Open Innovation & Local Development

In a previous post we analyzed the adaption of local development to new paradigms. We start our 2018 first post with a literal quota from a guide about promoting local innovation published in 2008:

From the municipal and regional level, local economic promotion has also been supported through the hiring of technicians and, in some larger cities, with the creation of economic promotion institutes. The focus of these activities originated when unemployment was the main social problem of the municipalities. Consequently, the service is still related to information and general advice to citizens, during the process of job searching. Business incubators and incubation services (advice on business plans, grants and subsidies, …) are new activities to encourage self-employment. The promotion of traditional commerce and the dissemination of tourist assets are also the object of attention.

These are services designed for citizens, defined in terms of “social welfare”, “social cohesion” …, which generate thousands of consultations, high levels of assistance to training courses, specialized seminars and the various activities of awareness raising: awards ceremony, entrepreneur’s day, gastronomic events … However, it is precisely the success of these activities that makes it difficult to move towards an innovation policy aimed at a very different public: entrepreneurs with a greater potential for innovation. It is about helping the good ones to be even better, because in this way the community benefits.

 ACCIÓ. Guia per elaborar plans d’innovació en l’àmbit local, 2008

Despite this guide was written before the 2008 2013 crisis, at U·TRANS we can certify that these words are still a milestone. Nowadays, the vast majority of local economic promotion systems are still too anchored in the employment paradigm, instead of being focused on the innovation paradigm.

Briefly, the employment paradigm implies institutions focusing on unemployed people to improve their degree of employability: training, access to information on subsidies, support for micro-entrepreneurship, promotion of self-employment, among others. Conversely, innovation paradigm focuses on coordinating social, economic and institutional actors to increase local value through the execution of common projects based on the key local values. Therefore, first wealth is created and later can be distributed.

Today, we all agree about the radical importance of local economic development; serious social problems justify it. So, can we tune it up a bit?

The Open Innovation paradigm

Postulated by Professor Henry Chesbrough more than a decade ago, the Open Innovation concept was conceived as an alternative to wealth creation for large industrial corporations, opposing the closed innovation system. Briefly, the difference between the two innovation systems consisted of:

Principles of Closed & Open Innovation

Until recently, internal R&D was conceived as an strategic asset, and only large companies with significant resources and long-term research programs were able to compete. These companies carried out most of their research and innovation internally, but now new companies have emerged doing very little research by their own, while its main source of  innovation is research done by others. Some of the big companies that invest a lot in R&D have realized that some of their results, despite being very bright, would have no use for them. Other research projects have been abandoned but the results of these projects have been profitable for new companies. Professor Chesbrough argues that a paradigm shift is taking place in the way in which companies innovate, in the way in which the new ideas are transferred to the market, in the way by which companies sell their knowledge.

Open innovation combines external and external ideas to create structures and new operating systems to define new business models. This business model uses both ideas and innovations from within and outside the company to generate value, while defining internal mechanisms to claim some portion of this value. Open innovation presupposes that internal ideas can also be conducted in the market through external channels, outside the current business of the company, in order to create additional value.

Open Innovation & Local Development. Why not?

The first economist who theorized innovation, Schumpeter, linked this concept to the production of new goods, the introduction of new production methods, the creation of new forms of organization or the opening of new product markets or factors.

At the local level, we are becoming more conscious on the need to define business models, which allow us to connect technical activities (R&D or production) with commercial activities throughout the innovation process, and retain a portion of the generated value at the local level. Sure, we should insist on the key idea underlying the whole open innovation paradigm: every innovation must find the best business model, whether it is internal or external to our company or local development project or initiative. And, if it does not exist, it will be necessary to allow a new project in a new local area to assume the challenge of finding a viable business model.

Can territories learn something and act inspired by the paradigm of open innovation? Yes, and in fact the path to innovation applied to local economic development has been recently explored. Maybe, suggesting that “company = territory” and “business R&D = local wealth” may seem like a somersault, but it is clear that some territories, their local administrations, their business network and civil society have already begun this path.

Some actions make evident how the local level is already working on the basis of open innovation:

• Some act on a Quadruple Helix basis, when local administrations, companies and their associations (associations, clusters, employers, chambers of commerce), citizen organizations, professionals and the knowledge sector (training centers, research centers) collaborate to set strategies for creating value and international projection. HibriturSelva is a good example.
• Adopting intelligence models in the management of data generated by economic activity is a key element for innovation. This is valid for a tourist municipality, a local association of shopkeepers or for local mobility management. ICTs allows to take an advantage on data generated by economic activity. This is the case for the Smart Tourism Destination (Calella, Barcelona)
• Some territories activate and take care of their local talent. Following the postulates of Richard Florida and the creative class, it is a must to take an advantage of local talent. Although it is easy, some methods are already being implemented to activate and articulate local talent, such as the Xarxa d’Innovació Social de la Comarca or the same FabCafè network, spreading through the metropolitan area of ​​Barcelona
• The search for sources of alternative funding to traditional bank loans and public subsidies is a need within an open innovation environment. More agile financing formulas are required, seeking the involvement of the financer in the project, with a clear focus on the social, collaborative economy and collective funding. Some cases such as Verkami, Ship2b or Gicoop are already very popular, but what is their potential in the field of local economic development?
• Some knowledge institutions begin to care about the real impact of their research activity, in order to avoid the Death Valley between the academic world and the market. The cases for Open University of Catalonia (UOC) and University of the Balearic Islands (UIB) are evidences of the famous bridge to market and the need to find strategies to accelerate research social impact.

The citizens’ initiative is being able to respond to the negative effects of the economic crisis and society structural deficiencies. Therefore, the most successful local economic development policies are those able to channel and facilitate these citizen initiatives by welcoming, funding and disseminating them.