw more companies including knowledge of user behavior early on in the

innovation process. Companies such as Electrolux, Coloplast and Procter & Gamble are someof the frontrunners. While it was companies in the electronics industry that took the lead onemploying user-driven innovation methods, more and more industries are following.5Visible ConsequencesNew and different competencies are required for companies to be able to work with user-driven innovation. Staff that know how to work with user-driven innovation methods can eitherbe hired to work in in-house departments, or their services can be purchased through externalconsultancies.Some companies are creating new departments focusing on understanding user behaviour andhiring staff that have a background in the social sciences - such as anthropologists, sociologistsand ethnologists.In the mid 1990s, Intel began experiencing that their technological innovations did not resultin the expected sales. Intel decided to establish two new departments that would focus onunderstanding users’ unacknowledged and unsatisfied needs.Case 2.2.11: IntelIntel established two departments within Intel Research in Portland which focus onunderstanding users’ needs. The purpose of the first department (People and PracticesGroup) is to participate in forming Intel’s long term strategy, while the purpose ofthe second department (User-Centred Design Group) is to focus on specific productdevelopment in the short term. The two departments have expanded within the lastdecade, and today they employ more than 40 ethnographic researchers, as well aspsychologists and designers. The working methods are mainly based on ethnographicpractices such as observations of users, in-depth interviews, videos and photography.Intel’s new departments have participated in several new product innovations andplatforms. One example is the home PC made for the Chinese market. Based on theethnographic insights, Intel was able to develop a PC aimed at educating Chinesechildren which their parents could control. In 2004, the PC was awarded the ChinaDesign Excellence Award.Source: FORA #12 (2005)The ethnographic researchers are increasingly being recruited from Intel’s two user driveninnovation departments to the rest of Intel’s research departments such as within Digital Homes,Digital Health, Consumer Research/Emerging Markets and Mobility Group.Other companies hire consultants whose core competencies are to work with methods forunderstanding user behaviour and unmet needs. This demand has lead to an increase incompanies that provide this type of service, also called concept/strategic design companies.6Another trend which can be observed is the change of business focus for traditional managementconsultancies. McKinsey is taking on projects in the area of strategic design, while Monitor Groupbought the innovation strategy company Doblin Group in 2007.

Principle 3. Accessing and Combining Globally Dispersed KnowledgeThe principleNo single location can provide all the knowledge required for innovation, in particular fordiscontinuous innovation in the form of new products and solutions or new business models. Theinnovation process is becoming global, requiring companies to access and combine knowledgethat is available in different locations around the world. Certain knowledge elements are nowaccessible at a distance (such as explicit knowledge turned into information), but other elementsof knowledge of a tacit and context-specific nature remain embedded in their original localities.The increasingly complex nature of innovation requires companies to tap knowledge, intangibleresources and talent from across the world, collaborating across borders and continents, andbecoming meta-national innovators with an integrated global “innovation chain”7.Companies must therefore ensure that they are present in one way or another in their relevantlead markets and have local sources of technologies they require to innovate. Companies can dothis by setting up local units or subsidiaries, or by forming collaborative arrangements with localcompanies, universities, or other research institutions. To this end, companies can collaborate withtheir users, customers, suppliers, or partners to access knowledge globally.While large companies have had the advantage of their multiple locations, smaller companiestoday are able to use digital technology and international communities to access certain kindsof knowledge from anywhere in the world, thus enabling them to exploit new knowledge in away similar to much larger transnational (or multi-national) companies. Indeed, establishedtransnational companies may be hindered by the traditional reliance on their home base forinnovative products and business models.The Previous PeriodCompanies in the industrial era relied on their national environments and local clusters to sourceand combine the information, technologies, user knowledge, and business intelligence needed toproduce innovative goods and services as well as new processes or business models. Companiesbecame “global” by enjoying the industry leadership that their original countries provided. Beinglocated in the “world capital” of an industry (of which Silicon Valley is a recent example) was half-

way to a competitive advantage in a global market. The industrial era will remain characterized byindustry clusters driving innovation and competitive advantage.However, after decades of internationalisation of company activities and the more recentglobalization of markets, intangible resources and the capability to keep a stream of innovationsnow determines competitive advantage in a growing number of industries. At the same time,knowledge sources became more and more dispersed around the world – one of the moreinteresting outcomes of globalization.8As competition increases in a global world, firms are not just internationalising all parts of theirvalue chain and taking advantage of local capabilities, costs, and comparative advantage, butalso opening-up their innovation processes to a global pool of information, technologies, and userknowledge.Signs of ChangeCompanies are increasingly combining elements of global knowledge (that is, elementsof knowledge that reside in different locations around the world) and even forming globalcollaborations in order to create new knowledge and innovations. Since no one location containsall the knowledge that is necessary for innovating in a growing number of businesses, firms mustutilise local pockets of technology, user understanding and market intelligence – combining theknowledge to retain or gain a competitive advantage. A leading example is provided by Intel,which relied for a long time on the superior technologies and lead market qualities of its birthplacein the heart of Silicon Valley. However, even Silicon Valley (and the wider US) were no longerenough as the source of innovation for Intel. After a period of slower performance, Intel recentlyregained its advantage with the Centrino, an innovative product combining its legacy US-basedintellectual capital and the different, local worldview and talent of its R&D centre in Israel.As companies open up their value chain, they will access suppliers, talent, and partners on aglobal scale. This might sometimes mean that a company is not part of a fixed supply chain,but rather of one where some actors and national origins change over time. These internationalinteractions will create opportunities to access new knowledge that the company may use forfurther innovating.A global view on talent recruitment is also needed. The best employees might not necessarily befound within close reach. In today’s digital world, talent can be recruited from anywhere in theworld, thus possessing a variety of diversified skills and qualities.Case 2.3.1: Electronic ArtsThe American interactive software company Electronics Arts has developed a newrecruitment system where they actively pursue candidates globally and build a long-termrelationship with them. In that way, Electronic Arts fills their pipeline with talent who canbe offered a job as it appears.Electronic Arts decided to look at the recruitment challenge from a new angle. To fillpositions within the company, they decided to actively pursue talent and build long-standing relationships with targeted individuals. Potential employees were found throughtheir network, at conferences and so on. Electronic Arts realised that the relevant

candidates they were in touch with often belonged to other industries than the computergaming industry. Having contacts to relevant talent in areas where other computergaming companies might not look increased Electronic Arts’ innovative capacity.Electronics Arts used a customer relationship management software (CRM) to buildand maintain long-term online relationships with a pool of talent. The software allowsElectronic Arts to make detailed analyses of candidates’ skills and preferences, thusbeing able to offer a candidate a job that is suited to his competencies and interests.If a candidate is not interested in a job at a given time, Electronics Arts will pursue therelationship and keep them interested by offering various forms of incentives.Electronic Arts has reduced the time it takes to fill a position and has dramaticallyincreased the number of people in its pipeline.Source: Associate Professor, Jeppesen, L.B. (2009)Contracting with multiple vendors on a global scale offers the flexibility of scalability and givesaccess to a variety of resources that can satisfy varying needs. The globalisation of the 1980sand 1990s, which was dominated by the activities of transnational enterprises, is quickly givingway to new forms of globalisation, where millions of small players get involved in complex globalnetworking activities, partnerships, and exchange. One way it can happen is through onlinecommunities.The internet is offering global collaboration platforms which are paving the way for more andbetter orchestrated knowledge sharing among communities of shared interest, enabling them todigitally combine their knowledge. This is potentially a very important source of innovation withusers playing an increasingly more powerful role in stimulating and shaping innovations based oncombined and created knowledge.Companies today can also access talent outside of their own company, thereby taking advantageof the global pool of resources available. By using the knowledge possessed by individuals allover the world, the unique combination will spur new ideas and innovations.Case 2.3.2: InnoCentiveIn 1998, a strategic analysis made by the pharmaceutical company Eli Lily showed thattheir internal attempts of generating innovation were hampered by the limited diversityof approaches. Eli Lily created an online broker company InnoCentive which helpscompanies with problems they need solved by accessing a global pool of talent witha range of skills. Scientists, engineers and other professionals are thus able to providesolutions to corporate lab’s R&D problems via the online broker.Seekers (companies seeking solutions) submit problems they are not able to solve intheir internal R&D labs to the online InnoCentive Marketplace – doing a “broadcastingsearch”. In the marketplace, there are problems looking for solutions, as well assolutions that might be looking for problems. The problems are mainly technical ones,requiring skills within engineering, life science, maths, chemistry and computer science.On average, 240 individuals glance at a given broadcasted problem – a significantlylarger number of people than companies can afford in an internal development process.On average, 10 individuals offer answers, and 30% of the problems are solved.

The open innovation created through InnoCentive gives companies access to a globaland diverse pool of knowledge. Problems are considered through different perspectivesby professionals that might not usually participate in solving those particular types ofproblems, and whose skills might not be found within the company broadcasting theproblem.Source: Associate Professor Jeppesen L.B. (2009)Today 160,000 individuals from 175 countries participate in creating solutions via the InnoCentivemarketplace. Other transnationals such as Procter & Gamble are today using InnoCentive to solveR&D challenges and to obtain diversity in the solutions offered.Companies are also using their users as a source of knowledge sharing and knowledge creation,thus creating new business models and innovating within the value chain.Propellerhead, the Swedish software development firm in the field of computer-controlled musicalinstruments, took a new look at the way customer support functions are organised. Propellerheadwas looking for a new method to provide their users with sufficient information to take advantageof the software tool for music creation. They created an interactive website which had the role ofa communication hub, and included users from all over the world in their customer support team.Thus, the most knowledgeable users could assist users who required help in using the software.Case 2.3.3: PropellerheadPropellerhead was the first company to launch a software programme which enablesusers to compose music on a PC or Mac. Several groups of users hacked intoPropellerhead’s program, and started to modify the software. This development led tothe formation of a user community where users discussed Propellerhead’s software andways to improve it.Propellerhead realised that the users of the community were providing each other withsupport on how to use the software. The company decided to take advantage of thiscommunity and included them in their web-based team of customer support services.The user community now lives side by side with the official customer support team atPropellerhead.Source: Associate Professor Jeppesen L.B. (2009)Through the interactive customer support website, Propellerhead could assist their customerswhile simultaneously reaping the benefits of any new ideas and innovations which occurred inthe interaction between users assisting each other. Propellerhead was also able to reduce itsoperating costs of maintaining a customer support site.The existence of local talent inside, as well as high quality relations with local suppliers andcustomers and other institutions in various locations around the world is crucial to accesscomplex knowledge (that is, the more tacit and location-specific elements of knowledge). Thisremains a formidable obstacle to many incumbent transnational companies who are used toincorporating the knowledge they acquired in their original clusters or home bases in theirofferings and processes, but who lack the mindset and capabilities to source complex knowledgelocally.

The European semiconductor supplier ST Microelectronics provides a leading example of how toturn the weakness of begin born far away from the capital of semiconductors into a strength. STachieved a global position is some segments with innovative products, in particular a diversifiedoffering of “system-on-a-chip”.Case 2.3.4 ST MicroelectronicsST Microelectronics assembled knowledge from several locations around the world byinvesting in local R&D units in various countries that were able to attract local “silicontalent”, and by actively engaging in new product development for a selected set of leadcustomers such as American-based Seagate (in the hard disk drive industry) whichprovided “application know how”. When needed, ST acquired technologies that wereowned by other firms and even by competitors around the world. Consequently, STwas able to develop different levels of system-on-a-chip (s-o-c) solutions for differentapplications and preceded its major (American and Japanese) competitors in the globalchip market.For example, ST became a global leader in chips for HDD, a market segment thatdidn’t even exist in Europe. As with other s-o-c, this required the integration of differentfunctionalities and technologies that simply did not exist in any location in the world.The chips for HDD required analogue technology expertise available in Italy, digitalsemi-custom technology from France and the US, advanced digital design from theUK, specialised know-how for HDD electronics in the US and in Ireland, additional R&Dresources from Singapore (where HDD were manufactured), customer knowledge fromthe US, and even some digital chip technology from the German competitor Infineon.As a result, ST’s chip set solution for HDD application replaced more than ten chips andover one hundred discrete components in hard disks, contributing to size reduction,quality improvements, and lower cost of manufacturing and usage.Source: Santos, Doz and Williamson (2004)The Gradual TransitionAs companies become comfortable with this openness to the world and the notion of lookingfor knowledge in locations outside the original birthplace of the company, the next natural stepfor them will be to take a global look at their innovation processes. An increasing number ofcompanies will consider adding external knowledge to all departments within their company,not only to R&D departments, while simultaneously looking beyond the cluster in which they arelocated and towards knowledge hubs in other countries or continents. This will have a remarkableimpact on their ability to come up with discontinuous innovations, in particular radically newsolutions to latent market needs.Visible ConsequencesAs companies globalise their innovation processes, they will start to strategically focus on thevalue of knowledge that is embedded in different countries and locations around the world, be itinside their local subsidiaries or inside local companies and universities or other knowledge-basedinstitutions. More firms will move towards implementing a process for innovating based on accessto global knowledge. In this way, companies will become not only more innovative, but they willalso be able to benefit from lower-cost knowledge sources and reduce their cost of innovation andnew product development.

Principle 4. Forming Collaborative Networks and PartnershipsThe PrincipleNo single company has all the elements of knowledge required to innovate on their own.Companies are forming collaborative networks and partnerships for innovation. The increasingcomplexity related to innovation today calls for a combination of skills which can be obtained bycollaboration across different types of companies. No one company possesses the vast amountsof specialist knowledge that is needed to solve today’s market challenges and create new andvaluable solutions.The partnerships consist of collaborations between companies’ customers or users, orcollaboration with other companies or universities and other knowledge-based organisations toaccess knowledge globally and innovate.To do this, companies have to combine and create new knowledge together. This calls forreciprocal influence and mutual trust. Companies are moving away from full control over theirinnovation processes towards shared influence over joint innovation processes. Knowledge isaccessed externally and combined by the partners instead of one company alone owning all theelements of knowledge needed.The Previous PeriodIn the industrial age, companies competed on the amount of internal knowledge theyaccumulated, and would gather as much information and know-how as possible internally todevelop their innovations. R&D departments competed with each other, and knowledge wasguarded from competitors. Companies were often so protective that, in many cases, evenemployees didn’t have access to crucial information.Companies were closed, and decision-making was done at the top of the hierarchy. In order tomanage risks, management would be involved in all strategic decisions that had to be made. Iftargets were not met, management had the possibility of ending the innovation process.The relationship between companies and their suppliers was often a traditional buyer-sellerrelation, where the buyer’s main interest lay in obtaining products or services at the lowestpossible price from the seller. But as the complexity of the innovation process increases, so doesthe dependence on suppliers. In some of these cases, the nature of the relationship evolves into aform of partnership, rather than a traditional buyer-seller relationship.Sharing critical knowledge with other companies is a challenge for companies with organisationaland managerial cultures from the industrial era.Signs of ChangeToday it is no longer enough for companies to take advantage of the knowledge held within theirown company. Knowledge must be accessed externally in order to remain innovative and thereby

competitive in the future.More and more companies have opened up and have supplemented their in-house R&D activitieswith external ideas and knowledge. Open innovation is taking place in all sorts of industries allover the world. Procter & Gamble created a systematised process for using open innovation whendeveloping new products. In 2006, 35 % of their products were based on interactions with othercompanies and knowledge sharing through electronic marketplaces.9The complexity of the required solutions today can not be solved by one type of firm on itsown. Sharing information and skills amongst partner firms as well as customers and users willbe one of several paths firms must take in order to remain competitive. Several partnerships inthe recent past have been exemplary in showing this new path to new product or new businessdevelopment. They emerged in industries with very complex products. Examples include theinitial Airbus GIE or CFM (the joint-venture between GE and SNECMA). Often, the right solutionwill require collaboration with firms that possess compatible capabilities, supplementing theskills found within each company. Therefore partnerships and collaborations are increasinglybeing formed. Many of these innovation partnerships will involve public sector and private sectorentities.Within the partnership, no one company will be in control of the innovation process. The membersof the partnership are therefore not able to apply the usual risk minimisation tactics and willin effect have to give up a certain amount of control. This new kind of collaboration betweenorganisations will require trust and the ability to share decision-making. It is a move from aTayloristic10and hierarchical form of pooling resources to an open and collaborative method ofpartnering.Partnerships can take on many forms. Some partnerships are based on research projectswhere companies’ R&D departments work together in order to develop new technologies. Otherpartnerships are formed to create new products or services, by combining existing methods andtechnologies with other products and services in a new way. While yet other partnerships areformed within the value chain in order to optimise production processes, distribution, sales and soon.The sharing of information and knowledge does not take place solely on market conditions.Partnerships require trust. Often it is easier to trust someone you already know. Sincegeographical presence makes it more likely to know each other, many partnerships take placebetween local partners. But to mix local knowledge alone can be insufficient, so even companiesin local ’hotspots’ have realised that information and knowledge must also come from outside thelocal region.The Danish pump company Grundfos and the Kenyan mobile company Safaricom (a subsidiaryof Vodaphone) partnered up in order to create a new product and related services by combiningexisting methods and technologies in a new way. The outcome was a new payment system to beused via a mobile phone and by using smart cards installed with a chip.Case 2.3.5: Grundfos

