1. The essence of a national innovation system
Dr. Heikki Kotilainen
Deputy Director General
Tekes, the National Technology Agency
Prague

2. Dr. Heikki Kotilainen Deputy Director General
Dr. tech. in mechanical engineering and physical metallurgy, studies in Germany and Austria
Work in business and research
In Tekes since establishment 1983
Responsible for international cooperation, national programmes, funding
Industrial councellor in Boston U.S. ( )
Secretary General of EUREKA in Brussels ( )
Currently responsible for international innovation benchmarking and strategic planning
INNOVATION
TECHNO
LOGY
SCIENCE
PUBLIC
FUNDING

3. The essence of a national innovation system
Innovation system and policy
Operational aspects
Impelementation of the policy
Finnish solution
Conclusions

4. ? THE POLICY DEVELOPMENTS IN FINLAND 1945 2000 TECHNOLOGICAL
WEALTH DRIVEN ?
TECHNOLOGY&
SOCIETY
POLICY FOR
SOCIAL SCIENCES
INVESTMENT DRIVEN
TECHNOLOGICAL
ADVANCEMENT ?
INTERNATIONAL
COMPETITION
TECHNOLOGY POLICY
TECHNOLOGY
SUBSIDIES
NATIONAL
COMPETITIVENESS
MARKET/INNOVATION DRIVEN
MANUFACTURING DRIVEN
INTERNATIONAL
COOPERATION
SKILLS AS COMPETITIVE
FACTOR
INTRODUCTION OF
NATIONAL INNOVATION
SYSTEM
PRECONDITIONS FOR
TECHNOLOGICAL&SOCIETAL
ADVANCEMENT
RISK/VENTURE
CAPITAL
RAW MATERIALS AS
COMPETITIVE FACTOR
GROWING NATIONAL
DEMAND
INVESTMENT
SUBSIDIES
SURVIVAL POLICY
LACK OF
CONSUMER GOODS
INDEPENDENT
INDUSTRIES
DOMESTIC
MARKET
1945
2000
TTKK TM19/HK
© S&T Balance

5. THREE MAIN ARGUMENTS FOR PUBLIC SECTOR TO INVEST IN R&D
First technology, innovation and knowledge investment contribute strongly in economical growth. Created and specialised production factors give relative competition advantage and economical growth.
Secondly based on only market driven factors the research will get too little resources with regard to the needs of the society. The society benefits more from innovations than single innovator.
Thirdly market driven research will be too short-sighted to be able to create long-term benefits to the society. The time span of applied research from idea to the market will be 5-10 years and in the basic research about 20 years.
Source: OECD
Public R&D arguments

6. Key questions concerning public innovation system
Institutional structures
what are the main organizations involved?
what is their role and function in policy design and implementation, and budget allocation?
what are the linkages among these organizations?
Organizational structures
what is the structure of individual organization?
what is the legal set-up of the main organization?
what are the funding instruments and how are they implemented?
© S&T Balance
Public innovation system

7. INNOVATION ROUTE THROUGH THE PUBLIC INNOVATION SYSTEM IN FINLAND
MARKET
MARKET ADAPTATION
INDUSTRIAL APPLICATION
FINPRO
SITRA
FINNVERA
VENTURE CAPITAL
TE CENTRES
SCIENCE PARKS
PRIVATE/SEMIPRIVATE
FINANCING
REGULATIONS,STANDARDS,LAWS
POLICY PLANS,
MINISTRIES AND GOVERNMENT AUTHORITIES
R&D AND INNOVATION DEVELOPMENT
FINNISH INSTITUTE
OF INVENTIONS
TEKES
ACADEMY OF FINLAND
VTT
UNIVERSITIES
POLYTECHNICS
PUBLIC FINANCING
R&D SUPPORT
SCIENCE &
TECHNOLOGY
POLICY
COUNCIL
POTENTIAL INNOVATION
SOCIAL & BUSINESS DEMAND
© S&T Balance
INNOROUTE3/HK

