Knowledge circulation in innovation networks in the 20th century. Its importance for innovations in small and large companies in the Netherlands

Transcription

1 XIV International Economic History Congress, Helsinki 2006 Session 40 Knowledge circulation in innovation networks in the 20th century. Its importance for innovations in small and large companies in the Netherlands * Eric Berkers*, Mila Davids*, Arjan van Rooij & Frank Veraart Eindhoven University of Technology Department of Technology Management/ Section History of Technology * e.a.m.berkers@tm.tue.nl / m.davids@tm.tue.nl Work in progress. Please do not cite, quote or distribute. Here you will find only the introduction and conclusion, because the paper contains classified material. If you want the whole paper, please contact e.a.m.berkers@tue.nl This paper is part of the research program The co-evolution of the Dutch knowledge infrastructure and innovations in Dutch business, which in turn is embedded in the research program Business in the Netherlands in the twentieth century (BINT). See: < 1

2 Introduction The innovative capacity of firms is considered as an essential element of the national competitiveness. It is therefore not surprising that this has received a lot of attention from various academic disciplines (economics, technology and innovation studies, history of technology, business history). Innovation is considered, as formulated by Jorde & Teece, as a incremental and cumulative activity that involves building on what went before, whether it is inside the organization or outside the organization, and whether the knowledge is proprietary or in the public domain. 1 The ability to combine technological resources to generate new technological capabilities is considered essential for innovation processes. As Nonaka concluded the potential to innovate of a business would depend on its capacity to create new knowledge, spread it through the organization, and incorporate it in new products, services and processes. 2 We have to realize, however, that the expression create new knowledge not only includes in-house research, but all the knowledge seeking and acquiring activities. Innovative firms interact with other organizations in an institutional setting to gain, develop and exchange various kinds of knowledge and information and other resources. The importance of accumulation and exchange of knowledge for innovation processes supports the focus of this paper, viz. the circulation of knowledge in innovation networks. One of the most extended studies on the major success factors for innovations in the chemicals and scientific instruments sectors, the project SAPPHO of the 1970s pointed at the importance of internal network within firms, external collaboration with users and with external sources of technical knowledge. 3 Since then these main results have been also confirmed by studies in other industries. Various studies focused on 2

3 the importance of informal networks for innovations. Von Hippel s research on the US steel mini-mill producers, one of the key studies on informal networks, showed that informal networks of engineers led to exchange of proprietary information. 4 More formal relationships exist between the companies in the supply chain or in a branch organisation. Apart from these companies, also knowledge institutes like universities and research organisations can play an important role in knowledge transfer. The purpose of this paper is to determine the companies' networking activity, which kind of relationships were established and how they affected the transfer of knowledge. In this paper we analyse four Dutch companies who were confronted with various challenges. We are interested in if these companies were able to come to new products or processes and how important knowledge from external sources were for these companies. Although a lot of research pays attention to the role of universities and research institutes in the transfer of knowledge, we are not only interested in these sources but pay special attention to knowledge transfer between companies. When we investigate knowledge we should be aware that innovation processes need various kinds of knowledge. Most attention is paid to the distinction between explicit and tacit knowledge. 5 Less attention is paid to the various kinds of knowledge needed in an innovation process. In line with the work of Gibbons, Johnston and Faulkner show how important various kind of scientific and technological knowledge is for the innovation process. 6 While, for example, chemical knowledge can be sufficient to come to a new product, manufacturing it may need new mechanical knowledge. Moreover, innovations, especially when they are radical, can require changes in the organization, market innovations or commercial approach, for which other kind of knowledge is acquired. 7 3

4 In the remainder of this paper we pay attention to the importance of knowledge circulation in innovation networks for particular innovation processes at four Dutch companies. Two multinationals, the electronic company Philips and the chemical firm DSM, a medium-sized canning factory Hero and a small printing company Budde are studied. A lot of studies have stressed the importance of innovation networks for small companies. Parsons and Rose, for example, illustrated how important personal networks were for the innovative capacity of small entrepreneurs in the British outdoor trade. 8 However, networks are also important for large. Moreover, various studies has shown that external networks were just as important for firms who had their own R&D as for those who had none. We therefore focus on two companies with their own R&D (Philips and DSM), on Hero, which mother company had a research laboratory, and on the small printing company Budde, which had no research facilities. The innovations take place in a variety of sectors and in various periods. All four companies were confronted with major challenges. The economic depression in the 1930s necessitated Hero to come with a new product at short notice, which led to the introduced of the apple drink 'Perl'. In the early 1950s the Philips company had to acquire the capacity to make transistors, which formed a thread for the existing tube market. In respond to the run-down of the coal business DSM diversified DSM went into lysine at the end of the 1960s and had to find a market for this amino acid. In the 1980s the printing industry was confronted with new developments in automation of composing equipment. Especially for a small company the large investments made the decision when to start with the new equipment even more difficult. In the early 1990s Budde integrated the Apple computer in its printing process. 4

