Mastering multiple complexities – a rising challenge for Swiss companies

In autumn 2022, the State Secretariat for Education, Research and Innovation SERI commissioned a project to analyse the decline in R&D-performing companies and trends in the innovation activity of Swiss companies. The project leaders – Prof. F. Barjak (FHNW), Prof. D. Foray (EPFL) and Prof. M. Wörter (ETHZ) – conducted several hearings with key company representatives and stakeholder organisations. Those hearings were the basis for a recently published report on “Mastering multiple complexities”. This blog article summarises the findings of the report.

The aim of the SERI project was to analyse how companies have adapted their innovation models and whether this explains the overall decrease in R&D. In order to organise dedicated hearings with key stakeholders, the project leaders formed six industry clusters, each with a different positioning in the value chain, market, and innovation:

1. Metal, electronics, machinery, textiles
2. Med-tech, bio-tech, plastics
3. IT products, IT services, watches
4. Finance, fin-tech, insurances
5. Food, cosmetics, retail
6. Energy, clean-tech, construction.

A dominant theme from the Olten hearings echoed by all sectors, is the growth of the complexity of innovation. This influences how (small and medium) companies manage innovation. Behind this background, certain new innovation policy objectives appear.

The complexity of innovation: an emerging property from a cluster of trends

The different hearings highlighted five trends that can be found in all the sectors considered and that contribute to this increasing complexity of innovation activity:

1. Customer centrality has increased (e.g., to distinguish oneself from omnipresent global competitors);
2. Some Swiss industries are strongly affected by global competitors, particularly from Asia, where technological capabilities have grown over the past two decades. Further competition with disruptive potential comes from new entrants to the different sectors.
3. Digitalisation has become ubiquitous regarding products and services and almost all other relevant processes for companies;
4. The marked demands for sustainability – that relate to most products and service innovation projects – have created a new stress field for innovation in most sectors;
5. Regulation has become more important in certain sectors, and Switzerland’s attitude and approach to regulatory change are not considered to be proactive enough.

Implications of the increasing complexity of innovation: five “new” practices

This increasing complexity of innovation has strong consequences on how medium and small companies are going to produce innovation: They are developing new organisational practices and opting for certain forms and logics of innovation. Based on the Olten hearings, five practices can be identified:

The first practice focuses on the necessary mobilisation of new types of competences and qualifications, particularly in the domain of data science and the analysis of consumer behaviours. Companies need to understand how to combine various information sources to obtain a high-resolution image of their consumers’ revealed preferences. This has hitherto been private information (e.g., consumers’ incomes and purchasing patterns) – with the result that the wealth of information on consumer behaviour changes corporate innovation strategy. New competences in the domain of sustainability engineering and circular economy are also required in the framework of many new innovation projects.

The second practice focuses on the adoption of a renewed vision of innovation. This vision goes beyond the purely technological achievement or supply of a new service. Instead, it focuses on the invention of new models to generate values for customers, reach out to customers and secure business returns.

A third practice adopted in response to the increased complexity of innovation is focalisation. The innovative effort concentrates on a specific part or component of vaster technological systems that the company cannot master as a whole. This focus provokes a vertical disintegration of the value chain, a fragmentation of innovation and its reorganisation in the form of a web of contracts (which in return can further increase the complexity).

The preference for a step-by-step process of innovation represents a fourth practice. This permits rapid market testing, feedback from customers and partners as well as continuous readjustments in order to better cope with the complexity. This logic of “gradualism” currently dominates the more radical approaches to avoid excessive resource waste on projects with a high probability of failure within the context of increasing complexity.

And finally, collaboration practices with public research institutions but also with other companies increase dramatically. Collaboration partners may be suppliers, clients, or even competitors.

It should be noticed that most of the practices identified are actually complementary and it is important to adopt them together.

The new issues of innovation policy

The Olten hearings have permitted to document challenges of the increasing complexity of innovation. Those challenges are not going to be solved by a simple triptych: “start-ups – large companies – universities”, even though this attracts most of the media attention and policy interventions. It is very probable that the trends and new contexts documented in this report will have a profound impact on SMEs and the way they design and manage their innovation projects.

SMEs are thus requiring special attention when it comes to innovation policy adjustments or new developments. A debate on how to create better conditions for those companies so that they can tackle their innovation challenges is urgently needed. As project leaders we are fully aware that this report – based on experts’ opinions – just provides some warnings and identifies hot topics. This should warrant further empirical research to provide a sound base of evidence for a robust and transparent policy discussion.

Reference

Barjak, D. Foray & M. Wörter (2023). Mastering Multiple Complexities – A Rising Challenge for Swiss Innovation Models. State Secretariat for Education, Research and Innovation, Bern.

The report will be presented at the KOF Economic Forum on 24 March 2023 in Zurich.