National Innovation Systems & Institutions

1. NIS from the point of
Institutional angle
Ebru BAŞAK AKÖZ

2. Outline
•Development and diffusion of the concept NIS
•Definitions of NIS
•Narrow vs. Broad NIS
•Systemic approach to innovation
•Elements in the system of innovation
•The Functions of Institutions
•Provide information and reduce uncertainty
•Manage conflicts and cooperation
•Provide Incentives
•Channel resources to innovation activities
•Institutions as obstacles to innovation
•Activities in the system of innovation
•Conclusion

3. Introduction
The concept of institution-used in a very comprehensive sense-plays a
key role in all definitions of Innovation Systems. The main purpose of
this study is to address the main elements of National Innovation
Systems from an Institutional framework. The main components of the
NIS, how the organizations and institutions are defined, and what
functions do they have, and why a NIS differs on the structure and
setting of these components are the questions aimed to be answered.
Therefore a brief explanation of the definition, concept and emergence
of NIS were conducted. The main objective of this analysis is to
understand how and why the institutional settings and organizational
structures explain the main characteristics of NIS.

4. Development and diffusion of the concept NIS
• Historical roots (Friedrich List,1841) - ’national systems of production’ - a
wide set of national institutions including those engaged in education and
training as well as infrastructures such as networks for the transport of
people and commodities
• Freeman 1982 and Lundvall 1985 – National Innovation System
• innovation process should be treated in a systematic manner - need for
systemic approach, which integrates institutions to create, store, and
transfer the knowledge, skills and artefacts. (OECD,1999)
• understanding innovation as a complex interactive learning process
• learning is important => key element in both the dynamics of the system
and as a key agent in binding the whole system together.
• comparative - could not be an ideal NIS, which fits different nations with
their specific socio-economic, political and cultural background.

5. From Linear Model of Innovation to Systems
Approach
One of the first frameworks developed for understanding
S&T and its relation to economy has been the “linear
model of innovation”
Model postulates that innovation starts with basic research,
then adds applied research and development, and ends
with production and Marketing.

6. From Linear Model of Innovation to Systems
Approach
In reality, this translation doesn’t follow a ‘linear’ path from
basic to applied R&D and implementation.
Instead, it is characterized by complicated feedback
mechanisms and interactive relations involving science,
technology, learning, production, policy and demand.
Continuous interactivity between;
• Industry,
• Universities,
• Public Research Centres,
• Government
• Suppliers,
• Clients,
• Standard setting bodies,
• Banks
• and other critical social and economic actors.

7. Theoretical perspective on innovation and learning:
(Lundvall, 2003)
• Innovation is a process that is:
– Cumulative
– Nonlinear
– Path dependent
– Context dependent
– Continuous
– Interactive – Firms do seldom innovate alone
– Innovation and learning
• You learn from what you do
– Innovation as joint production of innovation and
competence
– Learning is a socially embedded process – social capital is
important

8. Innovation System
Innovation System - a system for
generating and diffusing new
technologies - every country has such a
system, even if it is weak or low in
capacity.

9. Definitions of NIS
‘the network of institutions in the public and private sectors whose
activities and interactions initiate, import, modify and diffuse new
technologies’. (C. Freeman 1987, p. 1)
“The elements and relationships which interact in the production,
diffusion and use of new, and economically useful, knowledge…
and are either located within or rooted inside the borders of a
nation state” (Lundvall, 1992; p.12)
“A set of institutions whose interactions determine the innovative
performance of national firms” (Nelson, Rosenberg, 1993; p.5)
“The national institutions, their incentive structures and their
competencies, that determine the rate and direction of
technological learning (or the volume and composition of change-
generating activities) in a country” (Patel and Pavitt, 1994; p.12)

10. Definitions of NIS
“That set of distinct institutions which jointly and
individually contribute to the development and
diffusion of new technologies and which provides the
framework within which governments form and
implement policies to influence the innovation
process. As such it is a system of interconnected
institutions to create, store and transfer the
knowledge, skills and artifacts which define new
technologies” (Metcalfe, 1995;p.462-463)

11. Definitions of NIS
C.Edquist (1997) - includes “all important economic, social,
political, organizational, institutional and other factors
that influence the development, diffusion and use of
innovations”
Galli, Teubel (1997)- “a historically grown subsystem of the
national economy in which various organizations and
institutions interact and influence each other in the
carrying out of innovative activity”.
NIS as the set of organizations, institutions, and linkages
for the generation, diffusion, and application of
scientific and technological knowledge operating in a
specific country .

