How craft and small enterprises contribute to the innovation process

Statement by Dr. Thomas Köster before the Conference on Craft and Small Enterprises in Budapest on 20 November

Mr. Chairman,
Ladies and Gentlemen,

Whenever we talk about innovations in companies, we look first of all at the size of individual inputs: How high is the companys annual budget for research and development? How large are its product development departments, and how many people do they employ?

Trade businesses and small businesses tend to play a diminutive role when one explores questions of product development and the dissemination of innovations in industry from this angle. With a few exceptions, such businesses do not have special research departments. If necessary, the chief innovator or head of product development is the owner of the business himself. But he doesnt count as product development staff.

The result of this simple input-based approach is that contributions to product development and innovations by trade businesses and small businesses tend to go largely unnoticed. What is more, one receives the impression that these businesses play no role whatsoever in the process of innovation.

But this way of looking at things is wrong and even dangerous when it comes to promoting an optimal process of innovation. It completely overlooks the fact that innovations do not only take place in the laboratory. They also occur in the course of concrete, everyday work: for example, when someone uses his experience to develop and implement a new idea. Innovations have to catch on in the market. One has to convince customers that they are efficient and worth their price. One has to learn from ones mistakes in their application and develop ideas for new innovations drawing on such mistakes.

In other words, innovation is a process which doesn't run in a straight line. The first step may take place in a laboratory or in a research institution. But further steps must follow in the innovation process in order for innovations to become an economic success. And then, of course, one needs feedback to research and development processes so that they too can make use of signals from the market.

This process involves a whole number of people and certainly not just large concerns.
But, in German literature at least, there is very little information on how precisely skilled trade businesses are involved in this process of innovation, or on the different functions they perform and the conditions under which they carry out these functions.

We therefore decided to approach the well-known Prognos-Institut with precisely these questions: What contributions do skilled trade businesses make to the process of innovation? What role do these small and medium-sized businesses play? Are there obstacles in this field which hinder the process of innovation? And what can be done to enable trade businesses to play a full part in the process of innovation?

Or, to put it another way: What would processes of innovation look like if there were no trade businesses?

The consultants carried out a survey of several thousand trade businesses in Germany; they conducted numerous talks with experts and interviewed people in representative individual businesses within the framework of case studies.

The consultants summed up their conclusions as follows: "Trade businesses provide decisive contributions to innovation in Germany. The role of trade businesses is diverse and covers the whole process of innovation."

To sum up using my own words: "Processes of innovation cannot run optimally without trade businesses. "

Allow me to go into some of the findings of the survey:

1.Skilled tradesmen are innovators. As inventors and developers, they pick up ideas from their immediate environment, work on their customers requirements, and develop their own ideas until these become marketable. Here they are helped by their close proximity to their customers and to the latters problems, as well as by their own practical skills and competencies. They are not interested in earning scientific honours, nor do they develop products which will land in the waste-paper basket. The products they create are intended for the market. There are many interesting examples of such products. Once a year, the Seifriz Prize is awarded for outstanding products developed in conjunction with a university institution. By way of example, I would like to mention the firm of Bocom as this year's winner from the Düsseldorf region. For a long time now, the owner of Bocom has been studying the influence of light on peoples wellbeing and efficiency. Working in co-operation with a university institution, he developed a control system which enables artificial light to replicate the spectral colours of sunlight in the course of a day. This is a very impressive experience and, in the meantime, this innovation is a great financial success for the company.

2.Skilled tradesmen are problem-solvers and optimisers because they are competent and creative partners who can develop the right individual solutions for private and commercial customers. Their specialist skills and know-how enable tradesmen to work on the right individual solutions, even when given only very imprecise specifications. Unfortunately, and this should also be mentioned here, many skilled tradesmen do not succeed in developing successful individual solutions for full-scale production. In many cases, they lack the necessary resources of time and, in particular, money.

3.Skilled tradesmen disseminate new technologies. They are multipliers who in many cases achieve the market break-through for innovations. Such innovations need the skilled tradesman, who can credibly assure his customer that the new technology can be installed reliably and will work effectively. The skilled tradesman thus ensures the products diffusion on the market. Just think, for example, of the whole range of energy-saving domestic technology which the skilled trades sector has brought onto the market.In its survey, the Prognos-Institut asked, among other things, whether the individual business had supplied new technological solutions or new services during the past three years. Half of the businesses replied that they had. Of course, not all of these businesses had developed these innovations themselves, but they were actively and directly involved in disseminating new products. The results thus impressively demonstrate the role of the skilled trades sector as multipliers.

4.Skilled tradesmen initiate innovations when they allow their experience to be fed back into the industrial production process. After all, everyone knows that not everything that engineers develop on the drawing board or on the computer is immediately suitable for everyday use. This is where skilled tradesmen provide an important contribution to the acceptance and suitability of innovations for day-to-day use.The experts report explicitly recommends that tradesmen demonstrate more self-assurance in dealing with their industrial suppliers and inform the product development departments of their practical experience more emphatically.

5.Skilled tradesmen are mediators in the field of technology. They are familiar with technologies and processes and can develop these further and thus open up new markets. Practical experience with the application of technologies leads to small innovative steps which in turn help to realise the full potential of innovations.

6.Skilled tradesmen are users of technologies. They use new technologies in their own businesses in order to remain competitive. Of course, small trade businesses also use computers, the Internet, forms of mobile communication, etcetera in order to optimise their working processes. Just because the German word for the skilled trades Handwerk refers to the hand, doesnt mean that such businesses perform their work without the help of electronic technology. On the contrary: low-cost electronics offer small businesses good preconditions for using new technologies.

