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Creativity to stimulate innovation in traditional industries


The growing complexity of competitiveness is obliging European companies, especially industrial ones, to boost their elements of differentiation. Creativity and innovation, key elements to competitiveness are only found in the very people in the organisation and in their ability to create communities of people focused on the company as an element of sustainable human development. Therefore to attain the necessary level of creativity and innovation, we must envisage a new paradigm which integrates people into organisations which will not only strengthens the organization’s overall identity, but ultimately stimulates innovation.

Written by Sabin Azua

Reviewed by David Walburn

 

The concept

How to implement it?

The Basque experience

Step in the RIS process

What can be expected?

A quote

References

Expert's comments

 

The concept


The growing complexity of competitiveness in more traditional or mature industries, coupled with the appearance and consolidation of emerging economies around the world, is obliging European companies, principally SMEs, to boost their elements of differentiation vis-à-vis their competitors; however, the capacity for technological and economic development of these new competitors is also mounting.

Some key elements which may allow European companies to strengthen their capacity for international competitiveness are: creativity; innovation; exploring new business models; incorporating key enabling technologies, and experimentation. Furthermore, companies can bolster their position with detailed knowledge of the behaviours of target client segments; increased incorporation of design; agility in accessing the market; servitization; as well as organisational models and models of managing people.

In essence, it all is about applying the business logic expressed by Prahalad and Hamel in their article ‘The Core Competence of the Corporation’ (Harvard Business Review): “The competitive advantage derives from the ability to generate capacities and competencies in the heart of the organisation which allows us to deal with new clients, new markets, new products and new business models.”

The recent unveiling of the European Union’s Horizon 2020 programme acknowledges the need for public policies which foster specific capacities in Europe’s regions, so that they, in turn, are able to drive the development of their local business networks. This programme was a response to voices who have long clamoured for the widespread diversification of strategic sectorial commitments, the design of Smart Specialisation Strategies to reinforce local industrial networks, and the alignment of scientific, technological and entrepreneurial capacities in the same direction. 

This commitment takes into consideration Michael Porter’s words in ‘The Competitive Advantage of Nations’: “There are no profitable and unprofitable sectors, rather competitive and non-competitive companies”. It is undeniable that some companies are hugely successful, whereas others realise only meagre profit margins given the same socio-economic conditions, and with the same level of international competition. This is the reason why traditional industrial firms must be able to find their differentiation framework in order to promote international competitiveness.

Creativity in formulating business strategies in these traditional businesses is fundamental, even more in SMEs. The first factor to take into consideration is a 180° turn away from the concept of benchmarking (which does not necessarily mean that we not pay attention to what our competitors are doing) to instead move in the direction of nextmarking, that is to say, exploring the future. Underpinning the development of our business strategies is the urgent need for systematically exploring the future: changes in clients’ conditions, social megatrends, the behaviour of technology, and new mechanisms of relating to people, all play a critical role in assuring future competitive advantage.

 

How to implement it?


There are a number of prerequisites in order to promote creativity and the search for sources of that differentiation: establishing an ongoing dialogue between strategy and technology, which contributes to obtaining competitive advantages; capitalising on the potential of converging technologies and other sectors to enhance competitiveness; and structuring the company as an integral part of a region’s system of innovation and development. Other, equally important, requirements for stimulating creativity are: supporting strategies of personalising the company offer to specific needs of identifiable client groups, incorporating design into all areas of the company, evolving towards servitization, and offering clients comprehensive solutions, etc.

The essence of future competitiveness lies in structuring innovative and coherent business models, and as such, companies will have to devise a differentiated value proposition which is based on clearly distinguished and selected client segments. That value proposition necessitates a coherent plan which includes the acquisition of vital competencies to allow the plan to be developed. Moreover, continued differentiation will stem from: establishing the necessary partnerships, or co-operation agreements, to see the plan through; incorporating elements of communication and reaching clients; structuring the company income generation model and cost structure to a framework for action. These ideas are endorsed by numerous senior executives and academics who consider that the sole source of future competitive advantage goes hand in hand with the capacity to develop competitive business models.

In conclusion, it has to be stresses that the true source of creativity and innovation in industrial companies in traditional sectors is found in the very people in the organisation, and in the ability to create communities of people focused on the company as an element of sustainable human development.

To attain the necessary level of creativity and innovation, we must envisage a new paradigm which integrates people into organisations searching for sustainability of the business plan. Modern industrial firms must give new meaning to the participation of people in the business plan (ie. in worker participation; in management and/or in profits); as well as be able to attract and retain talent ─ albeit a diminishing factor. Finally, designing mechanisms of involving and promoting the development of the people in the company, whilst successfully integrating intrinsic diversity resulting from the internationalisation process (directly enriching the business plan), not only strengthens the organisation’s overall identity, but ultimately stimulates innovation.