12. Narrow vs. Broad NIS
An analytical distinction has been made between a “narrow” NIS concept, which
includes the institutions and policies directly involved in scientific and
technological innovation, and a “broad” NIS perspective, which takes into
account the social, cultural, and political environment of the country being
examined.
Narrow context, can be divided into five main categories:
• Governments (local, regional, national and international, with different weights by
country) that play the key role in setting broad policy directions;
• Bridging institutions, such as research councils and research associations, which act as
intermediaries between governments and the performers of research;
• Private enterprises and the research institutes they finance;
• Universities and related institutions that provide key knowledge and skills;
• Other public and private organizations that play a role in the national innovation system
(public laboratories, technology transfer organizations, joint research institutes, patent
offices, training organizations and so on). (OECD 1999)

13. Narrow vs. Broad NIS
The broad definition of NIS includes, in addition to the components
within the narrow NIS, all economic, political and other social
institutions affecting learning, searching and exploring activities:
a nation’s financial system
its monetary policies
the internal organization of private firms
the pre-university educational system
labor markets
Regulatory policies and institutions

14. Systemic approach to innovation
According to Ingelstam (2002):
1. a system consists of two kinds of constituents: there are firstly,
some kinds of components and secondly, there are relations
among them. The components and relations should form a
coherent whole (which has properties different from the
properties of the constituents);
2. the system has a function – that is, it is performing or achieving
something;
3. it must be possible to discriminate between the system and the
rest of the world; that is, it must be possible to identify the
boundaries of the system. If we, for example, want to make
empirical studies of specific systems, we must, of course, know
their extension.

15. A changing framework for innovation policy :
National System of Innovation (Nauwelaers, 2003)
• Increased awareness of the role of innovation as
crucial ingredient for economic development
• Interactive view of innovation: innovation differs
from R&D
• System-based approach to innovation, emphasis on
learning and diffusion / absorption of knowledge
• Mobility of tacit knowledge embedded in humans
becomes a key performance factor
• Glocalisation : localised nature of (tacit) knowledge
spillovers - importance of global connections
.

16. Innovation processes are path-dependent
• Evolutionary characteristics - we do not know
whether the potentially best or optimal path is being
exploited.
• The system never achieves equilibrium, and the
notion of optimality is irrelevant in an innovation
context. We cannot specify an ideal or optimal
innovation system
• Comparisons between an existing system and an
ideal or optimal system are not possible, instead
comparison with the other countries is available.
• Instead of market failure the term systemic problems
or systemic failures are used.

17. Figure 1: Indicative Issues, Actors and Activities
in a Simple Science, Technology and Innovation System
Social and Absorptive Capacity
Human Capital ‘Follower’ firms;
Knowledge Intermediate and
Users
Universities
S&T Training End Consumers and
and Education Professional Users
Market for Goods
and Services
Research Capacity Technology and
Knowledge Universities; Govt Innovation
Creators Laboratories Performance
Basic Scientific ‘Creative’ Firms
Research Applied RTD and
Product /Process
Development
Public Private
Sector Sector

18. National System of Innovation
M a c ro e c o n o m ic a n d
re g u la to ry c o n te x t
E d u c a tio n a n d C o m m u n ic a tio n
tra in in g s y s te m in fra s tru ctu re s
G lo b a l
in n o v a tio n n e tw o rk s
K n o w le d g e g e n e ra tio n , d iffu s io n & u s e
Clusters of industries
innovatoin systems
F irm s ’
c a p a b ilitie s
Regional
& n e tw o rk s
O th e r
S c ie n c e
re s e a rc h
s y s te m
b o d ie s
S u p p o rtin g
in s titu tio n s
N a tio n a l in n o v a tio n s y s te m
C o rp o ra te g o v e rn a n c e P ro d u ct a n d fa c to r
a n d fin a n c e m a rke t c o n d itio n s
N a tio n a l in n o v a tio n c a p a city
COUNTRY PERFORM ANCE
G ro w th , jo b c re a tio n , c o m p e titiv e n e s s

20. Dimensions of Systems Approach
• System boundaries
• Organizations
• Institutions
• Knowledge
• Dynamics
• Outcome / performance
• Methodology

21. Institutions(Edquist and Johnson 1997)
• The term ‘institution’ is used in at least
two main senses in the literature and
these senses are often also confused in
the literature.
– For Nelson and Rosenberg , institutions are
basically different kinds of organisations
– Lundvall means the rules of the game by
the term institution

22. Elements in the system of innovation
Organizations (Players or actors): firms (normally
considered to be the most important organizations in
SI’s), universities, venture capital organizations and
public agencies responsible for innovation policy etc.
Institutions(Rules of the game): are “sets of common
habits, norms, routines, established practices, rules
or laws that regulate the relations and interactions
between individuals, groups and organizations,”
(Edquist & Johnson, 1997).