7.Skilled tradesmen are also instructors and make a huge contribution to strengthening the human capital basis of the economy as a whole by providing training and skills. They thus create essential preconditions for a smooth and efficient process of innovation above and beyond their own field of the skilled trades. The personal skills of the company owner and his or her staff are a decisive factor for the success of innovative ability. The experts report therefore recommends that we must continue and even increase our training efforts in the trades sector. We should hold on to the dual system of training in the skilled trades and, at the same time, make a stronger effort to ensure that this form of training is also made more attractive for well qualified young people.

8.The skilled trades embody the culture of independence. Skilled tradesmen set an important example for society by uniting specialist and entrepreneurial skills as well as the willingness to assume responsibility. This role is essential for ensuring that new businesses constantly enter the market, for stimulating competition, and as an incentive for new entrepreneurial initiatives. In many cases, the skilled trades are the hotbed for expansion. And small and medium-sized businesses embody the model of the independent, fully responsible and fully liable entrepreneur in the social market economy.

The experts at the Prognos-Institut conclude, I quote:
"The skilled trades sector with its specific innovative competencies should become more strongly involved in the debate on innovation and the shaping of innovation policy."

I consider this to be a very important piece of advice for us all.

Basically, I have nothing to add to this. It is worth taking a very close look at the tasks of the skilled trades sector in the process of innovation and in the individual stages of innovation. And it is important to elucidate and shape innovation policy at regional, national and most certainly also at European level against this background. One must regard the process of innovation as a whole, and not just restrict oneself to basic research and basic developments since these alone will not ensure economic success.

We in Germany often quote the examples of the fax or the Mp3 player as technologies which were developed in Germany but which were not worked on here to reach market maturity with the result that we now import these products from the Far East.

I cannot quote all the results and recommendations of the report individually. But I would recommend that anyone who is seriously interested in processes of innovation and in ways to promote innovation should take a close look at the Prognos-Instituts report. It is available at: www.hwk-duesseldorf.de

Nevertheless, I consider some aspects of the report to be so important that I would like to give you at least a brief outline here today:

First of all:
The central obstacle that prevents the trades sector from contributing to innovation is the shortage of own capital on the part of many businesses and problems with third party funding for innovations in such businesses. The results of the survey and all the case studies confirm this situation categorically. In many cases, questions of funding cannot be solved satisfactorily and remain the central challenge facing the promotion of innovations.

We therefore need measures to strengthen the own capital situation of trade businesses in the long term in order to promote innovation. This will have consequences for tax policy, for example. The money earned in businesses must remain there so that it can be re-invested.

We must ensure access to third party funding. Businesses need quick and non-bureaucratic funding, particularly when it is a question of investing in innovations. And public funding for innovation, especially European funding for innovation, must keep its eye on the whole process of innovation. It is only right that we should expect policy-makers to support projects involving the participation of trade businesses which help to place products on the market, develop demonstration projects and implement practical solutions.

Secondly:
Innovation relies on co-operation and collaboration. The report especially emphasises the involvement of small businesses in regional clusters and co-operation with universities and research institutions. This is why we in the skilled trades sector repeatedly demand that universities in particular should respond to the interests of small businesses and should not only set their sights on the big money of the multinationals. The universities are publicly funded. They must meet their responsibilities for research and development and for the transfer of R&D results to trade businesses and small businesses in their regions. We therefore very much welcome the Federal Governments latest programme for small and medium-sized enterprises which introduced a research bonus which specifically encourages co-operation between small businesses and research institutions.

Thirdly:
The funding of innovation and the transfer of technology presuppose a high level of personal trust between the parties involved. No tradesman will let a stranger into the secrets of his development project. It is therefore extremely important that businesses should be able to find a suitable contact within their own organisations, their own associations or chambers of trade a contact who can help them to find the right know-how and suitable partners for co-operation and who can offer them platforms for contacting universities and potential investors or for marketing their products.

In other words, innovations in the skilled trades sector also place high demands on the sectors own administrative and funding bodies. We in the trades sector organisations are called upon to help our members to help themselves. Key factors here are our proximity to these businesses and our confidence in their ability. We have a special responsibility to support and accompany them in the process of innovation.

We expect policy-makers, including those at European level, to establish framework conditions for innovations and funding programmes that meet the requirements of the process of innovation. In concrete terms, this means: Involving trade businesses and small businesses in European research and development projects, paying greater attention to the innovative potential of these businesses, introducing better incentives for co-operation with research and development institutions, above all the universities, and supporting small steps on the way to innovations and marketing processes.

The Prognos report on the contribution of the trades sector to innovation, on which I have based my talk today, has strongly encouraged us in the German skilled trades sector to voice these demands emphatically, using good supporting arguments. Ladies and Gentlemen, I hope that I have succeeded in describing the trades sectors specific contribution to innovation and have managed to enhance your appreciation of the potential of skilled trade businesses.

Many thanks
Second pre-conference on crafts and small enterprises“Challenges for the successful integration of crafts and small enterprisesfrom the new Member States into the single market by 2010”20-21 November 2006Budapest (Hungary), Museum of Fine Arts, Baroque Hall(Dózsa György út 41, H-1146 BUDAPEST)

online seit 28. Aug 2011, aktualisiert am 28. Aug 2011