Grundfos installed a water system for a community of 400 people in a developingcountry, providing the community with clean drinking water. The solution consisted ofseveral components. In order to create a water system which was linked to a paymentsystem, Grundfos had to partner up with a variety of different companies.Grundfos teamed up with local construction companies to complete a lot of the practicalwork, while local NGOs were chosen to assist with the sales of the water system. Toenable the community to buy a water system, Grundfos cooperated with one of Kenya’slargest banks for micro financing in order to create terms the local community could takeadvantage of. In order for each individual member of the community to be able to obtainwater, a payment system had to be created. Grundfos worked together with Safaricom,Vodaphone’s African subsidiary, to develop a new method of payment using mobilephones.Since Grundfos’ business model for providing local communities with water was newand very different to the donations made by various charities, it took a while for theNGOs and banks to see the potential in the proposition. However, all the partnersworking with Grundfos will profit from the cooperation in one way or another.By working together, the companies were able to provide an integrated water systemwith a mobile payment method using water cards (smart cards). By sending a textmessage from a mobile phone, a user can transfer money onto a water card which inturn can be connected to the pump to pay for using it. When the user arrives at thewater station, the water card is inserted into a slot where the credit amount on the cardis updated. Thereafter the user can insert the updated water card into a slot next to thewater faucet allowing the water to flow.Source: FORA, (2009)Grundfos is planning on expanding its business of water systems and has defined its market as1.5 million people on 3 continents, and expects to achieve revenues of 50 million Euro by 2015.The Indian wireless telecoms operator, Airtel, included a whole range of different partners in orderto reach as many customers as possible in rural India.Case 2.3.6: AirtelAirtel is a wireless telecom operator in one of the fastest growing and most intenselycompetitive markets in the world – India. Airtel is the largest with over 100 millionconsumers. Their revenues were $ 5.5 billion in 2008, growing at around 40%. Theirgoal is 250 million consumers in five years. In January 2009, it had the largest marketcapitalization of any company in India. It is also one of the most profitable telecomoperators in the world. The CEO says this of their success: “we have broken all theparadigms of telecom”.They have partnered with a wide variety of firms - LM Ericsson (for the network), IBM(IT services), retail stores, call centres, and passive infrastructure. They work with largeglobal firms (IBM and Nokia), microfinance institutions, and more than a million localshop owners (small Kirana shops spread across the country). They have thus accessedworld-class technology and local distribution and have become the lowest-cost providerof talk time (less than 1 INR or $0.01- 0.015/minute) in a typically capital-intensive

industry.By focusing on clear agreements, constant review, creating a “win-win” contract, andmaking sure all players have “skin in the game”, Airtel has been able to work with a largeecosystem of global and local players and access expertise. Further, they have beenable to convert lumpy investments (such as networks) into variable costs by paying apercentage of revenue to the partners. Airtel is creating unique value for customers. Thevery poor can afford to get connected. They provide the lowest cost, high tech solutionto all. They have also reduced their risk in making technology bets. They can continuallyupgrade their technology solutions because of their partners.Source: Prahalad & Krishnan (2009)Airtel is creating unique value for customers. The very poor can afford to get connected. Theyprovide the lowest cost, high tech solution to all. They also have reduced their risk in makingtechnology bets. They can continually upgrade their technology solutions because of theirpartners.Partnership structure resembles a network structure in the Castellsian11sense. A network hasno centre. It is made of interconnected nodes, which in this case would be the partners. Thosewho have influence are those who bring value to the partnership project. Power is exceededby inclusion and exclusion, meaning that it is the only way the network can reward or punishsomeone. To do partnership innovation, the partners must give up sovereign power and open up.The Gradual TransitionPartnership innovation requires the opening up of firms. The first step on the way is taking place inthe form of open innovation where firms allow external ideas into their R&D departments in orderto become innovative.As firms optimise their value chain and become more specialised, the need for working togetherwith others will occur. The solutions offered in the future will be developed by different types oforganisations and companies working together in some type of partnership framework.Visible ConsequencesAs companies form partnerships to innovate in the new era, companies’ structure andorganisation will have to change to allow for the methods of collaboration. Employees will have tolearn how to work in teams, while management will have to change their decision-making culture.New types of firms will appear as there will be a role for facilitating and mediating partnerships.The Japanese online platform, Cuusoo.com works as a type of nodal firm, facilitating a meetingplace for inventors with ideas, customers who are interested in having an idea produced, andappropriate producers of the invention.Cuusoo.com wanted to provide users and inventors with the possibility for producing their owndesigns. Cuusoo.com finds the ideas from the members of the community and launches productsbased on these ideas only after a certain number of customers have committed to buy.

Cuusoo.com has 20,000 members who post their new inventions on the online platform.The user innovators are helped to actualise their product ideas by several services:Firstly, the site has tools and a service which helps members to visualise their ideas.Secondly, in the community of the site, the user innovator can upload the visualisationand share the design with other members. Thirdly, the concept is evaluated, andimprovements are suggested by members. When the idea is ready, it is published.Finally, when enough people have made a commitment to buy, the product is producedby a factory within the network.As a source of innovations for product designs, the community has proven to be fruitful.But Cuusoo.com realised that they have to access other partners to reach the massmarket. Hence Cuusoo.com has formed a joint venture with the Japanese retail storeMUJI. Selected products from Cuusoo.com are sold in MUJI stores, as a special productline called ‘invented by you’. This product line (of furniture and home appliances) hasproven more successful than many of MUJI’s regular products.Source: Associate Professor Jeppesen L.B. (2009)As partners are involved in creating innovations together, questions of ownership will take on anew perspective. New agreements between companies, customers and users will have to bemade in regard to intellectual property rights.

Principle 5. Dynamics between Large Companies and EntrepreneursThe PrincipleLarge companies use a range of methods to become more innovative. As companies growand become big, they tend to lose some of the innovative capacity which was present whenthey were smaller or newly started. Large companies are therefore creating programmes tofoster entrepreneurship internally, or they work together with start-ups to take advantage of theknowledge and innovative culture held within the smaller companies.By creating programmes to foster intrapreneurship, large companies are creating a culture whereideas can develop and be captured anywhere in the organisation, catalysing innovation amongemployees.Large companies are also looking outside of their own organisation and are forming partnershipswith start-up companies in order to stay innovative. The smaller companies are seen asfrontrunners within their industry, possessing the newest knowledge, which can be combined withthat of the larger company. By working together, these two types of companies spur innovation ina joint effort which no one of them could have achieved on their own.In the future, dynamics between large companies and entrepreneurs will be an important source ofinnovation, taking place in multiple locations across regions and continents.The Previous PeriodPreviously, large companies mainly saw start-ups as a way of filling technology gaps. As a result,start-ups were viewed as an acquisition opportunity. Large companies wanting to expand intoanother market or develop a new product line could buy up existing companies which weresuitable, in addition to growing organically. Few benefits were seen in collaborating with small

companies.Today, interactions with start-ups usually belong under the departments for new businessdevelopment, signalling a new way of viewing start-ups in terms of cooperation and not purelyin terms of acquisition. This change of focus is a result of the increasing importance put oninnovation as a means of competitiveness for large companies.Signs of ChangeOne way of becoming more innovative is to develop ways in which entrepreneurial employeescan be used as a source of generating innovation and new business ideas. For example, Googlehas created a rule that employees must work 20 percent of their time on a new project they arepassionate about. Once a week, employees have the possibility of presenting their ideas to thetop management of the company, who decides if the project should continue or not.Other companies such as Hewlett-Packard and Danfoss (a Danish industrial transnational workingwithin green tech) use several methods to develop an entrepreneurial culture and become moreinnovative. Business plan competitions are introduced to encourage intrapreneurship amongemployees, while a surrounding culture of entrepreneurship is created by hosting incubators.Case 2.3.8: Developing an Entrepreneurial Culture in Hewlett-Packard and in DanfossCompanies such as Hewlett-Packard and Danfoss use several methods to developan entrepreneurial culture and become more innovative. Business plan competitionsare introduced to encourage intrapreneurship among employees, while a surroundingculture of entrepreneurship is created by hosting incubators.In order to leverage entrepreneurial techniques to drive corporate innovation, Hewlett-Packard has introduced a business plan competition called Flashpoint. Within thesecond year of the competition, 150 teams consisting of 4-5 people from 23 countriescompeted on developing the best business idea. Each team is given a wikipedia pagewhere the entire HP community is able to contribute through web 2.0 tools. The semi-finalists are chosen through a judging panel combined with a popular vote before thefinal vote by the board of directors.In addition, Hewlett-Packard has created an incubation hub in their research facilityin Corvallis, Oregon, where entrepreneurs and research institutions have been givenfree access to a building which is managed by the state of Oregon and the localtechnological university. This type of environment fosters an entrepreneurial mindsetwhile creating innovation spill-overs. On an experimental basis, engineers have alsobeen stationed in small start-ups companies in California to work on solving a specificproblem and create a prototype in order to develop an entrepreneurial mindset of theirown.A very similar approach has been developed by Danfoss, within a very different sector.The company has created a comprehensive venture and incubator programme, “TheDanfoss Golden Gate”, which helps develop new ideas from Danfoss employeesglobally. The program is part of a wider effort to change the culture of the companytowards an entrepreneurial mindset and foster innovation. The program includes closecollaboration with start-ups and a new reward program for entrepreneurial managersand employees within the company.

Source: FORA (2009)The companies use intrapreneurship as a way of changing the company culture towardsopportunity recognition, a “go ahead and try it”-mentality and an acceptance of failure. These arekey capabilities when competing on innovation.Another driver for innovation in transnational companies is to interact with research institutions.Previously, large companies such as Hewlett-Packard and Intel located research and productionfacilities near universities to gain access to talent. Also today, transnational companies locateresearch and innovation labs in close proximity to knowledge institutions in order to gain accessto specific knowledge. For instance, the German telecommunications company DeutscheTelekom has recently established its central research and development unit in connection with theTechnical University of Berlin.Case 2.3.9: T-Labs at the Technical University of BerlinIn 2005, Deutsche Telekom established its central research and development unit calledT-Labs (Telekom Laboratories) at the campus of Technische Universität Berlin. Themission was to refocus Deutsche Telekom’s research and development activities bypromoting interaction between science and enterprise through the establishment of anovel lab.Today, more than 300 experts and researchers within telecommunication, design andethnography work in the labs. These experts include 125 Deutsche Telekom employees,65 postdoctoral staff and around 80 postgraduates, research students and studentsfrom all over the world. Furthermore, 700 other experts are hired on an ad-hoc basisfor short periods at a time. And most projects involve close collaboration with partneruniversities, international research establishments and business in order to engineerinnovative solutions for simpler, faster and better communications. In 2006, T-labsestablished its first subsidiary institute at the Ben-Gurion University in Israel.Organizationally, T-labs belongs to Deutsche Telekom, but is simultaneously a scientificinstitute organized under private law and associated with the university.Source: FORA (2009)The innovations Deutsche Telekom is developing by interacting closely with experts, researchersand students at the lab are superior to the innovations the company had previously been able todevelop at its own research facilities.These new ways of developing innovation is changing the approach transnational companieshave towards start-ups. Instead of viewing start-ups as a way of filling technology gaps, largecompanies are beginning to view them as a source of innovation. In the future, companies willstrive to find new ways of forming symbiotic relationships with start-ups because they will often bethe frontrunners within a specific technology.An additional advantage for transnational companies is that they will see more spinoffs in relatedfields from former employees and collaborators. In Berlin, Deutsche Telekom’s close interactionwith researchers and students at the Technical University of Berlin has spurred four start-upcompanies.

Collaborations between large companies and start-ups will increasingly occur across borders andcontinents, where the participating companies will lever specialised knowledge from their ownlocal knowledge hub.Intel has begun working with start-up companies globally in developing the next generation ofwireless internet and additional services.Case 2.3.10: Intel developing Wimax together with ClearwireIn 2004, Intel invested 1 billion dollars in Clearwire as part of an agreement to jointlydevelop WiMax and related products using global wireless broadband internet.Clearwire was started in 1998 as a spinoff from Sierra Technologies, and started to offerwireless internet service in Dallas in 1999. In 2004, the company was acquired by serialentrepreneur Craig McCaw, and by the end of 2004 the company launched wirelessinternet to multiple cities. Today, the company has 400.000 subscribers in Europe andthe US.According to Intel, the aim of working together with Clearwire is to leverage anecosystem around Wimax that in turn will make Intel’s own products more innovativeand attractive. Therefore, Intel invests in other entrepreneurs who develop uniqueservices for the WiMax standard, which Intel does not have the innovation capacity todevelop on their own.Source: FORA (2009)Intel uses start-up companies as a way of staying ahead and innovating within industries thatemerge. Today, Intel works with more then 400 companies in 20 countries.The Gradual TransitionIn the future, more large companies will encourage intrapreneurship in order to foster innovation.Various internal programmes will be established as large companies change their behaviour andtake a new view on how to remain innovative.As a consequence of the new ways large companies work with becoming more innovative,they will change their approach towards start-ups. Dynamics between large companies andentrepreneurs will gradually become a more important source of innovation.Visible ConsequencesKnowledge institutions, large companies and start-ups are locating themselves in proximityto each in order to obtain the same knowledge which exists within the same industry. Theincreasingly complex nature of innovation is leading to the formation of specialised knowledgehubs. To be at the forefront of an industry development, it will be necessary to be located in sucha hub. While partnerships within these hubs will lead to cutting-edge knowledge within specificfields, these partnerships on their own will not spur innovation. Innovation will occur by accessingand combining the knowledge from different hubs around the world.From a regional or national perspective, the changing nature of clusters which are developing intomore specialised knowledge hubs has important implications for wealth and prosperity. The moreknowledge hubs that emerge within a region, the more wealth and prosperity will be created. Thisseems to have interesting policy implications.

2.4Global Challenges as a Driver of InnovationIf growth is to continue in the same linear way as previously, the strain on the planet in the formof pollution and sustainability will be too large. There are 4 billion people that will be joining theglobal economy in the years to come. How will it be possible to create growth for this group ofpeople? It will not be possible to use the same amount of resources used to create growth forthe developed world. The other 2 billion people will require the same level of living standards thatthey uphold today. How will it be possible to maintain growth for this group of people? It will benecessary to produce and create more, for fewer resources and for more people.

