6
Conclusions and Recommendations

The concrete background and rationale for the conclusions and recommendations of the Joint Task Force on Corporate Innovation are contained in the Executive Summary. This chapter lists the specific conclusions and action items identified by the Joint Task Force.

Conclusions

Globalization of Corporate Innovation

From its comparative study of trends in corporate innovation by Japanand U.S.-based companies, the Joint Task Force observes that important forces in the world economy are affecting the innovation strategies and capabilities of leading edge companies worldwide. Corporate innovation in the United States, Japan and other countries is undergoing important, fundamental shifts. The most important underlying force for these shifts is the globalization of markets and competition, with the accompanying increased pressure on companies to deliver high quality products to demanding end users quickly and at reasonable cost. In the view of the task force, the trend toward increased reliance on external sources of innovation by companies is the most important development in global technology management. In order to make effective use of external sources of innovation and prioritize internal R&D optimally, companies are adjusting their internal structures, and forming a variety of new alliances with domestic and foreign partners.

U.S.-Japan "Problem Convergence" and Continued Disparities in Environments and Approaches

Increasingly, leading edge companies based in Japan, the United States and other countries are competing in the global market, and are responding to similar pressures to deliver technological solutions to a worldwide customer base in a rapid and cost effective manner. In this sense, the problems addressed by corporate innovation throughout the world have more in common than they once did. The Joint Task Force believes that such problem convergence is evident between companies based in the United States and Japan, and will likely accelerate and broaden to affect companies based in other countries. As such, problem convergence may serve as an effective framework for addressing the globalization of corporate innovation mentioned above.

Although there is a consensus among Joint Task Force members that problem convergence is occurring between U.S. and Japanese companies, there is a variety of views concerning the implications. Most of the Japanese members and several of the U.S. members believe that as the problems faced by companies become more similar, the innovation systems of the two countries will tend to converge toward each other as they approach a new innovation model relevant to all



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6 Conclusions and Recommendations The concrete background and rationale for the conclusions and recommendations of the Joint Task Force on Corporate Innovation are contained in the Executive Summary. This chapter lists the specific conclusions and action items identified by the Joint Task Force. Conclusions Globalization of Corporate Innovation From its comparative study of trends in corporate innovation by Japanand U.S.-based companies, the Joint Task Force observes that important forces in the world economy are affecting the innovation strategies and capabilities of leading edge companies worldwide. Corporate innovation in the United States, Japan and other countries is undergoing important, fundamental shifts. The most important underlying force for these shifts is the globalization of markets and competition, with the accompanying increased pressure on companies to deliver high quality products to demanding end users quickly and at reasonable cost. In the view of the task force, the trend toward increased reliance on external sources of innovation by companies is the most important development in global technology management. In order to make effective use of external sources of innovation and prioritize internal R&D optimally, companies are adjusting their internal structures, and forming a variety of new alliances with domestic and foreign partners. U.S.-Japan "Problem Convergence" and Continued Disparities in Environments and Approaches Increasingly, leading edge companies based in Japan, the United States and other countries are competing in the global market, and are responding to similar pressures to deliver technological solutions to a worldwide customer base in a rapid and cost effective manner. In this sense, the problems addressed by corporate innovation throughout the world have more in common than they once did. The Joint Task Force believes that such problem convergence is evident between companies based in the United States and Japan, and will likely accelerate and broaden to affect companies based in other countries. As such, problem convergence may serve as an effective framework for addressing the globalization of corporate innovation mentioned above. Although there is a consensus among Joint Task Force members that problem convergence is occurring between U.S. and Japanese companies, there is a variety of views concerning the implications. Most of the Japanese members and several of the U.S. members believe that as the problems faced by companies become more similar, the innovation systems of the two countries will tend to converge toward each other as they approach a new innovation model relevant to all

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players. While the specific structures for innovation naturally differ among industrial nations, such trends may lead to a Stronger level of functional equivalence among the structures. In this way, increased similarity of the problems addressed by corporate innovation in the two countries tends to increase the similarity of corporate innovation approaches, but does not necessarily imply that the approaches will become the same. These members emphasize trends and examples of recent years, such as the outstanding U.S. companies that have adapted aspects of Japanese innovation strategy, and recent policy changes in Japan aimed at building a stronger publicly funded research base, as indicating that problem convergence is leading to a degree of convergence in corporate and even government approaches based on a new model of innovation. On the other hand, several of the U.S. members point to evidence of continued disparity in the innovation strategies of U.S. and Japanese companies, based on their policy environments, past organizational experience and accumulated capabilities. These differences include the relatively larger role of defense-related R&D in the U.S. system, greater exclusivity and long-term obligation built into Japanese OEM-supplier relationships and human resource development practices, and differences in financial environments. While not denying the possibility that significant U.S.-Japan convergence in corporate innovation approaches will occur in the future, these U.S. members believe that the trend is not yet clear enough to draw policy conclusions, and also raise the possibility that important aspects of Japanese and U.S. innovation approaches will not converge. Need for Further Work Although the Joint Task Force agrees on the significance and fundamental nature of trends in corporate innovation approaches in Japan and the United States, the rapid pace of change and paucity of information in several important areas make it inherently difficult to specify action items. The Joint Task Force therefore decided to develop focused suggestions for future work for scholars, policymakers and companies. The recommendations section identifies several key questions and challenges, including the need for international efforts to improve the quality and quantity of data on trends in global innovation, the need to continue efforts to develop models of innovation that reflect real world trends, and the need for the U.S. and Japanese governments and multilateral agencies to begin addressing the policy issues emerging from shifts in innovation practices and patterns. Recommendations Need for International Efforts to Improve the Quantity and Quality of Data on Innovation The Joint Task Force believes that there is an emerging, pressing need for more and better data on many aspects of innovation, including government policies and programs, corporate activities and international linkages. One of the key questions that an effort at improved data collection could be aimed at addressing is whether corporate or national approaches to innovation are in fact converging as business activity and innovative capability become more global. Such an effort would ideally be international in scope, and might involve multilateral bodies such as the Organization for Economic Cooperation and Development, the United Nations, the World Trade Organization, the Asia Pacific Economic Cooperation forum, and