8. Planning and implementing of technology and innovation policy
Government
Parliament
Science and technology
policy council
Annual budget
(law)
3 year outlines
Planning
Ministries
(Education, Trade&Industry, Finance etc.)
Annual & semi-
annual
reports
and
feedback
Annual objectives and agreements
Implementing
the policy
Institutions
(Academy of Finland, Tekes, Universities
VTT, Sectoral Institutes)
Tech.plocy execution

9. BALANCE BETWEEN THE SCIENCE, TECHNOLOGY AND SOCIAL DEVELOPMENT
MAINTAIN CLEAR NATIONAL FOCUS
NATIONAL POLICY/STPC
National Authorities
ADAPTING TO CUSTOMERS
(The Business Community, Society)
PROACTIVE
VISION
(Science and University Community, Society)
BOTTOM-UP REQUESTS
MANAGE KEY DEMANDS
© S&T Balance
Mukula 15/HK

10. The effectiveness of public R&D support
”Protection-Promotion-Policy”
SCIENCE POLICY
BASIC RESEARCH
MATURITY OF THE SOCIETY
NATIONAL PROGRAMMES
APPLIED RESEARCH
TECHNOLOGY POLICY
THE BENEFIT OF SOCIETY
INDUSTRIAL R&D
INNOVATION POLICY
ALLOCATED PUBLIC MONEY
DIRECT SUBSIDIES
INDUSTRIAL POLICY
THE SPEED OF IMPACT
© S&T Balance
SLO1/HK

11. BERD/GERD of Finland 1981 - 2003 % Innovation Policy Technology Policy
Science Policy
BERD/policies
© S&T Balance

12. R&D/GDP in Finland 1981-2003 % Innovation Policy Technology Policy
Science Policy
© S&T Balance
R&D/GDP,policies

13. Guidelines and Prerequisites for Establishing Innovation Policy
Main target: High return of R&D investment
Secure sufficient industrial R&D investment
Do not copy – no directly adaptable features
Environment is dynamic – create a continuous process
Iterative process- questions & answers – solutions
Consider methodology – not single tasks. Single tasks can
serve as concrete examples for the creation
of process/methodology
Statistical data
Auditing the innovation infrastructure
© S&T Balance
Guidelines

14. FACTORS IN THE DEVELOPMENT OF THE
INNOVATION SYSTEM
LARGE ENTITIES UNDER CONSIDERATION
UNIVERSITIES AND SECTORAL RESEARCH AS
A PART OF THE INNOVATION SYSTEM (human resources)
CENTRES OF EXCELLENCE FOR RESEARCH AND
EDUCATION
ORGANISATIONAL
CONSIDERATIONS
SELECTIVE CHOICE AND PRIORISATION OF TOPICS
TECHNOLOGY PROGRAMMES FOR INDUSTRIAL
CLUSTERS
MARKET ORIENTED RESEARCH (product development)
INTERNATIONAL COOPERATION
FOLLOW-UP AND EVALUATION
RESEARCH
CONSIDERATIONS
GOVERNANCE (norms, rules, regulations, laws)
NETWORKING BETWEEN THE ACTORS (vendor/
distribution channels)
LEGITIMATION (creation of trust)
IPR PROTECTION
VENTURE CAPITAL INVOLVEMENT
INSTITUTIONAL
CONSIDERATIONS
© S&T Balance
Pres/factors innovation system

15. CHARACTERISTICS OF FINNISH INNOVATION POLICIES
SUMMARY
CHARACTERISTICS OF FINNISH INNOVATION POLICIES
Networking among all relevant actors
Cooperation (triple helix)
System approach, large entities (value chain) e.g. clusters under consideration
Highly targeted approach and clearly defined goals
Strong technology orientation
Regional aspects, not policy – networking instead of subsidies
Vinnova årsmöte

16. Multiplication of public money in the innovation system
Cumulative tax
Government
Parliament
Ministries
Short term investment
Public finance
Venture
capital
Funding agency
grants
loans
equity funding
Long term investment
Businesses, employment
Universities
Research institutes
New technology, knowledge, skills
(c)S&T Balance
Pres/Multiplicatioon publicmoney

