Agile innovation Productive economy Start up, entrepreneurs Vision & strategy

Can we enhance productive economy?

Introduction. 

Statistics are showing that the most productive economies are the ones with greater:

  • Innovation and
  • Internationalization.

Both require knowledge, effort and some time to mature.

It is the opposite of economies that compensate low productivity with low wages & salaries and speculation.

Economic system and productive economy

What are the objectives of the economic system?

Depending on the prism through which we look, we will position ourselves among which prioritize the generation of wealth and those who understand economics as a tool to ensure the welfare of the citizenry.

Two different conceptions of the economic world, which, after all, ultimately determine the policies that urge to exit the crisis.

But in both cases, industry and industrial policy are back in the centre of the actions to overcome the crisis and to ensure sustained and sustainable growth of economies.

Just a few months ago, in The Economist, the contributions of leading economists and experts, gave the result that 76% of respondents felt that an economy needs a strong industrial base in order to succeed. In the same view, the European Commission also believes that industry and active industrial policy are key to any strategy for ending the crisis and creation of sustained growth and competitive economies.

The most competitive economies

The “Global Competitiveness Index 2014-2015″[1] reported again, between the world top 10, the following European countries:

  • Switzerland (# 1)
  • Finland (# 4)
  • Germany (# 5)
  • Netherlands (# 8)
  • UK (# 9)
  • Sweden (# 10)

Following are Norway (# 11) and Denmark (# 13).

They still maintain a strong industrial position and none of them is particularly remarkable for its low wages &salaries, nor for their approach to speculative economies.

Spanish case summary

To find the Spanish level we go down to #35 in 2014-2015 (# 29 in 2008-2009). I.e. a decrease of 6 positions in 6 years.

These are the comments of the report. (Spanish positions in different sub-indices are indicated as #n ):

“Spain general score remains at #35. The reform program being undertaken, has focused in recent years on reducing the budget deficit, although still high (# 128); to improve the soundness of the financial sector, still unstable (#85); reduce bureaucracy to promote entrepreneurship (# 99); and flexibility (# 120) of the labour market.”

“As in previous years, Spain continues to benefit from its transport infrastructure (# 6), high levels of connectivity (# 18), and a large part of the population that pursues higher education (# 8) that, if the quality of education system were improved (# 88) might be able to contribute to the structural transformation that the country is needing.”

“However, a perceived weakness in the functioning of institutions, particularly with lower scores in terms of corruption (# 80) and government efficiency (# 105), compensates for these improvements in the GCI.”

“Despite improvements in certain areas, Spain continues to suffer from lack of access to credit companies (# 132), a rigid labour market (# 120), difficulties in attracting (# 103) and retaining talent (# 107) and insufficient capacity to innovate (# 60), which is a result of low investments in R & D (# 52) and weak university-industry collaborations (# 57)”

Innovation: Key of the productive economy

In short, we return to the beginning:

“Innovation, internationalization, product differentiation, optimum size and training are the key words that can help companies overcome the crisis and emerge stronger”[2]

If one of the key variables is innovation, to create a productive economy, we must overcome structural barriers that prevent or hinder it.

In a previous article of this website[3], we analysed the barriers to innovation, and specifically, 9 structural barriers in the “Spanish case”. Overcoming these barriers in Spanish current environment, would be an important step in creating a productive economy.

Actions to overcome barriers to innovation

Solutions are only possible in the medium and long term, but immediate action is needed to not delay them indefinitely

In the table below we review the barriers and actions that in my opinion would serve to overcome them:

Barriers in the environment: The Spanish case

Actions

  1. The private company does not invest. Private investments in innovation are 3 times lower than in leading countries and 1/2 average, both R & D and innovation investments no R&D.
There are many companies not having their decision centres here. For them it is important to have internal bottom up agreement to become an innovation or a design centre, or to incorporate the latest production technologies.There should be incentives for investment in R&D and in not R&D innovation. The grant model does not always get the expected results if it’s not so transparent.
  1. Business Model. Competitive business model emerged from innovative initiatives and forwarding participation in the global arena, it’s not sufficiently recognized. On the contrary, many major companies have come and work with a model of proximity to political power, either because their origin is from public monopolies, or by an intrinsic model based on concessions and agreements with administrations.
Change the business model requires time and leadership. It is based on education and example of socially valued companies.The use of proximity to political power, centralization of it, and lack of transparency are very negative factors. The agreements and concessions between administration and business must be totally transparent and subject to appeal with tangible and quick results.At the same time there should be enhanced control mechanisms of competition.
  1. Educational system. Education is a strong barrier that places human resources below the countries of the European environment. It is not results nor innovation oriented. There is a very low rate of population in last grade of secondary education (20-24 a.) And also in the number of doctorates. University shows an increase in the number of publications and submissions, but is not reflected in patents.
Change in the educational system is essential to an economic model based on innovation and internationalization.The model should be stable and agreed by consensus with shared objectives for medium and long term.Need to have encouraged secondary education and collaborations in industrial practices.University more in line with international standards of evaluation.
  1. Economic Model. Still no change in the actual economic model that may sometimes grow, but do not grow well; it’s based on non-productive assets or resources, land, buildings etc. or strategies with no value creation. Competing only on price, lower personnel costs, extensive use of resources, environmental damage, production in stages of maturity or declining, speculation etc. it is not possible to be productive mid-term.
It’s needed an economic model based on knowledge and value creation. Innovation and internationalization of enterprises including SME’s. Companies with adequate size and able to compete in the international arena, promoting international agreements and alliances.[4]The economic and social development are two sides of the same coin. Address social issues, equal opportunities and appropriate local and regional services, are a key part of economic development.Social advance together with education will improve the true entrepreneurship, and not mere forms of self-employment.
  1. Financial structures. During last years resulted evident that there is not a desire to modernize financial structures to put them as support of the productive economy. Therefore financing system is not facilitating access to credit to companies. Financing is regarded as the most problematic factor for doing business. Venture capital for start-up’s and entrepreneurial support systems are very poor and lacking in many cases.
To solve the access to financing is considered the first measure and the most important factor in promoting the productive economy. Reforming the credit system and make it available to business initiatives.Create an effective alternative system for start-ups and innovative initiatives, either through equity markets and venture capital, micro-credit and mezzanine financing.
  1. Medium and small companies, are not linked sufficiently and do not invest in innovation, neither separately nor in the form of partnerships, alliances or collaborations. In many cases, the culture is competing on price and locally. Total % of innovative SME’s cooperating or alliances with other is very low and SME’s are in delayed position introducing product innovations, process technologies, and innovations in marketing or organization. Nor are there for the necessary funding.
SMEs should connect more with each other, creating more partnerships and alliances to compete in international markets.[5]Promoting SME investment in research and participation in support programs for R & D, transnational research, clustering and active management of intellectual property. Forming sectorial or territorial groups.Reforming their processes with new technologies and continually review their customer value propositions, forms of production and marketing.Facilitate SME’s access to finance, in particular risk capital, micro-credit and mezzanine finance and develop a legal and business environment supportive to timely payments in commercial transactions.
  1. Intangibles are not valued. The valuation of intangible assets and resources is key and in general not practiced, especially and more seriously by managers. Lack, probably due to short-term oriented businessmodel or low price competition. This results in difficulty in attracting and retaining talent. Not only are there a number of patents significantly below European environment, but also, neither is there a valuation of brands and designs in general. Poor valuation of intellectual capital, management systems, organizational and relational assets.
Strengthening the company adequate knowledge management and valuation of intangible resources with integration into its financial statements.Promote the creation and application of knowledge and talent.Policy to manage and promote all intangible assets:

  • Human capital. People and teams. Competences, education, training and motivation
  • Structural Capital. Systems, processes, patents, know-how, strategic intelligence, brands etc.
  • Relational Capital. Customers, suppliers, external relations, stakeholders relations management, alliances, partnerships.
  1. Opening to the outside. In many companies, a culture of openness does not exist. Not even collaborations or partnerships, or just customer orientation. The rates of customer participation in new projects is significantly lower than in Europe and internationally.
To open the company to the outside, if possible right from the beginning, it is necessary to act in several levels:

  • Customer Orientation
  • Stakeholders management and following up
  • With cooperative projects, technological or sectorial alliances
  • Openness to knowledge and technologies
  • Openness to the international markets and different possible segmentations and interrelationships
  1. Lack or poor connection science/technology and companies. There are few public, private or mixed institutions, associations, groups (clusters) that act as promoters of innovation being bridges between basic research and technology and business. In addition there are weak university-industry collaborations.
It’s necessary to consider and act on the “extended innovation chain.”[6]There should bestructured public, private or mixed entities acting as bridges, promoters of innovation, between universities and research centres, technology and business.Working primarily between technological levels 4 to 6. (TR4 to TR6)[7]

 

Meanwhile: How to prepare an innovative companycreatividad1

In any case, while trying to reach the “desired state” of innovative company, each individual company would require:

  • Create a microclimate of differentiation with the environment, from the beginning and somehow create mentality of being an exception.
  • Create an ‘innovation culture’ that can only be achieved by accumulating experiences and successes / failures. Is based on responsibility, cooperation, skills, motivation and inspiration to generate many ideas about different areas and in the entire enterprise.
  • Visibility: Create visibility for each idea across the enterprise and quickly confront a variety of views. Establish agreed ‘filters’ to use for selection.
  • Structured way to evaluate the ideas: first a very rapid appraisal to all ideas, and visible to all company. The following analysis of selection and projects design and implementation are carried out in stage and gate process.
  • Agile Implementation: The agile enterprise is able to formulate projects with the chosen ideas and implement them quickly (ie, about six months with current resources). It is also able to nimbly review all projects and programs and eliminate or reformulate those who have strayed or will not fulfill the objectives or expectations.
  • Aligning to the strategy. The strategy sets the direction of any project. There should be a clear value proposition and the expected return of projects with respect to the resources invested. Any deviation may result in making key decisions at various stages of review (Stage and Gate). There is a clear and common line tracking vision on innovation, derived from the organizational culture and transparency.
  • Openness to the outside: In all stages of creation, selection of ideas and development of projects, both from the point of view of possible partnerships and collaborations, as well as knowledge sharing and training. It is very important having a global vision, and intelligence, i.e., markets and segments worldwide.

 

Francesc Güell

December 2014

 

[1]   The Global Competitiveness Index 2014–2015: Country Profile Highlights.

[2]   Enterprise and productive economy vs. instability and financial crisis. Antoni Soy. Professor d’Economia Aplicada UB. Barcelona

[3]   Barriers to Innovation. https://www.fguell.com/?p=2917&lang=en

[4] AGHION (et al.), «Rethinking Industrial Policy».

[5] Commission of the European Communities. «Think Small First». A «Small Business Act»

[6] The Innovation Process. CPI (UK) May 2013. http://www.uk-cpi.com/news/the-innovation-process.

[7] TRL. (Technology Readiness Levels. Used TSB (Technology Strategy Board, UK) y ESA (European Space Agency).

Author

Francesc Guell is the owner of this site. He was CEO and director of international companies in specialty chemicals and pharmaceuticals. The last 12 years was associated with international consulting groups, providing advice and support to businesses on topics such as innovation and agile innovation processes, operational excellence, knowledge management, change management, strategy and integrated business management. Currently creates and presents courses and workshops on these topics. He graduated as a chemical engineer, postgraduate from ESADE Business School in Business Administration and Master in Knowledge Management. He participated in numerous programs, seminars and ESADE, IESE, EADA, APD and MCE (Management Centre Europe). He is author of articles, presentations and courses on innovation in strategic management, integrated business models, knowledge management, performance measurement, change management and excellence in business processes. See more in: Professional Profile