23. Institutions & Organizations(Edquist and Johnson 1997)
• Institutions are sets of common habits, routines,
established practices, rules, or laws that regulate the
relations and interactions between individuals, groups and
organisations. They are the rules of the game. Examples of
important institutions in SIs are patent laws and norms
influencing the relations between universities and Firms.
• Organizations are formal structures with an explicit purpose
and they are consciously created. They are players or
actors. Some important organisations in SIs are companies
(which can be suppliers, customers or competitors in
relation to other companies), universities, venture capital
organisations and public innovation policy agencies.

24. What Institutions do for ?
• acquire, diffuse, assimilate and utilize new technologies
• improve existing products, and design new ones
• design and produce the means of production or capital goods required by the
improved or newly designed production processes
• maintain technological R&D activity that feeds the mentioned improvement,
design and production processes; and ability to conduct scientific research -i.e.
basic research- that is the source of those technologies
• improve existing organization methods [soft technologies] arranging the
relations within and between research, development, design, production
(manufacturing), and marketing compartments and reproducing those relations
at a technologically higher level.
To :
• survive the vividness of national economy,
• sustain economic growth,
• upgrade the living standards
• achieve international competitive advantage

25. The Functions of Institutions in relation to Innovation
Provide information Manage conflicts and
and reduce uncertainty cooperation
Institutions
Channel resources to
Provide Incentives
innovation activities
Institutions as obstacles to innovation

26. Provide information and reduce uncertainty
• The most basic and the same time general function of
institutions
• Reduce uncertainity about the behaviour of other people
by providing information or reducing the amount of
information needed
• Act as signposts and reduce the informational and
computational burden
• Technological service systems reduce uncertainity about
technical solutions
• Patent laws and other intellectuel property rights reduce
uncertainity about appropriation possibilities

27. Manage conflicts and cooperation
• Institutions control and regulate conflicts and cooperation
between individuals and groups.
• An institutional set-up that effectively redistributes the
costs of change and compensates the victims also supports
fast rates of innovation.
• Social security arrangements, education and retraining
rights, labor market arrangements and other institutions
shape the character and seriousness of such conflicts and
resistance to change

28. Provide Incentives
• To specify and implement the sticks and carrots of
economic life.
• Pecuniary Incentives: Salary and wage schemes, income
taxes, tax allowances and inheritance rules affect
innovative effort
• Property rights to knowledge and ideas (laws and rules
concerning patents, copyrights,trademarks,etc) are also
important as incentives since they permit appropriation of
temporary technological rents and affect the diffusion of
knowledge
• Non-Pecuniary Incentives: norms of cooperation,
practices for acquiring intellectual prestige, access to
publication, status norms

29. Channel resources to innovation activities
• Some resources are allocated by institutions or at least
affected by institutions
• R&D may be supported by formal institutions like tax rules
and government subsidies
• Governments and industry organizations make long term
commitments in terms of agreement to finance
technological service systems
• Governments are also committed through informal norms
and traditions to allocate resources to universities,
Research Institutes, libraries and other organisations
involved in learning and innovation.

30. Institutions as obstacles to innovation
• Institutions may introduce stability, even rigidity into the
economy
• May act as innovation brakes rather than accelerators
• Institutional change is often supposed to be slow and lag
behind technological change
• This may cause mismatch problems which prevent the full
realization of the productivity potantials of technical
innovations.
• Forestall the reallocation of resources and efforts from
mature to emerging technologies

31. Activities in the system of innovation
proposed by Chaminade, Edquist, 2005
I. Provision of knowledge inputs to the innovation process
1. Provision of R&D - creating new knowledge, primarily in
engineering, medicine and the natural sciences.
2. Competence-building (provision of education and
training, creation of human capital, production and
reproduction of skills, individual learning) in the labor
force to be used in innovation and R&D activities.
II. Provision of markets – demand-side factors
3. Formation of new product markets.
4. Articulation of quality requirements emanating from
the demand side with regard to new products

32. Activities in the system of innovation
proposed by Chaminade, Edquist, 2005
III. Provision of constituents for IS
5. Creating and changing organizations for the development of new
fields of innovation (e.g.enhancing entrepreneurship to create new
firms and intrapreneurship to diversify existing firms, creating new
research organizations, policy agencies, etc.)
6. Provision (creation, change, abolition) of institutions (e.g. IPR laws,
tax laws, environment and safety regulations, R&D investment
routines, etc) - influencing innovating organizations and innovation
processes by providing incentives or obstacles to innovation.
7. Networking via markets and other mechanisms, incl. interactive
learning between organizations (potentially) involved in the
innovation processes. Integrating new knowledge elements
developed in different spheres of the SI and coming from outside
with elements already available in the innovating firms.

