Purpose-built versus serendipitous innovation links: New survey evidence

Rune Fitjar, Andrés Rodríguez-Pose 11 April 2016

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“Love [knowledge] is in the air
Everywhere I look around
Love [knowledge] is in the air
Every sight and every sound

And I don't know if I'm being foolish
Don't know if I'm being wise
But it's something that I must believe in
And it's there when I look in your eyes”

George Young and Harry Vanda [performed by John Paul Young] (1977)

It has often been assumed that knowledge is like love in the famous 1977 John Paul Young disco hit: “in the air, everywhere I look around”. This assumption has its origins in the work of Alfred Marshall, who stated in his 1890 book The Principles of Economics that “The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously” (Marshall 1890: 198). This famous sentence has been frequently used to suggest that the knowledge which allows individuals and firms to innovate can be found ‘in the air’. Especially in high-density environments, such as cities or clusters, the co-location of firms, researchers, and workers is assumed to facilitate the generation and transfer of knowledge (Gertler 2003, Maskell and Malmberg 1999, Martin and Moodysson 2011). The geographic proximity between innovating actors in clusters or urban environments creates the ideal conditions and the necessary externalities not only for the generation, but particularly for the rapid diffusion of new knowledge (Krugman 1998: 8), allowing ideas to travel more rapidly (Glaeser 1998: 147). Hence, in these high-density environments, tacit knowledge can be somewhat effortlessly reaped through social interaction, because it is “in the air, [in] every sight and every sound”. One particularly pervasive claim related to the idea that knowledge is ‘in the air’ is the conviction that physical proximity promotes the emergence of casual or chance encounters. These, in turn, lead to the formation of partnerships and facilitates the circulation of new, often tacit, knowledge within the cluster or the city. Serendipity and chance encounters, consequently, contribute to making high-density environments more innovative than remote and/or isolated places.

Yet, whether chance encounters and serendipity can be easily transformed into innovation and new economic activity is, as in the case of John Paul Young’s song, “something that [we] must believe in”. Whereas the mechanisms through which tacit knowledge is disseminated in high-density environments have been richly described, the role of chance and casual encounters as a mechanism for the diffusion of knowledge has not really been demonstrated. It has been argued that the co-location of economic actors leads to greater face-to-face interaction (Bathelt et al 2004, Depner and Bathelt 2005: 58, Gertler 2003: 84, Rekers and Hansen 2015) and that much of the face-to-face interaction is not planned, but mostly the result of happenstance and chance meetings associated with living and working in high-density and diverse environments. But, to what extent can these serendipitous events be transformed into economically viable innovation? There is little evidence in the literature that demonstrates that serendipity is behind the introduction of new or incremental innovations in specific firms.

In a forthcoming paper, we address this gap in the literature by directly asking entrepreneurs and managers of firms about the extent to which the introduction of innovation in the firm stems from partnerships which emerge as a consequence of casual and/or serendipitous events and interactions or, by contrast, is the result of partnerships resulting from purpose-built planning and a careful assessment of the needs and possibilities of the firm (Fitjar and Rodríguez-Pose 2016). In particular, we focus on three specific questions:

  • Do partnerships emerge casually?
  • Do local partnerships emerge casually?
  • Do casual encounters result in innovation?

We answer these questions by using a unique, tailor-made survey of 542 firms in Norway, in which entrepreneurs and firm managers are explicitly asked about their most important relationship for the introduction of new products and processes over the last three years and about how this relationship emerged. We distinguish between purpose-built relationships, resulting from research done in-house or on advice of other partner organizations, and serendipitous or casual relationships, resulting either from trade fairs, professional events or similar venues for networking, or from pure casual encounters outside a work relationship.

The results of the analysis indicate that, at least in the case of Norway, there may be ‘much less in the air’ than is generally assumed in the literature. Most of the relationships conducive to innovation in Norwegian firms emerged as a consequence of purpose-built searches based on in-house research by the firm and had little to do with chance, serendipity, or ‘being there’. Only 8.2% of the firms developed purely casual relationships, as shown in Table 1. This was the case regardless of whether the firm was located in an urban or rural environment – the study found no statistically significant correlation between the location of the firm and how the relationship emerged. Local partnerships did emerge more often as a result of casual encounters, but purpose-built relationships were more common also between local partners – only 15.6% of local relationships were pure casual, compared to 58.8% which were purpose-built based on in-house research.

Table 1. Emergence of relationships, frequency distribution

In addition, the limited numbers of relationships that result from casual encounters tend, with the exception of new-to-the-industry process innovations, not to be associated with higher levels of actual innovation. Conversely, purpose-built relationships are more clearly associated with innovation outcomes. As shown in Table 2, the share of firms reporting product innovation, new-to-market product innovation and process innovation is higher among those which collaborate in purpose-built or casual targeted relationships compared to firms with no partners. However, among firms with pure casual relationships, the share of innovative firms is – with the exception of new-to-industry process innovation – only marginally and not significantly different from the share among firms with no partners. These results are confirmed in logit regression analyses, controlling for firm size, industry, R&D expenditure, education level and foreign ownership. In the analyses, collaborating in purpose-built relationships based on research is significantly associated with a higher likelihood of new-to-market product, process and new-to-industry process innovation, compared to having no partners. Purpose-built relationships following advice and casual targeted relationships are also significantly associated with new-to-market product innovation, while pure casual relationships are only associated with new-to-industry process innovation.

