Another way to develop innovation policy? Blog #12

17, October, 2017 – BLOG #12

Another way to develop innovation policy?

At a meeting I was at recently, Gandeephan Ganeshalingam, the Chief Innovation Officer for GE Canada, described their view of the business environment using the acronym “VUCA”.  This stands for volatile, uncertain, complex, and ambiguous. This is clearly a very challenging environment in which to operate.

Now think about how innovation policy has traditionally been developed.  Often there is a commission (such as the Jenkins Report, that studied Federal support for research and development) that studies an issue, and issues a report with recommendation.  This is often followed by extensive period of consultation with various stakeholders.  Then a policy is announced, sometimes legislation is proposed, and then the policy is implemented.  This process often takes many months if not years.

So how likely is it that an innovation policy will work for a company in a VUCA world? Good question!

There is another way to develop innovation policy. In recent years a movement has started (particularly in the UK) to use an experimental approach based on small randomized controlled trials.  The approach is straightforward:

  • Set up pilots to experiment with new programs. One randomly selected group gets the new program, another randomly selected group doesn’t.
  • Evaluate them using rigorous methods.
  • Scale up those that work, stop those that don’t work.

Randomized controlled trials (RCTs) have been used in a number of policy areas such as development (by the World Bank), education and social policy. They are the gold standard for evaluating new drugs and medical procedures. In all of these areas the link between an intervention and desired outcomes is uncertain because no adequate theory exists. RCT’s provide empirical evidence whether an intervention actually works or not, and provide a strong evidence base for a new policy.  As one of the reports says, it replaces reliance on ‘eminence, charisma, and personal experience’ with evidence of what actually works.

RCTs haven’t been used much for developing innovation or entrepreneurship policy, but there is a large potential for exploring its use in those fields.

RCTs, like all new tools, have their strengths and limitations, and require expertise to be used effectively. They won’t be used across the board, just in a few selected areas. A key strength is that they can provide empirical evidence for a new policy, and minimize influences of ideology or history.  One weakness is that they don’t explain why an intervention works, only if it does or not.

It is interesting to note that when randomized controlled trials were introduced in medicine, they were strongly opposed by some clinicians, many of whom believed that their personal expert judgement was sufficient to decide whether a particular treatment was effective or not.  However randomized controlled trials are now regarded as the gold standard for medical evaluations.

Nesta – a UK charity that supports innovation – has developed an introductory guide for using randomized controlled trials. It is available at http://www.nesta.org.uk/publications/running-randomised-controlled-trials-innovation-entrepreneurship-and-growth

Governments at all levels in Canada spend a great deal of money supporting innovation and entrepreneurship. Randomized controlled trials can be another tool in the tool kit to make sure that we get the best possible outcomes. There is very significant expertise in the medical community to draw on to assist this endeavor.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 

 


How to get more innovation?

12 June, 2017 – Blog #8

How to get more innovation?

In an earlier blog, I asked if we had too much innovation or not enough.  The answer was that some areas had too much and some too little.  Which raises the question what can be done to increase innovation.  In fact, there are quite a number of proven approaches to increasing innovation.  Here is a short list:

  1. Competition. This is one of the effective ways of getting innovation as it uses the ingenuity of large numbers of people who want to make a profit. The economist Willian J. Baumol captures this well in the title of one of his books – “The free market Innovation Machine.”  Baumol goes on to explain that “the prime weapon of competition is not price but innovation.  As a result, firms cannot afford to leave innovation to chance.  Rather, managements are forced by market pressures to support innovative activities systematically and substantially…  The end result is a ferocious arms race among firms in the most rapidly evolving sectors of the economy.”
  2. Prizes. Cash prizes have a long history of stimulating innovation. One of the earliest examples is the Longitude prize, offered by the British government in 1714 to anyone who could determine longitude accurately.  That prize was eventually won by John Harrison, for an accurate clock.  The XPrize is a more recent example, which was set up to bring about “radical breakthroughs for the benefit of humanity”.  The XPrize has stimulated numerous other prizes, including one in Alberta run by the Climate Change and Emissions Management Corporation (CCEMC) to find commercially viable applications for waste gas.
  3. Military spending. This is a very wasteful way of generating innovations, but it can produce very significant results.  Mariana Mazzucato has shown that many of the technologies in the iPhone were originally developed and used by the US military before being “re-purposed” and incorporated into the iPhone.  The internet is another example, which was originally funded by DARPA (Defense Advanced Research Projects Agency) in the US.
  4. Government funded megaprojects. There are a few examples of megaprojects that have developed significant innovations. One is the man on the moon project in the 1960’s.  This was a political, not scientific project that occurred at the height of the cold war.  NASA considers Landsat satellite imagery to be a direct result of this megaproject.  However this is a very wasteful way of getting innovations.  Another example might be the Chinese government’s initiative – the Belt and Road project – to spend significant resources to enhance trade across Eurasia.

Because of the magnitude of resources required, this will always be a very minor contribution to overall innovation.

  1. Surprisingly, regulation can sometimes stimulate innovation.  A classic example is the role of the California Air Resources Board (CARB), which imposed stringent fuel economy standards for all automobiles sold in California, in 1967.  This led automakers to develop innovations to significantly improve fuel economy, not only for cars sold in California but everywhere else as well.  There have been numerous other similar examples.  Carbon taxes and cap and trade systems are intended to stimulate innovation by the same mechanism.  Nobody wants to pay taxes and people and companies work to reduce emissions and so pay less tax.
  2. Sometimes innovations just happen without any apparent motivation. The “learning by doing”, “experience curve” or “learning curve” effects are based on a series of often very small changes which cumulatively have a powerful effect.  When a routine task is repeated, each cumulative doubling of repetitions typically leads to a reduction of 10-20 % in cost per unit.
  3. New Technology. The classic example of a new technology stimulating innovation in the old technology it aims to replace is the sailing ship. In the 30 years after the introduction of the steam power in the 19th century, sailing technology improved more than it had in the previous 300 years.  This is termed the “Sailing Ship effect”, which has been well documented in numerous other cases.

None of these approaches include current hot topics such as research and development spending, venture capital, crowdfunding, tax credits or other popular ideas.  This is not at all to say that these approached don’t work, but just to remind us that there are many paths to innovation.

 

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca