ECD Digital Economy Papers No. XX SYSTEM INNOVATION: SYNTHESIS REPORT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where governments work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United Sates. The European Union takes part in the work of the OECD. This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. © OECD 2015 The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Photo credits: Cover © I-stockphoto.com 1 System Innovation: Synthesis Report 2 FOREWORD This synthesis report was developed as part of the CSTP activity on ‘System innovation’ carried out under the auspices of the Working Party on Innovation and Technology Policy (TIP) as part of its contribution to the CSTP’s Intermediate Outputs 1.3 and 1.4. The goal of this activity was two-fold: 1) to improve policy makers' understanding of the concept of system innovation as a tool for orienting innovation policy and decision making; and 2) to foster mutual learning between policy makers, researchers, and business representatives based on case studies of system innovations in specific sectors/technologies, in areas such as e-mobility, sustainable building and housing, smart cities, and technology platforms for health and green growth initiatives. The case studies commissioned for the project are a way to learn how other countries are using concepts and policies based on system innovation thinking to meet societal challenges. This work builds on the OECD Innovation Strategy and the OECD Green Growth Strategies, which were released in 2010 and 2011 respectively. A central policy challenge identified by both the Innovation and the Green Growth Strategies has been bringing together policy domains that are often kept separate, notably economic (including innovation), environmental and social. The project on system innovation is an on-going project to develop new innovation policies for innovation alongside the traditional policies such complements other work of the TIP and the CSTP on public/private partnerships, demand-side innovation, the next production revolution and related work across the OECD on green innovation, eco-innovation, systemic innovation and smart cities. The synthesis report was prepared by the OECD Secretariat [Dimitrios Pontikakis (OECD DSTI until December 2014, presently European Commission, Joint Research Centre, and Institute for Prospective Technological Studies), Mario Cervantes and Daniel Kupka]. Marion Robert, intern at the OECD’s Science and Technology Policy Division, provided research and editorial assistance while Katjusha Boffa provided secretarial support. In addition, the Secretariat acknowledges substantive inputs from leading innovation policy experts: Professor Dirk Meissner, Moscow National Research University Higher School of Economics; Wolfgang Polt, Joanneum Research; Matthias Weber, Austrian Institute of Technology; Jan Larosse, Flanders Department for Economic Policy; Göran Marklund, Vinnova, Sweden; and Christopher Palmberg and Kirsti Vilén, Tekes, Finland. The synthesis report distils the findings from analytical work of the last two years, which includes: A review of the concepts and definitions of system innovation, drawing on the national innovation systems theory and transition management literature. The review System Innovation: Concepts, Dynamics and Governance (OECD, 2013) was undertaken by Professor Frank Geels of Manchester University, consultant to the OECD Secretariat, and is the basis of the material contained in Chapters 1 and 2 of the report. A case study on sustainable housing and buildings in Flanders, Belgium (Erik Paredis, Centre for Sustainable Development, Department of Political Sciences, Ghent University) as well as case study on sustainable materials (Frank Nevens, Nele D’Haese and Marian Deblonde, VITO: the Flemish Institute for Technological Research). A case study on sustainable renovation of multi-family housing in Sweden (Liselott Bergman, Karla Anaya Carlsson and Lennart Stenberg, Vinnova). It is gratefully acknowledged that Lennart Stenberg could carry out part of his work as a visiting researcher in Kitamori Lab, School of Engineering, University of Tokyo. A case study on sustainable building and retrofitting in Austria (Björn Budde, Matthias Weber, AIT – Austrian Institute of Technology and Andreas Niederl Wolfgang Polt, Joanneum Research). 3 Case studies on “smart cities” in Finland (Kirsti Vilén and Pirjo Kutinlahti, Ministry of Employment and Economy and Christopher Palmberg, Tekes) and in Germany (Jan Wessels and Katrin Schumann, VDI/VDT Innovation). A case study on e-mobility in Austria (Björn Budde, Matthias Weber, Austrian Institute of Technology (AIT), and Andreas Niederl and Wolfgang Polt, Joanneum Research), and another case study on electric vehicles in China (Xiaoyong Shi, National Center for Science and Technology Evaluation). A case study on green growth in Korea (Joo Sung Hong and Jeong Hyop Lee, STEPI) and the bio- based economy in the Netherlands (Peter Besseling, Ministry of Economic Affairs, Harriëtte Bos, Wageningen University and Research Center). Case studies related to long-term care/assisted living in the United Kingdom (Alex Mace, Department for Business Innovation and Skills), and on technology platforms in the Russian Federation (Yuri Simachev and Vladimir Kiselev, Interdepartmental Analytical Centre, Moscow, Russia). A case study on cluster policies in the Russian Federation (Dirk Meissner and Evgeny Kutsenko, National Research University Higher School of Economics, Moscow). Several expert workshops held in Paris (March 2013), Stockholm (September 2013), Helsinki (November 2013) and Berlin (April 2014). Oliver Bott of VDI/DTI Berlin was rapporteur at the Berlin workshop and provided a summary of the discussions. In addition, an OECD-BIAC Business Symposium was held on 17 November 2014 at the Joanneum Research, Graz (Austria) where Wolfgang Polt and Matthias Weber provided the rapporteur's summary. The synthesis report has benefited from discussions and input from members of the TIP Steering Group on System Innovation and invited experts including Professor Marko Hekkart, Chair of Dynamics of Innovation Systems at Utrecht University in the Netherlands, Dr. Eckhart Hertzsch, Fraunhofer Institute for Building Physics, Professor Dr. Bertil Haack, Technische Hochschule Wildau, Professor Knut Blind, Berlin University of Technology, Dr. Wolfgang Schade, Technische Hochschule Wildau, Johannes Hartwig and Florian Senger, Business Unit Transportation Systems Fraunhofer Institute for Systems and Innovation Research (ISI) and by national delegates to the OECD Working Party on Innovation and Technology Policy (TIP) at plenary meetings in 2013 and 2014. Several member countries provided in- kind support for the preparation of case studies and the participation of experts at workshops. The Secretariat gratefully acknowledges research funding for the project from Vinnova. This report was declassified by the Committee for Scientific and Technological Policy on 30 January 2015. 4 TABLE OF CONTENTS FOREWORD ................................................................................................................................................... 3 EXECUTIVE SUMMARY ............................................................................................................................. 6 The interdependency of the opportunities and challenges ........................................................................... 6 System innovation is a horizontal policy approach to tackle problems that are systemic in nature ............ 6 System innovation requires a combination of innovations . ........................................................................ 9 The role of technology ................................................................................................................................. 9 The dynamics of system innovation ......................................................................................................... 10 Business is central to innovation but innovation policies tend to favour incremental innovations. .......... 10 The role of government in supporting transitions .....................................................................................