Open Innovation, Experimental Entrepreneurship and Productivity

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Paul Romer, the co-recipient of the 2018 Nobel Memorial Prize in Economic Sciences, argues that economic growth and productivity concerns the nature, formation and commercialisation of ideas. Of course, this a dynamic process, and in recent years significant changes have occurred within economies, industries and places with regard to the generation, sourcing and exploitation of ideas, and the innovations these result in. Such changes are likely to be impacting on productivity and productivity growth at a number of levels. As a means of going someway to addressing these issues, I am currently engaged in a study within which I have interviewed more than 120 individuals – to date – in the field of innovation and entrepreneurship in the UK, Germany, the US, China, and Japan. This includes entrepreneurs, venture capitalists, the operators of incubators, accelerators, co-working spaces, universities, policymakers, as well as representatives of large corporates such as Honeywell, Cisco, Accenture, Bayer, and Snapchat.

There are a myriad of issues that have come to light from the work, but perhaps two of the most notable in the context of productivity are the widespread emergence of open innovation practices and what I term ‘experimental entrepreneurship’, both of which are interrelated. First, it is clear that open innovation practices have become prevalent across many industries, especially technology-based sectors. Firms, particularly large corporates, are increasing looking for the latest ideas outside of their corporate boundaries. Alongside traditional joint ventures and collaborations, firms are becoming more and more engaged in a range of new practices from corporate acceleration to open access innovation centres, innovation scouting, innovation competitions and the like. In essence, these mainstay innovation players are moving part of the burden, costs, and to some extent the risk, of innovation to start-up firms, new entrepreneurs, and purely aspirational entrepreneurs, rather than within the safety net of the corporation itself.

These changes are having a potentially profound and complex impact on the relationship between innovation and productivity. For example, the costs, investments, and inputs required to innovate are shifting. In particular, firms are having to invest more and more resources into the networks and relationships that are required to access ideas. Building and maintaining relationships is expensive. There are tangible costs in the form of events – innovation theatre – and the contracting of intermediaries – innovation scouts – as well as huge intangible investment in terms of the time required by firms to generate and sustain the social capital and network capital they need to develop their own innovation ecosystems.

Alongside these inputs, the research undertaken to date indicates that many of the external relationships developed by firms do not result in fruitful outcomes, in terms of innovations that lead to productivity improvements. A lack of compatibility and alignment between internal and external forces, as well as internal resistance, means that many funded ideas and innovations are never implemented. This begins to suggest that despite its undoubted capacity to combine and unleash new ideas, open innovation is not always a practice that leads to efficiency within the innovation process or results in productivity gains.

Partly as a result of open innovation and an unstable macroeconomic climate in recent years, we are witnessing the emergence of a phenomenon that can perhaps be best described as ‘experimental entrepreneurship’. Fundamentally, more and more individuals are experimenting with the idea of becoming entrepreneurs, especially technology entrepreneurs. This goes beyond the usual upturn we see in the numbers of self-employed workers during a crisis, to something that is becoming more embedded and sustained.

Within the technology sectors more individuals across all age groups are taking time to consider if they can develop an idea into a commercially viable innovation and business. The rapid growth, especially in big cities, of co-working spaces and incubators attests to this development. Generally, this can be seen as healthy economic sign, and all cities and regions, large or small, will require this innovation infrastructure if they are to become or remain productive places. It also indicates a role for public policy, and whilst acknowledging the positives of competition, there often appears to be considerable redundancy in terms of the overlap of ideas across experimental entrepreneurs. Many seem to be doing the same thing, all with their own funding streams. For example, within what can be called the ‘App Economy’ there is potentially excessive competition due to low entry costs.

It is noticeable that in areas such as biotechnology and life sciences we do not see anything like the same kind of experimental entrepreneurship. However, there is considerable activity in the area of social innovation among these entrepreneurial groups. Such activity has the potential to have significant positive impacts on productivity, but there appears to be little research that has sought to understand this.

Finally, the current study concludes that the time and external finance many of these experimental entrepreneurs spend is by far from wasted, especially in the long-term. However, the bottom line impact on contemporary productivity is less clear, but perhaps this does not matter to any great degree, and as the urban sociologist and planner Jane Jacobs noted in the 1960s when discussing the economic development of cities, ‘cities are indeed inefficient…the largest and most rapidly growing at any given time are apt to be the least efficient. Cities are economically valuable because they are inefficient’. This appears particularly relevant in the contemporary context and suggests interesting routes for examining the relationship between productivity and efficiency, especially institutional efficiency, with regard to innovation processes.

Robert Huggins
School of Geography and Planning
Cardiff University, UK.
January 2019