I was asked to write a 900 word piece for the Irish Times on the Innovation Taskforce report, and my article was duly published yesterday. It was difficult to distil the thinking and analysis of 7 months of intensive work into just 900 words, so I’ve taken the liberty here of writing a more expanded posting, including cross-referencing the recommendations in the report as appropriate: thus I make an apology before you go any further that this is likely to be a lengthy blog post…go get yourself a coffee or a pint or sparking lime water or something first..
The report itself is available online here directly from the Taoiseach’s office in all its glory as a .pdf file. Unfortunately they didn’t prepare a .html version, so I did one myself thanks to Kevin Noonan’s suggestion to use zamzar, which worked fairly well (and much better than Google docs!) and then put the html file here. I went in and manually editted the html to insert <a NAME=”…”>…</a> tags for each of the recommendations, so that I can link to them directly below: e.g. recommendation 8.2 is now directly online here.
As I’ve written in my previous posts, the report went through several revisions before its final form. One of the drafting debates was in what order to lay out the recommendations and chapters – entrepreneurs and start-ups first ? Or multinationals first ? Or current indigenous companies first ? In the end, as you will see if you read the report, it actually now leads with the recommendations on the academic and education sector. I’m going to take a different perspective in this blog post though 🙂
Let’s start with Motivation & Background
The unemployment rate in Ireland has now reached the crisis level of 430,000. What can we do to make an immediate improvement, while at the same time how do we build sustainable long term growth ?
In my view, re-building our economy around our own ingenuity, creativity and innovation is the key to our sustainable long term growth. This is the “smart economy”.
A classically trained economist – and there seem to be a few of them lurking around, I think – might reason that the primary objective of the smart economy is higher productivity. The thinking goes along the lines that Productivity – that is, developing new ways to get more output from each unit of input – should be the key driver of economic performance and sustainability. The mantra is that if Ireland can become be more productive, competitive and reduce its costs, then we will produce more efficiently, earn greater profits which can then be taxed as corporate and personal income, and so support our Exchequer spending.
Well, is more output for each unit of input the way to go ? Should we roll our economy back to the pre-bubble times at the start of the last decade ? Will restoring productivity and greater competitiveness significantly reduce our unemployment ? Do we want to compete with low cost, manufacturing based economies elsewhere and produce even more output than they do for each unit of input ?
Over the last decade, while we had our bubble, the global economy continued to significantly change in favour of the emerging nations. While the United States had its distraction of its “war on terror” and subsequently entered recession in December 2007, China focused on interventions to stimulate its own domestic demand, and to quietly gain control of sources of raw materials including bauxite, fluorspar, silicon metal, coke, magnesium and zinc across the world. These materials are now available more cheaply to Chinese manufacturers than their US and European competitors. China has simultaneously had a policy of active engagement with many governments world-wide to foster trade and to acquire both raw materials and friendly export markets for China. Meanwhile, as Craig Barrett noted at his recent public presentation at the RIA, some 3 billion new consumers have entered the global market – in south east asia, south america, latin america, South Africa, China and India. Ireland no longer has a global monopoly on low costs and a low corporate tax rate, nor on a technology skilled and English language competent labour pool.
It seems obvious that the world has changed. It seems clear that restoring our national competitiveness to pre-bubble levels is insufficient. It seems apparent that getting more output from each unit of input is deficient. Rather we need to create value rather than volume. If we can create high value services and goods for the international markets, then we will create wealth for our economy and also sustainable employment freed from the vagaries of an international race to the bottom.
It is about value. Not volume.
How do we do this ? How are we going to accelerate our smart economy, make an immediate improvement in employment and also at the same time build sustainable growth ?
I honestly and sincerely believe that Ireland has a great foundation. We have many multinational companies present in the country, and are thus jealously viewed by competing jurisdictions such as Israel, Singapore and even indeed Silicon Valley. We have the security of European Union membership, and the benefits of the euro as our currency. We have our natural resources, including agri-food, marine and – uniquely – our relatively under-used electromagnetic spectrum. We are native speakers of the international business language. We have an international diaspora, several times larger than the combined Israeli and Indian diasporas. We are a relatively small market, which creates the opportunity for market trials before the expense of addressing global markets. Our glass is thus half full. How do we fill the rest of it ?
Our work in the Innovation Taskforce since last July has been focussed on these challenges. The smart economy of course cannot provide all the answers, but we believe it can be one major component of a solution to our jobs crisis and to our faltering economy. The smart economy can create jobs directly in the economy, but can also indirectly sustain jobs in ancillary services (such as accountancy and law) and in consumer purchasing (retail and recreation). Innovation is applicable across our economy, including the public sector. Nevertheless, innovation which creates new offerings – services, products, and business processes – for the global export market best stimulates our national income.
Despite the chapter order of the report, let me start with a focus on the Multinationals
Multinational companies intensely compete on the world stage. Thus they must continually innovate, using the very best people they can find on the planet, regardless of location, and ensure that their offerings – products, services, business processes and designs – are highly attractive and offer significantly more value for money than their competitors. If a multinational does not do this, it will lose to its own competitors. Investing in some location, or moving out of one country to another, is not “personal” or a grá for a particular country over another: its just simply a matter of sheer survival.
It is thus a considerable complement that so many multinationals have actually chosen to locate here in Ireland. Some may argue that the primary reason many are here is our corporate taxation advantage. While that may have been so in the past, today many other jurisdictions offer low (or even zero) corporate tax environments – as well as English speaking and a talented well trained labour pool. Ireland is competing with alternative locations for foreign direct investment, and has done well.
Other jurisdictions are extremely envious of the breadth and quality of multinationals that we have been able to attract to Ireland, and would do almost anything to wrestle them away from us into their own country. Our multinational footprint is a considerable competitive advantage for Ireland, that creates opportunity for collaboration – in its widest sense – with many of the best companies in the world, and also with younger international companies emerging on the global stage.
We naturally cannot be at all complacent: in fact we should never forget that only the paranoid survive. We have already lost some manufacturing and assembly operations to other countries: we may lose more, driven by pressures to build products as cheaply as possible. Faced by this, what will continue to attract multinationals to Ireland ?
A part of the answer is transforming multinational operations here towards “research, development and innovation” (RD&I). The IDA now sees this as its primary objective. This in turn requires world class engineering and science from our universities and institutes of technology. However it reasonably apparent that the employment opportunities for RD&I are less than those for manufacturing operations: the days when the IDA could announce a single investment project with over a 1,000 (manufacturing oriented..) jobs are probably long gone. Furthermore, successful innovation within the Irish operation of a multinational are in most cases unlikely to lead to commercial exploitation within that Irish operation: international sales, marketing, product management, business development and channel management, in particular including the jobs that are produced by these activities, are frequently held close to global corporate headquarters – outside of Ireland.
A part of the answer of how we attract and retain multinationals here is what we have called “convergence” in the Taskforce report (c.f. recommendation 8.2). As a colleague on the Taskforce put it: “in Ireland, we can collaborate; in the US, the only time we see each other is in the courts..” Ireland is in a prime position to create a suitable (primarily legislative, relating to intellectual property) environment for cross-multinational, cross-discipline commercially driven research.
Another part of the answer is what we have called “Flagships” in our report (see 8.1). Our debate revolved around how can public procurement be used to stimulate the smart economy ? Our procurement policies are – arguably rightfully – conservative, and the Dail Public Accounts Committee usually strikes absolute terror in most of our civil servants merely at the mention of its name. We also have EU State Aid rules to abide by. We have had our fiascos and visible failures.
But at the same time, is it appropriate to use public procurement in a way to stimulate innovation? I have previously posted about the courageous public investment by the Government of Taiwan to disrupt a global industry and create an unnatural global advantage for Taiwanese semiconductor design companies. Our “flagship” projects are an open invitation to industry at large to propose innovative projects which (i) will benefit Irish society at large; (ii) have no prior solution worldwide, and thus are novel – Ireland can be the first deployment; (iii) have immense export potential, because most other countries face exactly the same challenge; (iv) are open and collaborative, so that companies operating in Ireland – whether multinational or indigenous – can add further value to the core solution, without commercial restrictions.
Another part of the solution (to attracting and embedding multinationals in Ireland) is that in general, corporate strategists within (the global headquarters of a) multinational prefer to acquire innovative businesses which have already shown that there is a significant market for a new innovative technology, rather than a raw technology itself straight out of the academic community. Our enterprise agencies (IDA, SFI and Enterprise Ireland), perhaps in turn encouraged by the machinations at our Department of Finance, have been recently placing considerable emphasis on catalysing the transfer of technology and intellectual property from our own academic sector into commercial exploitation. But my observation is that, unfortunately, raw technology and commercially unproven intellectual property in most cases is much more likely to have considerable value only once proven in the market via a successful business.
So, if we are going to continue to embed the multinationals in our economy in the future, we are more likely to be successful if we give them a dynamic pool of exciting young innovative Irish companies, each of which is bringing innovation to the global market, rather than just presenting them raw technology out of the academic sector. As an analogy, processed agrifood products are usually of higher value than the raw material itself….
These young companies of course may very well take raw technology from our academic sector and commercialise it in exciting ways. I am not asserting that our academic technology transfer offices should ignore the multinational sector and solely focus on indigenous start-ups: but I am asserting that we are more likely to have greater success in embedding multinationals here, and creating more jobs (including in particular those related to commercial exploitation activities as I noted above), if we can offer the multinationals many opportunities to acquire exciting young companies.
Wow: I can imagine some people passionately arguing against this point – why do we want to let the multinationals cherry pick good Irish start-ups ?!! Don’t we want to build our own cohort of Irish multinationals !!? Aren’t established multinationals a safer bet to successfully commercialise our academic research results than some Irish start-up !?!
Let me take each of these objections in turn. If a young Irish company is acquired by a multinational, it reduces the risk of commercial failure for that company and its staff, and arguably may provide more job security. It also simultaneously releases capital, returned to its risk investors who can then re-cycle finance into further start-ups. It provides further career development for management, senior executives and founders which in turn may lead them to initiate further start-ups in the future.
On the second objection, we absolutely do want to build our own cohort of Irish multinationals – more than that, we want to sustain them once they have successfully scaled. At a macro-economic level, we do not want all of our interesting start-ups to be acquired by multinationals. But if we are really to embed the multinationals in Ireland, then creating a large pool of acquisition possibilities is probably the best way. I discuss scaling, and sustaining, our own indigenous companies later below.
On the third objection, are established multinationals a “safer bet” to whom to license academic intellectual property, than indigenous start-ups ? Personally, I do not believe there is a compelling argument or supporting data either way. Commercial exploitation and global roll-out of intellectual property in a multinational tends to be a slow and complex process. Start-ups are usually much faster and aggressive, but naturally carry more risk.
So, let me summarise my thoughts on protecting our multinationals, embedding them in our economy, and creating as many jobs as possible within them (and not just “white coats” doing R&D): the key is convergent collaboration; flagship collaboration; and to continually stimulate a portfolio of interesting young companies which are proving the commercial viability and global market excitement of Irish based innovations.
What about our established indigenous companies ?
The scaling of our most promising indigenous companies has been amongst the highest priorities of Enterprise Ireland in recent years. Growing companies to global Fortune 1000 requires capital. Engagement with top tier and world class risk capital is now one of the critical changes needed in our enterprise policy. The Taoiseach’s “Innovation Fund”, announced last year, is a key catalyst (c.f. 7.1). In the Taskforce report, we highlight that there is an opportunity for the treasury funds of the multinationals operating here and also encouraging high net worth diaspora to invest risk capital in Ireland (c.f. 7.2). We also recommend a “European Accelerator” (c.f. 8.3) to provide further motivation for tier one risk capital to engage with Ireland. This would encourage the portfolio (high growth..) companies of these tier one funds, to open their European operations from Ireland having already proved a compelling business model elsewhere (eg the USA), thus adding value to these companies, and to the tier one funds which have funded them. Such an accelerator will also further increase Irish based skills in international marketing, sales and channel management. In turn, this overcomes a structural weakness in the economy if we solely rely, as I discussed above, on foreign multinationals to exploit Irish innovation. Even more critically, it has the potential to immediately create further jobs in Ireland (this year..).
Equally however we need ambition, confidence, experience and competence in our senior executives. One issue is for founders and entrepreneurs to prematurely exit a company, as it grows: in our report, we recommended a compensating scaling incentives (c.f. 7.3 and 9.6).
Over the last number of years, Enterprise Ireland has run a highly successful development programme, Leadership for Growth, for about a hundred of our leading indigenous CEOs. Disclosure: I have been a coach and mentor on this programme. However, in accessing global financial markets for risk capital in order to scale our companies, we also need a cohort of world class, competent and confident CFOs: – corporate financial officers who together with their CEO can assertively pitch to the best that Wall Street, the cities of London, Frankfurt, Tokyo and San Francisco can offer, raising and then managing international money put to work to scale their companies. We have a surprising few such individuals available to us in the Irish enterprise sector: we should use them to coach and mentor rising young bulls, and we may well need to put in an urgent programme for CFOs to complement the Leadership for Growth programme for CEOs (c.f 7.4).
