Innovation and Entrepreneurial Networks in Europe

Paloma Fernández Pérez, Mary Rose

• Publisher: Routledge
• Year: 2009
• Print ISBN: 9780415454513
• eBook ISBN: 9781135213794
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The entrepreneur is involved in the dance of two questions – what is needed and what is possible. The interplay of these two questions is an ongoing process and innovation varies internationally and regionally, depending on differing legal and policy systems, variations in the development of education and skill development, in social processes and in knowledge transfer. This book explores innovation and networks in entrepreneurship with an interdisciplinary approach, focusing on how old and new knowledge can be combined to produce radical innovation.

These chapters combine themes of entrepreneurship, innovation and networks with a specifically European focus, highlighting the wide variations at the national, regional and business level. These variations suggest the need to break with traditional stereotypes about Southern and Northern Europe. The book takes a Schumpeterian perspective, emphasising the importance of looking at the history of entrepreneurship and innovation, paying particular attention to the neglected area of innovation in services within firms.

1 Introduction
Innovation and Entrepreneurial Networks in Europe
Paloma Fernández Pérez and Mary B. Rose

The chapters in this volume draw on business history, alongside the literatures of entrepreneurship, innovation and networks, to reflect the experience of innovation in Europe in the twentieth century. America is often used as a bench mark for studies of innovation in large-scale, technologically intensive firms. We know considerably less about models of innovation that consider comparative empirical evidence from heterogeneous European countries and regions. Insights are drawn from small- and medium-sized firms, from managerial and organizational innovation, from innovation in ‘traditional’ sectors such as consumer-goods industries and from service innovation.

Chapters in this book, to a greater or lesser extent, all touch upon the idea of systems of innovation. With a national, sectoral or regional character, European systems of innovation involve collaborative links, usually between universities, industry and government. For this reason it provides a useful framework to explore the links between chapters. Varying international experience, however, demonstrates the importance of analyzing the way in which distinctive histories, business and national cultures, as well as institutions, shape innovation practice and processes.

The book is interdisciplinary, but academic boundaries are surprisingly acute, even where interrelatedness is anticipated:

Given the inherent interrelatedness of entrepreneurship, innovation and creativity, one would expect there to have been a natural conscious blending of research interests, results, methodologies and diverse applications; yet each field is neatly compartmentalized with little cross pollination. For example, creativity is rooted firmly in psychology and innovation has primarily been examined in fields of technology and engineering. (Brazeal and Herbert 1999)

This view was echoed in a recent Harvard Business School interview with Geoffrey Jones, co-editor of The Oxford Handbook of Business History (2008). He observed that despite having much to offer the study of entrepreneurship and management, business history has developed in a separate silo, which has ‘resulted in the spread of influential theories based on ill-informed understandings of the past’ (Jones 2008). This makes combining historical perspectives with theories of entrepreneurship, innovation and networks especially rewarding. This introduction explores how this can be achieved and the implications for analyzing European innovation experience. The book is organized in four sections covering respectively theories of entrepreneurship, innovation and networks, innovation and international competitive advantage and collaboration and knowledge transfer.

The cases analyzed in the book come from firms whose business activity has taken place in a wide variety of European territories, including Scandinavian and Mediterranean countries, the United Kingdom, the Netherlands and Germany. Diversity is the rule, but despite the differences, the empirical evidence contained in the chapters offers manifold insights into the significance of personal networks linking entrepreneurs, governments and regional or national associations in the creation or transfer of innovative knowledge in Europe. Within multinationals such as the case of Philips analyzed by Davids et al., the big banks touched upon by Kipping, or among small and medium firms, as Colli’s chapter indicates for Italian chemical firms and Puig’s and Fernández Pérez’s chapters for Spanish pharmaceutical and metal manufacturing firms, respectively innovation was above all a social process of communication among persons belonging to different intellectual and cultural groups. The creation of ‘communities of practice’ where entrepreneurial people crossed borders and could regularly meet has been in fact a common thread in the vast majority of innovative experiences analyzed in this book. The chapter by Parsons and Rose in this book presents a good overview of the theoretical literature about this concept, so useful to understanding the creation of European systems of innovation in a long-term historical perspective.