33. Activities in the system of innovation
proposed by Chaminade, Edquist, 2005
IV. Support services for innovation firms
8. Incubating activities (e.g. providing access to
facilities, administrative support, etc. for new
innovating efforts).
9. Financing of innovation processes and other
activities that can facilitate commercialization of
knowledge and its adoption.
10. Provision of consultancy services of relevance for
innovation processes, for example, technology
transfer, commercial information and legal advice.

34. Institutional Policies
Provide an insight into what governmental priorities are and
how governments attempt to dictate institutional behavior to
guide the system.
For policy-makers, an understanding of the national
innovation system can help identify leverage points for
enhancing innovative performance and overall competitiveness.
seek to improve networking among the actors and
institutions in the system
Policies directed to networking and improving firm
absorptive capacities are needed to address systemic failures

35. Institutional Policies
Such policies:
stress the role of joint research activities and other technical
collaboration among enterprises and with public sector institutions;
schemes to promote research and advanced technology partnerships
with government
give prominence to high levels of co-patenting, co-publication and
personnel mobility, and implement intellectual property rules, labor
market policies and exchange programmes to facilitate such
collaboration.
recognize the importance of informal flows of knowledge and access to
technical networks; supportive information technology policies and
infrastructures
seek to augment innovation networks and to design these flows,
linkages and partnerships in the most efficient manner.
Enhance the innovative capacity of firms

36. Systemic problems mentioned in the literature include :
• infrastructure provision and investment, including the physical (IT, telecom,
transport) and scientific infrastructure (universities, labs)
• transition problems – the difficulties that might arise when firms and other
actors face technological problems or changes in the prevailing technological
paradigms that exceed their current capabilities
• lock-in problems, derived from the socio-technological inertia, that might
hamper the emergence and dissemination of more efficient technologies
• hard and soft institutional problems, linked to formal rules (regulations, laws)
or no formal (such as social and political culture)
• network problems, derived from linkages too weak or too strong (blindness to
what happens outside the network) in the NIS;
• capability problems, linked to the transition problems, referring to the limited
capabilities of firms, specially SMEs, their capacity to adopt or produce new
technologies over time.
Smith, 2000; Woolthuis, Lankhuizen et al., 2005

37. Conclusions-1
• Effectiveness of innovation systems depends on balanced
combination of 3 capacities :
– creation of knowledge
– diffusion of knowledge
– absorption of knowledge
– Utilization of knowledge
• Government’s role shifts from investor to facilitator -
promotion of public/private partnerships and interface
management
• Growing importance of framework conditions
– entrepreneurship
– competition rules
– labour market conditions
– social capital, ...

38. Conclusions-2
• Danger of fragmentation of innovation policy : need
for intra-government policy coordination
• More efficiency through “Policy packages” rather
than isolated instruments
• Need for more policy intelligence
– monitoring and evaluation of policies
– sound analyses of innovation systems
– « intelligent » benchmarking practices
– long term views
– inclusive policy design processes

39. Conclusions-3
•Institutions reflect characteristics of the innovation process:
“… the institutional form which characterizes these
relationships – and, especially, the elements of organization in
these markets – reflects the characteristics of the process of
innovation”
•The institutional set-up, once established, will affect the rate and
direction of innovation
•Production system and the institutional set-up define a system of
innovation: production structure, and the institutional set-up
jointly define a system of innovation and at the same time provide
an understanding of the micro-foundation of ‘national systems of
innovation’”
B.-Å. Lundvall (1992), National Systems of Innovation. Towards a Theory
of Innovation and Interactive Learning

40. Turkish National Innovation System

42. Comments/Suggestions?

43. Main developments in our understanding of innovation
• From individual entrepreneur to corporate innovator
• From laissez faire to government programmes
• From single division to multidivisional efforts
• From science push to demand pull?
• From single factor to multi-factor explanations of
innovation
• From static to dynamic model of innovation
• From linear model to interactive ‘chain-link’ model
• From one innovation process to several sectoral-
specific types

44. Main developments in our understanding of innovation
• From neo-classical to evolutionary economics
• From optimising firm to resource based view of the firm
• From individual actors to systems of innovation
• From market failure to system failure
• From one to ‘two faces’ of R&D
• From single-technology to multitechnology firms
• From closed to open innovation
• From national to multi-level systems of innovation
• From R&D management to innovation leadership

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