Principle 6. Environmental Concerns Create New Business OpportunitiesThe PrincipleNew markets are being formed in response to the environmental challenges we face. Increasedawareness of the global challenges is creating demand for environmentally-friendly products.Companies are increasingly realising that there is an economic perspective to participating insolving environmental problems. The companies see these problems as opportunities for creatingnew business concepts. Companies are therefore rethinking their business models in orderto create new business opportunities for developing environmentally-friendly products whilesimultaneously creating profits.Companies are also considering what effect their behaviour has on the environment, and arereconsidering their production processes, energy and water efficiency, materials and pesticideusage, and so on. Their focus is thus moving towards environmental responsibility – how cancompanies continue to operate while simultaneously causing as little harm as possible to theirsurroundings.The Previous PeriodIn the industrial era, the need for environmental concerns did not seem relevant. Commercialinnovation focused mainly on solving the problems faced by companies, without considering theconsequences. Today many of those innovations are considered unsustainable in environmentalterms.Acid rain, polluted water and melting glaciers are all thought to be side effects of themanufacturing era where companies’ main focus was the product or service being created.Companies did not innovate in response to environmental challenges.This reflects the attitude which has been common until recently - that it is government’s job, notthat of companies or scientists, to determine the ethical consequences of the discoveries theymake. Today companies’ behaviour is changing as they become involved in solving challengeswhich previously were thought as the responsibility of government. There is an increasingly visibleblurring in the sharing of responsibilities between companies and governments.Signs of ChangeConsumers and shareholders are increasingly becoming aware of environmental side effects

related to products and services, thereby creating a new demand for responsible products andservices (e.g. organic products). Increasing awareness among company CEOs is leading tothe development of new products and services which are demanded by conscious businesscustomers and individual consumers.New markets related to issues such as cleaner energy and less pollution from transport areappearing, creating a demand for new products and services focusing on environmentalresponsibility. The American transport company UPS is involved in several partnerships to createtrucks that pollute as little as possible, and already has a large fleet of alternative fuel vehicles12.The rising prices of natural resources such as oil and gas are making it profitable for companies todevelop new forms of energy, while the scarcity and polluting side effects of fossil fuels are forcingthe discovery of alternative and cleaner energy solutions. The increasing possibilities created bynew technology and the accumulated pool of available technology pave the way for innovation.The Danish/American company Better Place Denmark is at the forefront of capturing a newmarket. The Danish utility company DONG Energy has created a new company together with theAmerican company Better Place in order to create a new market for battery-powered electricalcars in Denmark.Faced with an economic and environmental challenge, DONG Energy has found a profitablesolution that responds both to resolving their surplus energy production as well as an alternativeentry into the transportation business – the sale of electricity to battery-powered cars. For thisnew market to become established, Better Place Denmark will have to provide the neededinfrastructure for electrical cars.Case 2.4.1: Project Better Place Denmark - Electric carsThe Danish/American company Better Place Denmark is at the forefront of capturinga new market. The Danish utility company DONG Energy has created a new companytogether with the American company Better Place in order to create a new marketfor battery-powered electrical cars in Denmark. Faced with an economic andenvironmental challenge, DONG Energy has found a profitable solution that respondsboth to resolving their surplus energy production as well as an alternative entry into thetransportation business – the sale of electricity to battery-powered cars. For this newmarket to become established, Better Place Denmark will have to provide the neededinfrastructure for electrical cars.20% of Denmark’s electricity is provided by windmills. However, electricity produced bywindmills is rather unreliable since it is not possible to predict when the wind will blow,and since electricity produced cannot be stored. In the case of the windmills, electricityis also produced at night, when electricity consumption is low, resulting in wastedelectricity.By using a battery-powered electrical car which needs to be charged during the night,the surplus electricity created by windmills can be put to use. However, this requires anew infrastructure of charging stations to be put in place, as well as the development ofelectrical cars and powerful batteries. The first step in developing the large infrastructureis expected to be in place by 2011, while electrical cars powered by batteries alreadyexist and are ready to be rolled out on the Danish roads.

Source: Social Action (2008)Better Place Denmark’s vision is that 20% of the total Danish car fleet (400.000) will consist ofelectrically driven vehicles by 2020. Better Place Denmark has the potential to contribute to theenvironment by replacing petrol driven cars with zero-emission cars.Firms’ behaviour today is also changing due to the visible consequence of previous companybehaviour that can be seen on the planet. The increasing awareness of companies’ environmentalresponsibilities culminated in 2007 after the IPCC13was awarded the Nobel Peace Prize. Now noone can claim it is not important problem that requires attention in order to be solved.Large companies known to have caused an adverse effect on the environment (e.g. by creatinglarge amounts of pollution) are changing their behaviour and focus, creating long term strategieswhere environmental concerns become an important part of their future vision.The American conglomerate General Electrics saw the huge potential in the new market forenvironmental goods and services, and changed the firm’s business focus towards “green”solutions. In addition, they took a look at their own production, and realised that could changetheir own company into a greener one by reducing the amount of CO2 emissions.General Electric started to look at the issues their customers would be facing in the coming yearsand realised that green technology would be important in meeting the challenges of the future.General Electric unveiled a new strategy in 2006 that would drive the company’s future growth anddevelopment on the back of green technologies.Case 2.4.2: General ElectricThe American conglomerate General Electric saw a huge potential in the new marketfor environmental goods and services and changed the firm’s business focus toward“green” solutions. In addition, they evaluated their own production, and realised thatthey could change their own company into a greener one by reducing the amount ofCO2 emissions.General Electric started to look at the issues their customers would be facing in thecoming years and realised that green technology would be important in meeting thechallenges of the future. In 2006, General Electric unveiled a new strategy that woulddrive the company’s future growth and development on the back of green technologies.General Electric spent 18 months speaking to leaders from various industries whichthey supplied. General Electric invited them to take part in a two-day session where thebusiness leaders were asked to imagine life in 2015 and the products and services theywould need.The results from the sessions indicated that the business leaders foresaw rising fuelcosts, insecurity in energy supplies, and growing consumer expectations for greentechnologies. These issues were all seen to hold a large market potential for GeneralElectric.

General Electric created a new strategy aimed at addressing the key concerns indicatedby the business leaders at the session. Ecomagination was presented in January 2006with 4 key points:1. Double investments in clean R&D2. Increase revenues based on green products3. Reduce greenhouse gas emission and improve energy efficiency of General Electric’soperations4. Keep the public informed about the new strategyA range of new products and services were developed for airlines, lighting, powerutility and home appliances, where the main focus is to reduce emissions and energyconsumption while reducing costs.Source: ReD Associates (2009)Since its launch, Ecomagination has led to a $17 billion business in new and reformulatedproducts. Today General Electric has 70 certified products, four times the size of its 2005 portfolio.The Gradual TransitionCompanies from all industries are slowly realising that they can do their part for the environmentby doing their daily business in a responsible manner. It is not only companies creating pollutionor using pesticides that are changing their business models in order to reduce the harmful effectson the environment. Any company using resources in any way is becoming aware of methods thatchange their business models towards more responsible environmental behaviour.The Danish branch of the American computer services company IBM wanted to be able to offertheir customers a new way of looking at IT equipment – a product thought to be high-energyconsuming and thereby not very environmentally friendly. They created a new service for theircustomers which focused on reducing the amount of electricity used on large servers and ITequipment.Case 2.4.3: IBM Denmark Big GreenIBM in Denmark started by evaluating their own performance. How could they reducethe amount of electricity spending? After scrutinising their own IT operations, theyrealised they could reduce their energy usage by 80%. IBM realised there was a greatpotential for them to develop a new business area.The reduction in energy usage can be achieved by either re-programming the currentsystems, or replacing old wires and hardware with electricity optimising equipment, or acombination of both.IBM has created a consultancy service which advises firms that use large computersystems and servers, and therefore consume a lot of electricity, on how to reduce theirenergy usage. In addition to selling IT equipment, IBM now analyses their customers’needs and provides specific equipment. They have educated their employees to beenergy consultants – re-defining their business model with regards to the products andservices they sell.

Source: Social Action (2008)The focus on energy-efficient solutions at IBM Denmark is redefining how they consider theirproducts. IBM Denmark now develops “climate technologies”, not only IT. Today, IBM has variousclients from all industries buying the products that the new “green IT” strategy has developed.Visible ConsequencesParts of the business community have been increasingly vocal about the urgency of responding toclimate change in particular, and have sometimes been more progressive than many governmentsand politicians in calling for radical action as soon as possible. Interesting and unexpectedcoalitions are forming between some business leaders, lobbyists and NGOs, and politicians inorder to raise the profile of the issue.An increasing number of companies will recognise the long-term opportunities presented by theneed to move to a more environmentally-sustainable future. Cleaner energy, more sustainableproduction, construction, retailing and waste management are all obvious areas for growth.Beyond this, there will be new types of service markets that will emerge, for example, helpingmore individuals, companies and organisations to live and operate in more sustainable ways. Inresponse to this demand, a new market for sustainable consulting services is evolving where thecradle to cradle principle developed by William McDonough and Michael Braungart14is beingembraced by companies as well as regions and countries all over the world.

Principle 7. Needs in Developing Countries Drive InnovationThe PrincipleNew products and services are being developed to meet the needs of consumers in emergingmarkets. In order to deliver goods and services to markets in developing countries, firms mustrethink their traditional business models. New ways of selling and distributing products areused; new types of partners are necessary; and new types of competencies must be included ininnovation teams.In many cases, innovations produced for developing countries also have a market value in thedeveloped world. The insights gained from developing products and services for consumers indeveloping countries drive innovation everywhere.The Previous PeriodUntil recently, companies have mainly identified their profitable markets as consumers with acertain amount of purchasing power. Consumers with low income were not considered interestingsince any low value product they would require would not yield a high enough profit margin.Consumers in developing countries were hardly even considered as customers since theirneeds were not understood by companies. The poorest part of the population was overlookedas a consumer group. Their demands seemed so different from the demands of customers indeveloped countries, and it was questioned whether a company could provide anything that theseconsumers would want to purchase.Today, companies are increasingly seeing the opportunities held in developing countries and are

adapting and creating new products aimed at these markets.Signs of ChangeMarkets in developing countries or in newly industrialised countries are often termed theBottom of the Pyramid (BOP)15. People living on very low incomes might not be able to affordthe types of products or services offered in the western society, but that is not equivalent tohaving no demands. More and more companies are seeing business opportunities in the largenumber of consumers with low income – what these people lack in income, they can make upfor in numbers. This has opened up to possibilities of rethinking products, services, processes,distribution channels and so on, and designing them in new ways that are targeted at this group ofpeople - creating business opportunities not previously seen.By understanding the everyday lives of consumers in developing countries, companies arecreating new products and services. Some companies are making simpler versions of theirproducts in order to make them affordable for markets in developing countries, while addingfunctions that are relevant for that particular group of consumers.The Finnish mobile phone provider Nokia wanted to develop a phone for consumers in lessdeveloped countries. They created a handset which only included the most basic features.Case 2.4.4: NokiaNokia created a handset which only included the most basic features. Based on fieldstudies of interactions between individuals in developing countries, Nokia gainedinsights into how consumers use mobile phones.One of the obstacles to owning a mobile phone in these markets was the difficulty ofaccessing dependable electricity outlets. Nokia also found that communities often sharemobile phones among family members or entire villages.Nokia developed a mobile phone which has a battery life of 400 hours to overcome theproblem of finding electricity. To meet the needs of customers who share mobile phones,Nokia introduced an advanced call-time tracking application and multiple phone bookswhich can be made unique for each user. Nokia also incorporated a seamless keypad toprotect the phone from dust.Nokia continues to lower the price of its entry-level phone. In 2007, they introduced theircheapest mobile phone to date, set at just 25 Euro. Nokia’s largest market in 2008 wasChina, followed by India. Within the last four years, Nokia has risen from the 70th mosttrusted brand in India to the number 1 most trusted brand in 2008.Source: ReD Associates (2009)Other companies are developing new products specifically targeting the market at the bottomof the pyramid. These products are often simple and of lower quality than products made fordeveloped countries, in order to keep production costs and selling price as low as possible.Given the size of the markets in developing countries, a product or service is likely to sell in largequantities if it is found useful and demanded by the customers. A low priced and low margin itemcan still be profitable if the quantity sold is large enough.

In order to provide appropriate products and services for users in developing countries,companies must understand the societal context in which these inhabitants live their lives. Theloss of light has major societal and economic consequences for rural communities in developingcountries. Shops, kiosks and street vendors cannot light their merchandise at night, children andadults cannot study in the evenings without eyestrain, and fishermen are not able to work afterdark.In 2004, the Dutch electronics company Philips decided to target the emerging middle classconsumers in developing countries as well as consumers belonging to the bottom of the pyramid,and created solutions to improve their quality of life after dark. Several product concepts weredeveloped, and two new lighting products were produced and sold. Their quality was lower thanlighting products sold in developed countries in order to minimise costs, but sufficient to providelighting to rural areas in developing countries.Case 2.4.5: Philips SMILEThe SMILE (Sustainable Model In Lighting Everywhere) project was initiated to examinethe potential of developing new lighting solutions for rural communities in developingcountries. Philips is using new business models in order to reach out to customersin rural areas. They include partnering up with local NGOs to distribute and sell theirproducts, as well as using women’s self help groups for door to door sales.The core of the SMILE Project consists of two lighting solutions:1) Kiran, a hand-cranked flashlight which uses long-lasting light emitting diodes (LEDs),is aimed at users with no access to electricity.2) Uday, a rechargeable portable lantern, is aimed at middle-class users with erraticpower supplies.During the 3 months that the commercial pilot project lasted, several hundred familieswere involved.Source: Social Action (2009)In 2008, Philips launched the SMILE Project in Ghana in collaboration with the Dutch government,international development organization World Vision, and local Ghanaian NGOs. The goal for thisSMILE collaboration is to make sure that 10 million people in 14 Sub-Sahara African countrieshave access to renewable energy lighting solutions by 2015.Google has excelled at both creating and sustaining a culture within the organization that thriveson innovation. They champion leveraging digitization to foster innovation in both connecting withindividuals and leveraging global resources. Empowering their employees to work on new areasof their choice for 20% of their time unleashes enormous intellectual power to attempt innovativesolutions to existing problems.Case 2.4.6: Google IndiaWhile location-based services such as GPS are very useful in developed countries,the developing world does not even have a documented map to build a GPS

system. Engineers in Google India developed a “map maker platform” with a wiki likearchitecture to leverage the local knowledge of citizens of these countries to create theentire digital road map of their respective countries.The system works as follows: A clean map sheet of a city is loaded on the web, anda wiki-like architecture is enabled for every citizen to draw and shape the map of theirlocal areas (including street names and numbers, curves in the streets and majorlandmarks). The specific changes by each individual are governed by groups of leadusers based on their expertise and contribution on specific local areas of the city. Theuser community built the entire digital map of Islamabad in Pakistan with details onstreet names and addresses in around 90 days. The traditional approach to creating adigital map of this city would have taken significantly longer time. In addition, the wikimap is always current.This example illustrates how web 2.0 and related technologies can help firms leverageglobal resources to solve unique problems.Source: Prahalad & Krishnan (2009)Google approached their market in a very different way, customising it towards the capabilitiesand possibilities of a developing country. A product previously only available for customers indeveloped countries now became available for customers in a developing country.While products might be developed for customers in developing countries, the innovations canalso have value for consumers in developed countries.Case 2.4.7: GE ElectrocardiogramGE Medical Systems Group has been working on an affordable, mobile EKG machinefor rural India. The work started in 2007. Using Indian engineers, they created a small (7lbs.) machine (MAC 400) with a built-in printer that can be sold for $2,500. It operates onbatteries so that it can be used anywhere, even in places where there is no electricity.This compares with a large 65 lb. machine that sells in the USA for over $10,000.The Chinese engineers in the GE system heard of it and added SMS messaging to themachine so that the digital data can be uploaded and sent to any remote location. Nowthis Chinese version (MAC 800) is being marketed in the USA. They call it “diagnosismeeting messaging”.Source: Prahalad & Krishnan (2009)This is a classic case of innovations focused on BOP coming back to the developed world at afraction of the cost and with better functionality.Case 2.4.8: NetbookSimilarly, Microsoft and Intel focused on getting the poor to work with computing bydeveloping a version of Microsoft operating system and a computer configuration thatresulted in the Netbook. Netbook sells for $250 and makes no compromises in thefunctionality of the machine. They have sold 2 million netbooks in developed markets.

Source: Prahalad & Krishnan (2009)The Gradual TransitionThe impact of developing countries and emerging markets on innovation will be tremendous inthe years to come. This is gradually changing as finding new solutions to challenges faced byconsumers in developing countries seems to be both profitable and also an inspiration for newsolutions adaptable to consumers in developed countries.Companies are starting with small-scale projects and are expanding as they gain experience andexpertise.Visible ConsequencesIn order to deliver products to consumers in developing countries, companies are rethinkingtheir business models. The new markets often require knowledge and skills found outsidethe company, resulting in the formation of partnerships. These partnerships can be betweencompanies that posses different competencies, or between companies and NGOs that havedifferent responsibilities.Within the value chain, it can be seen that companies are innovating together in order to developnew solutions. NGOs are taking on a new role and are working together with companies when itcomes to sales and distribution.