5 Concluding remarks These four case studies underline the importance of networks for innovative capacity. Via network relations innovative firms get access to all kinds of knowledge for the innovation process. As this paper shows the kind of relationships and the importance of the relationship can vary considerably. The various relationships also give access to different kinds of knowledge. A broad network of actors was involved in the introduction of Perl at Hero. Although some contacts were Dutch, the most important relationships were established via Hero's mother company Lenzburg in Switzerland. The Dutch horticulture sector approached Hero to start the production of fruit juice. Hero got in contact with Dutch breweries to acquire knowledge of bottling and to get access to distribution networks. This were all informal relations. The relationship with the Swiss company Schlör was more formal. Via a licence contract Hero got access to the process of making the sparkling apple juice. When information was needed to improve the quality of the juice, the contacts of Lenzburg also proved to be important to acquire knowledge from other fruit juice producers and the Swiss experimental station for fruit and wine. For Hero the Swiss knowledge infrastructure was more important than the Dutch knowledge infrastructure. Based on its international contacts Hero was able to compete on the Dutch market for fruit juices. The case of Philips illustrates that also for large companies with an extensive internal network, relationships with other companies are essential. For information about the latest developments visits to other foreign companies were important. To get access to the external network, however, a solid knowledge base is necessary. Scientific reputation facilitated external contacts and absorption of external knowledge was only 5

6 possible when they knew how to apply it. Based on the literature Philips was able to develop and produce point-contact transistors. For the layer transistor, a transistor with better performance, more tacit knowledge was needed, which came available after the signing of the licence-agreement with Bell. This knowledge, however, was less appropriate to produce layer transistors in large quantities. Because it was difficult to sign a licence-agreement with RCA, who had developed a process for producing transistors in large quantities, Philips had to wait until the official publications became available. For the development and production of lysine, DSM could rely entirely on its internal R&D and production capabilities. However, to find a market for lysine DSM built relationships with external actors; research institutes and customers, most of them Dutch in origin. The most promising idea was to add lysine to animal feed. The Dutch public research institute TNO had to prove the effectiveness of adding lysine, as well as the Instutitute for Agricultural Research of Biomedical. Also feed companies were asked to do tests. The relationships with possible customers, however, did not lead to large amount of sales. It also had not provided DSM with insight into the business economical aspects of adding lysine to animal feed nor in the protein norms used by the feed companies. When tests proved that adding lysine to feed was not better and even more expensive than other additives the production plan was closed. The network contacts of the printing company Budde were essential for the introduction of computer aided equipment in the typesetting and composing process. Dealers of equipment offered important information and knowledge, not only by supplying the latest equipment, but also because they offered access to courses and training. Even more important were the relationships with other printing companies in Club Twelve. Although the cooperation between these companies can be labelled as a 6

7 formal network (the goal of this closed cooperative (you had to be inveted) was to exchange information), the most important exchange of knowledge and information was done in a more informal setting. Via these semi-formal relationships Budde not only kept informed about the latest technological developments and management information but was also able to learn from the experiences from another company, which already worked with new computer-aided photo composing equipment. The network even gave Budde the opportunity to gradually make the switch to the new equipment as a result of a division of labour. Before Budde invested in automated typesetting equipment in 1993, it first only bought an Apple-Machintosh computer used as a composing aid and made use of the phototypesetting machinery of a colleague of Club Twelve. When we compare our cases with the explanations given in the innovation research literature, we found that especially for Philips and Hero access to knowledge within other companies was of prime importance. This is in line with those innovation studies which conclude that when existing information and knowledge is not available in the innovating company they seek for it outside its companies boundaries. They use information and knowledge available by other organisations in the network to solve their problems, which would not be possible on their own. The other explanation for the occurrence of knowledge transfer in networks is that two organisations collaborate in a joint project and bring in their own capabilities. The combination of the organisations different capabilities make the creation of a product or process possible. 9 The cooperation between DSM and other organisations is an illustration of this joint knowledge development. Also the cooperation between the printing 7

8 companies formed a way to come jointly developing new information and knowledge, although is was not limited to one project. These outcomes, however, are not that surprising. A more important conclusion drawn from these four case studies is that the networking activity of the firm is very important for the effectiveness of its innovation networks. 10 It determines if and how easy knowledge is transferred and the quality of the knowledge transferred. The networking activity is determined by a firm's external orientation. While Philips and especially Budde were considerably focused on developments outside its boundaries, DSM was not. Although Hero was mainly concentrated on its Swiss mother company, it followed the developments at its competitors and their partners, while Hero Lenzburg was very external oriented. Because the more in- or outward looking attitude is part of the firms' culture, or to phrase it in Nelson and Winter's concept 'organisational routines', it is not always easy to establish new network relations when confronted with technological or market developments. 11 The purpose of networking varied. Not all four companies built relationships to get access to acquire as much knowledge as possible for all the stages of the innovation process (research, development, production, marketing). For Budde and Hero, and to a lesser extent also for Philips, getting access to knowledge was an integral aspect of their innovation strategy from the outset. At DSM efforts to get access to knowledge about the market through network building was less well related to the developmental stages of coming to lysine. A complicating aspect for the R&D oriented actors within DSM was that it was less familiar with market knowledge, than for example Philips, where the knowledge was related to development and production aspects. The search for knowledge of Hero and Budde was less limited to specific areas. They used their contacts to gain a broad range of information and knowledge. 8

