Dynamics of Soft Innovation

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Soft innovation refers to a  form of innovation occurring in processes not related to science and technology, such as marketing, business model and organizational forms, which  stands out of the scope of innovation policies and measurement

‘soft innovation’ is by no means exclusive to ‘low innovation’ sectors (banking, oil production, education, construction, legal aid), : there may, indeed, be large amounts of  soft innovation underway in sectors that also innovate in the traditional manner and which are heavily dependent on science and technology. Despite going unmeasured, hidden innovation frequently represents the innovation that matters – the innovation that most directly contributes to the real practice and performance of a sector.

The detailed operation of these sectors innovation system is considerably different. In banking, innovation often relies on investments in ICT supplied by service companies which are then integrated to provide new services to customers. By contrast, in education the bulk of new practice is developed by individual schools and teachers. In oil production and the rehabilitation of offenders, it is frequently ‘non-sector’ groups that provide innovation (for oil, it is global service suppliers like Schlumberger; in rehabilitation of offenders, it is frequently voluntary groups). In construction, collaborative problem-solving with clients is a major source of innovation. This contrasts strongly with legal aid services, for instance, where there is currently limited innovation involving clients or the lawyers providing services to them.

These sectors, innovation doesn’t move in a linear way from ‘laboratory to marketplace’ within a single business or organisation. Indeed, innovation is not synonymous with research; it is more developmental, based around individual projects and conducted in response to particular challenges and problems. Collaborations between businesses, suppliers, contractors and (in some cases) clients and customers generate the majority of successful innovations. This reinforces contemporary theoretical understandings of innovation that characterize it as a complex and interactive process involving multiple feedbacks between different services and functions as well as manifold interactions with customers and suppliers.

In these cases, suppliers and intermediaries play a major role in developing and diffusing innovations. When they function correctly, this makes for effective sectoral systems of innovation, by which innovations are generated, developed, implemented and diffused rapidly and efficiently. In some sectors like education, there exist formal intermediary organizations and the Innovation Unit, whereas in others, private consultancies or trade associations perform this function.

When innovation processes are distributed geographically and across a ‘hinterland’ of organizations and sectors, the development of innovation depends not only (or indeed primarily) on the internal resources allocated to R&D but on a far broader set of capabilities that are captured by the concept of ‘absorptive capacity’. This capacity is a business’s ability to identify, assimilate, and exploit knowledge from its wider environment, including the quantity and quality of its networks – be it from other research centers, businesses, or customers. Innovative capability, therefore, is largely to do with the ability to identify and exploit systematically the effects produced by new combinations in the existing stock of knowledge. This process has been called ‘innovation without research’ and echoes the recent emphasis on ‘open innovation’; that firms should better utilize ideas from outside sources rather than always seeking to invent for themselves. In the open innovation model, internal R&D remains necessary, but chiefl y to exploit value from external ideas.

For example, in the oil sector, BP worked with ten other businesses to develop a system called Life-of-Field Seismic that produces three-
dimensional ‘movies’ of oil wells. On its own, this innovation – for a single company – is estimated to have the potential to increase recovery from fields worldwide by one billion barrels.
In this sector, the application of Nuclear Magnetic Resonance (NMR) to identify oil reserves in the North Sea was helped by the parallel development of the technology by American medical researchers. NMR is now a widely-used technique to optimize production in oil fields across the world; it increases revenues from fields by millions of dollars.

In education, teachers have found that collaborations between schools can be a highly productive way of developing and evaluating innovative new practices – far more effective than other forms of continuing professional development. p17

These organizations are also positioned to diffuse successful new practices far more widely than individual schools or teachers would ever be able to.

Studies show that being an ‘innovative organization’ can mean playing one or more of four different roles, all of which are important in sectoral systems of innovation:
An organization might be a generator of new ideas – for example, a global technology supplier in oil or financial services;
It might be a developer of ideas into fully-fledged innovations – for example, a large oil production or construction company;
It might be adept at being a fast-follower, an adopter of innovations developed elsewhere – for example, a retail bank or small oil company;
It might be a supplier or transmitter of innovations to others – for example, a trade association in construction or a partnership of schools in education.

Sectors don’t necessarily need to develop innovations from scratch in order to be more innovative. Construction demonstrates particularly well that a sector can improve its capacity for innovation by adapting and exploiting the technologies and approaches developed in other sectors by, for example, fully utilizing ICT project management tools.
Innovations also frequently draw on expertise that is present in traditionally-unrelated sectors. For instance, the steelmaker Corus developed its Living Solutions modular accommodation system by transferring its manufacturing expertise, including computer-
controlled equipment and assembly production, from its traditional use in metals production. This approach to off-site manufacture in construction can reduce costs by more than 30 per cent compared to traditional methods and reduce environmental damage by halving the number of deliveries to building sites.

Retail banks’ experience of internet banking shows that maximizing economic return requires that technological innovation be complemented by organizational innovation. Initially, many internet bank operations were developed as separate, ‘green field,’ organizations to minimize risk and to circumvent the difficulties of introducing new systems and approaches within an existing organization. In several cases, the processes and services developed by these new operations have now been fed back into the parent companies. However, realizing the full economic benefit from this has been dependent upon simultaneous organizational change that has, for instance, transformed high street bank branches from delivery channels to sales offices for a broader range of new   financial products and services.

In oil and the financial services, the main barriers to innovation tend to be unfavorable framework conditions. In the oil sector, much innovation is driven by the need to explore for new oil reserves. This expenditure on exploration activity is determined by economic calculations based upon the present and projected oil price and local conditions such as taxation and regulation.

In construction, as in many sectors, a supply of skilled personnel is crucial to the ability to develop and implement innovations. The skills deficit in working with modern methods of construction has been a significant barrier to the wider adoption of these innovative techniques In sectors such as legal aid services and the rehabilitation of offenders there are structural and cultural factors that inhibit innovation, despite the obvious need for new approaches and ways of working.

The legitimate prioritization of the delivery of critical services (such as public safety in dealing with offenders) might restrict opportunities for innovation; in turn, the criticality of these services may result in consistent political pressure that creates a fear of failure that precludes experimentation with new approaches. Innovation may be further inhibited by narrow priorities for improvement as determined by government policies, and the cultural conservatism of some practitioners

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