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E-Business and Innovation Policy: Separate or Together?

In many ways, innovations and E-business compete for the attention of policymakers. Since much hype about E-business, attention has shifted more toward innovation politics, although potential links between the two policy areas appear not to be sufficiently explored, understood or utilised.


Dr Rimantas Gatautis, associate professor, Kaunas University of Technology

E-business can be and has been positioned within the discourse of innovation.  A clichd approach to successful E-business innovations would probably demonstrate a profile of:
Process innovation, focusing in particular on new modes for organising and distributing labour between business partners, including consumers;
Some technical novelty;
Breaking of new ground by challenging existing ways of doing business;
Systemic impact through the facilitation of the dynamics of subsequent change, some of these to be found in the marketplace, including imitation and transfer to other areas.
Innovation in E-business is seen has a highly diverse domain which crosses many dimensions such as stakeholders, functional domains, industries, the uses and roles of technologies, prevailing levels of innovation, etc.  Still, a few common levers for innovation have been identified:
Network effects:  Innovation which depends on a broad range of ideas from different contexts, benefiting from an abundance of global communications links and the resulting opportunities for collaboration and exchange of ideas and information.  These communications links also offer extended opportunities for positive network externalities.
The information revolution:  There have been fundamental changes in rules related to accessing, collecting and analysing information and the price of these processes.  The informatisation of products and services and the process of information-driven business innovation are developing quickly.  The level of transparency is increasing, as is the accuracy of information representation, e.g., of logistical processes.
Power balance:  The balance of power is shifting, and there is much more potential to democratise innovation (von Hippel 2005).  New ways of involving customers or users in (incremental) innovation are quickly appearing.  E-business and the Internet have become hallmarks of the social processes of innovation.  Innovation is increasingly occurring in collaborative environments, such as clusters, which facilitate networks.  Virtual environments such as Second Life are emerging as test beds for innovation and market intelligence.  Living Labs have been identified as promising, multi-stakeholder environments to facilitate, evaluate and disseminate innovation (see, e.g., http://www.livinglabs-europe.com, accessed 25 July 2007).
The new competition (Best 2001):  The Internet has changed the competitive environment in many different ways.  The pace of change has increased.  Innovations today become visible very quickly, which might be accelerating the diffusion of innovations.  The competition of imitation is also increasing.
Obviously, not all of these levers can be used in any single direction.  Indeed, we are seeing opposite effects on the basis of technical issues such as the accumulation and diffusion of power.
E-business is often identified with the spectacular failures of high-flying but not well-substantiated business ideas, but right now E-business is being described as a process of experimentation (Laseter et al., 2007).  This is experimentation that is susceptible to new ideas, a process which explores, tests and modifies at almost a level of playfulness.  The underlying notion and attitude are very much related to innovation.  It is almost like creating a sandbox in which different players come together, take ideas, place them into a different context, make minor modifications or additions, exchange ideas, etc.
Burt  (2005) has discussed these phenomena from the point of view of social networks.  He has pointed out that the boundary spanners between networks who are systematically exposed to ideas from different networks and contexts are more likely be innovative.  New information and communications technologies have the potential of facilitating boundary spanning.
If we relate these ideas to the specifics of small and medium enterprises, we find what appears to be a good fit:
Smaller, incremental innovations might be more appropriate to SMEs, given their constrained resource base;
The culture of experimentation may be a way to create innovation in settings which are typically driven by operative pressure, with hardly any resources and time set aside for innovation;
Policies can help to facilitate boundary spanning and regional innovation.
From the point of view of companies, there are huge gaps between the promises of E-business innovation and the practical challenges which exist in reality.  For one thing, there is technical hype.  Technical progress and related economic benefits are often exaggerated, while risks of an economic, technical and legal nature are underestimated.  Setting up new processes or even inter-organisational links will require significant organisational and technical investments.
Second, there are regulatory gaps.  Technical developments tend to move ahead of administrative and regulatory responses, leaving a gap which companies can close via bilateral contracts, but which is a risk nonetheless.  Administrative procedures are slow in recognising electronic forms of doing business, and even if they are themselves automated, interoperability presents a huge challenge.
A gap in skills is a third problem.  Specific expertise lags behind technical progress, and SMEs in particular are vulnerable to overpriced and under-qualified advice.  New managerial skills are needed in order to excel in an environment that is both multi-disciplinary (technologies, media, design, etc.) and co-operation (both competitive and collaborative).
Finally, there is the issue of infrastructure.  This is an area of policy in which a great deal of emphasis has been put on infrastructure development.  Access provision and facilitation of the rapid rollout of new types of infrastructure (broadband, WLAN) these have been seen as good policies.
In many countries,  E-business and innovation policies have emerged independently from each other, often with distinct responsibilities and little or no co-ordination among the relevant policymakers and working groups.  Work done in the EU-funded Ennovation-net project (www.ennovation-net.org) is based on the hypothesis that E-business policies and innovation policies are not embedded.  They are handled separately, and there should be considerable gains for both businesses and the public sector in linking these policies in a far better way than is the case right now.
Innovation policy has developed a rich array of instruments and approaches that can be applied in the area of E-business.  Collaborative innovation involves partnering, networking and collaborating in order to organise the area of E-business so as to capture market opportunities and reduce risks.  There is an obvious link here to the area of collaborative innovation.  Regional innovation clusters are a particular form of collaboration among a variety of stakeholders so as to facilitate dynamics in innovation in a regional and socially embedded environment.  Initiatives such as destination management in tourism, regional electronic ports such as the Electronic Mall Bodensee, etc., have been established in pursuit of regional cooperation.
Then there is the matter of innovation metrics (scorecards and the like).  E-business is not always particularly innovative, and the use of innovation metrics can help in identifying more promising areas from the perspective of innovations.  Scoreboards mean in-house innovations, ICT expenditures or organisational innovations at an SME which thus are related to E-business activities.
E-business can be explored as a potential area for innovation policies, an area in which the instruments of innovation policy are applied to foster and facilitate E-business innovation.  E-business can become a vehicle for promoting innovation among SMEs.  Small and medium companies are actually seen as key players in innovation systems.  Theyre small, flexible and agile, and they are not bound up in endless debates about how innovation might destroy existing competences and jeopardise existing product lines.
Technology has been identified as the driving engine behind innovation, with standardisation and interoperability, which are based on the philosophy of open systems.  This is an area in which the public sector can take the lead in setting an example.  Moreover, E-business can be seen as a facilitator of innovation and, therefore, as a potential instrument for innovation policy.  Recent analysis of support programmes for innovation and E-business in Sweden, Norway, Lithuania, Greece and Ireland shows two policy-bridging areas.  These are the building up of strategic capabilities, which means searching out market opportunities, including global markets, and also understanding and managing the fit between the capabilities and market needs of the business, as well as building up of internal capabilities.  This refers to managing a tangible technology base (products, R&D facilities, plant, equipment), developing and managing the relevant intangible resources (the qualifications and skills needed by the firm, codification of intellectual capital, intellectual property, etc.), and developing capabilities to manage technologies and change.  External networking aspects of this include accessing external knowledge (science, technologies, techniques, best practice), managing producer/user relationships, and accessing partners with complementary assets such as knowledge, production or supply chain roles, whether domestically or abroad.
The benefits of international networking among businesses have been widely discussed in the context of E-business, and similar arguments can be and have been made for policy networking in this area.  Given the potentially broad scope for collaboration, specific goals and networking modes must be identified and combined.
Networking can be a precarious mode of organisation for a business which relies more on trust and consensus than on written rules or hierarchical power, but the fact is that organisations do choose to collaborate in pursuit of strategic opportunities which are beyond their own means, further extended reach and perhaps control over their environment, and the more efficient use of existing resources (i.e., building scale).
Similarly, networking is quite challenging at the policy level, but there are strategic opportunities which cannot be achieved without collaboration.  E-business policies currently use several different methods for collaboration and networking:
1)  Policy benchmarking:  Various policies are documented, compared and contrasted so as to facilitate learning and exchange.
2)  Policy portal and community building:  A significant component in innovation is the linkage of existing ideas which can then be applied in a different context.  There is huge potential to learning and benefiting from existing initiatives, whether successful or failed, across the European continent.
Technology is often seen as a facilitator for transparency (see, e.g., the E-BSN portal), but the fact is that it alone cannot facilitate transparency or learning.  Information exchange is a core part of good policy, because it facilitates learning and the avoidance of unnecessary investments in the sense of reinventing the wheel again and again.  Information exchange must be embedded into the richer context of information sharing and building up of trust among individuals.  There is the need to embed whichever technical platform is chosen into a vibrant community.
Given the serious responsibilities which come along with policy making, it is crucial to ensure reflective monitoring of the effects of policies so as to facilitate learning and move toward the necessary adaptations.  There are different levels of E-maturity in Europe, there are different policy approaches, and this means huge potential for learning and monitoring.  Once again, a trustworthy environment is a precondition for any type of meaningful collaboration.
3)  Virtual policy organisation for joint projects:  Companies have developed virtual methods for organising themselves so as to enhance flexibility, innovation and customer services.  Virtual organisations are like project consortia in which the participants in a specific project are selected from a comparatively stable pool of partners.  This group facilitates the emergence of joint understanding, commitment and trust.  Project teams have specific focuses and are assembled on the basis of specific competences and available resources.
E-business has contributed in many ways to the innovativeness of countries, regions and enterprises.  It has created an entrepreneurial spirit which has spread across Europe and beyond its shores.  There is a gap between traditional SMEs on the one hand and highly innovative start-ups and large companies on the other.  These latter enterprises have successfully tapped into the potential for innovation in the area of E-business.  The former businesses require particular attention so that innovations are spread out more evenly.  Refocusing E-business policies toward greater innovation while emphasising collaboration among policy institutions and SMEs that is something which holds out a great deal of promise.