The book contains first of all two strong theoretical chapters by Casson and by Parsons and Rose that overview common concepts and ideas about innovation and its relationship with entrepreneurial networks as described by the authors of the book. Then follow nine chapters with case studies that present very different empirical results about how and why innovation has taken place in firms of different size and economic specialization. These chapters include small firms through to big multinationals, from industries with diverse technological content and added value (food production, forestry industry, chemical and pharmaceutical manufacturing, metal production and bath tube equipment industries, IT sector etc.) through to services provided within clusters and services distributed worldwide (as in the case of consultancy). The chapters are methodologically diverse, though they all coincide in emphasizing that innovation in Europe has definitely not been an isolated technological process. Also, that it has rarely been the outcome of isolated public policies of innovation. Rather, the diverse firms and experiences analyzed strongly confirm that it has been a social and institutional process, where interest groups and associations have played a role as important as the one played by outward-looking entrepreneurs well connected with such interest groups and associations. Of course Schumpeterian creative and imaginative individuals have played a role, but this has been the case because they have been able to connect with teams prepared to develop and commercialize individual innovative ideas. This introduction does not therefore repeat what is already summarized at the end of each chapter, but concentrates on surveying the common themes addressed in the volume and their relationship to wider debates surrounding the idea of innovation as a social and learning process.

ENTREPRENEURSHIP AND NETWORKS

Entrepreneurial decision making is a dynamic process, where what is needed and what is possible are constantly changing. What is needed reflects what the consumer wants, whereas what is possible is shaped by the knowledge and skill embedded in the firm, combined with technology and shaped by engagement with networks of suppliers within the organization, with other organizations, with government and with customers. Innovation involves the commercialization of a product, a service or a process, or a combination of all three. This only occurs when there is an appreciation of the changing relationship between consumer demand, technological capabilities and the wider business and economic environment. Creativity and imagination are vital to innovation, but alone they do not lead to commercialization or diffusion, and it is here that the link with entrepreneurship becomes crucial. Entrepreneurship involves the recognition and assessment of opportunities and is often the bridge between creativity and innovation. This is because the entrepreneur is involved in what can be described as the dance of two questions—what is needed and what is possible—and the interplay of these two questions is an ongoing and dynamic process (Stefik and Stefik 2004, 27–46). Responses are shaped by the changing knowledge of the external environment, by social and business networks, by changes in the legal system, by changes in the competitive environment and by market changes. The idea of innovation as an entrepreneurial dance of two questions is introduced by Parsons and Rose in this volume.

‘Networks are everywhere’, as Casson points out in his chapter on networks in economic and business history. But they are not all benign or beneficial, and some malfunction. Several chapters in this book explore the diverse ways communication occurs or fails to occur through social networks in different time periods, sectors and regions to identify and develop new combinations of old and new knowledge, or to build awareness of ideas which respond to changing needs.

INNOVATION SYSTEMS

Innovation systems provide an important platform for making sense of knowledge exchange within and between firms and sectors, as well as between individuals, across communities, regions and nations. Innovation systems are about how innovation takes place, who is involved and how and where they interact. They provide a good starting point for analyzing how and why entrepreneurial networks are crucial to the innovation process and the way in which they function.

Innovation, or the commercialization of a new product, service or process, is rarely carried out in isolation, but is socially embedded. Taking Schumpeter’s definition as a starting point, innovation involves ‘combining productive services . . . combining factors in a new way or that it consists of “new combinations”‘ (Schumpeter 1939, 87–88).

This observation points to innovation taking place at the boundaries of areas of knowledge and expertise and being underpinned by interactive learning processes, involving exchange of both codified and tacit knowledge. But the iterations that occur have the potential for developing new knowledge, which may stimulate innovation. The role is crucial here for entrepreneurship because

[s]ometimes, an innovation might be almost inevitable—the new combination might be easy to find and to realize. In other cases, it might take an enormous intellectual effort or an extremely creative mind, to identify a potential new combination. (Lundvall 1992, 8)

These ideas lie at the heart of wide-ranging research on national, regional and sectoral systems of innovation (Ludvall 1992; Edquist 1997). As Edquist observed,

In the pursuit of innovation they interact with other organizations to gain, develop and exchange various kinds of knowledge, information and resources. These organizations might be other firms (suppliers, customers, competitors) but also universities, research institutes, investment banks, schools, government ministries. Through their innovative activities firms often establish relations with each other and other kinds of organizations; therefore it does not make sense to regard innovating firms as isolated, individual decision making units. (1997, 1)