Our proposal for Flagship projects, which I discussed above in the Multinational section, is clearly also applicable to our indigenous companies.
It is one thing to successfully scale a number of indigenous companies. It will be another to sustain them as global champions. While they will of course have their own internal development teams working on new innovative offerings, global industries are intensely competitive. Multinationals successfully sustain themselves for the long term by acquiring exciting and dynamic younger companies which are building new markets based on innovative offerings. Thus, if we are to sustain our own scaled, indigenous multinational companies, then creating a large pool of acquisition possibilities in Ireland from which they can acquire is highly important – exactly the same strategy if we wish to embed foreign owned multinationals operating in Ireland….
So: Start-ups are really key.
We need start-ups as a pool from which candidate indigenous multinationals can emerge. We need them to help sustain our own indigenous multinationals for the long term. We need them to help embed foreign owned multinationals in Ireland.
The more start-ups we nurture, the more serial entrepreneurship we create; the more spin-outs from indigenous companies we create; the more successes we will have; and the more that others will be strongly tempted to try their own luck.
We need to build a positive feedback loop to drive our smart economy: by priming the engine appropriately, it can gain its own self-sustaining momentum and lead to an exponential growth of jobs. I believe that engineering a positive feedback loop is the critical insight and most critical objective for the smart economy: if there is a positive feedback loop, then we will create sustainable growth and a rapidly increasing number of direct and indirect jobs. In one of the draft versions of the Taskforce report, I wrote a supporting appendix and analytic model using calculus, for fun but also to make the point that the model can work to drive significant jobs growth- perhaps mathematics skills are as important for enterprise strategists as for engineers like me. The text got dropped in subsequent versions, so I used some of instead in a fun post on this topic recently.
Start-ups can take raw academic intellectual property and convert it into commercially viable offerings.
Successful start-ups inspire others to try their own luck, so enlarging our pool of entrepreneurs and innovators.
Successful start-ups release founders and senior management to re-cycle and form their next start-up. Serial entrepreneurs like Joe Moore, Dylan Collins and Paddy Holohan – just as examples, and there are others – create a steady stream of innovation.
Not all start-ups succeed. If you have not failed, perhaps you are not trying hard enough. Both failure and success breed experience. The greatest failure is when a bona fide entrepreneur who fails does not pick themselves up and try again. We should expect failures in a successful innovation economy, and we should encourage bona fide failures to absolutely start again. One major obstacle to risk taking in Ireland is our obsolete bankruptcy legislation and we accordingly asked that that be urgently reviewed (c.f. 10.7)
The largest challenge facing start-ups is access to risk capital.
We recommend that Enterprise Ireland re-focus to place its highest priority on start-ups (c.f. 9.1). Our view is that providing support and finance to scale indigenous companies should – in due course – instead (ie rather than Enterprise Ireland…) largely come from the market at large, and in particular top tier risk capital as I discussed above.
We recommend, for an initial five year period, seed stage investment from Enterprise Ireland without the need for co-investment of private funds (c.f. 9.2). We also recommend formal approval and priming of appropriate Business Angel funds from the private sector (c.f. 9.3). If the State successfully pump-primes the smart economy, then a positive feedback loop will develop which will led to a self-sustaining growth of companies and jobs…
We suggest “project investigation” repayable loans, to verify market opportunities (c.f. 9.10) prior to company formation.
We need entrepreneurs. Many of them. We need them to create many start-ups, which in turn spin out more starts-ups and which also in turn inspires yet others to try. It should become a chain reaction, like nuclear fission. Or the “viral” loop beloved of Web 2.0 protagonists: each new event (eg Facebook member) creates several more such events (eg as further friends are invited to the party).
Our highest priority principle which we assert in our report is: “entrepreneurs are key: what can we do to make it even easier for an entrepreneur to succeed ?…”
As we considered the role of the State Agencies, and the Technology Transfer Offices of our higher education institutes, we want to drive a cultural change: be customer focused – in this case the customer is the entrepreneur. We urge streamlining and consistency nationwide of intellectual property licensing (c.f. 6.4 and 6.6); economical professional advice and services (c.f. 10.5); and upto-date one stop shop for all agency supports and programmes nationwide (c.f. 10.6). We suggest that our research laboratories could have “entrepreneurs in residence” to accelerate technology transfer into new start-ups (c.f. 6.3).
