External Factors Influencing Innovation

A guest contributor, Soh Chin San discuss his thoughts on how external factors influence innovation.

Contributed by guest author, Chin San,
sohchinsan@gmail.com
Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth. – Peter F. Drucker

One of the key areas that an entrepreneur has to manage is the level of innovation in the organization. Does innovation occur with the right leadership, the right people, the right culture and the right amount of funds? Can an entrepreneur generate innovation at his will?

According to Porter and Stern (2001), an internal focus on the firms capabilities are not sufficient in creating and commercializing technology. The external environment clearly affects the level of innovation in an area as well. The research shows a strong relationship between the local environment and success in innovative activity. With the research conducted, Porter and Stern created a framework called National Innovative Capacity, which is the country’s potential to produce streams of commercially relevant innovations. This is extremely important to both nations and businesses in understanding the factors in creating an innovative area.

The findings show that the ability of companies to innovate is strongly related to the features of the national innovation capacity (Porter, Stern, 2001). The innovative output within a country is most significantly affected by the number of scientists and technologists in the workforce, the level of R & D spending, the effectiveness of intellectual property right protection, openness to international competition and the intensity of spending on higher education (Porter, Stern, 2001). More importantly, the national innovative capacity results from strengths from multiple dimensions and not superiority in one single attribute.

Elements of National Innovative Capacity

The elements of National Innovative Capacity include:
(1) The Common Innovation Infrastructure which is subdivided into
– Cumulative Technological Sophistication. This is the level of technological development in the country.
– Human Capital and Financial Resources for R&D. This is the amount of resources a country devotes to scientific and technological research.
– Resource commitment and Policy Choices. Policy choices which would support the area include tax based incentives for innovation, openness of economy to trade and protection of intellectual property.

(2) Quality of linkages
A reciprocal relationship exists within the common innovation infrastructure (usually the policies of the government) and the industrial clusters. Clusters both benefit and feed the common infrastructure. An integrating institution can link the two areas. One example is a nation’s university system, which can provide a bridge between technology and the firms.

(3) Cluster Specific Environment for Innovation
This is the environment in which companies commercialize and introduce innovations. The innovations happen in clusters – geographic concentrations of interconnected companies in a particular field. The quality of the environment depends on four factors – factor conditions, demand conditions, related and supporting industries, and context for firms’ strategy and rivalry.

Clusters can bolster both the needs and opportunities of innovation. The ability and flexibility of clusters to rapidly turn ideas into reality is another important factor. Companies that exist in clusters often can rapidly source for the necessary components and skills within the cluster to realize innovations. Partners and suppliers can share information and get involved in the innovation process. Ultimately, the advantages of clusters are achieved through constant spillovers and externalities which are crucial for innovation (Porter, Stern, 2001).

Management implications of National Innovative Capacity

Location certainly affects innovation. Organizations should manage their innovation by developing and commercializing innovations in attractive locations (Porter, Stern, 2001). They need to divert resources to gain assess to strengths in location and take initiatives in enhancing the environment for innovation.

The attributes of location advantages are rooted in proprietary information flows, special relationships and institutions. These collective set of factors allows a firm to have a competitive advantage simply by situating itself in the cluster.

Entrepreneurs should bear in mind that they do not necessarily have to locate internationally. In some cases they have to learn to shape the local environment to make it more conducive for innovation (Porter, Stern, 2001). As organizations, they can encourage public investment and policies that enhance the national innovation infrastructure to improve the clusters.

It is no longer sufficient to manage the innovation within the company; entrepreneurs have to manage the process of how their firms strategically take advantage of opportunities in the local environment (Porter, Stern, 2001). The dual practice of establishing a strong competitive advantage within the firm and attaining a location competitive advantage may be the key to sustainable advantage.

Technocrati Tags: Innovation, Entrepreneurship