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Conclusion
Conditions for innovation in biotechnology and telecommunications
Maureen McKelvey
School of Technology Management & Economics, Chalmers University of Technology, Gothenburg, Sweden
Erik Bohlin
Associate Professor, School of Technology Management & Economics, Chalmers University of Technology, Gothenburg, Sweden
Article Text
Modern biotechnology and telecommunication have captured the attention of many observers, from government policy-makers to venture capitalists to managers of small and large firms. They have been identified as having - or having had - good growth potential and effects on the supply of many other, desirable public and private goods and services. At the same time, such technologies raise a number of challenges for the decision-makers, including whether and how intervention may be made for each specific case under consideration. Decision-makers will always want to know, under what circumstances and using what policy tools should we intervene - or not. Accordingly, the main message of this special issue may be summarized as follows. Deciding about the range of possible policy intervention requires a re-assessment of the extent to which emerging technologies are influenced by general principles, as opposed to the vagrancies of historical circumstances. The question is not answerable in the abstract, instead it must be posed in relation to specific aspects of innovation processes.
This concluding piece draws upon an interpretation of the articles, which differs from the specific research results found within each. The reason is that there are differences between research and practitioners. More specifically, academic research and practitioners' decision-making and actions differ, in a way that matters for drawing out the implications. Research is concerned with addressing particular puzzles, ones involving concepts, theoretical explanations and empirical data and indicators. Much of the effort is placed into solving the research question, which can be seen as an abstract puzzle, involving a variety of activities. Research requires, for example: attempting to determine whether the phenomena has been properly described; to find data to indicate whether one theory provides a more plausible and 'true' explanation of past events and predictions of future events; and to interpret results in the empirical material in such a way as to develop new concepts and theories. The introduction to this special issue claimed that modern biotechnology and telecommunication have given rise to much 'theory-driven empirical work', in the sense of many social science researchers expressing a particular interest in empirical material, leading to new concepts and theories.
However, few of the concerns of the researcher will necessarily directly capture the attention of the practitioner. Indeed, in contrast to the research activity, practitioners in private and public enterprise usually want to apply such more abstract knowledge to solve very specific, situation-bound puzzles. Practitioners want to find 'rules of thumb' to know how to act in a given situation as well as specific instruments to make the best decision. Such policy tools ought to be helpful in analyzing and assessing the outcomes of different possible decisions and policies. The decisions and actions of practitioners may draw directly upon an analysis based on research - but may also draw upon past experience and other forms of knowledge.
With such differences, one could simply conclude that researchers and policy-makers in various organizations can remain in separate domains and need not interact. Sometimes this happens, and government policy-makers even sometimes see this as a major virtue, by stressing they are 'doing' rather than wasting time 'analyzing'. Yet, an academic journal like Innovation: Management, Policy & Practice (ISSN 1447-9338) - as well as our special issue on 'Conditions for Innovation in Biotechnology and Telecommunication' (ISBN 0-9750436-7-6) are based on the premise that actors in both domains benefit from debate, interaction and communication.
Take the example of government policy for 'Clusters', as an area requiring debate and communication. This word was developed through academic research, and yet has been widely applied to consider the elements - and rationale - for stimulating growth and jobs through specific types of local interaction. Given this large amount of experimentation in government policy, the researchers could now re-focus and re-consider many of their initial concepts and theories, if they undertook systematic studies of how and why policy-makers have thought about - but especially implemented - this way of thinking about regional growth to many, many spots around the world. If such debate does not occur, then researchers and policy-makers likely head in different directions, and at some point, one concept useful for government policy goes out of fashion, to be followed by the next concept. One of the major difficulties facing practitioners is that too many people have put in too many different and incompatible explanations and instruments into one single word - and with no way of solving the debate. Practitioners also need abstract tools (and theories) in order to compare and contrast advantages and disadvantages of alternatives. Hence, the example of this well-known policy concept highlights the need for both researchers and practitioners to continue the debate as well as to develop systematic comparisons. Such interaction is necessary, in order to make progress in the overall state of abstract as well as situation-based knowledge.
