URGENT: Managing Innovation Assignment No.2

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case_study_european_innovation_scoreboard.pdf

European Innovation Scoreboard (European Commission, 2003)

This case has been written as a basis for class discussion rather than to illustrate effective or ineffective

managerial or administrative behaviour. It has been prepared from a variety of published sources, as indicated,

and from observations.

Introduction

In a response to increased competition and globalisation the European Council argued for increased and

enhanced efforts to improve the Union's performance in innovation. In March 2000 in the picturesque city of

Lisbon the Union set itself the goal of becoming the most competitive and dynamic, knowledge-based economy

in the world within the next decade. Fine words one may say, but precisely how does one set about achieving

this laudable goal? A strategy was developed and presented in Stockholm in March 2001. The strategy was to

build on the economic convergence that had been developed over the past 10 years within the EU single market

and to coordinate an open method' of developing policies for creating new skills, knowledge and innovation. To

support this approach the European Commission stated that there was a need for an assessment of how member

countries were performing in the area of innovation. The idea of a 'Scoreboard' was launched to indicate the

performance of member states. This would be conducted every year as a way of assessing the performance of

member countries. It is essentially a benchmarking exercise where the European Union can assess its

performance against other countries, most notably Japan and the United States.

This is an extremely ambitious project to try to assess innovative ability. There have been many studies over the

past two decades that have tried to identify the factors necessary for innovation to occur (see Table I.6). and

while many factors have been identified many of these are necessary but not sufficient in themselves. Moreover,

some governments have attempted to develop `innovation tool-kits and scorecards' to try to help firms in their

own countries to become more innovative (UK Department of Trade and Industry). Most of these have not been

successful. This ambitious project by the European Union is full of limitations and is generally regarded as

over-simplistic. This is largely because the economic conditions of the member countries are so very different

and all have a wide variety of strengths and weaknesses. None the less, in order to assess where the European

Union should target help and the precise type of help required by each member it is necessary to analyse the

innovative performance of countries. The scoreboard is an initial attempt at a very challenging exercise.

The Innovation Scoreboard

See: http://www.proinno-europe.eu/inno-metrics/page/43-comparison-between-us-and-japan

The Innovation Scoreboard is designed to complement the structural indicators. These are things like education

systems, financial systems for raising capital, levels of employment. etc., which the EU Commission currently

assesses through other mechanisms and statistical analysis. To minimise the additional statistical burden, the

Innovation Scoreboard mainly uses official Eurostat data, if official data is not available. It analyses statistical

data on 17 indicators in four areas, depicts achievements and trends, highlights strengths and weaknesses and

examines the extent of convergence in innovation. The four key areas are as follows:

1 Knowledge creation.

The three indicators used for the creation of new knowledge are public R&D expenditure, business R&D

expenditure and patenting activity.

2 Human resources.

The scale and quality of human resources are major determinants of both the creation of new knowledge and its

use throughout the economy. The indicators used are the education of scientists and engineers, the skill level of

the working-age population and a measure of life-long learning. In addition employment indicators are used

such as the share of the workforce in technology-intensive industries.

3 Transmission and application of new knowledge.

This area covers the activities outside formal innovation. It is more concerned with the extent of adoption and

use of new technology and knowledge. The indicators on in-house innovation and cooperative innovation are

limited to small and medium-sized enterprises (SMEs). These, however, provide a better picture of innovation

within small and medium-sized firms than R&D expenditure which is more prevalent among large firms.

Moreover, SMEs form the majority of firms in most countries and play a vital role in innovation: linking public

and large-firm research to practical applications within industrial settings.

4 Innovation finance, output and markets.

This group includes indicators that cover the supply of finance to industry. For the European Union as a whole

analysis of changes over the past four years shows improvements in many areas and importantly in some areas

countries within the Union lead the world, indicating that there is potential for member states to learn and

replicate best practice. It is this idea of learning from other member countries that lies at the heart of the unique

policy approach being applied to the coordination of improving innovative performance within the Union. The

so-called 'open-method' approach to coordination is different from the usual EU policies which are based on

establishing targets that all EU countries have to achieve over a period of time. For example, the European

Union has a policy on clean bathing water within the Union, and all countries have been given targets to bring

their bathing waters to the required standard. Depending on the initial state of cleanliness, countries have been

given time-scales within which they must achieve these targets or face the risk of fines. The innovation policy,

however, required a different approach and the 'open method of coordination' was developed. This is based on

the premise that countries will progressively develop their own policies by spreading best practice.

