Digital innovation and inclusiveness

 

 

Innovation activities are unevenly distributed across geographic locations, industries, firms and individuals.

The concentration of innovation activities affects the extent to which different individuals, firms, sectors and regions can successfully engage in innovation ecosystems. While this is not a new phenomenon, innovation hot spots – generally dynamic urban areas as exemplified by Boston, London and Tel Aviv – have gained in importance with the growth of the digital economy. They bring together top talent, attract important financial resources for innovation, and function as living laboratories for many digital service innovations.

Interestingly, despite wider digital opportunities to access knowledge and engage in collaborative research and innovation at a distance, geographic disparities persist.

Superstar researchers, firms, industries and inventors have also gained in importance in the digital age, as knowledge diffuses at large scale but access to extensive knowledge sources leads to selection. Disparities at the industry level have sometimes resulted in ‘dual economy’ situations, where a small number of highly innovative and competitive firms coexist with a long tail of non-innovative ones.

While disparities are inherent to innovation, high levels of inequality negatively affect wellbeing and weaken economic performance.

Some levels of inequality can be argued to stimulate innovation by generating incentives. Concentrating activities in specific clusters, universities or firms may also be more efficient in producing high-value innovations than spreading them more widely.
However, high levels of inequality do not only negatively affect wellbeing and social cohesion, but may also reduce the effectiveness of the economy. The concentration of innovation activities in a few firms may lower market competition (resulting in lower levels of innovation in the long term) and increase wealth inequalities. The underrepresentation of certain social groups in innovation activities (e.g. due to discrimination, persistence of stereotypes) imply that human resources in the economy are not used to the full potential, which negatively affects productivity growth in the long run. It also lowers the levels of diversity in innovation ecosystems, a critical driver of innovation.

Read more about why is innovation concentrated geographically.

The characteristics of innovation in the digital age are changing.

The digital transformation changes innovation because of the significant reduction in the cost of producing and disseminating knowledge and information – innovation’s key ingredient. Four pervasive trends characterise innovation in the digital age. First, data are becoming a key input for innovation. Second, innovation activities increasingly focus on the development of services enabled by digital technologies. Third, innovation cycles are accelerating, with virtual simulation, 3D printing and other digital technologies providing opportunities for more experimentation and versioning. Fourth, innovation is becoming more collaborative, given the growing complexity of and interdisciplinary needs for digital innovation.

 

Digital innovation is also changing market dynamics and structures, often favouring the rise of “superstar” firms.

In the digital era, firms launching new digital products or services often benefit from network dynamics (i.e. the value of their offering increases with the number of users, as is the case of platforms). ‘Superstar’ firms are emerging in this context, where a small advantage over competitors allows those firms to seize a large part of the market (‘winner-take-all dynamics’). Such dynamics contribute to widening the gap between ‘the best’ and ‘the rest’. Similarly, superstar scientists dominate across diverse research fields in spite of much easier access to research produced across a large number of research institutions and countries.

Diffusion of benefits of innovation remains a challenge.

The concentration of most innovative activities would not pose an inclusiveness challenge if the benefits of innovation spread across firms and regions – that is to say, if knowledge and technology produced in the most innovative areas were diffused throughout the economy, with the resulting positive impact on productivity and well-being across all sectors and regions. Weak absorptive capacities of individuals and firms performing non-innovative activities and/or located in lagging areas frequently hinder such diffusion.

Read more about what impact could digital technologies have on the geography of innovation.

Innovation policies are central to growth agendas in most countries, but have figured much less prominently in strategies to promote inclusiveness. Other policy areas such as education, social and labour market policies, competition and tax policies have traditionally played a stronger role in fostering more inclusive societies. Inclusive innovation policies - policies that aim to remove barriers to the participation of individuals, social groups, firms, sectors and regions underrepresented in innovation activities - are important additions to the policy toolkit against a background of widening inequalities in most OECD countries. Examples include the provision of grants to researchers from disadvantaged groups and business development support for entrepreneurs, the deployment of ‘role model’ programmes, and financial support to projects that use innovative solutions to address challenges in remote areas. The OECD Inclusive Innovation Policy Toolkit provides a typology of instruments by type of objective.

Targeted technology diffusion instruments may also help reduce gaps. While only some “leading” regions, industries or firms are endowed with the necessary assets and capacities to develop breakthrough innovations, other regions, industries or firms may significantly benefit from investments in the adoption of existing technologies or the development of specific applications that are relevant to their regional economy, the industry or firm. Policy should thus take those differences into account, with investments in technology adaptation and diffusion that target the needs of followers. Regionally targeted procurement could also be explored to foster the creation of innovative products and solutions by firms in remote regions.

Digitalisation features prominently in national science, technology and innovation (STI) policy agendas, as part of main STI strategies or as dedicated national digital strategies, Industry 4.0 strategies or artificial intelligence (AI) strategies. Governments are also experimenting with novel innovation policy approaches and instruments to facilitate successful digital transformation that is inclusive. Among a diversity of policy goals are promoting digital technology adoption and diffusion across the economy, and rendering collaborative innovation more effective.

To enhance digital technology adoption and diffusion, some countries have established demonstration facilities and provide targeted support to SMEs (e.g. SME 4.0 Competence Centres in Germany). More experimental approaches include the creation of test beds and regulatory sandboxes to facilitate testing of new digital technology applications. Innovative initiatives are also implemented to facilitate innovators’ access to state-of-the-art facilities and expertise (e.g. the Machine Intelligence Garage of UK’s Digital Catapult, High Performance Computing Centres), and in so doing enhance early adoption of advanced digital technologies. Traditional instruments to encourage technology adoption by SMEs – such as awareness-raising campaigns, innovation vouchers, technical assistance and training – are being revisited to respond to new challenges of the digital age, and these endeavours themselves often involve use of digital tools.

New policy approaches to nurture collaborative innovation include the use of crowdsourcing and research challenges open to anyone willing to engage in finding solutions (e.g. Citizenscience.gov in the US), as well as the creation of living labs, to find innovative solutions to pressing challenges and encourage co-creation among various actors. Intermediary organisations, such as Catapult Centres in the United Kingdom, have become central players in innovation ecosystems, and provide services such as matching firms needing technology solutions with potential suppliers. New research and innovation centres, often public-private partnerships, have also been created to provide spaces for multi-disciplinary teams of public researchers and businesses to work together to address specific technology challenges. These often stand out for their innovative organisational structures. Examples include Data61 in Australia and Smart Industry Fieldlabs in the Netherlands. Traditional instruments such as cluster policies (e.g. the Digital Hub Initiative in Germany), the creation of networks and provision of financial support continue to be implemented but are used in new ways.

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The OECD Working Party on Innovation and Technology Policy (TIP) provides evidence-based advice to countries to foster STI policies that enhance productivity and foster sustainable and inclusive growth. With a strong expertise in the fields of digital innovation and inclusive innovation, TIP’s most recent paper investigates how digital technologies have shaped the concentration of inventive activity in cities across 30 OECD countries. TIP work in this area will address three open questions and their policy implications:

• ► What are the impacts of the COVID-19 crisis on the inclusiveness of innovation ecosystems?
• ► How does digital and AI-driven innovation affect territorial disparities?
• ► What is the role of human resources for inclusive innovation in the digital age?

The unfolding COVID-19 crisis has far-reaching implications across countries. Its implications will have unequal effects across firms and regions, depending on the intensity of the shock and the nature of the policy responses to address the crisis. Containment policies that affect a large part of the world population and reduce not only travel but also direct personal exchange may also alter the nature of collaborations, changing possibly virtual collaborations in ways that are difficult to predict at present.

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