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Innovation gap or invisible innovation


Written by Faridah Djellal, Faîz Gallouj and Jean-Christophe Godest

Reviewed by David Walburn

 

The concept

How to implement it?

Step in the RIS3 process

How to measure?

What can be expected?

A quote

Expert's comments

 

The concept


The innovation gap is a common feature of all contemporary developed economies. It reflects the finding of an underestimation of innovation efforts. The explanation lies in the fact that the post-industrial economies (the quality, knowledge, information) generate more innovations than what the definitions and traditional measurement tools report. The problem is that in these economies (post-industrial), innovation is understood according to technologist and industrialist definitions and measured with industrial indicators. Among these, indicators on R&D expenditure account, the number of patents ... The hypothesis can thus be made That the more economies are tertiary (in the case of the UK) the more the innovation gap is important.

This "industrial" dominant design of innovation applied to services is the source of the gap. Compared to industry, services indeed appear to be relatively less committed to technological innovation and product process, unfavorable to patent, low-intensive R&D in the traditional sense.

Services are victims of innovation gap, insofar as they are the source of many non-technological innovations beyond the traditional indicators. This gap refers too, and we think it will involve more and more activities, service innovations related to sustainable development as car sharing, elderly care, cooperative nurseries, home services...

Another example of innovation Gap: the case of low cost in the air transport

Technology reservation systems have played a key role in the success of the low cost model in air transport. But this innovation is built on a number of innovations refocused on basic services, the transport of passengers characterized by:

  • removal of most peripheral services generally available (meals on board, namely, seats allocated and class differentiation, taking into account the correspondence, newspapers on board);
  • alignment of aircraft on short and medium distances;
  • elimination of connecting flights, the reduction of ground staff and the reduction of time lost on the tarmac, no lounge floor;
  • use of a single type of plane which allows maintenance efficiency;
  • densification of seats;
  • preference for secondary uncongested airports;
  • many subcontractors.

This "dominant design" of low cost bring new innovations, like JetBlue which developed the "combining entertainment” with flight, or invented the "low-cost business class" variety. Many innovations whose measure must be taken into account in the development and implementation of a strategy.

In 2013, the air traffic breaks records in all French airports boosted by low cost of nearly €172 million commercial passengers for an overall growth of 2.3% over the previous year. The traffic in the metropolitan airports (other than CDG and Orly) increases most than the total traffic of the European Union. A special strong growth is to be noticed in Lille airport (+18.9%), which exceeds the million and a half passengers.

 

How to implement it?


Some non-technological forms of innovation are taken into account, more recently, in the OECD manuals and CIS surveys. The innovation gap tends to reduce, but there is still room for improvement:

  • non-technological product innovations (eg, a new insurance contract, a new financial product, a new area of expertise in consulting)  
  • innovation process (methodologies, Protocol)
  • ad hoc innovations and design
  • innovation in public services
  • innovation in complex packages also called new concepts, new formulas (in trade, hotels, etc...).

Then we can discern more types of innovation to better elaborate diagnoses and monitor the RIS.

 

Step in the RIS process


Step 1: Analysis of regional context/potential

Step 4: Selection of priorities

Step 6: Monitoring and evaluation – monitoring aims at verifying that activities are planned, funds are correctly used and spent on delivering planned outputs and that result indicators evolve in the desired direction. Evaluation, however, aims to assess effects of the actions undertaken and to understand why and how the effects are being achieved.

 

How to measure the innovation gap?


The invisible innovation is not a homogeneous category. It hides a variety of forms of innovation eg:

  • social innovation ;
  • organizational innovation ;
  • marketing innovation ;

Conducting studies is the best way to measure the innovation gap.

 

What can be expected?


Better understanding of the innovation, more comprehensive diagnostics, distinguish new goals and new actions and better consideration for all forms of innovation allowing:

  • an objective alignment of priorities with the regional assets
  • a focus on new relevant priorities
  • a well-thought evaluation and impact assessment system.

 

A quote


"During the past two decades, the question of innovation in services has been steadily gaining in importance in the economic literature and political agendas. This new field of "service innovation studies", especially non-technological innovation in all its forms, organization, process, product, concept, social innovation, etc. is characterized by an effort to visualize, invisible innovation”. by Faridah Djellal

 

Expert's comments


This paper makes what may seem the obvious, but nevertheless important point, that innovation in regional economies is not only measured through technical improvements in manufacturing. This latter type of innovation is seen in indicators such as new patents registered, or the level of investment in research and development. However, a vital aspect of innovation also arises from simply finding more efficient, effective or cheaper ways of doing things. As the authors of the article point out, the role of such innovation is likely to be most significant in economies with a highly developed service sector as is found in almost all advanced western countries.

This other type of innovation can take many forms, and of its nature it is hard to measure. For the most part, therefore, it remains unmeasured. This is what leads to the notion of an “innovation gap” or “invisible innovation” which is the unseen contributor to economic growth in addition to the recognised factors such as technological improvements.

The authors give the example of the development of low cost passenger air transport in recent decades to indicate just how significant these innovation gap changes can be, opening up whole new markets and creating huge new sectors of employment. In the financial services sector, such innovation can have a major impact on improving the supply of finance to small and medium-sized businesses – a particularly important contribution to regional economic development.

The paper suggests approaches which might be taken to try to measure the level of invisible innovation in the regional economy. From the policy-maker’s point of view, this may improve the overall understanding of the dynamics of the regional economy, but the more important lesson to draw is surely that of the importance of including the boosting of such innovation in regional economic development strategies. This would include raising such questions as:

  • What are the sectors where there is potential for such innovation?     
  • Are there international comparators which indicate the possibilities for innovation?
  • Are there existing innovation champions in the region which could give impetus to other companies and organisations?
  • Could financial and other intermediary organisations help in promoting innovation amongst their client bases?

A further advantage for policy makers in giving attention to this aspect of innovation is that it might be achieved at little or no additional cost.

 

Mr David Walburn


After a career in business David Walburn joined Greater London Enterprise in 1986 where he was responsible for venture capital and other small business support, before becoming Chief Executive of the organisation. He was the Chair of the London Business Angels Network and played a key role in the setting up of the European Business Angels Network. He has worked with the UK government and the European Commission on developing public policy initiatives to improve the financing of small and medium-sized enterprises. He was the Chair of Capital Enterprise, the umbrella body for organisations supporting micro business development in London, until 2012.

For the last ten years he has been a Visiting Professor at London South Bank University where he headed the Local Economy Policy Unit and was the managing editor of the journal Local Economy.

He has served as President of EURADA, and been a member of a number of advisory bodies of the European Commission.  He has been an active member of the International Economic Development Council in Washington DC and has a wide range of international contacts with economic development organisations.

He continues to write and lecture on small business finance and regional economic development.

davidwalburn@europe.com

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