Economic Outlook - Changing 'old knowledge' into innovation
The combined deceleration of global growth and the fallout from intense financial market turbulences are leading to a relatively high level of uncertainty and stress on the global financial and economic systems. One of the main negative spillovers of...
The combined deceleration of global growth and the fallout from intense financial market turbulences are leading to a relatively high level of uncertainty and stress on the global financial and economic systems. One of the main negative spillovers of the credit turmoil is the lowering of both public and private investment in Research and Development (R&D) in Europe.
As companies and governments are re-assessing their priorities, R&D is starting to be sidelined in order for more resources to be allocated into more immediate concerns. This has led to a number of experts arguing that, in hard times, innovation and the constant need to better oneself can be sparked not necessarily by allocating huge amounts of hard cash in R&D, but also by coming up with novel combinations of "old" and "past" knowledge and turning them into a cutting-edge development.
While clearly such policy cannot be articulated by all companies since technology-intensive companies and certain specific sectors need a constant flow of R&D in order to remain competitive, this can be carried out for instance in a big majority of SMEs.
This observation is backed by the OECD's 2008 outlook, which reviews trends and developments in science, technology and innovation. The report, published in October, states that, while most innovative practices remain focused on science and technological innovation, innovation in firms can also go beyond technological innovation. This includes for example processes, organisational and marketing innovation.
Consequently a key challenge for most countries and companies is requirement to develop and implement policies that support innovation in a broader sense including for example in the organisational and non-technological sectors. This will enable Europe counter competition from emerging countries. Already the global distribution of R&D is changing. In 2005 non-OECD economics accounted for approximately 18.4 per cent of R&D, up from 11.7 per cent in 1996. The growing weight of these countries in the global economy accounts for part of this shift, but so does the increase in investment in R&D, especially by China.
On the other hand, in the EU 27, the rate of business investment in R&D increased only marginally between 1996 and 2006, to 1.11 per cent of GDP (compared to 1.84 per cent in the US, 2.62 per cent in Japan and 1.02 per cent in China). The EU will now most probably not reach the target of business investment in R&D of two of GDP by 2010.
This state of affairs in Europe, coupled with the current financial crisis, creates the need of countries and companies to reassess and build on their existing "old knowledge" in order to try to come up with innovative practices at a lower cost. This would counter the overall lack of R&D investment in Europe. Such policy cannot however be implemented in an exclusive manner.
Better policy co-ordination, through for instance the EU's European Research Area (ERA), and changes in governance structures, such as the creation of a consolidated body for research and innovation, is a way to improve co-ordination, networking, reduction of replication efforts, and better allocation of resources.
Tied together with all this is the need to encourage demand-side policies such as the development of lead markets, better procurement procedures and standards, and better market analysis in order to reduce the event of newly innovative products performing poorly in certain markets.
It is a matter of fact that R&D is an area in which cost savings can easily be made in terms of financial turmoil. However, in order not to risk and undermine the overall competitiveness of a company, reassessing already acquired knowledge and coming up with better and efficient use, can help keep companies remain overall competitive throughout the current credit crisis.
For more information one may visit www.impetuseurope.com or contact marvin.cuschieri@impetuseurope.com.
Mr Cuschieri is an executive at Impetus Europe Consulting Group Ltd.
As companies and governments are re-assessing their priorities, R&D is starting to be sidelined in order for more resources to be allocated into more immediate concerns. This has led to a number of experts arguing that, in hard times, innovation and the constant need to better oneself can be sparked not necessarily by allocating huge amounts of hard cash in R&D, but also by coming up with novel combinations of "old" and "past" knowledge and turning them into a cutting-edge development.
While clearly such policy cannot be articulated by all companies since technology-intensive companies and certain specific sectors need a constant flow of R&D in order to remain competitive, this can be carried out for instance in a big majority of SMEs.
This observation is backed by the OECD's 2008 outlook, which reviews trends and developments in science, technology and innovation. The report, published in October, states that, while most innovative practices remain focused on science and technological innovation, innovation in firms can also go beyond technological innovation. This includes for example processes, organisational and marketing innovation.
Consequently a key challenge for most countries and companies is requirement to develop and implement policies that support innovation in a broader sense including for example in the organisational and non-technological sectors. This will enable Europe counter competition from emerging countries. Already the global distribution of R&D is changing. In 2005 non-OECD economics accounted for approximately 18.4 per cent of R&D, up from 11.7 per cent in 1996. The growing weight of these countries in the global economy accounts for part of this shift, but so does the increase in investment in R&D, especially by China.
On the other hand, in the EU 27, the rate of business investment in R&D increased only marginally between 1996 and 2006, to 1.11 per cent of GDP (compared to 1.84 per cent in the US, 2.62 per cent in Japan and 1.02 per cent in China). The EU will now most probably not reach the target of business investment in R&D of two of GDP by 2010.
This state of affairs in Europe, coupled with the current financial crisis, creates the need of countries and companies to reassess and build on their existing "old knowledge" in order to try to come up with innovative practices at a lower cost. This would counter the overall lack of R&D investment in Europe. Such policy cannot however be implemented in an exclusive manner.
Better policy co-ordination, through for instance the EU's European Research Area (ERA), and changes in governance structures, such as the creation of a consolidated body for research and innovation, is a way to improve co-ordination, networking, reduction of replication efforts, and better allocation of resources.
Tied together with all this is the need to encourage demand-side policies such as the development of lead markets, better procurement procedures and standards, and better market analysis in order to reduce the event of newly innovative products performing poorly in certain markets.
It is a matter of fact that R&D is an area in which cost savings can easily be made in terms of financial turmoil. However, in order not to risk and undermine the overall competitiveness of a company, reassessing already acquired knowledge and coming up with better and efficient use, can help keep companies remain overall competitive throughout the current credit crisis.
For more information one may visit www.impetuseurope.com or contact marvin.cuschieri@impetuseurope.com.
Mr Cuschieri is an executive at Impetus Europe Consulting Group Ltd.