Table 2. Emergence of partnerships and innovation, share of firms reporting innovation

The results of the analysis show that, at least in the case of Norway, when firm-managers are directly asked, there seems to be very little ‘in the air’. The relationships that are responsible for the bulk of innovation in Norwegian firms did not emerge from casual encounters, personal relationships, or serendipitous events, but were fundamentally purpose-built. This implies that the partnerships that have generally led to innovation in Norwegian firms have overwhelmingly involved a conscious action by firms and their managers to assess the innovation problems of their firms and identify the right partners to address those problems. In particular, local relationships that have any bearing on firm-level innovation do not show a significantly different origin from those with international or other national partners located outside the region. The majority of relationships in both cases tend to be purpose-built. The few serendipitous important relationships in which Norwegian firms engage are also not very conducive to innovation. Firms that rely on partnerships based on casual encounters hardly innovate any more than firms without any self-declared important partners, once other factors leading to innovation are controlled for.

It may be the case that Norway is exceptional – it is too rich, too remote, and lacks the agglomerations for ‘buzz’-driven innovation to take hold. Consequently, the results of our analysis may not necessarily be transferable to other contexts. It may be also the case that serendipitous and chance encounters may lead to partnerships which are not perceived as the most important for innovation by managers, but that may nonetheless still lead to innovation or that institutional constructs may facilitate knowledge spillovers in the partnerships that are established. But it may also be the case that, by actually asking a large number of firm managers about how the relationships that are key to innovation within their firm emerged, we are finding that something that has been long assumed may require further scrutiny. By constantly assuming that there was something ‘in the air’, we might have ended up like John Paul Young believing it, rather than testing it. We have wanted to believe that ‘there is something in the air’, overlooking that, as stressed by Shearmur (2012: S14), many types of “innovation may be developed internally, at a slower pace, relying on research and development, secrecy, a stable workforce, and controlled interactions with the outside”. Consequently, as a research community, we may have overstated “the importance of cities in generating serendipitous interactions” (Shearmur 2012: S14). More research – and research in different places and using different methods – is therefore needed in order to validate whether the truth about innovation in high-density environments is closer to the dictum that ‘there is something in the air’ or, by contrast, to the idea is that ‘little is in the air’ or ‘nothing is in the air’.

References

Bathelt, H, A Malmberg and P Maskell (2004) “Clusters and knowledge: Local buzz, global pipelines and the process of knowledge creation”, Progress in Human Geography, 28(1): 31-56.

Cooke, P and K Morgan (1998) The associational economy: Firms, regions, and innovation, Oxford: Oxford University Press.

Depner, H and H Bathelt (2005) “Exporting the German model: The establishment of a new automobile industry cluster in Shanghai”, Economic Geography, 81(1): 53-81.

Fitjar, R D and A Rodríguez-Pose (2016) “Nothing is in the air”, Growth and Change forthcoming.

Gertler, M S (2003) “Tacit knowledge and the economic geography of context, or the undefinable tacitness of being (there)”, Journal of Economic Geography, 3(1): 75-99.

Glaeser, E L (1998) “Are cities dying?”, Journal of Economic Perspectives, 12(2): 139-160.

Krugman, P (1998) “What's new about the new economic geography?”, Oxford Review of Economic Policy, 14(2): 7-17.

Martin, R and J Moodysson (2011) “Innovation in symbolic industries: The geography and organization of knowledge sourcing”, European Planning Studies, 19(7): 1183-1203.

Marshall, A (1890) Principles of Economics, London and New York: Macmillan.

Maskell, P and A Malmberg (1999) “Localised learning and industrial competitiveness”, Cambridge Journal of Economics, 23(2): 167-185.

Morgan, K (1997) “The learning region: Institutions, innovation and regional renewal”, Regional Studies, 31(5): 491-503.

Rekers, J V and T Hansen (2015) “Interdisciplinary research and geography: Overcoming barriers through proximity”, Science and Public Policy, 42(2): 242-254.

Shearmur, R (2012) “Are cities the font of innovation? A critical review of the literature on cities and innovation”, Cities, 29(S2): S9-S18. 

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Topics:  Productivity and Innovation

Tags:  innovation, knowledge transfer, spillovers, externalities, geography, co-location, Norway, tie formation

Professor of Innovation Studies at the UiS Business School, University of Stavanger

Professor of Economic Geography, London School of Economics; Research Fellow, CEPR

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