 

The Basque experience


The Basque Government recently passed a smart specialisation strategy for the Basque Region (of Spain) which pinpoints three essential priorities: Advanced Manufacturing, Energy, and Bio-sciences. With this new commitment to generating technological knowledge, we can discover sources of inspiration to promote the international competitiveness of our traditional industrial sectors, while searching for business clusters able to develop those priorities, along with recruiting and promoting competitive talent, and using market intelligence tools.

Being committed to Advanced Manufacturing requires transforming traditional Basque industries: Machine-tool, Automotive, Metal Transformation, etc., so as to be internationally competitive. Although they are not intended for the end-client, up to now Basque industry has shown excellence in productive processes, which prompted an intermediate level of innovation. Nonetheless, the challenge today consists in identifying new client needs, and groups of clients, and creating an innovative business model which boosts value added in operations.

 

Step in the RIS process


Employee participation as a key driver to boost innovation is required for the following RIS3 steps:

  • Step 1: Analysis of the regional context and potential for innovation (Competitive advantages and support environment
  • Step 2: Set up of sound and inclusive governance structure with regards to the policy development process (towards Collaborative leadership)

 

What can be expected?


Employee participation presents some positive inputs to both company and territory:

  • It reduces the probability of the company to be moved to another country, strengthening the relationship between its Board and the rest of the stakeholders.
  • It allows better and easier handover processes as it gives the opportunity to workers to risk their capital in a project they know from the inside.
  • It enhances competitiveness generating better employment, a more participative culture and a bigger impact in the territory.
  • It is a powerful tool to obtain new funds to finance company investments and a valuable instrument to retain talent.

 

A quote


“Employee ownership is a great idea. It means a significant and meaningful stake in a business for all employees. It creates successful businesses in which employees enjoy working and which deliver wider benefits. The longevity of companies with employee ownership is impressive. Employee ownership is an adaptable concept and whatever the business or the stage a business has reached employee ownership can work well”. from Graeme Nuttall

 

References


  • EUROPEAN COMMISSION (2010). Comunicación de la Comisión. EUROPA 2020, una estrategia para un crecimiento inteligente, sostenible e integrador. Bruselas, 3.3.2010. COM(2010) 2020 final.
  • EUROPEAN COMMISSION (2012). Comunicación de la Comisión al Parlamento Europeo, al Consejo, al Comité Económico y Social Europeo y al Comité de las Regiones. Estrategia europea para las tecnologías facilitadoras esenciales: un puente al crecimiento y el empleo. Bruselas, 26.6.2012. COM(2012) 341 final.
  • EUROPEAN COMMISSION (2011). Regional Policy for Smart Growth in Europe 2020. Accesible en: http://ec.europa.eu/regional_policy/information/pdf/brochures/rfec/2011_smart_growth_en.pdf
  • FORAY, D., GODDARD, J., GOENAGA BELDARRAIN, X., LANDABASO, M., McCANN, P., MORGAN, K., NAUWELAERS, C. and ORTEGA-ARGILÉS, R. (2012): Guide to Research and Innovation Strategies for Smart Specialisations, Brussels: European Commission.
  • NUTALL, G. The Nuttall Review of Employee Ownership (2012).
  • RODGERS, L, BUCHELE, R, KRUSE, D AND SCHARF, A. (2009): Show Me the Money: Does Shared Capitalism Share the Wealth?

 

Expert's comments


This paper is particularly valuable for reminding us that when it comes the growth potential of firms in terms of innovation, and research and development, it is not just high tech start-ups – the so-called “gazelles” -  which are worthy of the attention of policy-makers.  Existing firms, already established in their respective markets have an important part to play, as this paper points out in respect to companies in the Basque region of Spain.

A very important piece of research was carried out by the Small Business Administration in the United States in 2008 [1] to try to find out what the firms which had contributed most to job creation and growth were like, styled in the research as high-impact firms. Were they the high tech start-ups characterised by the gazelle caricature? The research found that high-impact firms were, on average, 25 years old. They accounted for between 2% and 3% of all firms, and they accounted for almost all private sector employment and revenue growth in the US economy. High impact firms were found to come from a broad range of sectors, and were not limited to high technology industries. In the research period, firms with fewer than 20 employees represented 93.8% of the high-impact firms.

This research has not been replicated in Europe, but one might expect a similar pattern to have developed on this side of the Atlantic. The conclusion suggests that growth chiefly results from what the second generation of managers in a firm do. Something happens – new market challenges, an enthusiasm for new technology – which triggers an already established business to develop on a high growth trajectory. This is exactly the process being described in the main paper.

A conclusion from the researchers is worth quoting here in full: “The data suggest that local economic development officials would benefit from recognising the value of cultivating high-growth firms versus trying to increase entrepreneurship or trying to attract relocating companies when utilizing their resources.”

The suggestion is that as part of a strategy to boost innovation, employment and growth development agencies should be seeking to develop tools to identify established firms with characteristics which suggest an imminent change to trigger growth – then doing all they can to support that growth – much as the present paper describes. 

 

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



[1] Acs, Parsons and Tracey. High-Impact Firms : Gazelles Revisited Small Business Administration 2008

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