2.5Public Sector Challenges as a Driver of InnovationPublic services are services that are either provided directly by the public sector and public sectoremployees, or public services which are paid for by the public sector and delivered by the privateand third sectors.In many advanced economies, the demand for public services is growing faster than the rest ofthe economy16. In addition, demanding users are requiring more personalised services, adding tothe budgetary constraints. The public sector is faced with challenges of how to deliver high qualitypublic services that provide the best value for taxpayers.More and more companies are becoming involved in different types of partnerships with the publicsector in order to provide public services. There are already successful stories that can provethe benefits of involving companies in providing public services. But the future of companies’participation in solving public services lies in the hands of governments. There is an enormouspotential for the government to take advantage of companies’ innovative capabilities when itcomes to delivering public services. If opened up, public services could become a large market forprivate companies and a potential driver of company innovation.

Principle 8. Welfare System Concerns Drive InnovationThe PrincipleCompanies have started seeing the public sector as a market. Instead of merely supplyingthe public sector with products and services demanded, companies have started workingtogether with the public sector to deliver new innovative solutions. The mix of public and privatecollaboration is spurring innovation in new areas.Companies are also seeing public services as an area where a multitude of opportunities existfor creating new solutions or delivering new products and services. In some cases, companiesare better-equipped at offering a solution to a public sector problem. If companies will participatein shaping the public services of the future, public services will increasingly become a source ofinnovation.The PreviousCompanies have always provided the public sector with products. Some companies’ main focuswas to provide the public sector with specific goods demanded by the public sector. The samegoods were seldom demanded by any other sectors or industries.Services in the public sector were provided by government employees. Private companies wouldnot be involved in delivering services such as health care or general public services. Today, this ischanging as the public sector is realising that they do not have all the solutions to the problemsthat they are facing. The private sector is increasingly involved in delivering public services at bothlocal and government levels.Signs of ChangeIn most advanced economies, the biggest sectors today are healthcare and education. Care, both

for children and the elderly, is growing fast and already constitutes some five per cent of GDP in anumber of economies. These areas represent significant potential markets for private suppliers.The public sector today is faced with users who are demanding individualised services, whiledecreased human and financial resources create a need for the public sector to increase itsefficiency and the quality of the services offered. The public sector will have to start focusing onhow innovation can be created in order to improve their services while using fewer resources.The set up of most public sector services today is not created to foster innovation. By includingprivate companies in the development of products and services and creating a competitive marketfor these products and services, innovation will grow and benefit the future development of thepublic sector.There is an increasing interest in how private companies might better anticipate and respondto the needs that public services have to meet, and how they might seek to develop newtechnologies, processes and services that respond to these challenges. This need has, in somecases, led to new forms of partnerships between the state and private companies. Companies caninnovate for the public sector, while the public sector continues to have the responsibilities of theservices offered.Sometimes the public sector faces challenges that they are not able to solve on their own. Thechanging behaviour among citizens has resulted in new types of problems which the public sectorhas to solve. In response, private companies are being hired to provide solutions.In the UK, engaging private companies in the development of public services is ahead of othercountries. Within several areas of the public services, private companies have played a rolein designing new solutions of how services should be delivered to the public. Other countriesare following suit and including private companies in the delivery of public services. Examplesinclude Finland (where telemedicine is being provided to patients) and Denmark (where schoolsand children’s day care services are being designed in new ways). Companies are participating indeveloping and improving services offered to the general public.In some families in the UK, the third generation might still be unemployed. This has created anew culture within families. The hard to reach unemployed do not volunteer for governmentemployment programmes and are therefore not offered any job training or employmentopportunities.Case 2.5.1: Make it WorkSunderland City Council was not able to get the unemployed to work by using theexisting procedures. They hired a service design company to take a different perspectiveon the problem and use service design methods and skills to reach and supportindividuals to get jobs.The service design company was able to understand the cultural problems, anddesigned a new solution for how the long-term unemployed could interact withemployment services. The long-term unemployed need to be engaged in their localcommunities by people who understand their situations. By bringing together acoordinated approach involving a number of specialist community organisationscovering mental health, drug rehabilitation and careers, the unemployed felt they werebeing understood and served properly. Once the unemployed feel well and socially

stable, they are promoted into job training and then into jobs.Source: http://www.livework.co.uk/our-work/Sunderland-City-CouncilTo date, the scheme has provided support to over 800 people, 200 of whom have already foundemployment. On average, it costs £62,000 to get a person on incapacity benefit into the world ofwork, while the average cost per individual of the Make it Work pilot is less than £5,000.Public services are seen as a market opportunity among companies that are developing newproducts and services which are offered to the public sector.In The City of Copenhagen, a private consulting company, Copenhagen Living Lab saw thepotential for improving the quality of life for elderly people in a nursing home. Copenhagen LivingLab acted as a mediator between the nursing home and companies that were interested inparticipating in finding ways to improve life in the nursing home.Case 2.5.2: Improved Quality of Life for the ElderlyThe private consulting company, Copenhagen Living Lab, approached the City ofCopenhagen with the suggestion of starting a process to uncover how the quality ofelderly people in nursing homes can be improved.The project was divided into two phases. First, factors that influence the quality of life forelderly people would be uncovered by using ethnographic methods. Secondly, privatecompanies were invited to collaborate on developing new products and services whichcould improve the elderly people’s quality of life. The first phase is completed, and thefindings were presented at a conference where 36 private companies and organisationsparticipated. Eight areas related to improving everyday life for the elderly were identified.The City of Copenhagen has recognised that there is an actual interest from the privatesector to take part in solving social needs.Presently, five companies are developing new aids for elderly people. It is expected thatseveral new products and services will be presented during 2009.Source: Copenhagen Living Lab (2009)The public sector is also taking advantage of private companies’ expertise when it comes todesigning new schools and related teaching facilities. In the UK, the government opened up forthe opportunity to look at schools from a different perspective.A highly challenged school was renovated in more than one way. In addition to improving thequality of the building, the internal spaces were designed to cater for modern teaching andpreparation for a professional lifeIn 1998, the British government announced a large investment in improving school buildings.Several private companies are involved in various stages of the project. While architects areinvolved in designing the physical school building and related buildings, a service design companywas involved in designing how the building should function on a day-to-day basis. New methodsof how to renew a public institution were embraced by the public sector.

Case 2.5.3: Building Schools for the FutureIn the next decade, ’Building Schools for the Future’ (a British governmental programme)aims to see every secondary school in the country refurbished or replaced. KingsdaleSchool was chosen as the first school to be renewed.An interdisciplinary team of educational experts, psychologists, artists and architectsworked with the management team, teacher and pupils to identify the scope of theproblems, what and how to improve the school. Pupils and staff were at heart of thecreative process and the decision making.The students’ and staff’s social behaviour was central to improving the conditions at theschool. Focus should be on much more than just the physical facilities. The traditionalscope of renewal was totally changed. For example, new kinds of spaces that supportcollaborative interaction and which give the students a feeling of belonging have beenbuilt.Source: www.participle.net; www.school-works.orgKingsdale School has improved its ranking on the list of schools in the UK, and more students arepassing their exams after the school was renovated. Pupils aggregate average test results haveincreased by 80 percent from 2003 to 2006.The Gradual TransitionWithin some sectors, it has not been unusual to involve private companies. These types ofcollaboration are increasing as more focus is put on public-private partnerships which activelyseek to involve both parties. Within more sectors, companies are realising that their products orservices can be offered to customers in the public sector as well as in the private sector.Visible ConsequencesAs the needs and challenges faced by public services continue to increase in scope, demand andcomplexity, more companies will recognise the long-term commercial opportunities presentedby these markets. In areas such as healthcare and education, for example, companies alreadywill continue to develop, and should move towards developing more innovative products andservices rather than merely supplying existing goods in greater volumes. This is to say, the realgrowth markets will be in innovative solutions – or at least helpful responses – to the longer-termchallenges faced by public services. This should also attract new market entrants, both newcompanies established to exploit these opportunities, and existing companies from other sectorsthat recognise that they have transferable technologies, knowledge and skills that could besuccessfully applied to public service demands and challenges. New types of companies shouldemerge: privately-owned, highly innovative, but closely aligned and responsive to the needs ofpublic services, now and in the future.

Principle 9. Technology’s Role as an Enabler of InnovationThe PrincipleIn the new era of innovation, technology will become an indispensable enabler of companyinnovation, but new technology will be less and less the driver of company innovation. Already,digital technology is an indispensable element in nearly all innovation, and the internet will enablecompanies to innovate in new ways. Service innovation and new business models will play amajor role.While new technology as the driver of innovation is decreasing at the company level, other forcesare taking over. Companies are looking for new business opportunities to unsolved problems ofindividual consumers and citizens, or global challenges such as climate change, clean water orsocial needs. Sometimes, new and better solutions are created with existing technologies or newcombinations of existing technologies. Every so often, new technologies need to be developedto create satisfactory solutions, but even when new technology is needed, the technology is notnecessarily the driver of innovation but an enabler.The declining importance of technology as a driver of company innovation does not mean thatnew technology will be less important at macro or national level. For societies, new technology willstill be a crucial factor in creating higher living standards and solving critical challenges related toenormous global challenges.The Previous PeriodIn the industrial age, new technology was often the starting point of the innovation process. Inthat sense, new technology was the driver of innovation. In R&D departments and laboratories,engineers and other natural scientists developed new technologies, which formed the basis forcompletely new products and services or radically improved the functionality of existing productsor services.Of course, new technology was not always a success. Sometimes the work done in R&Ddepartments failed because the expected outcome did not materialise, or the costs were too high.But often, new technology paved the way for bright new products, considerably improving thestandard of living.For this reason, many companies built great and successful R&D departments. Their innovationrelied heavily on the development of new technology, and this was seen as the dominating driverof innovation. However, new technology was not the only driver of innovation in the old regime;

contact with users was important as well, though it was seldom seen as the dominant driver ofmore radical innovation. Rather, user involvement was viewed as more crucial for incrementalinnovation and the final adjustment of new products and services. Hence, users were normallyinvolved towards the end of the innovation process, when prototypes were tested on differentconsumer segments.The mobile phone industry is an illustration of technology-driven innovation. When the industrydeveloped in the 1980s, new technology was the driver of innovation. The industry started withheavy phones with limited usability, and developed into smaller, slimmer and faster phones witheach generation of new technology.There are signs that this will not be the case in the future. According to the Swedish-basedmobile communication company, Sony-Ericsson, the future drivers of innovation in the mobilephone industry will be a deeper understanding of users’ needs for new applications and users’experiences with new solutions.The mobile phone industry is not exceptional in this regard. Nearly everywhere, one sees that newtechnology is no longer the driver of innovation.Signs of ChangeIn the future, competition on innovative new technology will seldom be sufficient. Instead, it willbe necessary to add further value to products or services to succeed. Companies need to see theentire value chain as an object for innovation; they need to introduce new organizational structuresand new innovation processes. Often, brand new business models will be needed to succeed infuture competition on innovation. Innovation is taking place in production methods, processes,distribution channels, networks and other areas within firms’ value chains.The dominant source for innovation will be related to finding new solutions to unsolved problemsor better solutions to known problems, where today’s solutions are insufficient. Companies oftoday - and even more so companies of the future - will search for unsolved problems, wherethey can see new solutions as new business opportunities. The new solutions could be aimed atindividual consumers, or at creating increasingly individual public welfare solutions. New businessopportunities are being found in global challenges such as climate change, lack of clean waterand poverty. Corporate social innovation is already an important factor and will be even more so inthe future.Companies need to pay much more attention to individual users’ needs and understand individualusers’ acknowledged and unacknowledged needs as an important source of innovation. ‘Users’are both end users (consumers), but also other companies and institutions.The Dutch multinational Philips has, for decades, been seen as a dominating electronic company,whose success has depended on its advanced technology and good design. This is not the caseanymore. In the future, Philips will also be known for advanced technology and design, but this isnot enough to succeed in the new global competition.Philips is one of the big companies which experiment with identifying unsolved problems as animportant driver of innovation.Philips realised that hospital staff had to repeat many of the scanning procedures on patients. Inorder to reduce the amount of repeated examinations, Philips created a scanner where patientscould create a relaxing ambience during the scanning procedure.

Case 2.6.1: PhilipsPhilips used ethnographic methods to explore and understand the emotionalexperiences of patients – adults as well as children –who were being scanned. Patients,their family members as well as medical staff were included in the qualitative andcooperative research which examined needs, values and experiences throughout thecare cycle.The researchers discovered that the users experienced high levels of discomfort andanxiety while being scanned. Users felt that they had no control over the cold clinicalenvironment, and the machinery was loud and intimidating, making it difficult for them torelax.Philips created the Ambient Experience Suite which allows patients to personalisetheir environment during the scanning procedure and wrap themselves up in a relaxingambience using integrated architecture, design and enabling technologies such assound and lighting. The combination of these sensory stimuli makes the room withthe scanning equipment appear bigger, reducing sensations of claustrophobia, andpotentially reducing the need for sedation and repeat examinations.The new scanner helps procedures progress more smoothly, making the clinician’s jobeasier, and increases the patient throughput. Since 2005, 50 hospitals worldwide haveinstalled the Philips Ambient Experience.Source: ReD Associates (2009)In this case, Philips succeeded in creating a new solution without the use of new technology. Thiswill often be the case in the future. However, even though new solutions will sometimes demandnew technology, the technology may not be innovative in itself or the driver of innovation. Thetechnology will be an enabler of new solutions or new applications that can be used for bettersolutions.ICICI, one of the largest retail banks in India, is a pioneer in Internet banking in India. 20% of allcustomers primarily bank through the Internet. However, India has about 50 million with accessto ISP and over 300 million people with cell phones. ICICI launched a service on the phone thatwould instantaneously inform the customers, through SMS, of any transactions made throughATM or credit card allowing the customer to know the credit or balance on the account. Morethan a million people subscribed to this service in less than four years. However, customers’needs were not yet fulfilled. They wanted to be able to initiate the transactions themselves.Case 2.6.2: ICICI MobileIn 2008, ICICI introduced the IMobile service where a customer could download anapplication that allowed them to transact with the bank. This included a wide range ofservices. The service was popular, and more than one million customers subscribed tothe service in six months.While the service was very popular, many did not have a GPRS phone. They coulddownload the application with a cable from a PC onto the cell phone. This wascumbersome. ICICI found that by using Unstructured Supplementary Service Data

(USSD), the application could be downloaded by just dialling a number. The product isvery robust. The company decided to push the application through collaboration withtelecom carriers such as Idea Fresh, Airtel Live, VodafoneLive and others. Currently, theregulators are working on new regulations for the bank to work with telecom providersand expand the scope of the service.Source: Prahalad & Krishnan (2009)The transition from branch banking to internet (PC) banking was the first step - recognizing thatthe power of cell phones permitted the passive, yet personalized application of information abouttransactions made in your account. Development is now moving to the next stage of co-created,personalised banking using a cell phone, PC or an ATM and a branch. This exemplifies the use ofrapid adaptation of technologies to move towards personalized service, as well as the expansionof the ecosystem of partners.While the technology within the telecoms industry has enabled unique solutions, it was customers’needs that were the main driver of the innovation. Technology’s role was to enable the bestsolutions.The Gradual TransitionThe transition of technology being an innovation in itself - or driver of innovation - to being anenabler of innovation will take place gradually. No one can say for sure how widespread it will be.In the future, we will also see important examples where new technologies are innovative inthemselves, and companies do not need to add further value to succeed with them. In somecases, new technology will result in higher consumer value, and careful tests of prototypes will beenough to realize their market potential.One obvious example where new technology still will be an important driver of innovation is thepharmaceutical and biotech industry. If R&D efforts in the pharmaceutical industry lead to newdrugs or treatments which obtain approvals, it will immediately have a high market value and beinnovation in itself. That’s how it is to day, and it will also be the case in the future.Also in the pharmaceutical industry, one might expect that sources other than technology will beimportant drivers of innovation.The Indian pharmaceuticals firm ICICI-Prudential17offers a service package for diabetes patientswhich can result in lower life insurance premiums. If health checks can verify that diabetespatients have a healthy lifestyle and use the drug in the prescribed way, they pay a lowerinsurance premium.Prevention of chronicle illnesses can be treated through new forms of health care programmes.Case 2.6.3: ICICI PrudentialTogether with pharmaceutical firms, diagnostic firms, testing firms, gyms and fitnessclubs, ICICI Prudential is able to offer a new form of health care program. For example,diabetes patients are encouraged to live healthily and stay fit. If they follow theprogramme designed for them, patients will obtain a lower premium on their healthinsurance.