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others that have been involved in improving the comparability of data and statistics of various nations. The U.S. and Japanese governments can make a major contribution by promoting and providing leadership in these efforts. Although developing a specific program along these lines is beyond the scope of the current study, the Joint Task Force has identified several areas where these efforts might be focused: Comparability of Data on R&D Spending For the time being, comparisons of U.S. and Japanese R&D statistics should include figures using both market exchange rates and purchasing power parities. In the future, the development of price deflators and purchasing power parities reflecting the mix of goods and services utilized in R&D and innovation should be explored. Wage statistics for R&D related work is one example of the data that might be needed. Data on the Changing Institutional Context for R&D, including Expanding International Links From anecdotal information, scholarly research and the testimony of committee members, it appears to the Joint Task Force that increased reliance on external sources of innovation is the most important trend in corporate innovation strategy in the United States and Japan. The committee is not aware of statistics collected by any country that allow for adequate measurement of this trend, including industry comparisons. Through periodic surveys or regular data collection, efforts should be made to track trends among Japan- and U.S.-based companies in areas such as (1) relationships between original equipment manufacturers and suppliers (number of suppliers, nature of linkage), (2) relationships between industry and universities, (3) reliance on international sources of innovation, both within and outside firms, including alliances between vertically integrated firms in the same or different industries, exclusive long-term vertical relationships with suppliers, and "diagonal" relationships with formerly exclusive suppliers emerging to serve broader markets. This work should be aimed at confirming the existence and extent of the trend toward increased reliance on external sources of innovation, and capturing the specific nature of these relationships. Need for Additional Work on Models and Conceptual Frameworks for Innovation, and Research on Similarities and Differences Between Countries In recent years, scholars in the United States, Japan and elsewhere have developed a number of models and analytical frameworks that have improved understanding of innovation processes and dynamics. Many of these concepts have been discussed in this report, such as demand articulation, core competence, national systems of innovation, communities of practice, innovation-mediated production, and the corporate technology stock model. Significant studies comparing the innovation approaches of companies based in Japan, the United States and other countries have also been completed. The Joint Task Force believes that these two streams of scholarly effort are both extremely important and complementary. International comparisons provide very useful context for the development of new models and conceptual frameworks, and the development of models and concepts advances understanding of national similarities and differences. Issues and questions related to convergence in approaches to innovation will continue to increase in importance in the future, and scholarly research can continue to contribute to related discussions.

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The Joint Task Force has two specific recommendations for focused future work. First, in the U.S.-Japan context, the issue of diversification through acquisition and new firm creation, predominant in the United States, vs. diversification through internal R&D and investment, prevalent in Japan, deserves further study. The extent to which nation-specific factors are at work as opposed to the characteristics of specific industries and their growth rates should be further explored. For instance, a growing industry will be better suited for diversification as new business units are created, while acquisitions are suited for mature industries to reduce the number of firms. Second, in view of the insights gained through investigation of possible U.S.-Japan convergence, it would be highly useful to continue and expand the exploration of this issue by looking at companies based in Europe or Asia. Need to Address Major Emerging Policy Questions and Issues The Joint Task Force has identified a number of major issues related to changes in corporate innovation and their policy implications. While it was not possible to develop specific recommendations to address these complex issues, and this is certainly not an exhaustive list of future challenges, the committee believes that the governments of Japan and the United States, as well as various multilateral bodies, should step up efforts to understand and address the following: Possible Shortage of Industrial Basic Research If firms increasingly outsource innovation to suppliers, universities and partnership arrangements, will reduced levels of effort in traditional corporate central research activities lead to an overall slower pace of innovation worldwide? Or will R&D efforts become more efficient as corporate strategies become more tightly linked to global market needs, with partnerships picking up the slack in areas of precompetitive technology development? Does this trend imply the need to supplement historic linkages between central corporate laboratories with closer support of small and medium enterprises by university research and training? Possible New Division of Labor in Funding Fundamental Research While future public funding of R&D in the United States and Europe appears to be constrained, Japan and several Asian nations have announced plans to significantly expand public funding. Will the emerging strengthened research base of Japan and Asia contribute to global public welfare to the same extent that the U.S. research base has over the past fifty years? De Facto Standards In view of the growing influence of consortia to establish de facto proprietary standards for interfaces and protocols, described in Chapter 4, how should individual countries and multilateral regimes deal with possible anticompetitive concerns? Does the relationship between market driven standards and the formal consensus process raise concerns?

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National Civilian Technology Promotion Programs As innovation-related activities become more global, issues of access to publicly-funded national technology programs by foreign entities will continue to spark policy debates, and will likely be a topic for negotiation in future multilateral trade talks.1 In addition to continued exploration of these issues, the Joint Task Force believes that an international effort, perhaps led by the United States and Japan, to exchange perspectives aimed at improving the effectiveness of national civilian technology programs, including development of new mechanisms for evaluation, would improve the international base of knowledge in this area. Such an effort could also eventually contribute to expanded, mutually beneficial collaboration in research. Notes and References 1   National Academy of Engineering, Foreign Participation in U.S. Research and Development: Asset or Liability? (Washington, D.C.: National Academy Press, 1996).