Systemic View of Innovation- Valutrics

The concept of innovation as a ‘system’ with spatial and sociocultural dimensions involves the study of regional and national systems of innovation, including industrial districts, spatial networks, clusters and other ‘focused environments’. A fundamental aspect of the ‘systemic view’ is that it allows for a strategic connection between ‘technological’ and ‘organizational’ innovation. This approach also suggests that the main factors that foster or discourage technological innovation are not limited to the internal jurisdiction of a firm. When it occurs, innovation is ‘new’ to the firm and/or to the market, and even when it is absorbed within an organization it has nevertheless introduced a ‘novel’ dimension or perspective. Competitive factors of cost reduction, value added and new market opportunities may be the motives behind innovative drives, but successful innovation tends to enhance a firm’s activities and/or capabilities. In this context, a firm has made an additional connection with the market as well as the wider economic environment, sometimes beyond its routine, daily business activities.Additionally the innovation process combines,inter alia, different activities, such as design, research, market investigation, process development, organization restructuring and employee development. The innovation process, therefore, is not complete unless connections are made at the level of skills, functions, technologies, commercial production, markets and other organizations.

The ‘systemic’ view has as its antecedents the Marshallian (1920, 1923) notion of externalities, where knowledge and its transfer to stakeholders is a factor favouring spatial concentration of industries. The Marshallian idea of ‘knowledge spillover’ plays an important role in the regionalization of innovation and is significant within both rural and urban areas.
Manifesting itself within supply chain relationships, horizontally related firms, transfer of people and their skills, shared pools of knowledge of markets, research and so on, these spillovers are considered to benefit industrialized regions disproportionately. The economic rationale offered for the existence of such localization (or indeed clusters)  is to be found
in the concept of special benefits coupled with the presence of natural
resources, a combination that helps to reduce uncertainties and risks associated with innovation. Knowledge spillovers, inter-firm relationships, utilization of shared resources, a well-developed local skills base and the evolution of the region through tacit and explicit knowledge exchange are typical features of regional clusters. These features also provide a basis for the social and economic ‘connectivity’ that underlines the operation of firms and clusters.

The definition of clusters as ‘groups of firms in the same industry, or in closely related industries that are in close geographical proximity to each
other’ is meant to include geographically concentrated business, including ‘industrial districts’. The geographic concentration of interconnected firms is supported by similarly connected suppliers, downstream channels, customers and manufacturers of complementary products, and can also extend to include companies with complementary skills. Clusters also include public, government and educational institutions, as well as support services. In practice, linkages and complementarities define cluster boundaries across interconnected institutions and industries. The linkage between regional innovation and clusters lies in the understanding of the successful evolution of competitive groupings whereby their formation, organization and structure are themselves features of an innovation process.
Various clusters have evolved from being ‘comparative advantage’ players (based on physical resources) to ‘competitive advantage’ groups (based on learning and knowledge) in order to overcome the loss of their traditional ‘locational advantage’. Thus the replacement of waterpower by electricity and wood by coal, and the easy availability of steel, did not prevent the Solingen location from continuing as a successful base for the cutlery industry.

The consequence of innovative evolution has resulted in clusters attracting public and private finance, chambers of commerce and trade associations generating relevant commercial market research, regional government providing industry-specific infrastructure and local educational institutions undertaking industry-specific training and research. Thus, in clusters, the combination of integrated and leveraged activity is often at the heart of innovation.