Data on customers’ behaviour and lifestyle gets collected through a web-basedmonitoring system by testing patients periodically in diagnostic clinics. The patients getaccess to a web site, where they can get access through a log in to recent data on theirpersonal health condition. This can help them to stay motivated on maintaining theiractivities. Through the collected data, ICICI Prudential can measure the risk on eachcustomer individually and offer the customer individual pricing.Source: Prahalad & Krishnan (2008)This solution does not rely on new biotechnology, but it does rely on the latest IT as an enabler ofa new solution at reasonable cost.Also in ‘green tech’ we will see important examples where new technology is so valuable that itis innovation in itself and a major driver of innovation; yet there are other examples in green techwhere new, very valuable solutions can be created using existing technology.Visible ConsequencesThis will lead to a new way of organising R&D departments.Several of the world’s largest companies have realized that increasing outputs from their R&Ddepartments is no longer so relevant for the company’s innovation. According to Philips, only 20%of the outcome from Philips’ R&D department has recently formed the basis for innovation in thecompany.Hence, it is not surprising that the future role of R&D departments is under evaluation. Somecompanies have already separated the R&D department from the rest of the company. Sometimesthe R&D department continues within the mother company. At other times, the R&D departmentcontinues as an independent company, selling technology to an emerging global market fortechnology.This restructuring of R&D departments is part of a greater transformation which probably will resultin a new global market for technology. In Principle 7 on global knowledge sourcing, one of thebusiness cases describes a new company, InnoCentive, who acts as an online technology broker.Similar companies are emerging which will contribute to shape a global market for technology.If this happens and becomes efficient, it will be hard to see how technology can be a primarydriver of innovation – which may haveconsequences on science and technology policy.Companies’ innovation is, to an increasing extent, affecting the whole value chain, often requiringnew business models and leading companies to change their organizational structures so theentire company becomes more innovative.

Chapter 3Shaping New Innovation Policies/3.1Understanding the Innovation Policy EnvironmentIn this chapter, policy implications of new forms of innovation are discussed, and importantnew policies are proposed. The policy recommendations are based on insights and policycases gathered from seven OECD countries as well as international roundtable discussions withpolicymakers and experts.In Chapter 2 it was shown that the centrality of the individual is both a threat and a possibilityfor businesses. When individuals are connected and act together, companies have to rethinktheir business models and the nature of their innovation. And when a new interdependence ofcompanies takes place where no single company can act alone, companies have to learn toengage in symbiotic partnerships.The centrality and connectivity of individuals and the interdependence of institutions will have animportant, perhaps even a dramatic, impact on public institutions and public policy. Governmentsmust be more responsive and react in new ways because of these changes and the emergence ofa new nature of innovation.In Chapter 2, four new drivers of innovation and nine related principles are identified. The fourdrivers are:– Co-creating value with customers and tapping knowledge about users– Global knowledge sourcing and collaborative networks– Global challenges– Public sector challengesAll four drivers may have important policy implications.Companies become more and more open and transparent and need to engage in a dialoguewith their customers; provide them with access to more information and share risks with them;and accomplish this through co-creation with individual customers and by involving users in theinnovation process. To work with customers and users in entirely new ways necessitates changesin business culture and company skills, which of course is a responsibility for the business world.But across all countries, governments are involved in research and education; hence a need fornew knowledge and new business skills will also have to involve governments. All governmentswill have to find ways to meet this challenge.Companies form collaborative networks and engage more and more in symbiotic partnershipswith other companies and public institutions. This also impacts company culture and requires newbusiness and public institution skills; hence it will affect the role of the public sector.Global challenges require new solutions. To come up with sustainable solutions to globalchallenges will be a huge business opportunity and one of the most important drivers of

innovation. But new solutions to global challenges such as climate change, access to clean water,epidemics and other social needs will often involve public standards, government regulationsor public demands. Government activities can therefore be a barrier to social innovation, butgovernments also have a possibility to foster company innovation. It requires smarter regulationand more intelligent public demand. How to do that in practical terms remains a challenge forgovernments at all levels.The welfare system is under intense pressure. To come up with new, individualised and affordablesolutions is a challenging task and could be a new driver of company innovation. Governmentis involved in most, if not all welfare areas. Hence, government activities may be a barrier tocompany involvement in welfare service innovation. But governments can also pave the way fora revolution of the welfare system by forming innovation partnerships between public institutionsand private companies. How to do that will be another huge challenge for governments at alllevels.It seems obvious that a new nature of innovation inevitably calls for changes in innovationpolicies and the national framework conditions for innovation. However, it should be stressedthat science and technology still remain crucial to innovation. The existing and well-functioningnational innovation systems designed to support S&T-based innovation should therefore be furtherdeveloped to meet new challenges from emerging global markets for technology and new formsof global knowledge sharing.This study focuses on the new role of innovation policy, but the policy implications of a newnature of innovation remain undefined and may benefit from policy experiments. The new areasof innovation policy identified in this study include smarter regulations to foster innovation andintelligent public demand to enhance companies’ field of innovation. Governments must also playan important role in building the knowledge and skills needed to deal with co-creation and userinvolvement in innovation.Governments may take a leading role in the transformation of old S&T innovation policies to newinnovation policies required by the changing nature of innovation. Governments have the positionto set a new agenda for societies by creating the necessary awareness of the new challengesand possibilities. This requires a deep understanding across governments of the new nature ofinnovation and a commitment and willingness to lead the way.

The selected OECD countries are: Australia, Canada, Denmark, Finland, Germany, the UnitedKingdom and the United States. Appendix 1 offers a brief introduction to the countries’ recentwork in broad-based innovation policies and initiatives.Leading innovation policymakers and experts from each of the selected countries havecontemplated the innovation principles and have contributed with significant input in terms ofpossible policy implications. Each country was asked to report on any concrete policy initiativewhich addressed the new nature of innovation. 27 policy cases where collected and will beoutlined below.The interviewed policymakers and experts are listed in Box 3.2.1 below.Box 3.2.1: Key Policymakers in Policy Innovative CountriesAustraliaTricia Berman, Innovation Policy Department of Innovation, Industry, Science andResearchCanadaIan Stewart, Science and Innovation Sector, Industry CanadaShane Williamson, Policy Branch, Science and Innovation SectorDr. Peter Nicholson, Council of Canadian AcademiesFinlandPetri Lehto, Ministry of Employment and the EconomyPetri Peltonen, Ministry of Employment and the EconomyMikko Martikainen, Ministry of Employment and the EconomyTimo J. Hämäläinen, SITRAPetri Rouvinen, ETLAPekka Ylä-Anttila, ETLAJanica Ylikarjula, Confederation of Finnish Industries and Employers, EKGermanyWolfgang Crasemann, Ministry of Economics and Technology.United KingdomPeter Davidson. Government’s Senior Innovation AdvisorKen Warwick, BERR Department for BusinessMark Beatson, Department for Innovation, Universities and SkillsUnited StatesJane Corwin, U.S Department of CommerceRob Atkinson, Information Technology and Information FoundationDr. Auerswald, George Mason UniversityJack Yadvish, Andrew Petro, Minoo Dastoor, Doug Comstock, Innovative PartnershipProgram, NASAStephen Merill, National Academies of ScienceGreg Tassey, National Institute for Standards and TechnologyElaine Kamack, JFK School of Government, Harvard UniversityRobert J. Shapiro, Founder and Director, Sonecon, LLC, Former Clinton advisor

Based on discussions with policymakers in the seven OECD countries, some possible policyimplications were developed and then further discussed at an international roundtable meetingin Copenhagen. Representatives from public and private sectors, as well as leading internationalinnovation experts, were invited to critically review and discuss the suggested policy implications(see Box 3.2.2).Box 3.2.2: Participants at the International Roundtable MeetingDenmarkFinn Lauritzen, Director General, the Danish Enterprise and Construction AuthorityAnders Hoffmann, Vice-Director, the Danish Enterprise and Construction AuthorityJørgen Rosted, Director, FORAPaal Smith-Meyer, Head of new Business Group, LEGOFrederik Wiedemann, Partner and co-founder of ReD AssociatesFinlandAntti Eskola, Commercial Counsellor, Ministry of Employment and the EconomyOssi Kuittinen, Chief Technology Officer, SitraJari Kuusisto, Director of.European Touch LtdUKPeter Davidson, Senior Innovation Adviser, BERR and DIUSKen Warwick, Chair, CIIE. Deputy Chief Economic AdviserInnovation ExpertsCK Prahalad, Professor of Corporate Strategy, University of Michigan Ross School ofBusinessJose Santos, Professor of Practice in Global Management – INSEAD (Fontainebleau)Based on the country interviews and the roundtable discussions, it can be concluded that thereis widespread acceptance of the innovation drivers and related innovation principles that areformulated in the study. It was also concluded that these principles might have important policyimplications – reported in the next section.

3.3.1. Creating new knowledgeAs new types and sources of innovation appear, new knowledge and competencies are required.Natural sciences and technology have for decades been the dominating knowledge base ofinnovation, and science and technology will still be crucial but far from sufficient. There is a needfor deep and specialised knowledge to understand markets and user behaviour as sources ofinnovation. New technologies can enable companies to develop entirely new business models,which opens up possibilities for co-creation and exploration of unsolved user needs. This can bean important source of innovation.Access to high levels of knowledge is fundamental to the innovation capacity of companies. Onthe one hand, knowledge needs to be specialised. On the other hand, radical insights can begained by combining different disciplines. Multidisciplinary approaches to solving new needs willbecome more and more essential to developing innovative solutions.Successful co-creation and involvement of users in new and more scientific and systematic wayswill require more specific knowledge about consumer behaviour.Undoubtedly, companies have enormous amounts of information available about their customers,including data on who they are and how they react to different versions of certain products andservices. This kind of information is crucial to marketing and branding. However, evidence showsthat companies often know very little about the reasons behind certain consumer behaviour.Questions such as why there sometimes is a great discrepancy between articulated consumerwishes and actual choices may be difficult to answer. The answers to such questions can becrucial knowledge for those wanting to create new business concepts or platforms.New mindsets, skills and competencies may be needed in order to engage in co-creation anddevelopment of unique solutions. These types of skills and competencies are usually related toprofessionals with a background in social science, human science and arts such as architectsand designers. Evidence illustrates that it can be difficult for companies to recruit professionalswith these skills and competencies at the same time as they have sufficient skills in businessunderstanding and experience in multidisciplinary innovation teams.It could therefore be argued that there is a need for more research and education related tounderstanding users’ behaviour and how to create new tools for tapping into relevant, tacit userknowledge.18The following more detailed description of policy initiatives on creation of new knowledge will beseparated in 4 policy areas: new or transformed institutions, research, education and facilitatingknowledge sharing.

3.3.1.1. New knowledge institutions or transformed institutionsIn order to enhance the creation of new knowledge, the following policy actions are suggested.Government should:– Provide financial support to research-based universities and other educational institutions;– Encourage the establishment of new multidisciplinary research and educational institutions andcollaboration between existing institutions; and– Prioritize professions with social science, human science and arts such as architects anddesigners which earlier were not crucial to innovation but very much will be in the future.Public and private universities and research institutions are increasingly aware of the needfor creating new scientific skills and competencies through new types of research andmultidisciplinary education.Countries are introducing initiatives aimed at improving access to new types of research andmultidisciplinary education that draws on knowledge from areas previously viewed as not directlyrelated to innovation.In Finland, a major merger of three different universities into one new university is currentlytaking place. The three universities are the Helsinki University of Technology, Helsinki School ofEconomics and Helsinki University of Art and Design. The new set-up combines strong researchskills in technology, business and design studies, and is turning innovation thinking into morehuman-centric thinking (see Box 3.3.1.1.1).Box 3.3.1.1.1: The Aalto UniversityCountries are introducing initiatives aimed at improving access to new types ofresearch and multidisciplinary education, drawing on knowledge from areas which havepreviously been considered as not directly related to innovation.In Finland, a major merger of three different universities into one new university iscurrently taking place. The three universities are the Helsinki University of Technology,Helsinki School of Economics and Helsinki University of Art and Design. The newuniversity combines strong research skills in technology, business and design studiesand is turning innovation thinking into more human-centric thinking.“The Aalto University is an answer to the ’big picture problems’ which defy singlediscipline approaches…design is one of the key assets of the new user-centric andneed-driven innovation strategy and of course to the Aalto University” (Initiator of theAalto University, Yrjö Sotamaa).The Aalto University in Finland was created in 2008. It is named in honour of the Finnisharchitect Alvar Aalto, who was known for his ability to combine technology, industry

and design. The goal of the Aalto University is, by 2020, to become one of the leadinginstitutions in the world in terms of combining business, technology and design.Intercultural learning platforms and design factories are set up to facilitate cooperationbetween students, researchers, entrepreneurs and business professionals from design,technology and business skill sets.A joint public-private endowment of €700 million will be made to the project, while thecombined budget will be increased by €100 million.Source: Sotamaa, Yrjö, University of Art and Design Helsinki, FinlandThere are also examples of institutions being created with the aim of creating and transferringnew types of knowledge in new ways. In Sweden, companies and government are collaboratingto establish a new multidisciplinary institute focusing on knowledge about ICT and futuremobile phone users. The aim is to combine specialised digital technology research, businessunderstanding and explorative user research, and to transfer relevant and research-basedknowledge from local knowledge institutions to companies in the mobile phone industry (see Box3.3.1.1.2).Box 3.3.1.1.2: The Cluster Initiative Mobile HeightsIn Sweden, companies and regional government are collaborating to establish a newmultidisciplinary institute focusing on knowledge about ICT and future cell phone users.The aim is to combine specialised digital technology research, business understandingand explorative user research, and to transfer relevant and research-based knowledgefrom local knowledge institutions to companies in the mobile phone industry.Mobile Heights is a public-private partnership. The initiative was founded in 2007 byEricsson Mobile Platforms (EMP), SonyEricsson, Lund Technical University and RegionSkåne. The founding members have initiated an industrial excellence centre on serviceinnovation in order to find new ways for transferring knowledge between knowledgeinstitutions and the business sector. This centre will deal specifically with exploring anddeveloping new methods for working in an open and interdisciplinary value network,which integrates technology, user value, and business knowledge bases betweenacademia and industry. The centre is planned to operate for a period of ten years.Overall funding of Mobile Heights amounts to approximately 600.000 EUR in 2009 andis comprised of financing from EU structural funds for regional development, company’smembership fees and additional financing.Read more: www.mobileheights.org/Source: Emily Wise (2009)In Denmark, companies and the government are working together on a similar project in thefood processing industry to create a multidisciplinary institute focusing on food technology andunderstanding of users’ future food behaviour. The aim is to transfer relevant knowledge from localrelated knowledge institutions to the leading Danish food processing industry (see box 3.3.1.1.3).

