Innovation enables businesses to increase efficiency and productivity through the development and adoption of new technologies and know-how. The ability to innovate by finding new ways to do business, developing new business models and tailoring products to a changing market is vital to the success of Maltese businesses.
The OECD defines innovation as “the introduction of a new or significantly improved product, process, marketing method or organizational method in business practices, workplace organisation or external relations”.
Innovation is often equated with investing more in research to create knowledge and technology. However, innovation is about more than creating knowledge and ideas; it is about applying knowledge and ideas in new ways to create value. Knowledge and ideas are most likely to find new applications when competition, capabilities and connections are strong. One example of the application of knowledge, ideas and technology to create value is the productivity growth experienced in industries such as financial services and logistics following the adoption of information and communication technologies.
Innovation is increasingly a collaborative pursuit that runs across firms, countries and sectors. Successful innovation occurs through an “innovative system”, linking together the ideas, technology, finance and production networks needed to successfully develop new ideas and methods and then bring them to scale in a particular industry sector.
Innovation usually thrives through cross-cutting networks, where ideas can spread rapidly and be tested in practice by many users. I had the good fortune of seeing this in practice when working in Silicon Valley, Cupertino, California at the Olivetti PC Research Centre and later at the CERN Research Centre in Geneva.
While the specific form of innovation strategy varies widely from industry to industry and place to place, it requires skills, creativity and “thinking outside the box”, as well as connections between suppliers, competitors, customers, financiers and other partners. Creativity and design thinking are critical enablers of productivity and innovation and have shown to play a significant role in the growth of firms and sectors.
OECD analysis shows that one-half to two-thirds of productivity growth in developed countries is due to innovation. For example, in the UK more than 60 per cent of economic growth between 2000 and 2009 has been attributed to innovation. Innovation depends on resources like specialist skills, finance and infrastructure that require shared, long term investment to develop. To encourage investment in new ideas or methods, where returns are long term or uncertain, requires effective ways to share risk. Public investment in strengthening innovation systems is an important part of economic development because it can create economic effects which spread widely and would not otherwise occur.
Role of collaboration in innovation
Collaboration is an essential aspect of innovation because it enables the spread and novel combination of ideas, spreads risk, propagates skills and builds critical mass. Small and medium enterprises (SMEs) are particularly dependent on connections and collaborators for innovation. Small firms do not innovate by themselves but in collaboration with suppliers, customers, competitors, universities, research organisations and others. Collaboration helps SMEs lower costs by enabling resources including skills, knowledge, equipment and finance to be shared without each business needing to invest in every capability itself. Digital technology and the global flow of ideas and culture are making it possible to collaborate and compete in real time through networks that stretch around the world. Industries that collaborate beyond personal relationships have systems and cultures that make it easy to connect and share. We need to promote these systems and cultures across the economy to support more effective collaboration.
Collaboration underpins the value generated by clusters and networks of firms. These clusters and networks create value by sharing specialised investments, facilities, scientific capabilities and practical skills. They also generate knowledge spillovers where knowledge is spread to other businesses. The wider economy also benefits because:
· Strong industry clusters are associated with higher jobs and wages growth and higher start-up and patenting rates
· New industries are more likely to emerge from clusters building on a country’s strengths
· Industries benefit from group of strong collaborative industry clusters.
Many of our most pressing challenges and opportunities will require engagement across sectors, linking businesses to each other and to research, connecting the strengths of our country, finding common ground between managers and workers and connecting to international partners. Collaborating this way will help address Malta’s lack of scale and promote the competitiveness of our industry.
Ing. Micallef is a former executive chairman of MCA and former CEO of Malta Enterprise