References

Best, Michael: The New Competitive Advantage: The Renewal of American Industry, Oxford: Oxford University Press 2001.
Burt, Ronald: Brokerage and Closure: An Introduction to Social Capital, Oxford: Oxford University Press, 2005.
Brynjolfsson, E. (2003): The IT Productivity Gap, Optimize, July 2003, 21 [available at: http://www.optimizemag.com/showArticle.jhtml?articleID=17700941, accessed 20070727].
European Innovation Scoreboard 2006, ProInno Europe, European Commission, Enterprise and Industry DG.
ennovation-Net: Report on Overview of National Programmes, Deliverable D 1.1.1., February 2007.
Farrell, Diana: The Real New Economy, in: Harvard Business Review, October 2003, 104-112.
Hippel, Eric von: Democratizing Innovation, Cambridge, MA.: MIT Press, 2005.
Kelly, Kevin: New Rules for the New Economy, in: Wired, Issue 5.09, Sep 1997 [available at: http://www.wired.com/wired/archive/5.09/newrules.html, accessed 20070725]
Laseter; Tim; Kirsch, David; Goldfarb, Brent: Lessons of the last bubble, in: strategy+business Spring 2007 [available at: http://www.strategy-business.com/press/freearticle/07102, accessed 20070725]
Porter, Michael E.: Strategy and the Internet, in: Harvard Business Review, March 2001, 6378.


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eBaltics
13.11.2019


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