Box 3.3.1.1.3: Innovation and Knowledge Centre for Food ProcessingIn Denmark, companies and the government are working together on a similar projectin the food processing industry to create a multidisciplinary institute focusing on foodtechnology and understanding of users’ future food behaviour. The aim is to transferrelevant knowledge from local related knowledge institutions to the leading Danish foodprocessing industry.Understanding user needs and habits for food is important for commercial successin the Danish food processing industry. The Danish Government has had a blueprintprepared on how to construct a new user-oriented innovation and knowledge centrein the area of food processing. Such a centre would fill in the gap which currentlyexists with research and innovation in the area. Core activities are planned to includeinterdisciplinary innovation projects composed of researchers, staff from the centre andemployees from food processing companies. The plan is also to facilitate research staysfor students and PhDs which are in the process of finishing their theses. Over time, thecentre’s income should consist of payments from enterprises participating in projects.Currently, the project is in the phase of getting funds and finding a proper location. Thecosts of establishing the centre are estimated to approximately 800.000 EUR in the firsttwo years. Ideally, the centre should be economically-sustainable and privately-financedafter five years.Source: Blueprint (2009); ReD Associates.Design knowledge is more and more recognised as an important contributor to innovation. It isnot only the importance of classical material design that matters, but in particular the importanceof immaterial design such as strategic and conceptual design that is important. Service designis also growing in importance for innovation, as most new solutions combine new services, newproducts and new business models.A new institute for strategic interactive design and service design has recently been established atthe Danish Design School in 2008 (see Box 3.3.1.1.4).Box 3.3.1.1.4: Copenhagen Institute of Interaction DesignDesign knowledge is more and more recognised as an important contributor toinnovation. It is not only the importance of classical material design that matters, but inparticular the importance of immaterial design such as strategic and conceptual designthat is important. Service design is also growing in importance for innovation, as mostnew solutions combine new services, new products and new business models.A new institute for strategic interactive design and service design has recently beenestablished at the Danish Design School in 2008. The Copenhagen Institute ofInteraction Design (CIID) incorporates education, research and consultancy.Internationally, there is a high demand for interaction design and service design - bothdisciplines are viewed to be key innovation drivers, and an educational programme thatinterfaces with academia and industry is required to reflect this.In joint collaboration with the Danish Design School, CIID launched the Interaction

3.3.1.2. ResearchIn order to strengthen the research, the following policy actions are suggested.Government should:– Support research and activities in specialised areas important for dealing with new forms ofinnovation;– Prioritize investment in various research disciplines to strengthen the emergence of specializedregional knowledge hubs in the global knowledge economy;– Facilitate global partnership and network activities and consider loosening the nationalrestrictions applied on government-funded research programmes, for instance introducingcollaborative R&D credits across borders; and– Re-design the assistance provided to domestic firms looking to expand abroad from mainlyexport and sales support to more network, knowledge sharing activities with a wide range ofplayers in other countries.In the industrial age, where technology was the main source of innovation, every country built anational innovation system based on science and technology. A number of research institutionsand technology transfer institutions emerged, and every country has a program for stimulatingand sharing knowledge on new technology. It is important that these institutions and programscontinue and are further developed.But there is also a real need for a better understanding of how innovation takes place today and inthe future. In the USA, the National Science Foundation (NSF) has taken a very interesting initiativeto improve the understanding of how networks operate and their importance for innovation. Theinitiative is labelled The Science of Science Policy – A Federal Research Roadmap (Box 3.3.1.2.1).Box 3.3.1.2.1: The U.S Science of Science & Innovation PolicyThe U.S. National Science Foundation has initiated a programme the Science of Science& Innovation Policy (SciSIP). The program supports interdisciplinary and multidisciplinaryresearch aimed at developing theoretical models and empirical evidence to advanceunderstanding of the scientific, research and innovation process. The goal is to provide ascientifically rigorous, quantitative basis upon which policymakers and researchers canassess the impacts of scientific and engineering enterprise, improve their understandingof its dynamics, and assess the likely outcomes. The NSF also co-chairs a National

Science and Technology (NSTC) council interagency group that developed a roadmapfor federal science investments in science policy.Read more: The SciSIP solicitation:http://www.nsf.gov/funding/pgm_summ.jsp?pims_id=501084The Science of Science Policy - A Federal Research Roadmap”, NSTC Report on theScience of Science Policy, November 2008.19Source: http://www.ostp.gov/nstc/html/NSTC_Home.htmlAs illustrated in Chapter 2, some companies already innovate in entirely new ways and useknowledge, skills and competencies which are not usually employed in innovation processes.Often when companies innovate in new ways, they are muddling through in a trial and errorprocess with weak scientific backing. There is a need for a better understanding of the new formsof innovation and therefore a need for more research in the new nature of innovation.Until now, there have been only a few examples of research projects which have focused on newways of innovation. In accordance with the multidisciplinary thinking, design processes are gainingground in the new innovation arena. In particular, the role of immaterial design such as servicedesign is becoming key to the innovation process. Skills in understanding and communicatingimmaterial design could become a key competence required when designing new businesssolutions.Recognizing the growing importance of immaterial design and service design in particular, theNational Academies of Science (NAS) in the USA considers launching a new study addressing therole of service design for innovation (see box 3.3.1.2.2).Box 3.3.1.2.2: Service Design at the National Academies of ScienceRecognizing the growing importance of immaterial design and service design inparticular, the National Academies of Science (NAS) in the USA is considering launchinga new study addressing the role of service design for innovation.The National Academy of Sciences (NAS) is a private, government-supportedorganisation which plays a central role in the American innovation system. It providesadvice to the federal government on issues related to science and technology andinnovation.In more recent years, NAS has been gradually changing perspective from R&D-focusedinnovation to a more broad innovation perspective. NAS is currently exploring thepossibility for a study addressing the role of service design.Source: Stephen Merrill, NAS (2009)Global knowledge sourcing will become even more important in the future when innovation oftenwill take place within global innovation alliances. It is therefore important that public programsfor supporting research also have a global perspective. However, the financing is usually limitedto national companies and research institutions, whereas foreign companies and institutions areexcluded.

However, as global networks are expected to play a more important role to innovation in thefuture, the pros and cons of national restrictions in government-supported activities could besubject to further analysis. In the USA, the National Institutes of Health, which is part of the U.S.Department of Commerce, has had a long tradition of applying a global perspective in its public-funded research activities (Box 3.3.1.2.3).Box 3.3.1.2.3: Public-supported collaboration around the worldIn the USA, the National Institutes of Health (NIH) provides grants to basic biomedicalresearch and research partnerships anywhere in the world. It also engages in licensingactivities internationally.The reason for funding research globally is that the NIH addresses global challenges;operates within a very limited area with rare diseases that private companies do not wishto fund; and aims at funding the best basic research independent of borders.For improving the ways researchers can collaborate across countries, the NIH hasdeveloped a system which allows researchers located around the world to connectto other researchers and see who they potentially could collaborate with according totopics. So far, the initiative covers only the researchers funded by NIH.Source: www.nih.govIn the future, strong regional knowledge hubs will be crucial to innovation and wealth. However,unlike the industrial age, innovation will rarely take place only from combining and creatingknowledge inside the regional hub. Companies and knowledge institutions in specialised regionalknowledge hubs will also be engaged in global knowledge creation and innovation in globalalliances.In Canada, the government is working to create a strong regional knowledge hub with certainprioritised areas and global perspectives (Box 3.3.1.2.4).Box 3.3.1.2.4: Canada Excellence Research Chairs (CERC)In Canada, the government is working to create a strong regional knowledge hub withcertain prioritised areas and global perspectives.CERC program will establish 20 prestigious research chairs, at $10 million each overseven years, in universities across the country. The program aims to attract and retainthe world’s most accomplished and promising minds and help Canada build a criticalmass of expertise in priority research areas. The program will invest $28 million per yearwhen fully ramped up in 2011-12.CERC is a tri-agency initiative of the three granting councils, administered by theCanada Research Chairs Secretariat.Source: www.industrycanada.ca

3.3.1.3. EducationIn order to adapt education, the following policy actions are suggested.Government should:– Provide new research-based educational programmes targeting competencies needed in newforms of innovation.Universities and educational institutions will of course react to a growing demand for new skills,but the reaction time could be rather long. It is complicated to read the demand for new skills, andit takes time to create in particular new research-based education. There are very few examples ofuniversities which have already reacted and offered new educational programs as a response tothe demand from new ways of innovating. One example is San Jose State University in California,USA (see Box 3.3.1.3.1)Box 3.3.1.3.1: Masters program in Applied Anthropology at San Jose State UniversityUniversities and educational institutions will of course react to a growing demand fornew skills, but the reaction time could be rather long. It is complicated to read thedemand for new skills, and it takes time to create new and, in particular, new research-based education. There are very few examples of universities which have alreadyreacted and offered new educational programs as a response to the demand from newways of innovating. One university who has reacted is San Jose State University inCalifornia, USA.In 2006, the San Jose State University (SJSU) Masters program in applied anthropologywas designed to help students develop skills in applying anthropology when workingwith business and industry development.The program is organized around a set of multidisciplinary skills in the (1) analysis ofsocial systems and their environments, (2) evaluation, and (3) planning, policy anddesign. The first eight students were admitted to the program during the fall semester2006. Initially, the plan was to accept students only in even-numbered years due tominimizing costs. However, a great interest in the program meant that the universityimmediately switched to annual admissions. The first three students graduated in thespring of 2008, and about the same number are expected to graduate in 2009.Read more: http://www.sjsu.edu/Source: Chuck Darrah, Department Chair, San José State University.A similar public initiative was implemented in Denmark. In 2006, the Danish Governmentintroduced a national program for user-driven innovation. As part of the program, the Ministryfor Research, Technology and Development gave universities possibilities for obtaining fundingfor new research and education programs with relevance for consumer knowledge and usercompetencies. As a result, Copenhagen University proposed a new master in BusinessAnthropology (see box 3.3.1.3.2).

Box 3.3.1.3.2: Masters in Anthropology and People-Centred Business at the University ofCopenhagenIn 2006, the Danish Government introduced a national program for user-driveninnovation. As part of the program, the Ministry for Research, Technology andDevelopment gave universities possibilities for obtaining funding for new research andeducation programs with relevance for consumer knowledge and user competencies.As a result, the University of Copenhagen proposed a new masters in BusinessAnthropology.In response to requests from the business world for anthropological competencies,the Department of Anthropology at Copenhagen University is developing the two-yearMasters programme on Anthropology and People-Centred Business. The participants inthe programme will be trained to be an academic part of business relations, where theydevelop and use anthropological methods, abilities and knowledge.The first class is expected to begin in September 2009. The programme is foreseento consist of 8 courses, a 16-week field study or internship, and a Master’s thesis. Amaximum of 15 students will be admitted to the programme annually.Read more:http://antropologi.ku.dk/uddannelser/nuvstuderende/erhvervskandidat/Source: Department of Anthropology, University of Copenhagen.

3.3.1.4. Facilitating knowledge sharingIn order to facilitate knowledge sharing, the following policy actions are suggested.Government should:– Establish new multidisciplinary knowledge transfer initiatives, which can serve as a bridgeuniting research institutes and private companies;– Provide services and guidelines to firms and users in order to enhance user involvement in theinnovation process;– Develop the IPR system to better serve the increasing importance of partnerships andcollaboration. There is a need for new and better possibilities for agreements on mutualunderstanding in the beginning of a partnership innovation process. Governments could alsotake initiatives to unify universities and public labs procedures and habits in IPR behaviourto strengthen partnerships and collaborations between the public and private sector. It couldalso be discussed if there are areas where there is a need for strengthening the possibility ofobtaining protection and areas where moving towards open source would encourage innovation;– Continue to strongly support entrepreneurial activities in order to strengthen the dynamismbetween innovative start-ups and transnational companies in knowledge hubs in the globalknowledge economy;

– Facilitate the creation of ecosystems around knowledge hubs by encouraging and strengtheningcorporate entrepreneurship activities, through activities such as partnership agreementsbetween large and small firms; and– Diffuse knowledge on excellent innovation management.Collaborative networks and symbiotic partnerships will be crucial for future innovation. Theindividual company will rarely will have the knowledge and resources to innovate alone. Thisoccurred from time to time in the industrial age, and there are important experiences fromgovernment-facilitated research networks that were important to innovation.In Canada, the government has played a key role in facilitating the creation of national researchpartnerships between firms and research institutions through the Business-led Networks ofCentres of Excellence program (Box 3.3.1.4.3).Box 3.3.1.4.3: Government Facilitated Business-led Networks of Centres of ExcellenceIn Canada, the government through the Networks of Centres of Excellence Secretariathas played a key role in facilitating the creation of national research partnershipsbetween firms and research institutions through the business-led Networks of Centres ofExcellence program.In Canada, the business-led Networks of Centres of Excellence (BL-NCE) programsupports four new collaborative networks consisting of consortia of Canadian firmsand academic and government researchers. The four networks represent the health,environmental, and energy and natural resources priorities of the federal government’sS&T Strategy.The BL-NCEs differ from existing NCEs in that they will be for a shorter term, business-led and focused on business research needs identified by the private sector, potentiallyleading to new business solutions. The Canadian government plays a key role infacilitating the networks and providing third-party assistance to the private sectorparties.It seems that neutral leadership, high quality secretariat services and facilitation ofpartnership activities are key factors for successful partnership models.In the new age of innovation, there could be a need for facilitating knowledge sharing on newways of innovation. The Danish government has, as part of its program for user driven innovation,opened a possibility for government to co-fund projects in user-driven innovation, wherecompanies can learn about new methods for user-driven innovation (see Box 3.3.1.4.4).Box 3.3.1.4.4: Programme for User-driven Innovation: Developing a Lead-User BasedInnovation ModelIn the new age of innovation, there could be a need for facilitating knowledge sharingon new ways of innovation. The Danish government has, as part of its program for user-driven innovation, opened a possibility for government to co-fund projects in user-driveninnovation, where companies can learn about new methods for user-driven innovation.

In this project for user-driven innovation, the Danish company Grundfos - one of theworld’s leading pump manufacturers – and knowledge institutions collaborate in an openenvironment to identify lead users and get access to their innovation potential. The leador advanced user approach is a theory in the area of user-driven innovation. However,there are no specific instructions on how companies can use the theory in practise. Thepartners in the project will deal with this puzzle and develop an innovation model thatwill help integrate advanced users in companies’ innovation projects.This public-private partnership is comprised of Grundfos, the Massachusetts Institute ofTechnology, Copenhagen Business School and Aarhus School of Business. The projectstarted in November 2007 and will last for 2 years and 8 months. It has received a grantof approximately 400.000 EUR from the Danish programme for user-driven innovation.Source: http://www.ebst.dk/brugerdreveninnovation.dk/The trend towards more open innovation serves to put the IPR issue on the current politicalagenda. Some governments have addressed the IPR issue. In Finland, the Research andInnovation Council (RIC) has introduced a number of Strategic Centres for Science, Technologyand Innovation. The idea is to provide a high degree of openness in new international researchpartnerships, which is reflected in the general IPR guidelines (Box 3.3.1.4.5).Box 3.3.1.4.5: Strategic Centres for Science, Technology and Innovation - SHOKsThe Finnish SHOKs organize global research partnerships between multiple internationalplayers such as academia and industry. The aim is to achieve world-class expertise andinternationally-important innovations and discoveries within a given sector or industry.Moreover, SHOKS are expected to boost and introduce internationality into the Finnishinnovation system.First, companies, universities, research institutes and other partners in the SHOK agreeon a joint strategic research agenda. Then, this agenda is jointly operationalized intoseveral long-term research projects. In these projects, the partners develop sharedknow-how, technology and service platforms and utilize joint research environments andresearch tools.Finally, in case an invention emerges out of the innovations or discoveries in the jointresearch partnership, all participants in the given SHOKs are provided with the right touse it without having to provide any compensation to the original inventor of the IPR.The first SHOK was established in the forestry industry by Tekes and the Academy ofFinland in 2007.Read more: http://www.etla.fi/files/2261_Dp1182.pdfSource: Antti Tahvanainen, ETLAIn Chapter 2, Principle 5 discusses the trend toward a new dynamism between multinationalsand entrepreneurs, leading to more innovative activities. In Denmark, innovation partnershipsbetween large and small firms have been actively supported and encouraged. The corporateentrepreneurship agreement is an example of government facilitated collaboration between firms(Box 3.3.1.4.6).

Box 3.3.1.4.6: Corporate Entrepreneurship AgreementChapter 2 discusses Principle 5 and illustrates that there are signs of a new dynamismbetween multinationals and entrepreneurs, and that this dynamism will help bothmultinationals and entrepreneurs to become more innovative. In Denmark, innovationpartnerships between large and small firms have been actively-supported andencouraged. The corporate entrepreneurship agreement is an example of government-facilitated collaboration between firms.A new corporate entrepreneurship initiative has been launched in Denmark in 2008.Some of the largest Danish companies working within cleantech have signed apartnership agreement with the aim of working more with small innovative start-ups.This partnership specifies how the large companies will aid Danish entrepreneurs by,for instance, making key staff available or helping to facilitate contact to customers andsubcontractors in overseas markets. Only entrepreneurs with a high growth potential arematched with existing firms.Source: The Danish Enterprise and Construction Authority.In the 1980s, the European Commission took a surprising initiative to create a model for excellentleadership and promote the model to the European industry. Today, the UK government is workingon a similar project for excellent innovation leadership. The Department for Innovation, Universities& Skills (DIUS), the Department for Business, Enterprise & Regulatory Reform (BERR) and severalprivate companies are in the process of developing a new model for excellence in innovationleadership. The measurement tool would support new and good practice in global innovationmanagement. This will help organisations review their practice across the spread of people,skills, culture, systems and resources in order to understand and thereby improve their innovationcapacity (Box 3.3.1.4.7).Box 3.3.1.4.7: Innovation Assessment Toolkit – Supporting Businesses and PublicOrganisations to Develop their Innovation CapacityIn the 1980s, the European Commission took a surprising initiative to create a modelfor excellent leadership and promote the model to European industry. Today theUK government is working on a similar project for excellent innovation leadership.The Department for Innovation, Universities & Skills (DIUS), the Department forBusiness, Enterprise & Regulatory Reform (BERR) and several private companies arein the process of developing a new model for excellence in innovation leadership.The measurement tool would support new and good practice in global innovationmanagement. This will help organisations review their practice across the spectrumof people, skills, culture, systems and resources in order to understand and therebyimprove their innovation capacity.The new Innovation Assessment Toolkit allows organisations to review their strategy,management processes, networking, culture, delivery and learning within innovation bya series of one-on-one interviews with knowledgeable assessors using a framework ofthirty questions.