Given the need for debate, this concluding piece will make a number of broader remarks as well as re-consider each article in turn, in order to discuss implications for decision-makers. The final section considers some future research areas, including the importance of additional research for addressing the problems of practitioners.
Lessons from the special issue and the papers
Modern biotechnology and IT have received much attention, due to their perceived importance in stimulating innovation-led growth. Indeed, many readers likely already have ideas about the lessons which 'everyone knows' should be drawn from biotechnology and telecommunication. To stimulate biotech, you need lots of basic science, small companies some venture capital, and outstanding science-based ideas that sell on the world market. To stimulate telecommunication systems, you need a big company which is leading in a range of technologies, competent bureaucrats and/or operators to define future directions for innovation, and users which come up with new, unexpected uses for the hardware. Many practitioners have set out to act upon such recommendations, leading to strategic moves by both government policy-makers and firm leaders. This 'accepted' interpretation may be largely correct. Yet we would argue that this special issue provides somewhat different lessons, which may challenge 'accepted truths'. This section will consider general remarks in terms of the three themes discussed in the introduction as well as specific implications from each article, in turn.
Theme 1: Evolutionary, long term processes
The first theme from the introduction is that innovation processes are largely characterized as an evolutionary, long term process. By definition, the practitioner is facing a situation of uncertainty during emerging technologies, and this uncertainty causes some problems in assessing the advantages and disadvantages of different courses of action. Biotech and telecom seem to be continually under development, where development implies that the opportunities to develop technologies and markets may be only vaguely perceived. Hence, decision-making has to be made under conditions of uncertainty about 'what will work' as well as about 'what will raise capital and what will sell'. This point may seem 'obvious', and yet as decision-makers, we generally want to assume that the best information leads to the best choice, and the best choice leads to the best outcome.
In contrast, the evolutionary, long-term perspective on innovation that was stated in the introduction implies that even the apparently best choice may lead to several different outcomes, only determined by the process unfolding after that decision/action. Hence, a major consideration for decision-makers for this type of innovation needs to be to determine how uncertainty impacts analysis and decision-making. They need to ask whether uncertainty is primarily in the technological, organizational or market domains as well as whether informed observers tend to have similar, or very different, assessments. If uncertainty seems wide-spread, then the best course of action may be to cover a set of diverse possible directions of technological development, in order to remain positioned to capture the one which turns out, ex post, to become widely used. Diversity can then become a unique asset (resource), if used to move forcefully into new areas. If uncertainty seems contained to only a few domains, then the best course of action may be to focus and prioritize on the major technological areas, with only a small amount of resources spent to stimulate a bit of diversity on the fringes. Both tactics require a continuing assessment of what informed observers feel is 'current accepted wisdom' about technologies and markets as well as what they feel is 'major areas of unknown outcomes'.
In terms of biotech and telecommunication, this evolutionary, long-term perspective on innovation processes implies that policy may require a more creative definition of opportunities. For example, one could reason that the USA is so far ahead in basic science related to biotech, that any laggard country would have to invest too much resources to catch up, and that instead, the government policy ought to concentrate on adaptation of existing knowledge to specific industries as well as stimulating some basic research. Highly trained individuals are required under all options, given the need to 'interpret' existing knowledge as well as occasionally the latest research results to solve the puzzles of a specific company. Certainly, biotechnology as an area of concern for basic science, small entrepreneurial firms and huge pharmaceutical companies has been one which holds out enormous promise - yet has also absorbed large amounts of resources with apparently few results in terms of direct industrial development. Similarly, telecommunication is an area where small suppliers, designers and programmers can compete in specialized niches - and so there are possibilities to encourage firm formation as well as very specialized IT applications, both for the equipment supplier segment and the service provider segment. For the equipment supplier segment, such small firms are only occasionally directly linked to consumers, and are instead (initially) heavily reliant upon the fortunes of the large companies. Thus, the perspective of evolutionary innovation process must stress that the ability for a firm or a nation (through government policy) to enter the innovation-led competition may require a break with the 'accepted wisdom' about that technology, in order to spot upcoming developments.
