Innovation and salaries

Low salaries and innovation are incompatible in both companies and regional and country economic models. A reconsideration of the models and strategy would be necessary.

I was struck by a comment by Ricard Santomà [1], a few weeks ago, in a media:

“If you want to be a mediocre tourist destination, keep mediocre salaries”

He talked about tourism, but I thought that if we made the same reasoning about innovation, the statement was still valid.

We could say: “If we want a weak innovation and a mediocre innovative business model, let’s keep mediocre salaries.” Or better, “an innovative company or economy is incompatible with low salaries and job insecurity”

Innovating is the heritage of people, teams of people and their organization. Of their vision and strategy, their ideas and methodology of application. Machines, information systems and robots can’t do.

And in addition, to differentiate ourselves and innovate, we need trained people, continuously trained, who apply their knowledge with motivation and effort. Consolidating teams, enhancing talent and consistently maintaining an innovative business model is incompatible with low salaries.

There is an old culture that considers compensation only as “personnel costs”, rather than an investment that generates business and social benefits. It belongs to a model that acts as a strong barrier to innovation.

I believe that the above is valid both applied to companies and geographical areas or countries. Companies or countries that continuously innovate create more quality jobs that can be adequately paid.

The EIS, (European Innovation Scoreboard), is an annual index published by the EC and assesses European countries and regions for their capacity for innovation. [2]  and  [3] . We reproduce the general index by countries corresponding to 2018:

If we compare it with the graph of European average monthly salaries [4], we see that they coincide almost completely in the opposite way, especially at the extremes.

The most innovative, Sweden, Denmark, Finland, Holland, United Kingdom and Germany coincide with those of higher average salaries with small differences in order. The same happens below Romania, Bulgaria, Poland, etc.

Comparing the EU member states with other European countries and neighbors, Switzerland remains the most innovative European country. Iceland, Israel and Norway are strong innovators with indexes above the EU average; In all cases the comparison with average salaries follows the same pattern.

Globally, the EU is less innovative than Australia, Canada, Japan, South Korea and the United States.

Certainly there are countries with low wages that grow strongly in innovation, such as China, Korea and others, but at the same time they strongly increase their average salaries.

EIS innovation index

The EIS index (European Innovation Scoreboard) is based on 27 indicators that consider ten dimensions that contribute to innovation:

  • Human resources
  • R&D systems
  • Environment favorable to innovation
  • Financial and venture capital support especially for SMEs
  • Business investments in innovation
  • Innovators. Innovative spirit in the company, culture and society
  • Links, alliances and collaborations between science, technology, business and entrepreneurs.
  • Intellectual capital or intangible resources, such as patents, knowledge systems, collaboration networks etc.
  • Impact of innovation on employment
  • Impact of innovation on foreign sales

The last two are rather positive consequences of innovation that, in turn, feed it. And of these dimensions, the five that make a major difference between innovation and leading countries are:

  • Finance and financial support. This dimension includes investments in venture capital and support for investments in public sector R&D.
  • Alliances. It includes alliances and collaboration between SMEs for innovation, public-private collaboration and private co-financing of public investments in R&D
  • Innovators. It includes SMEs with innovative products or processes, SMEs with innovations in marketing and organization and SMEs with their own innovations. That is, a solid base of small and medium-sized innovative and growing companies.
  • Attractive research systems. It includes, among others, international scientific publications, 10% of the most cited publications and number of foreign doctoral students. And its concretion in patents, licenses and royalties is measured.
  • Human resources with a high level of education, training systems, practical possibilities and continuing education.

The last of these factors, in human resources, also shows a movement of people who achieve a high level of training in less innovative countries and find work in leading countries in innovation. That is, a ‘brain drain and / or equipment’.

Economic models

The models that contribute most to the low salary level are speculative businesses and the lack of vision and strategic model that leads to competition only in prices.

Competing in prices is not necessarily a value proposition or negative strategy, as long as it is based on greater efficiency, productivity or certain control of the ‘inputs’, definition of services, technological or organizational innovations that differentiate us from the competition.