A pre-prototype was tested on 29 financial services’ organisations in early 2008 usingMBA students as assessors. This was met with a warm response with most participantsdeclaring the exercise worthwhile. After further development, a prototype is completinga proof of concept trial with ten organisations. These include corporations such as alarge aerospace company, an agrochemicals company, various SME’s, a continuededucation college, a leading university department, a primary health trust, and parts ofDIUS and BERR.Agreement has been reached to proceed to the next phase. Further product and marketdevelopment work is being planned from April to August with 150 organisations.Source: Davidson, Peter. Senior Innovation BERR, UK

3.3.2. Smart regulationSmart regulation could be an important engine for future innovation, but using regulation as a toolto strengthen innovation is not simple. There are several severe barriers which must be overcome.Regulation is usually based on a delicate political balance between several importantconsiderations and can therefore rarely be revised simply to promote private sector innovation.On the other hand, if there is broad support and a political willingness to obtain certain societaltransformation, new regulation is possible. The idea of smart regulation is to use private innovationto obtain a faster and more radical transformation of a certain area of political interest and atthe same time stimulate private innovation and wealth. Smart regulation can be used whengovernments collaborate broadly with industry and non-government organisations to formulate anew regulation, and when regulation is formed to encourage a certain innovative behaviour.In principle, smart regulation can be used in all areas; however, the focus now seems to be onenvironmental regulation and, perhaps, welfare services.In order to enhance the use of smart regulation, the following policy actions are suggested.Government could:

– Apply smart regulation to encourage innovative solutions provided by the private sector;– Consider how they can facilitate new innovation business-led public private partnershipsbringing together businesses, universities and regulatory authorities, e.g. in the area of greentech;– Put in place the required systems and infrastructure in order to implement innovativeenvironmentally-friendly solutions. It is necessary that the providers of the solutions have accessto appropriate systems and infrastructure.As environmental concerns have gained higher public and political priority, it seems more justifiedto promote private sector development along with addressing environmental concerns. Therefore,we see examples of smart regulation to stimulate green-tech innovation and the environment.In Germany, the government has used smart regulation to encourage a certain behaviouralchange. It is acting as “novel firm” by using innovative renewable-energy solutions in the publicsector, while also rewarding those who apply innovative technological solutions themselves (Box3.3.2.1).Box 3.3.2.1: Act on the Promotion of Renewable Energies Heat Act in GermanyIn Germany, the government has used smart regulation to encourage a certainbehavioural change. It is acting as “novel firm” by using innovative renewable-energysolutions in the public sector, while also rewarding those who apply innovativetechnological solutions themselves.On 6 June 2008, the parliamentary groups of the German government coalition agreedon a new instrument to raise the share of renewable energies in heat supply to 14% by2020. The act entered into force the 1st January 2009. The goal should be achievedthrough regulations with the government as a frontrunner in the usage of renewableenergies. The regulations stipulate that owners of newly-erected buildingsmust use renewable energies, whether private individuals, the state or businesses.They are free to decide which source of energy they wish to use. Depending on localconditions, it may be more appropriate to use solar thermal or geothermal energy,biomass or ambient heat.Since its launch, the programme has provided financial support amounting to €827million. The government will continue to support the use of renewable energiesfinancially, increasing funding for this to as much as €500 million.However, in the future there will be a restriction on support: people who are required touse renewable energies under the regulations will not receive support. Only those whodo more will be eligible for support. And building owners who use innovativetechnologies that are particularly efficient, or that have particularly low emissions figureswill continue to receive money from the state.Source: http://www.erneuerbare-energien.de/enThe reduction of greenhouse gasses has gained widespread support in Germany and regulationhas been one government tool to promote this along with innovation. There is a strong politicalwill to tighten regulation in certain areas. Hence, Germany could be regarded as a lead market

spurring green-tech innovation. It is expected that a tighter regulation of CO2-emissions frombuildings will lead to a more innovative activity in the building and construction sector (see Box3.3.2.2).Box 3.3.2.2: Regulations Encourage Reduced CO2 emissions from buildings in GermanyThe reduction of greenhouse gasses has gained widespread support in Germany, andregulation has been one government tool to promote this. There is a strong politicalwill to tighten regulation in certain areas. Hence, Germany could be regarded as alead market, catalyzing greentech innovation. It is expected that a tighter regulation ofCO2-emissions from buildings will lead to more innovative activity in the building andconstruction sectors.In Germany, the Federal Government and the KfW development bank has initiated anew regulated refurbishment programme aimed at reducing CO2 from buildings in thehousing sector. The new regulations call for renovation/replacement of windows andheating systems combined with thermal insulation of the outer walls.To ensure good quality on the technical level, all work must be carried out byprofessional companies. In effect, the German building and construction sectorsare becoming experts in the CO2 area, and Germany is turning into a lead market.Assistance comes in the form of federal government loans of up to €50,000 per housingunit with very low interest rates. From 2006 to 2009, a total of €5.6 billion of federalfunding is destined for energy-conserving refurbishment of the housing sector, includinginvestments of €200 million a year earmarked for the building refurbishment programmeto reduce CO2-emissions.Source: http://www.bmvbs.de/enIt might be that smart regulation will be much more widespread in the future and that we will seegovernments setting new standards. To fulfil them, private companies need to be more innovative.The US government recently set a new emission-standard for cars in USA which will force carmakers to innovate if they plan to deliver to the US car market.There are severe barriers to smart regulation. One of the most important barriers could bethe need for knowledge. The regulation authority must have advanced knowledge on varioustechnological possibilities to design successful smart regulation. Often authorities will not haveaccess to sufficient knowledge on technology possibilities, and often this knowledge does notexist but may only be created by private companies and research institutions. Smart regulationcan therefore easily run into a “chicken and egg” dilemma. To start innovative processes, youwill need new standards; to set obtainable new standards, you have to know the result of theinnovation process.A trustful partnership between regulatory authorities, private companies and research institutionsmight give the regulatory authority the necessary information and at the same time create thenecessary transparency and trust so that a successful smart regulation can take place.The Danish government has facilitated a business-led partnership to promote environmentally-friendly technologies. The purpose is to develop a binding partnership pooling the various skillsfrom the private sector to develop new solutions in areas with a significant environmental andcommercial perspective. One of the innovation partnerships addresses the manure challenges

from meat production in highly-inhabited areas (see Box 3.3.2.3).Box 3.3.2.3: Government-facilitated business-led partnership on industrial biotechnologyThe Danish government has facilitated a business-led partnership to promoteenvironmentally-friendly technologies. The purpose is to develop a binding partnership,pooling the various skills from the private sector to develop new solutions in areaswith a significant environmental and commercial perspective. One of the innovationpartnerships addresses the manure challenges from meat production in highly inhabitedareas.With the action plan for the promotion of environmentally-effective technologies, theDanish government has taken the initiative to build partnerships involving companies,knowledge institutions and government institutions in five selected areas. Industrialbiotechnology is one of the five areas.In 2006, a range of leading Danish companies (e.g. Novozymes, Kemira, Grundfos, Xergiand Samson Bismatech) entered into an innovative industrial biotechnology partnershipwith the aim of making manure a commercially-attractive product, i.e. that manure is notperceived as a waste product but a raw material.Central for the project is that the partnership would likely never have been realised hadit not been for the facilitating role of the Danish government. Key government authoritieshave been involved in setting up the partnership by inviting the privatesector to collaborate and act as secretariat for the partnership.For new manure technology to be profitable, the regulation must be changed fromstandards based on the relation between the number of animals and square meters ofland, to standards based on discharge from animals. In a new plan for green agriculturaland food production, the Danish government has announced a new regulation based onstandards of discharge. Part of the knowledge for such a new regulation comes from thework in the innovation partnership, which serves to illustrate how the regulating authoritymay obtain necessary knowledge for smart regulation from dialogue with the privatesector.Source: FORA (2009)

challenges facing society?Traditionally the private sector has provided the public sector with new ideas and productsrequested by the public sector. Today, this is changing. The public and private sectors areincreasingly developing innovative solutions in close collaboration, often initiated by the publicsector and with the involvement of users. It is a political reality in many countries that the balancebetween public or private influence on the production of welfare services is a complicated issue.On the one hand, private sector and private companies’ innovation capacity is welcomed as a newway of renewing welfare services. On the other hand, there is a fear that continuous privatisationof the welfare system will result in unacceptable social imbalances.This cross pressure on the welfare system has to some extent blocked innovation of publicservices even if there is a noticeable need for experiments. Working intensively with users andgaining access to a sufficient number of users can be difficult. Often, systems for doing so are notin place, or it will be extremely costly for companies to establish them.The following more detailed description of policy initiatives on intelligent demand will be separatedin two policy areas: public procurement and platforms and systems.

3.3.3.1 Public procurementIn order to enhance use of public procurement, the following policy actions are suggested.Government should– Use public procurement to stimulate private innovation and innovative solutions where thegovernment acts as a novel firm.In the UK, the Government is driving innovation through public procurement. The InnovationNation White Paper highlights the key role that public procurement plays in encouraging thedevelopment of new technologies and providing innovative solutions that provide better publicservices and respond to societal challenges. According to the new innovation procurement plan,all public procurement activities should take into account how innovation can be used to solve agiven problem (Box 3.3.3.1).Box 3.3.3.1: New Plans for Innovation in Public ProcurementIn the UK, the Government is driving innovation through public procurement. TheInnovation Nation White Paper highlights the key role that public procurement plays inencouraging the development of new technologies and providing innovative solutionsthat provide better public services and respond to societal challenges. According to thenew innovation procurement plan, all public procurement activities should takeinto account how innovation can be used to solve a given problem.In the UK, all government departments are required to publish an innovationprocurement plan (IPP) setting out how they will drive innovation through publicprocurement activities. In order to address societal challenges, public institutionsmust ensure that public procurement is undertaken by professionals taking a broad

perspective on cooperating with other public sector purchasers and procurement bodiesoutside the department. As a result, departments need to be much more consciousand strategic in their thinking about public procurement and how the private sector canbe involved in providing solutions. It is expected that the new initiative will spur moreinnovation through public procurement activities.Source: www.innovateuk.org.In Finland, the role of public procurement has also been important both to create the demand forinnovation and to ensure that innovation is sustainable (Box 3.3.3.2).Box 3.3.3.2: Finland Promotes Sustainability Through Public ProcurementIn Finland, the role of public procurement has also been important both to createdemand for innovation and to ensure that innovation is sustainable.During the last two years, the Finnish government has been promoting environmentalsustainability through regulations in the area of public procurement.The new initiatives include new market regulations that foster demand for innovation,innovation-focused public procurement, and a better understanding of the relationshipbetween innovation and sustainability.Extensive discussion on promoting innovative sustainability through regulations startedduring Finland’s EU Presidency in 2006. At that time, an expert group drew up a reportfor the European Commission on how European innovation policy should be revised.The main focus of this report was a pan-European policy regarding regulations andpublic procurement as tools for promoting innovation in the EU.Source: www.tem.fiThe necessary rules for public demand to secure fair and efficient competition can be an obstacleto using intelligent demand as an engine for innovation - in particular for more radical innovationsof the welfare system. On the other hand, there might be a huge potential for involving the privatesector in a reformation of the welfare system.To overcome these barriers, governments have begun to experiment with new types of meetingplaces between governments who need changes in the welfare system and private partners withinterests in welfare innovation.

– Provide new research-based educational programmes targeting public institutions and civilservants to raise innovation readiness in public institutions and endow employees with betterskills to collaborate with the private sector in finding new innovative solutions to welfarechallenges; and– Assist in creating new types of physical or digital platforms and infrastructure, where consumers,users and companies could meet and interact.The National Aeronautics and Space Administration (NASA) in the USA is probably the institutionwith the longest tradition for strategic innovative use of public demand to stimulate and diffusetechnology and promote innovation.Box 3.3.3.2.1: Government-driven innovation through Innovative Partnership Programme atNASAThe National Aeronautics and Space Administration (NASA) in the USA is probably theinstitution with the longest tradition for strategic innovative use of public demand tostimulate and diffuse technology and promote innovation.Through the Innovative Partnership Program (IPP) at the National Aeronautics and SpaceAdministration (NASA), the U.S. federal government drives innovation by matchinginnovative technology needs and capabilities.The program seeks to create partnerships and cooperative activities with U.S.enterprises to develop technology that is applicable to NASA’s mission technologyneeds, which contributes to commercial competitiveness in global markets. TheInnovative Partnership Program provides needed technology and capabilities for NASA’sMission Directorates, Programs and Projects through investments and partnerships withindustry, academia, government agencies and national laboratories. Through a numberof federal and NASA investment schemes such as Small Business Innovation Research(SBIR) and Small Business Technology Transfer STTR, SMEs are encouraged to provideinnovative technological solutions to the NASA programme.In addition to leveraged technology investments, dual-use technology-relatedpartnerships, and technology solutions for NASA, IPP enables cost avoidance, andaccelerates technology maturation. IPP also seeks to be a facilitator and catalyst forinnovation in technology transfer—or spinoffs—to provide solutions to the private sectoror other government agencies with NASA-developed technology resulting in publicbenefit. IPP achieves these mission objectives through a network of offices at each ofNASA’s 10 field centers.The Innovative Partnership Program is open to enterprises around the world. Theprogram receives $180 million annually from the federal budget.Source: http://ipp.nasa.gov/The UK is probably the OECD country with the most far-reaching experience in terms of renewingthe welfare system by welcoming private companies to take part in the innovation of welfareservices. In the UK, the need for unique and individualised solutions in care, health, safety andeducation is growing. In the private sector, the interactive, two-way Internet, known as Web 2.0, is

used to generate unique and individualized solutions (Box 3.3.3.2.2).Box 3.3.3.2.2: Public Services 2.0 in the UKThe UK is probably the OECD country with the most far-reaching experience in termsof renewing the welfare system by welcoming private companies to take part in theinnovation of welfare services. In the UK, the need for unique and individualisedsolutions in care, health, safety and education is growing. In the private sector, theinteractive, two-way internet, known as web 2.0, is used to generate unique andindividualized solutions.The idea of Public Services 2.0 platform is originated in the tools of web 2.0, used in theprivate sector and originally developed by a government advisor on innovation.The initiative should enhance both the collaboration and the sourcing of knowledgebetween the public sector and the private sector by drawing on each other’sexperiences with innovative tools. The platform is a community-based public serviceaimed at meeting more unique and individualized demands for welfare services.Public Services 2.0 should be a digital tool in the public sector, using web 2.0 andopen-source software to make citizens and residents more participative in publicservices. It should create an interactive community, where citizens can interact with thepublic sector on public services solutions. Thus, it should make public services moreparticipative, communal and collective as the best of what is emerging from the newdigital and collaborative culture.Public Services 2.0 has not yet been implemented by the government.Source: www.charlesleadbeater.net/archieve/public-services-20The Department for Innovation, Universities and Skills (DIUS) in the UK has set up a TechnologyStrategy Board, which has opened various platforms as drivers for innovation of welfare serviceswith the focus on how new technology can be an enabler of welfare innovation. The TechnologyStrategy Board has launched several projects with the aim of getting especially SMEs involvedin providing solutions to welfare challenges. One of the projects launched by the TechnologyStrategy Board is the Assisted Living Innovation Platform.The Department of Health (DH), the Technology Strategy Board (TSB), the Engineering andPhysical Sciences Research Council (EPSRC) and the Economic and Social Research Council(ESRC) have agreed to fund a number of activities in the area of Assisted Living under theumbrella of the Assisted Living Innovation Platform (ALIP) (Box 3.3.3.2.3).Box 3.3.3.2.3: The Assisted Living Innovation PlatformThe Department for Innovation, Universities and Skills (DIUS) in the UK has set upa Technology Strategy Board, which has opened various platforms as drivers forinnovation of welfare services with the focus on how new technology can be an enablerof welfare innovation. The Technology Strategy Board has launched several projects withthe aim of getting especially SMEs involved in providing solutions to welfare challenges.One of the projects launched by the Technology Strategy Board is the Assisted Living