All of the articles included in the special issue address some aspects of evolutionary innovation processes, but three of them do so more explicitly. Peerbaye and Mangematin 'Sharing Research Facilities: Towards a new mode of technology transfer?' provide insight into different ways of solving the uncertainty issue, through coordination (sharing) of joint research facilities. In this case, sharing reduces the risks and assets required for being in the business of biotechnology, even if doing so may also dilute the specific competencies of the firm. McKelvey 'What drives innovation processes in modern biotechnology and open source software?' explicitly addresses the theme of uncertainty, in relation to different ways of organizing the societal search for economically useful knowledge. In doing so, the paper provides a framework as a useful analytical tool to identify how and why conditions and characteristics of innovation processes may differ. This highlights the variety of ways in which actors and societal institutions solve the problems of coordination and competition in exploring and exploiting knowledge. Finally, Palmberg and Martikainen 'The GSM standard and Nokia as an incubating entrant', provide an interesting case which should provoke the reader to consider whether firms really understand and can analyze uncertainty - or whether they tend to bumble through and are occasionally lucky in terms of having relevant technologies.
Theme 2: Role of infrastructure
The second theme from the introduction is that despite diversity and experimentation, both modern biotechnology and telecommunication can be characterized as dependent upon infrastructures. Despite the need for assessment of experimentation and new directions through innovation, this implies that practitioners must have a clear understanding of how and why their innovations add value, within a much larger system.
In terms of biotech and telecommunication, this implies that individual actors must be able to analyze their own actions relative to the overall infrastructure, or technological system. In doing so, they can identify their unique assets (resources), as compared to assets (resources) which are held or can be accessed by any competitor. A small biotechnology firm, for example, may make equipment which can run a test which is a hundred times faster than competitors. That is not the end of competition with existing tests or other less-efficient ones, however. If the company's product requires significant capital investment, significant re-training of staff and the overall cost of that test is very small compared to the total cost of doing business, then their chances of succeeding with the innovation are likely not too high. One can consider more generally that a shift in competencies requires a shift in organizational codes, in which we include both the specific management and strategy competencies of a particular company. Changes in organizational codes will be justified only with considerable differences in cost and benefits between an old and a new code, and the costs of change will be increasing with the complexity of the existing code. Put differently, the more interrelated an existing code is, the greater economic benefit must be shown, before it is adopted, all else equal.
This trade-off between unique and general assets has also created difficulties for even the largest telecommunication firms. Many of them long attempted to cover many avenues of technological development, from components to competing systems, but when many such became more 'standardized' development with little added value, many telecom firms have severely reduced R&D expenditures and also done away with development of specialized components. In other words, many firm managers have been highly aware of the systemic nature of their business, but in each specific case, one can identify difficulties in making choices about how much scientific and technological development must go on in-house and how much can be outsourced. Stranger yet, it sometimes appears that two firms can make similar choices yet anyway end up at different outcomes. Often, the dependency upon the large infrastructure (technological system) is ignored in debates, thereby obsuring an important rationale for analyzing the position of a particular actors in terms of component-system-dynamics.
Three of the articles in this special issue take up issues related to the infrastructure of biotech and telecom. The article by Magnusson and Mascia 'Network prominence and innovation: an empirical analysis of corporate-backed biotech spin-offs' shows that investments in academic spin-offs holding prominent positions in their R&D networks significantly contribute to the innovativeness of their investors, in terms of the number of patents resulting from these collaborations. The paper supports the importance of strong supporting infrastructures, where the proximity to university laboratories and other research centres provides spin-offs located in science parks with easier access to scientific expertise and research results, facilitating transfer of research into commercial applications.
According to the paper by Peerbaye and Mangemeatin, 'Sharing research facilities: towards a new mode of technology transfer?' the importance of strong infrastructures in biotechnology has increased in recent years, because of an increase in the number of instruments and equipments needed to explore living mechanisms at the gene, protein and even nanoscale levels. Thus, instrumentation is more and more resource-consuming (money and competencies), and sharing research facilities becomes a growing issue for an effective development of the biotech sector.