Serial entrepreneurship should be encouraged. Upon a successful exit, financial capital is released, and ideally should rolled-over into the next generation of start-ups: we suggested how the taxation system could encourage this (c.f. 9.4). Successful start-ups also release experienced founders and senior managers, with a global network of business contacts, to become mentors, coaches and business angels for the next generation of entrepreneurs [Footnote: In Liam McGarry’s comment on my post, later below, he notes a Business Week article asserting 50 Google employees are now acting as angels for over 400 start-ups…]. In our report, we noted that the taxation system could be used to encourage and reward mentorship (c.f. 9.7).
We need to foster entrepreneurship and an interest in innovation in our education system (c.f. 5.7 and 5.10). At one stage we did also have a recommendation on the stimulation of entrepreneurship and innovation within our secondary schools, especially transition year, but this seems to have been omitted in the final report.
We need to enable our academics to try entrepreneurship, without damaging their career vis a vis their colleagues who remain in pure research and publish prolifically (c.f. 6.2).
We need to encourage overseas entrepreneurs to seriously consider Ireland as the location where they are most likely to succeed – because of the culture, the environment, fiscal and legislative support, the access to multinationals, and simply the “buzz” (c.f. 9.8 and 9.9). And yes, having a competent and professional Health Service might be a part of the package…
In summary, there are three main and interrelated themes to our smart economy: enhance and embed the multinationals; grow but also then sustain our own cohort of Irish founded multinationals, and thirdly develop a large dynamic pool of exciting young companies.
We need to build a positive feedback loop to drive our smart economy: by priming the engine appropriately, it can gain its own self-sustaining momentum and lead to an exponential growth of jobs.
The environment for these themes must be supportive and catalytic.
We believe there is a strong role for product design to play across the economy (c.f. 8.5).
We make further recommendations for our education and training system, including mathematics skills (c.f. 5.3) and other pure sciences (c.f 5.4). I have strong views on mathematics education which I have previously posted.
We encourage academic alliances (c.f. 5.5). However we also strongly recommend that our very top engineering, science and business students should be encouraged to attend one of the top ten schools in the world, and return to Ireland (c.f. 5.8) — of course, ideally they should not have to leave Ireland to attend a top ten school but until our own schools actually achieve true world class status, we should encourage them overseas and bring them back.
We should have a graduate placement programme for the smart economy (c.f 6.1).
The arts, humanities and social sciences have a role to play (c.f. 5.6). I believe initiatives like the Science Gallery have played, and can continue to influence, an insightful confluence of creativity in the sciences and the arts. Disclosure: I am the Chair of the Science Gallery.
Our legislative system has to be world leading, and in particular for intellectual property (c.f. 12.2). We should educate awareness of the importance of intellectual property (c.f. 10.4). There is an interesting opportunity to position Ireland as an international centre for the management of intellectual property, given our European location and strong relations with US multinationals (c.f. 12.1).
We suggest appropriate civil servants could do much to enhance their career by being placed directly into the smart economy for a period (c.f. 10.2).
We believe that RTE could do very considerably more to promote the enterprise economy and a cultural change in Ireland to innovation: increasingly mostly funded by the taxpayer, it should serve the national strategic agenda (c.f. 10.3).
Many of us on the Taskforce believed that each metric resulting from a specific activity or State intervention should be measurable and assessable completely independently of those implementing that particular activity or intervention (c.f. 13.1 and 13.2). We abhor and reject self-measurement – that is where an agency or department charged with delivering a particular initiative or programme asserts its own outputs.
We strongly recommend a follow through which will monitor the implementation of our report but – as importantly – invite and consider further suggestions and inputs as our smart economy develops (c.f. 14.1).
The process we have followed has been reasonably open. We solicited public submissions, and received many. For myself, I – and I believe many of my colleagues on the Taskforce – read each and everyone. We held an open consultation meeting, and there were well over a hundred further meetings, and phone calls, with individuals and organisations. Part of our work was also a questionnaire (see appendix 5 of our report). I personally blogged after each of the five plenary meetings, and several of us wrote media articles and took part in media interviews as the work progressed.
Having said all of that, our report ultimately is in the public domain. Which means it is easily readable by those policy makers in other jurisdictions, which frankly compete with us. We debated our disclosure and publishing policy, and some of the more strategically sensitive recommendations have instead only been discussed verbally.
I personally believe that the exercise has been extremely valuable to Ireland. I note that some of the thinking within the Taskforce has already led to re-focussing and revised emphasis within some of our State agencies – indeed, even before the report itself was published next week.
All of us will watch, and no doubt continue to comment and discuss, with interest.