17. Prerequisites for administration involvement in R&D
Business and research understanding
Genuine interest in facilitating development
Trust by industrial community
Trust by research community
Money and funding opportunities
Admini.involvement

18. State Incentives: The Business Perspective*
If the program is a grant, is the grant made directly to the company, or is it given to a locality, which in turn will pass along the incentive to the investor in some fashion?
What are the terms of the grant? Although the idea of a grant generally implies no responsibility to pay it back, there may be some that do expect payback.
What obligations does the grant carry for the firm, both financial, and non-financial?
If the incentive involves debt financing, how does the state view the debt in the hierarchy of corporate obligations?
If debt finance, who is the actual lender and who sets the terms?
If a participation loan, what are the composite terms?
Who sets uinderwriting criteria for the loan, and what are they?
Does the incentive carry any matching requirements, and what are they?
For all types of incentives, what are the requirements in terms of job creation, investment leveraging and/or tax revenue generation?
What are the reporting requirements?
What are the consequences if initial projections are not met?
* Directory of State Business Development Incentives, NASDA 2002

19. Acceptability of state aid and other incentives in the society
COMPLIANCE
with national and
international legislation
TRANSPARENCY
of criteria and processes
EFFECTIVE
Implementation
Speed is crucial!
UNDERSTANDABLE
and
PREDICTABLE
operation
FLEXIBLE
adaptation to rapidly
changing environment
CONTINUOUS EVALUATION
of results and processes
WIDE ACCEPTANCE
in the society
FEEDBACK

20. DEFINITION OF INNOVATION
CUSTOMERS
MARKETS
BUSINESS
MODELS
INNOVATION
IMITATION
BUSINESS
INVENTION
”If innovation is the commercial application of
existing knowledge in a new context,
technologically driven innovation is only one
form of this. Innovation is distinct from
research, which results in new knowledge
and from the entrepreneurial function that
spots market opportunities for products and
services. It is the result of the interaction of
these two functions”
”Innovate for a competitive Europe”,
A new Action Plan for Innovation,
European Commission, 2004
RESEARCH, KNOWLEDGE, IDEA,
TECHNOLOGY
© S&T Balance
Innovation def.

21. RESEARCH AND INNOVATION A new Action Plan for Innovation,
New knowledge
Curiosity
Business models
Customer needs
Research
”If innovation is the commercial application of existing knowledge
in a new context, technologically
driven innovation is only one
form of this. Innovation is distinct
from research, which results in
new knowledge and from the
entrepreneurial function that spots
market opportunities for products
and services. It is the result of the interaction of these two functions”
”Innovate for a competitive
Europe”,
A new Action Plan for Innovation,
European Commission, 2004
Innovation
R & D
WORK
Linear model
Scientific excellence
Turnover/earnings
Growth and Employment
© S&T Balance
Meet R&I

22. RESEARCH PARADIGMS Old paradigm (Linear model)
BASIC RESEARCH APPLIED RESEARCH DEVELOPMENT
New paradigm (Concurrent model)
SCIENTIFIC UNDERSTANDING
PROBLEM
SOLVING
BUSINESS
OPTIONS
DEMAND
Basic research
MARKET
SOCIETAL & BUSINESS CHALLENGES
Applied research
Development
TECHNOLOGICAL SOLUTIONS
TTKK TM 15/HK
© S&T Balance

23. The Interface of Research and Industry
CURIOSITY
KNOWLEDGE CREATION
SCIENTIFIC EXCELLENCE
PUBLICATIONS
CUSTOMER NEEDS
MARKET&MARKETABILITY
STRATEGY
PRODUCT PORTFOLIO
R&D PORTFOLIO
COMPETENCE
MONEY&FINANCING
IPR
REVENUES
TECHNOLOGY TRANSFER
R&I interface

24. PRIORITIES OF THE INNOVATION SYSTEM
Case: Finland
SUPPLY
DEMAND
RESEARCH
FACILITATOR
ENTERPRISES
QUALITY:
APPROPRIATE
STANDARD
RELEVANCE
EFFECTIVENESS
PUBLIC FINANCE
NATIONAL
PROGRAMMES
VENTURE
CAPITAL
IPR PROTECTION
ARTICULATION
OF NEEDS
APPROPRIATE
TECHNOLOGY
ABSORB NEW
TECHNOLOGIES
Pres/ priorit,innovation system

25. Technology programmes
Steering
enterprices
23 on-going programmes in with a total extent of EUR 1.2 billion
a programme lasts typically
3–5 years
annually 2000 company participations
annually 800 research unit participations
Tekes usually finances –80 % of university projects –50 % of company
projects
Public research projects
Grants
Tekes
preparing
co-ordi nating
decision making
Synergy
Networking
Concurrent development
Part financing
Grants
Loans
Capital loans
Company R&D projects
Implementation of results of public research is based
on parallel execution and networking with company projects.
#54280

26. Annual average 2000 - 2002 Million euros
Funding flows of Tekes funded R&D projects between large companies, research organisations and SMEs
Annual average Million euros
Universities
Public research centres
SMEs
Large companies 30
Project volume 17 6 11
Tekes 90
Funding flows to/from large companies
Tekes funding to R&D projects of large companies
Large companies projects buy research services from research organisations
Large companies projects use SMEs as subcontractors
Large companies co-finance public research projects
Net flow
+ 30
- 17
- 6
- 11
- 4
Large companies (more than employees) receive 8 % of Tekes total funding and 13 % of Tekes business R&D funding. Large companies co-finance Tekes R&D projects in universities, public research centres and SMEs more than Tekes finances their projects.
This system is managed by Tekes funding criteria. The system increases the quality of R&D projects and has important externalities in:
knowledge transfer between large companies and research organisations
development of SMEs as subcontractors and strategic partners of large companies
DM 58774
Copyright © Tekes

27. Networking in corporate R&D projects funded by Tekes
Share of networked projects, %
Total corporate R&D projects
Subcontracting from research institutes
Part of technology programme
International cooperation
Large company subcontracting from SMEs
DM 58620
Copyright © Tekes

28. The Main Factors of Operations by the National Innovation Agency
Speed and Efficacy
(concurrent development)
Trust (independent, centralized
decision making)
Expertise (human resources)
Innoagency

29. Unique features of Finnish innovation system
Simultaneous implementation of following issues:
Genuine and voluntary cooperation within Triple Helix
High degree of concensus and implementation
Funding simultaneously universities, research insititutes and
industry to couple basic, applied research to development
High degree of freedom for decision making
In-house assessment of projects
System for national technology programmes
Genuine, holistic and simple system (few actors)
Uniqueness of FI system

30. CONCLUSIONS GOVERNMENT IS A FACILITATOR - NOT AN OPERATIVE ACTOR
TECHNOLOGY MUST NOT DEPART FROM THE SOCIETAL DEVELOPMENT
- OBJECTIVES FOR THE SOCIAL RESEARCH
- UTILISATION OF TECHNOLOGY IN SOCIAL AND SECTORIAL SCIENCES
R&D FUNDING MORE FOCUSED ON
- GOAL ORIENTED BASIC RESEARCH
MARKET ORIENTED DEVELOPMENT
NETWORKING
SECURING THE QUALITY AND QUANTITY OF RESEARCH RESOURSES
- FOCUS ON EDUCATION
- RESEARCHER CAREER AS A RELEVANT OPTION
CONSCIOUS ACTIONS REGARDING “CONCURRENT DEVELOPMENT”
INTERNATIONAL COOPERATION AS A PRACTICAL TOOL -
NOT AS A HOBBY
© S&T Balance
Pres/conclus policy

31. Thank you for your kind attention!
Dr. Heikki Kotilainen
Thank you for your kind attention!