But pure price competition based solely on people and low wages is bound to fail.

Therefore, does this mean that to improve innovation, it is enough to increase wages?

Things, as always, are not so simple.

There is a diversity and complexity of factors that we have already indicated and that the same analysis of the EIS shows when preparing its indexes.

The dimensions of innovation that we have highlighted are best developed, on the one hand with its own business model, and on the other hand in countries or regions with an economic model that has defined innovative strategies and international productivity and competitiveness.

Virtuous circles

Things are not linear either, so we should consider the potentiating effects between these factors and variables, what we call “virtuous circles.” Or try to undo what we also call “vicious circles.”

Karl E. Sveiby already showed, in the 80’s, one of these circles, in this case concerning the publishing sector.

He was one of the pioneers in starting to talk about the concepts of knowledge management, intellectual capital and intangible measurement. ‘Try to respond to issues that have not yet been raised,’ was the comment of the critic of the ‘Financial Times’ to one of the first titles published.

Virtuous circle

Sveiby began in 1983, from Sweden, to write articles and books on the subject and interest rose continuously, and more at the beginning of the 21st century. Admittedly, companies should take more into account the importance of sharing and managing knowledge as a strategy to create value.

Innovation is precisely based on the growth of intangible assets, the so-called “intellectual capital” and its proper use.

Also Sveiby, formulated the so-called theory of the company based on knowledge. Take this theory as the basis for formulating a strategy that maximizes the value creation capacity of the entire system based on the three indicated areas: individual competences and external and internal structures. It also establishes a certain logic of the company based on knowledge that would be based on three points:

• Attract staff,

• attract the customer

• and fit the capacities and the “chemistry” between them.

It is also worth remembering here the differential elements indicated by Peter F. Drucker in the knowledge enterprise:

• Autonomy of workers,

• Continuous innovation,

• Training and learning also continued,

• Quality instead of quantity as a measure of productivity

• People and their knowledge as “assets” instead of costs.

Open innovation

The limits of the organization become somewhat irrelevant if we consider relationships with customers, suppliers, etc. as part of it. The importance thus deviates from knowing how effective this relationship is in the creation of value. What we call “open innovation” takes into account mainly these external relationships.

We are used to talk about the supply chain in the flow of physical products from suppliers of origin to the final consumer, these supply chains are formed in the different production and distribution steps to the consumption of a certain product and in these successive phases Value can be added, which resulted in the concept of the value chain.

If we consider the organization, as creating value for the transfer of knowledge together with customers, in a two-way interaction, the concept of value chain is not useful and we should talk, according to Allee (2000), of “value networks “; as an interaction between people in different positions and with different relationships that are creating value by knowledge transfer, value that remains as an intangible asset or as an economically measurable tangible. In contrast to the value chain, the intangible value of a value network grows each time a transfer originates.

With regard to human resources, innovation requires:

  • Develop skills
  • Use capabilities
  • Fit capabilities and needs
  • Forecast the demand
  • Create virtuous circle

The fit between the capacity and chemistry of the company’s staff with clients and ‘stakeholeders’ is usually a strategic dilemma that must be managed to optimize the innovation process, value creation and results.

There are clearly two strategic options in which the company can develop, the organizational growth option and the professional knowledge growth option. Actually what has been called “virtuous circle” is a form of balance between the two tendencies, appropriate to each moment of the organization and environment.

Vicious Circles

The potentiating effects between the dimensions and factors that contribute to innovation and value creation and innovation can also be negatively linked, what we call “vicious circles. Trying to undo these “vicious circles” breaking their dynamics is an equally key task, both in companies and in economic regions or countries.

The following is an example developed by CEFIC and updated in 2012 [5].

[1] Ricard Santomà. Dean of the Faculty of Tourism and Hotel Management Sant Ignasi. Ramón Llull University.




[5] Claude Culem. CEFIC. Chemical Industry Outlook. Actualizado 2012

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