Innovation Platform.The Department of Health (DH), the Technology Strategy Board (TSB), the Engineeringand Physical Sciences Research Council (EPSRC) and the Economic and SocialResearch Council (ESRC) have agreed to fund a number of activities in the area ofAssisted Living under the umbrella of the Assisted Living Innovation Platform (ALIP).The aim of the Assisted Living Innovation Platform is to develop new technologies whichcould find new ways to help people suffering from chronic long-term illnesses to livemore independently. The new platform brings together partners from industry, the healthcare professions and academia.At the moment, the platform is exploring how digital communication technologies couldenable assisted living by creating assisted living devices and services.To solve this activity, a competition for funding is set up. To facilitate SME’s participationin the projects, the TSB funds the preparation of applications. Furthermore, the winner ofthe competition will receive funding for the execution of the project. £5 Million has beenallocated to this activity, which would support between five and ten projects.The Assisted Living Innovation Platform was launched at Innovate07, 8 November 2007.Source: www.innovateuk.orgThere are other examples where the public sector provides the infrastructure to enable users andcompanies to innovate together e.g. Living Labs (see Box 3.3.3.2.4).Box 3.3.3.2.4: Living Laboratory Providing Platform for Uncovering User NeedsEstablished in 2006, the Copenhagen Living Lab (CLL) is a “living laboratory” wherethe business sector can obtain better insights into everyday life of users. The aim is toimprove the cultural and social basis for product innovation and sales opportunities.In the project, People Involvement & Innovations Platform (PIIPL) initiated in July2007, the CLL is engaged in developing a digital platform which makes it possible forenterprises and institutions to reduce costs and resources by uncovering user needs ina systematic way. The platform is built on a picture and video-based web service thatallows for communication between users, communities and producers regarding needsand solutions.The platform will be developed and tested in several pilot projects in public institutionsand enterprises, for instance in Danisco. The government-supported project will last for2 years and has received a grant of approximately 550.000 EUR from the Danishprogramme for user-driven innovation. Other partners in the project are SymbionScience Park and Treogtyve aps.As of 2009, CLL does not receive any more public funding and is now a privatecompany.Source: http://www.ebst.dk/brugerdreveninnovation.dk/

Box 3.3.3.2.5: Public Services by DesignService design will become an important element in private sector innovation and couldbe a considerable tool for innovating welfare services. The UK seems to be a pioneer inthis area. Over the last four years, the UK Design Council has piloted a range of on-linepublic sector projects, with the aim of developing practical design solutions to some ofthe most complex problems. In the 2008 Innovation Nation White Paper, the Departmentfor Innovation, Universities and Skills (DIUS) recognised the role of design in publicsector innovation.Public Services by Design is being set up in order to turn new innovative ideas into cost-effective and efficient outcomes, which deliver the right experience for the public.Other experiments involving private companies’ in innovating welfare services haveprobably taken place in many countries, but it has been difficult to identify them.Public Services by Design is being set up by a Design Council to help the Britishgovernment create services that are not only cost effective, but also innovative as theyre-design and re-build the way the public sector delivers services to its citizens.Working closely with designers, providers, front-line staff and users of public services,the Design Council intends to co-design a useable, relevant and widely-applicabledesign programme making public services more personalized.The design programme will be co-developed over the next two years with a programmeavailable from autumn 2010.Source: http://www.designcouncil.org.ukDesign methodologies are gaining importance in providing new innovative solutions to welfareservices. With growing ratios of elderly people, the need for innovative services is increasing inorder for service providers to remain competitive and meet the ever-growing demand for newsolutions to social needs. The design of services draws on design processes and methodologiesgiving the design discipline an immaterial form.Another example of finding innovative solutions through public private partnership is fromDenmark (Box 3.3.3.2.6).Box 3.3.3.2.6: Methods for Involving Disabled People in the Innovation ProcessDesign methodologies are gaining importance in providing new innovative solutions towelfare services. With growing ratios of elderly people, the need for innovative servicesis increasing. In order for service providers to remain competitive and meet the ever-growing demand for new solutions to social needs, the design of services should drawon design processes and methodologies giving the design discipline an immaterial form.In 2008, a smart public-private partnership evolved in the Central Denmark Region,where the public sector has engaged private companies in identifying and solvingneeds for social care among disabled people. The companies were involved at an earlystage, and developed (together with the Central DK region) new tools and products for

disabled people. In addition, the public-private partnership is developing tools which willease the involvement of disabled people in a user-driven innovation process. The DanishGovernment has provided support with funds of approximately 800.000 EUR from theDanish programme for user-driven innovation. Some results are expected in 2009.Source: http://www.ebst.dk/brugerdreveninnovation.dk/The reported examples of private companies involvement in innovating welfare services is limitedin the sense that they focus on innovation within a particular welfare service, but not in theinstitutional or systematic set up, which often could be a barrier for innovating the public services.In Finland, the government is applying a holistic view on finding new innovative solutions topublic welfare challenges. SITRA, the Finnish Innovation Fund is a publicly-owned venture fund.SITRA’s venture activities have been contracted out to private venture companies, and SITRA nowworks in areas that make Finland more innovative and competitive. One of SITRA’s activities is topromote systemic innovation in Finnish society. A challenge related to systemic innovation is toidentify the barriers to applying “smart government” in the public sector (Box 3.3.3.2.7).Box 3.3.3.2.7: Finland Focuses on Systemic InnovationDue to systemic interdependencies and complementarities, societies that are ableto renew their various subsystems rapidly and coherently will gain increasing returnsand higher productivity growth associated with the new technologies, organizationalsolutions and institutional arrangements.Finland has embraced the systemic innovation challenge with its new comprehensivenational innovation strategy. SITRA, the Finnish Innovation Fund was an activeparticipant in the strategy development process. Its activities are guided by a vision ofFinland as the global forerunner of well-being enhancing systemic innovations. SITRAfacilitates systemic innovations in the Finnish society by developing foresight and insighton the required changes and by facilitating them through practical programs, strategyprocesses and new business development. SITRA’s activities bring together all relevantprivate, public and third sector stakeholders in a particular area.Systemic changes address various market failures, which may call for governmentintervention. However, systemic interventions require “smart government”, whichcarefully considers various private, public and third sector solutions to a particularproblem before choosing what to do, if anything.Source: SITRA (2009)

Appendix 1. National innovation strategies in seven OECD countriesIn order to identify the leading policy innovative countries, four criteria for broad-based innovationformulation have been developed.The four criteria for broad-based innovation are:1. The country should perform well according to innovation indicator systems202. The country should recently have introduced (or plan to introduce) a national innovation strategy3. The innovation strategy is implemented broadly across several ministries and at high politicallevel4. The national innovation strategy should be broad-based and include dimensions from a newnature of innovation.One way to scan the horizon for interesting innovation policy approaches and developmentsbased on the four broad-based innovation criteria was to develop a survey questionnaire. Thequestionnaire was presented to the national delegations in the OECD Comitee on Industry,Innovation and Entrepreneurship (CIIE).Approximately half of the CIIE-members replied to the survey (see Appendix 2 for the fullquestionnaire). According to the survey, we found that some governments are increasingly awareof and responding to the changing nature of innovation in the private sector. They respond byplacing new elements such as co-creation, user involvement and partnership at the centre of newinnovation policy.Finally, further policy discussion about the most recent innovation policy work was carried out inseven OECD countries:– Australia– Canada– Denmark– Finland– Germany– UK– USADuring meetings with key policymakers in the capitals, possible policy implications of a newnature of innovation were discussed. The most recent innovation policy experience was discussedbased mainly on three questions:

1. To what extent do the nine innovation principles describe the newest and most importantemerging trends in the innovation landscape in your country?2. How much does the present innovation policy in your country address a new nature ofinnovation? And could you mention concrete examples of policy initiatives which could illustratethis?3. What are your expectations to the future/planned innovation policy? Are new policy initiativescoming up? Will policy priorities change?Based on discussions with policymakers, the policy implications were elaborated at aninternational roundtable meeting in Copenhagen in March 2009. At this meeting, both public andprivate sector representatives were invited to discuss a new nature of innovation (see Box 3.2.2).Also, leading international innovation experts who have provided analytical input to the businesscase studies were invited.AustraliaThe Australian Government first published Venturous Australia as a review of the AustralianInnovation System (Green Paper) in 2008. It examines the national innovation system and putsforward recommendations and thoughts. Based on this work, the Minister of Innovation, Industry,Science and Research launched a National Innovation Strategy White Paper in May 2009. Itreflects a broad-based innovation understanding, and other new sources of innovation are clearlya target in the strategy.21CanadaThe Canadian government published their latest national innovation strategy Mobilizing Scienceand Technology to Canada’s Advantage in 2007. The strategy is initiated by the Prime Ministerand cuts across a number of ministries. The science and technology strategy is the one that theGovernment uses to shape the country’s innovation policies. Even though S&T and innovation aretwo different concepts, the S&T strategy is really focused on the business sector, and thereforealso viewed as their innovation strategy. The S&T Strategy is built around three ”advantages”Canada has to nurture including: entrepreneurial, knowledge, and people advantages and fourcore principles including: promoting world-class excellence, focusing on priorities, fosteringpartnership, and enhancing accountability.22DenmarkThe Danish Government published their latest national innovation strategy named Progress,Innovation and Cohesion Strategy for Denmark in the Global Economy in 2006. The strategywas the result of an open process where all interested in global challenges and innovation couldparticipate with analyses and suggestions. The Danish Prime minister chaired a working groupwith representatives from important stakeholders, and all documents discussed in the groupwere published on the web. The resulting strategy covers several ministries and included bothimportant conditions (such as legislation of competition, bankruptcy etc.) and the frameworkenvironment for important innovation drivers (such as human resources, knowledge andtechnology and entrepreneurship). The strategy contained a number of concrete proposals, whichhave been implemented in the following years.23FinlandThe Finnish Government decided to prepare a new national innovation stategy based onevaluations of the current S&T strategy. A proposal for Finland’s National Innovation Strategy was

prepared in an open and participatory process under a steering group chaired by the former PrimeMinister, Mr. Esko Aho. The proposal was a frontrunner for the later Innovation Policy White Paper.The White Paper, which presents the Government’s key innovation policy lines was approved bythe Finnish government in October 2008.Finland has a long tradition of comprehensive strategies for science and technology. However,the latest initiative from the Finnish government should be viewed as a clear political willingnessto provide new strategies, as it defines innovation broadly and has more highly prioritised theconsequences of a changing nature of innovation.24GermanyThe German Government published The High-Tech Strategy for Germany in 2006, and for the firsttime ever the German Government has developed a comprehensive national innovation strategy.The strategy has been initiated by the Chancellor and involves all ministries. As indicated in thetitle, the focus is on technology, but the strategy contains the first step of a broader strategy forinnovation. According to the strategy, 17 cutting-edge fields (technology areas) will receive specialattention. In addition, education and labour training, innovation financing, SMEs and start-ups,collaboration between research/academia and firms (such as excellent clusters) will also be furtherdeveloped.25United KingdomThe UK Government published its latest innovation strategy, Innovation Nation in March 2008.The Secretary of State for Innovation, Universities and Skills, the Chancellor of the Exchequerand the Secretary of State for Business Enterprise and Regulatory Reform (BERR) have preparedthe strategy. The strategy stresses the importance of UK’s strength in scientific research andits importance for innovation. However, it also gives high priority to other important drivers ofinnovation and discusses the consequences of The Changing Face of Innovation (as the newinnovation trend is labelled in the UK innovation strategy). Hidden innovation, lead markets andopen innovation systems characterise the UK innovation approach. On December 4 2008, anannual innovation progress report was released. The annual innovation report reviews the progressof the national innovation strategy.26United StatesWhereas the six above-mentioned countries have recently prepared a national innovation strategyat high political level addressing some broad-based innovation perspectives, the USA does nothave an innovation strategy at federal level. However, as the USA performs well according tointernational innovation indicator systems, it was decided to include the USA in the survey.The Federal Government of United States of America has many entities in the federal governmentwho are involved in various innovation strategies in their respective domains. The country hasa large, diversified and long evolved national innovation system comprised by many privateand public actors, policies and programs arguably since the 1970s, if not earlier. For the most,this large constellation of components is not centrally coordinated. There are several significantexamples of comprehensive strategies for science, technology and innovation at state-level, andthe USA is also rich on third-sector institutions and foundations with a strong participation in thecountry’s economic development.In 2005, the Competitiveness Council in Washington published Innovative America,27which is

one of the first publications to address the changing nature of innovation and possible policyimplications. The ground-breaking agenda includes more than 60 detailed recommendationsgrouped under three major platforms for action: talent, investment and infrastructure. In August2007, the COMPETES Act was signed into law, which finds its roots in Innovate America andin the work of the Council’s National Innovation Initiative. This policy initiative was directed atincremental improvements in the U.S.’ existing national innovation system.It is increasingly recognized that dispersed and unconnected initiatives will be insufficient to closethe growing gap between the U.S. and peer countries in creating a coherent and coordinatednational innovation strategy. The National Academy of Sciences (NAS) will release a report(funded by the America Competes Act) documenting barriers to innovation in the United States.It will be the first NAS report addressing innovation as distinct from technology and research anddevelopment.28Moreover, to address the innovation challenges, it has been suggested that the U.S. federalgovernment should establish a National Innovation Foundation, whose sole mission would be topromote innovation (including new types of innovation) throughout the existing U.S. innovationsystem.29Other recent and significant initiatives working towards adding a kind of new nature of innovationon the political agenda in the USA include the Athena Alliance. The Athena Alliance is a non-profitorganisation undertaking outreach activities to help members of Congress, the Administration,constituency groups and the media better understand the issues related to the new types ofinnovation and craft policies and programs, which reflect this new thinking.30To conclude, governments in the seven countries increasingly seem to respond to changes inthe private sector by providing innovation strategies, policies or recommendations, which reflectsomewhat new policy aspects such as creating knowledge, involving users, enhancing humanresources and encouraging new types of partnerships and entrepreneurship. Moreover, theinnovation strategies seem to be broad-based, as most of them are cross-ministerial initiativeswith high political priority.

Atkinson, Robert D. & David B. Audretsch (2008) Economic Doctrines and PolicyDifferences: Has the Washington Policy Debate Been Asking the Wrong Questions?The Information Technology & Innovation Foundation. September 2008 Available athttp://www.itif.org/files/EconomicDoctrine.pdf.Castells, M.. (2004) Informationalism, Networks, and the Network Society: aTheoretical Blueprinting, The network society: a Cross-Cultural Perspective.Northampton, MA: Edward Elgar.José Santos, Doz, Yves & Peter Williamson (2004) Developing a Global Chain ofInnovation. MITSloan Management Review. Summer 2004, vol. 45, no. 4.Doz, Yves, José Santos & Peter Williamson (2001) From Global to Metanational:How Companies Win in the Knowledge Economy. Harvard Business School Press.FORA (2009) Nordic Innovation Monitor 2009. Available at http://www.foranet.dk/upload/nordicinnovation_09_lang.p df.FORA & NICe (2008) User-Driven Innovation. Context and Cases in the NordicRegion. Editors Casper Høgenhaven and Emily Wise. Available at http://www.foranet.dk/upload/final_report_udi_context_an d_cases_in_the_nordic_region_web.pdfFORA (2007) Concept Design. How to solve complex challenges of our time. Canbe accessed at http://www.ebst.dk/file/7661/conceptdesign.pdfFORA (2005) User-Driven Innovation - Results and Recommendations. Availableat http://www.foranet.dk/upload/hovedrapport_engelsk.pdf. See also FORA (2005)Brugerdreven innovation i elektronikbranchen. Available in Danish at http://www.foranet.dk/upload/elektronik.pdf.Gaule, Andrew (2006) Open Innovation in Action – How to be Strategic in theSearch for New Sources of Value. Larry Huston & Nabil Sakkab (3/2006) Connectand Develop: Inside Procter and Gamble’s New Model for Innovation. HarvardBusiness Review.Howe, Jeff (2008) Crowdsourcing. Why the Power of the Crowd is Driving the Futureof Business. Random House.