The article by Lindmark 'Coordinating the early commercialization of general purpose technologies: the case of mobile data communications' addresses the issue of coordination (ensuring that necessary complementary compatible components are in place, and that they arrive to the market in a timely fashion) during development in mobile data communications. As predicted by the literature, mobile data communications have (so far) fared better where a dominant player has internalized coordination. However, since applications are not known beforehand, market experimentation has proven an important ingredient for success. Thus, finding a balance between firm internal coordination and market mechanisms, possibly through standardization of platforms-i.e. building a common infrastructure-seems to be the way forward for the industry.
Theme 3: Industries, firms or products?
The third theme from the introduction is that analytical tensions exist between seeing modern biotechnology and telecommunication as industries - as opposed to technologies. Industries are composed of competing firms, selling similar competing products. Technologies are composed of a variety of knowledge, equipment, techniques, etc., which may be only applied within one industry but are generally used - and often developed - within very different industries. Sometimes the differences depend on different perspectives of the same phenomena. There is a computer industry, composed of firms selling competing products, and yet the computer as a phenomenon is widely used within many manufacturing and service sectors as well as by many individuals. This example of change in perspective is important because, depending on what is meant, practitioners need different policy instruments and goals, in order to reach their objectives.
In terms of biotech and telecommunication, the differing perspectives would lead to quite different ways to think about appropriate firm strategy and about major government policy outcomes, including different policy instruments. If biotech and telecom are industries, then the main objective of firm strategy and government policy ought to be to stimulate firms, generally small start-ups. This type of policy objective needs instruments which encourage entrepreneurship and product sales within specific industries. If biotech and telecom are primarily technologies, then the main objective ought to be to encourage the exploration and exploitation of different types of knowledge. This knowledge may be applied in a wide range of public, private, and individual endeavors. This leads to policy instruments which encourage scientific and engineering development, training, technology transfer, and the like. Clearly, an existing problem with biotech and telecom is that 'industry' and 'technology' are often confused - or considered as identical phenomena. In reality, the development of industry and of technology often goes on in parallel with much feed-back interactions, yet the drivers of the two processes significantly differ, and in ways which should affect practitioners' choices.
Sven Lindmark shows the parallelism of technology and industry developments in 'Coordinating the Early Commercialization of General Purpose Technologies: The Case of Mobile Data Communications'. Although essentially similar technologies were available in Europe and Japan, Japanese actors managed to create a successful mobile data industry by providing financial incentives for all parts of the value system. This was not done in Europe, where the industry has been slower to develop. The results indicate that policymakers cannot single-handedly focus on technology developments if the aim is to stimulate economic growth.
The issue of considering telecommunications as an industry or technology is also elaborated on in 'The GSM standard and Nokia as an incubating entrant' by Palmberg and Martikainen. The authors argue that Nokia's latent technology competencies were more important than it's lack of telecommunications industry experience when entering the field of cellular systems.
Future research agenda
The articles in this special issue have shed light on the three main issues outlined in the introduction, and pave the way for further research. As described in the papers of this special issue, both telecommunication and biotechnology are characterized by rapid technological development as well as changes in industry and actor structures. This implies that great uncertainties are involved for all actors, from research institutions to small and large companies, and policy makers. The new technologies raise new opportunities but also threats. In this light, there is a need for a new strategic thinking for policy supporting growth and technological development in the long term, encompassing industrial policy, regulatory policy and competition policy. Strategic considerations regarding technology, regulation and market developments will have to be reconsidered, and a dynamic process of research policy formulation capable of adapting to changing conditions will have to be worked out.
In telecommunications, these policies will have to manage a complex technological environment consisting of a meshed horizontal and vertical layered structure, with some technologies available short-range, others long-range, complemented by a hierarchy of application and technology layers. Some technologies and their service delivery will essentially function as backbone networks, and other technologies as the personal access gateway and service. In this diverse context consisting of 'geodesic' networks of networks and multiple applications, new regulatory and policy challenges will emerge. For instance, the boundaries between the networks, and between regulated vs. un-regulated networks will pose difficult dilemmas for policymakers. This new landscape will not necessarily strengthen the lead for Europe in the mobile field, being partly based on standards and knowledge developed outside of Europe (cf. WLAN, and emerging standards). New industrial policies will be called for, and new regulatory frameworks will have to be devised to deal with the emerging and multi-dimensional industry structure.
