The role of RTOs in the innovation system

1
The role of RTOs in the innovation system

• Per M. Koch
• Director for Analysis and Strategic Development
• pk_at_forskningsradet.no

2
Functions that have to be covered in the
innovation system

• Long term, fundamental, knowledge development
• Practical, hands on, knowledge development and
  problem solving
• Education
• Networking and interaction
• The division of functions on institutions will
  vary from country to country

3
Division of labour in the Norwegian innovation
system

• Long term basic research
• Universities and colleges
• a few institutes
• Practical problem oriented research
• Universities and colleges
• Research institutes
• RD intensive companies
• Commission based research, knowledge and
  technology development
• Research institutes
• Some institutions for higher education
• RD intensive companies
• Consultancy
• Consultancies, research institutes
• to a smaller extent universities and colleges

There is no clear division of labour between the
various institutional types in Norway. Hence
innovation policy must focus more on the
functions that are to be covered, and less on the
institutional structure
4
The old linear model
The old belief was that industrial innovation was
predominantly the result of ideas born in
universities and transformed by companies.
Basic research gives birth to an idea and
relevant new knowledge
Applied research turns the idea into something
practical (RTOs)
Industry development of new products and processes
The company brings the new product to the market
5
The linear model mark II
However, the linear thinking lives on in a
dominant technology push model
Research and technological development in
universities, RTOs and companies gives birth to
an idea and relevant new knowledge
Companies make use of these ideas in the
development of new products and processes
The company brings the new product to the market
6
Now A more complex understanding of innovation

• Innovation is much more than research
• Innovation as change of behaviour with a
  particular objective in mind
• Innovation takes place in complex systems
• companies
• knowledge institutions
• financial institution
• and within a extensive regulatory, social and
  cultural framework.
• Innovation is based on complex learning processes
  involving a large number of persons
• all with different educational backgrounds and
  experiences.
• tacit knowledge and experience, education,
  lifelong learning, networking competences,
  research, development work
• Innovation thrives on spillovers and unexpected
  combinations of persons, existing knowledge and
  technologies.

7
Market pull model
market pull
Research is still very important, but is now one
of many learning tools. Indirect flow of RD
based knowledge and technology.
Analysis in innovation needs based on knowledge
of customer and market needs
Commissioned RD
Marked knowledge
In house learning based innovation processes
Tacit knowledge
Acquired technology
Literature
Conferences and fairs
The company brings new or improved products,
processes or services to the market
New employees
In-house RD
8
The company centred model of the innovation system
Industrial system
International setting
Policy organisations
Research institutions
Suppliers
Company

• Learning
• Networking
• Innovation

Customers
Consultants
Financial institutions
Cultural environment
Regulatory framework
9
The basis for systemic innovation policies
10
Role of RTOs

• This changes the classical picture of an RTO as
  a place where people work on RD for applying
  hard technology. Their work usually includes
  technology transfer and sometimes also
  implementation related activities for their
  clients.
• Jos Leiden, TNO The Future of RTOs in the
  European Research Area.

11
The role of RTOs from the new point of view

• RTOs are not only generators of ideas and
  technology (technology push)
• They are also learning and problem solving
  partners of companies and public institutions.
• For many companies RTOs are institutions that
  help them black box new technology.
• E.g. helping them adapt a new type of machinery.
  The company employee does not need to understand
  how this machine work.

12
The figure that shocked Norwegian policy makers
Industry buying RD in 2001. The main supplier of
RD are other companies, not institutes
13
RTOs for high tech large industrial companies
only?

• RTO activities is diffused throughout the
  innovation system through supplier/customer
  relationships,
• Hence the effect of RTO activity cannot be
  reduced to its direct B2B relationships.
• This is why RTOs may benefit low-tech SMEs even
  if these companies do not interact directly with
  an RTO
• Some RTOs also provide services for SMEs.

14
Policy problem

• As long as RTOs are considered technology
  suppliers only, they can be considered to operate
  outside the market.
• Traditional economics have a tendency to look at
  research as something taking place outside the
  market. This black boxing is legitimized
  through the market failure argument Companies
  invest less in RD than is socially desirable,
  and government may therefore support RD in
  universities and RTOs.
• When RTOs are seen as company learning partners
  operating near the market they look more like
  consultancies
• Even if their ST intensity is much higher.
• Research as a service industry
• Increasing internationalisation
• Blurred dividing lines between universities
  (PPP), RTOs and consultancies/KIBS

15
EU has not grasped the problem yet!

• European RTOs are still considered a public good
• SINTEF may become a test

16
EU and competition

• Article 87 of the EC Treaty (ex Article 92)
• Save as otherwise provided in this Treaty, any
  aid granted by a Member State or through State
  resources in any form whatsoever which distorts
  or threatens to distort competition by favouring
  certain undertakings or the production of certain
  goods shall, insofar as it affects trade between
  Member States, be incompatible with the common
  market.
• The following may be considered to be compatible
  with the common market
• (c) aid to facilitate the development of
  certain economic activities or of certain
  economic areas, where such aid does not adversely
  affect trading conditions to an extent contrary
  to the common interest
• The Community Framework for State Aid for
  Research and Development Article 2.4 Public
  financing of RD activities by public
  non-profit-making higher-education or research
  establishments is normally not covered by Article
  92(1) of the EC Treaty.
• DG Competition has begun to adopt a more
  restrictive interpretation of the public
  non-profit-making criterion. It now argues that
  the criterion and the related exemption may, in
  principle, apply only when it can be safely
  concluded that the organisation receiving the aid
  does not engage in any economic activity
  (commerce criterion).
• Source EARTO

17
A possible policy shift

• So to what extent can you continue to treat RTOs
  as special cases in the innovation system, giving
  them strong public support?
• If RD is an industry, how can you subsidise some
  part of that industry, and not others?
• Example Parts of the Norwegian institute sector
  is clearly competitive, other parts are seen as
  tools of government (manufacturing vs.
  agriculture)
• May lead to a change from a strong basic funding
  to more competitive funding that encompass a wide
  set of knowledge institutions

18
A break down of the current model for division of
labour
19
Problem of covering essential functions

• RTOs becoming more like universities academic
  drift
• RTOs becoming more like consultancies lack of
  long term ST
• Universities becoming more like RTOs undermining
  curiosity driven, fundamental, research
• Problem of allowing public funding of industrial
  research in areas of national interest due to
  competition rules
• One possible solution replace basic funding with
  competitive program research funding, but that
  doesnt solve the problem of division of labour

20
The role of RTOs in the future innovation system

• What is an RTO?
• The European Association of RTOs (EARTO)
  organisations which as their predominant activity
  provide research and development, technology and
  innovation services to firms and clients, and
  which are managerially independent.
• The definition is still valid, but the boundaries
  are blurred. Need of a fundamental rethinking of
  the role of RTOs in European innovation policies.

21
Possible solutions in a Norwegian context

• Replace basic funding with a competition arena.
• But this does not solve the division of labour
  problem.
• Distinguish between profit and non-profit.
• But this does not change the fact that institutes
  and consultancies operate in the same
• Danish model Institutes as part of
  university-sector.
• Possible academic drift
• Happy marriages (SINTEF/NTNU?)
• Develop a clear borderline between institutes and
  consultancies
• Reduces the income of RTOs
• Reduces spill-overs to SMEs
• Unless RTOs establish their own for-profit
  consultancies

• Ignore the problem
• Public RTO support is so important for the
  innovation system that we pretend it is not a
  problem and continue as before.