Conclusions from a Bird’s Eye View

Trends and Issues in Innovation and Digital Transformation

The IE Initiative on Research & Policy of the Digital Economy recently held an online workshop that brought together industry experts and scholars from 40 different public and private universities, all spanning nearly 20 different countries, to discuss innovation in the new digital environment.  The following is a review of the points discussed.

Innovation is a complex system, characterized first and foremost by the interplay of various constituents, such as companies and their customers, public agencies and governments, and academic institutions. Most of the time, the different interests and objectives of these various players come together and interact without the presence of an orchestrator. This works well for the most part but it is not without its drawbacks, because it means that there is the possibility that potential synergies and ideas remain unexplored. In this context, digitization could help find a common platform at national and broader regional level that helps coordinate efforts.

Second, innovative trajectories are often fragmented because propriety rights are owned by different constituents. Navigating this fragmentation is difficult because it not only challenges the inventor’s ability to build off of what has already been created and established by peers but it increases the probability of litigation (and not only that, but litigation under the legislation of different countries.) Digitization and machine learning techniques could provide a great advance in this respect, by increasing the ability to better map prior creations and to better position a particular innovation’s claim to novelty. It is still important to be aware and vigilant of those algorithms and procedures that are created by patent trolls just to “play with the system” and take advantage of the digitized process by obtaining patents for the sole purpose of creating artificial barriers to entry for their competitors.

Third, the interplay between collaboration and competition is a common thread between all innovative processes. Companies must balance their R&D between the need to absorb innovative knowledge from outside sources without exposing themselves to potential imitation leaks. Digitization has dramatically increased this tension because, while open innovation approaches are more and more needed to reach innovation targets, it has also increased the company investments in all kinds of firewall procedures to protect sensitive projects. This in turn challenges how well policy makers can interpret what knowledge can circulate freely within the system and what is better left concealed.

Fourth, the R&D issue is particularly relevant in regards to the role that small and entrepreneurial companies play in bringing new ideas to the market, but which suffer from structural problem of lack of co-specialized assets. One of the most important issues in this case is how innovative companies can showcase their potential in order to obtain the funding necessary to survive in the first years, and to prepare for growth. The intangible capital of these companies, especially in the form of patents and trademarks, is thus key in creating credible collateral as a base for financing from venture capitalists and governments alike. Digitization and big data could help by providing a clearer vision of what a new company might bring to the market. Yet, on the other hand, it could also increase the pressure of competition on these young companies and kill good ideas still in their initial stage. Again, a more conscious and active role of the government and the orchestrator platforms would help solve some of this deadlocks.

Lastly, digitization has revolutionized the position of customers and user-driven innovation. On one hand, companies have the possibility of more data from users and customers, with more precision and frequency, thereby increasing the chances of spotting more new investment opportunities. However, users and customers are becoming more passive in their role as innovation sources and take part in the innovative system without any self-awareness. This is an issue because the active role of users has proven key in sparking and promoting successful innovations. Under digitization, crowdsource platforms, for example, could bring users together for more active participation, reliant of course on the implementation of regulations, which are still mostly missing from this scenario. Currently, the role of governments and public policy is primarily focused on the protection of private data. Time will tell, of course, whether the effects of this role will result in a more overarching approach that aims to incentivize and regulate innovation co-creation between customers, university, and companies in those sectors particularly critical for citizen welfare.