The case of modern biotechnology illustrates the usefulness and power of an evolutionary approach to the study of industrial change and innovation; evolutionary in the sense of an emphasis on heterogeneous agents, which have limited capabilities and which change over time. Such agents affect the transformation of industrial structures and organizational forms, as driven by processes of learning and by multiple forms of selection. Studies of modern biotechnology have contributed heavily to the development of new concepts and methodologies that are now becoming state-of-the-art in the analysis of industrial change and innovation. Modern biotechnology is a rather amorphous concept, including diverse products, sectors, and knowledge bases. It is therefore pervasive across society, leading to heated societal debates as well as opening up new business opportunities. As such, analyses of the emergence, development and impacts of modern biotechnology pose fundamental problems. These conceptual problems may appear extreme in this emerging technological area and difficult to resolve. Even so, researchers, analysts and decision-makers must tackle them and also consider novel interpretations.
In both biotechnology and telecommunication, the standard, simplified accounts of the patterns of industrial evolution and life cycles are challenged. The standard account is one in which the early days of an industry are characterized by high rates of entry, and this new breed of innovators gradually supplants the incumbent firms. These newer firms then grow and become the incumbents, in a later phase. Both modern biotechnology and telecommunication affect many different sectors, being a first objection to considering it 'single industries'. A second objection is that entry by new firms is sustained over time, in that we observe a series of waves of entry in various fields within, or related to, modern biotechnology. These new firms are often started in relation to the appearance of new technologies, ranging from rDNA and monoclonal antibodies, to so-called platform technologies like combinatorial chemistry and high throughput screening, all the way down to genomics and proteomics, etc. Similar patterns occur in the telecommunications industry, where e.g. the shift from analog to digital technologies and from fixed to mobile opened up opportunities for an array of companies, both new actors and companies active in adjacent industries.
However, within the overlap of biotechnology and pharmaceuticals (and, for that matter, telecommunication and data communication), far from all incumbents have been swept away by new entrants - indeed, many of the large firms seem to have been strengthening their market position. In the past decades, the large incumbent firms have so far been able to maintain leadership of the pharmaceutical and telecommunication industries, by gradually learning and absorbing the new technologies, by controlling key complementary assets, and by establishing a dense and complex web of both collaborative and competitive relationships with entrants. Questions remain for future research, however, about future patterns of collaboration and competition between small and medium biotech firms and large incumbent firms in existing industries.
The studied industries are dependent on infrastructures and should be regarded as complex systems of interdependent components, and strategic thinking for research prioritizations should address the whole system of companies, technologies, value added services, policies, and so forth. The process involved in formulating such a research policy must be based on knowledge of the components and boundaries of the system and how its components work together. In other words, a theoretical and empirical framework facilitating an analysis of the industrial dynamics and evolution is needed. Key questions in developing such a framework include the definition of the boundaries of the system and describing the industrial dynamic processes driving the system. The main challenge in defining system boundaries is the convergence between industries that has been taking place lately, in biotechnology as well as telecommunication.
In both telecommunications and biotechnology, researchers and policymakers should strive to understand the main driving forces behind important developments (such as the triggering events behind major investments in infrastructure) and relationships between variables (such as the effect of regulatory changes on industry structure). On the basis of such an analysis, implications for a research program striving to direct the rate and direction of change (rather than preserve a stable condition) can be articulated. A dynamic research policy of this kind will contribute to creating a plausible and consensual future, shared by competing agents in a broad array of interdependent industries.
The editors hope that this volume will continue to foster international research collaboration on technologies with high degree of social impact. In the long run, such international cooperative research will lead to a more thorough understanding of the challenges and opportunities posed by critical technologies.
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