9 The cases also illustrate how perception influenced the networking activity. DSM who believed in the superiority of the technologically pushed product lysine and in its substantial market opportunities made DSM less accessible when market demand failed to occur. The relationship building of Hero was largely determined by the wish to get a new product in the market as soon as possible. This urge for speed led to Hero's focus on the Swiss innovation network. The driving idea behind the network building of Budde was the importance of cooperation in this self-regulating sector, not only to keep informed about the latest technological developments, but also to keep risks as small as possible. As a consequence Budde was able to choose the most appropriate time to start with new computer aided equipment. At Philips the opposite ideas of the Natlab researchers and the production department also influenced their relationship building. While for the Natlab knowledge to develop a layer transistor was sufficient, the production department attached great importance to a process mass production and preferred a license agreement with RCA. Past experiences also play a role in the nature of the network activity. Which, or which kind, of organizations are approached, what kind of relationship is established, and what kind of knowledge is acquired is often rooted in earlier network activity. The tendency of DSM to get in touch with research institutes to prove the applicability of lysine was a well known strategy, which DSM had successfully used in the case of fertilizer production and were established via its 'fertilizer contacts.' For lysine, however, this networking strategy was less efficient. The Philips transistor case illustrates that the earlier license agreement with Bell, hindered a contract with RCA. Building a strong network in a completely new field is even more difficult, but not impossible. Hero was aware that making contacts in the beverage industry would offer access to their distribution network. Although much is written about the 9

10 importance of networks and exchange of knowledge, these aspects of the networking activity itself has received only slight attention. 10

11 References: 1 T.M. Jorde and D.J. Teece, Innovation and cooperation: implication for competitin and antitrust, Journal of Economic Perspectives, 4/3 (1990) Under the influence of scholars from history and evolutionary economics the notion that technological advance and innovation proceeds through an evolutionary process, the dynamic nature of the innovation process and especially the importance of accumulation of technological know-how over time is widely accepted. I. Nonaka & H. Takeuchi, The Knowledge-Creating Company (Oxford 1995); 3 R. Rothwell e.a., 'SAPPHO Updated', Research Policy vol.3, nr.3 (1972) Eric von Hippel, The Sources of Innovation (New York 1988) 5 While explicit knowledge is highly codified, tacit knowledge is, as pointed out by Polanyi in the 1950s, the knowledge which exceeds what can be expressed verbally. Most studies illustrate that the transferability of tacit knowledge is much more difficult than that of codified knowledge and demands considerable effort. I. Nonaka & H. Takeuchi, The Knowledge-Creating Company (Oxford 1995); M. Polanyi, Personal knowledge towards a post-critical philosophy (Chicago 1956); NOG AANVULLEN 6 Wendy Faulkner & Jacqueline Senker with Léa Velho, KnowledgeFrontiers. Public Sector Research and Industrial Innovation in Biotechnology, Engineering Ceramics, and Parallel Computing (Oxford 1995). 7 Roy Rothwell, Successful industrial innovation: critical factors for the 1990s, R&D Management 22 (1992) 3, , Mike C. Parsons & Mary B. Rose, Communicaties of knowledge: entreprenuership, innovation and networks in the British outdoor trade, , Business History, 46, 4 (Octrober 2004) The large number of studies on strategic alliances often pays attention to these kind of knowledge transfer. The innovative efforts can also be spread over various organisations in a network in which specialised roles are highly complementary, which is for example seen in the Italian packaging machinery industry. D.C. Mowery, J.E. Oxley and B.S. Silverman, Strategic alliances and interfirm knowledge transfer, Strategic Management Journal, 17 (1996) 77-91; G. Lorenzoni and A. Lipparini, The leverage of interfirm relationships as a distinctive organizational capability, Strategic Management Journal 20 (1999) An important aspect of network building is that the establishment of a relationship and the forming of a network is largely dependent on the willingness to do so. Are management as well as employees willing and able to engage in networking activity, that is, in building and maintaining relationships (informal or formal) with (individuals) in other firms and organisations to acquire knowledge? See also Geoff Mason, Jean-Paul Beltramo and Jean-Jacques Paul, External knowledge sourcing in different national settings: a comparison of electronic establishments in Britain and France in Research Policy, vol.33, Issue 1, (January 2004) p R.R. Nelson and S.G. Winter, An evolutionary theory of economic change (Cambridg Mass. 1982). 11