Small and medium firms that succeed in commercializing products or services in distant markets—such as the ones described in the chapters by Parsons and Rose; Fernández Pérez; Colli; Davids et al.; Ojala, Lamberg and Melander; and Puig—are particularly good case studies that show how, in different sectors and regions, European innovation in the twentieth century was essentially about establishing links with other firms and organizations. And chapters dealing with banks (Kipping) and diversified multinationals (Davids et al., Saarinen) indicate the importance of developing efficient internal processes of organization to make innovation possible in larger firms. In all cases, and particularly after the 1950s, the chapters of this book show that contacts with outward-looking universities and institutions made the flow of information and people and the crossing of knowledge boundaries possible. In a recent conference about large family firms in the world, John Davis, from Harvard University, indicated that U.S. business schools are noticing nowadays that, in contrast with the previous century, big U.S. multinationals seem to be relying less and less on business-school expertise and training. Instead they are creating their own knowledge-exchange centres for creative and innovative employees working in their businesses around the world. This is reminiscent of practices in some Asian countries a few decades ago and is developing as a key new strategy for innovation training among Dutch multinationals (Sluyterman and Westerhuis 2008). In contrast with big corporations, large European family firms have been increasing their links with one another and with outward-looking institutions and organizations (Tàpies and Ward 2008; Fernández Pérez and Puig 2007, 2008). Innovation then is complex and based on social interaction.

The inspiration for what we now call ‘national systems of innovation’ had its origins in the second half of the nineteenth century, when the needs of emerging industries became increasingly reliant on science and academic research. Businesses in Germany and the United States, where the R&D departments of large firms in chemicals and electronics developed close ties with universities, enjoyed considerable international competitive advantage. Fears of foreign competition in established industrializers such as Britain, along with the quest for catch up by later industrializers, led in the twentieth century to the spread of three-pronged initiatives where governments promoted closer ties between industry and universities. From the 1970s there was an acceleration in the number of government plans to link university and industrial research to stimulate economic development and regeneration (Mowery and Sampat 2005, 209). This stimulated a growing body of academic literature around national, regional and sectoral innovation systems (Lundvall 1992; Edquist 1997; Cooke 1996, 2001). Alongside this literature, and often overlapping with it, has been a growing interest in industrial districts, sometimes described as regional production systems. Interest has been prompted by the dramatic and well-known economic success of ‘Third Italy’ with the innovative flexibility of such labour-intensive sectors as clothing and shoes in Northern Italy, or in the innovative, dynamic hi-tech clusters of universities, companies and venture capital in Silicon Valley or Route 128 in the United States (Zeitlin 2008, 220).

The development of close synergistic relationships between universities and businesses, however, is just one dimension of innovation systems. Innovation systems reflect the interactions involved in achieving innovation. They may involve government initiative, but this is by no means inevitable, as much depends on timing, on the type of knowledge involved and on economic, social and political factors. Systems are sometimes supranational, while national systems are frequently underpinned by and intertwined with regional and sectoral systems (Edquist 1997, 11).

THE IMPACT OF HISTORY ON INNOVATION SYSTEMS

History is central to much theorizing about the development of national systems of innovation. This is because

[t]o have a historical perspective is not only an advantage when studying processes of innovation, but also necessary if we are to understand them. This is because innovations develop over time . . . History matters very much in processes of innovation as they are often path dependent: small events are reinforced and become crucially important through positive feedback. (Edquist 1997, 18)

In addition, looking at innovation systems historically gives profound insight into the way in which varying types of expertise, along with economic, technological, political and social conditions, create differing arrangements for exchanging knowledge to achieve innovation. Historical analysis helps explain why a simple linear ‘stages’ approach to innovation systems through time can be misleading. It helps identify the reas...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of Figures
• List of Tables
• Acknowledgements
• 1. Introduction: Innovation and Entrepreneurial Networks in Europe
• 2. Networks in Economic and Business History: A Theoretical Perspective
• 3. Innovation, Entrepreneurship and Networks: A Dance of Two Questions
• 4. Management Consultancies and Organizational Innovation in Europe
• 5. Uncovering the bottom of the Iceberg: Innovation and Large Family Firms in Spanish Metal Manufacturing
• 6. Patterns of Innovation, Strategies and Structures in the Italian Chemical Industry, 1973–2003
• 7. Competitive Behaviour and Business Innovations in the Forestry Industry: Family Firms and Listed Firms in Comparison
• 8. Networks, Cartels and Innovations in Finland, 1945–1984
• 9. Networks of Opportunity and the Spanish Pharmaceutical Industry
• 10. Knowledge Circulation in Innovation Networks in the Twentieth Century: Its Importance for Innovations in Small and Large Companies in the Netherlands
• Contributors