Findings

The table on the following page presents, for every indicator, the overall mean, the three leading member states

with the best results for each indicator, and the results for the United States and Japan where available.

Since the first Innovation Scoreboard most countries have been improving their performance. Among the three

largest EU economies (France, Germany and the United Kingdom) the United Kingdom has improved the

fastest. Some countries have been improving much quicker than others. Most notably Denmark and Finland

have been moving ahead of other countries.

See also: http://www.proinno-europe.eu/inno-metrics/page/33-innovation-dimenstions

http://www.proinno-europe.eu/trendchart/thematic-trendchart-reports-2000-2003

The ranking of countries by their innovative performance was never the intention behind the Innovation

Scoreboard, but this is precisely what many people have been doing with the results produced by the survey.

Indeed, many newspapers have presented the findings accompanied with dramatic headlines to support or

defend their arguments. The EU Commission recognised that this was how many analysts and commentators

liked to see the findings; hence it produced a tentative summary innovation index (SIT). This helps to address

the need for a comparison of countries and performance. Several cautions are necessary when studying the SIT.

First, the SIT is a relative rather than absolute index. An index of zero means there is no meaningful difference

from the EU average. Second, the SII is not fully comparable between countries because of missing indicators

for seven countries. The SII is based on only eight indicators for Japan and nine for the United States. Third,

minor differences in the SII between countries are unlikely to be meaningful due to limitations with some of the

indicators. With these irritations in mind Figure summarises the conditions in each country by giving the SII

and the average percentage change.

Discussion

Innovation varies greatly from industry to industry and from firm to firm. For example, some industries are far

more competitive than others; hence it is context dependent. Innovation is also complex and not fully

understood, but we know that it is important to have certain things in place. All the things in the scoreboard are

necessary but not sufficient in themselves to ensure innovation occurs. For example, the next chapter in this

book looks at a late-industrialising country on the edge of Europe. A country with a population of 60 million,

already a member of the North Atlantic Treaty Organisation (NATO) and a prospective member of the

European Union. Turkey is that country and it is a good example of a late-industrialising economy. Sitting on

the edge of Europe and bestriding two continents, Turkey should be in a position to develop a successful

economy. However, in Turkey, there seems to be a missing link in terms of the innovative intention and

capabilities of enterprises. Turkey needs to put in place many of the things detailed in the Scoreboard. This

would surely help to develop enterprise in the country, but it will not convert Turkey into a Finland overnight.

By identifying, comparing and disseminating best practices in financing and technology transfer, Europe can

improve its innovation performance. One area that needs particular attention is the overall perception of the

entrepreneur. The image of the entrepreneur needs to have greater value, as in the United States where the drive

to try to market new products, with the in-built risk of failure, is seen much more positively than in Europe.

The Scoreboard may be helpful to governmental policy makers in deciding where to invest substantial sums of

money. However, firms behave differently given similar circumstances and some firms appeared to be more

successful than others. Given this, the Scoreboard's practical help is likely to be extremely limited. Innovation is

extremely complex and involves the effective management of a variety of different activities within the

organisation. Indeed, it is precisely how the process of innovation is managed that needs to be examined.

This case has been written as a basis or class discussion rather than to illustrate effective or ineffective

managerial or administrative behaviour. It has been prepared from a variety of published sources and from

observations.

Questions - based on this case study

1 What are the limitations of such types of `league tables'?

2 Why are the factors listed on the Scoreboard necessary but not sufficient?

3 Four key areas are assessed. What other areas do you think should be included?

4 What do the findings from tables show?

5 Why is the Scoreboard likely to be of little practical help?

Support each answer with at least one academic reference from UCW's library (EBSCOhost) using a proper

APA citation format.