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Entrepreneurial Discovery Process - EDP Entrepreneurial Discovery Process - EDP

What is the entrepreneurial discovery process (EDP) about?

Some of the key features that have been pointed out by leading scholars and policy makers dealing with innovation policies to define what EDP is about are:

  • The EDP is an inclusive and interactive bottom-up process in which participants from different environments (policy, business, academia, etc) are discovering and producing information about potential new activities, identifying potential opportunities that emerge through this interaction, while policymakers assess outcomes and ways to facilitate the realisation of this potential.
  • The EDP pursues the integration of entrepreneurial knowledge fragmented and distributed over many sites and organisations, companies, universities, clients and users, specialised suppliers (some of these entities being located outside of the region) through the building of connections and partnerships.
  • The EDP consists of the exploration and opening up of a new domain of opportunities (technological and market), potentially rich in numerous innovations that emerge as feasible and attractive.
References
	
R. Hausmann and D. Rodrik, "Economic Development as Self-Discovery", Journal of Development Economics, vol.72, December 2003, 603-633.

Foray, D. (2015) Smart Specialisation: Challenges and Opportunities for Regional Innovation Policies, Routledge.

Rationale

The importance of EDP is related to the recognition that the government does not have innate wisdom or the ex-ante knowledge about future priorities. Policy makers must guard against the intellectual logic imposed by the principal-agent model, according to which the principal, that is, the government, knows from the start which specialisations domains should be developed and therefore confines itself to setting up the incentives for private industry to carry out the plan (Rodrik, 2013). But what if there is no principal with the robust and panoramic knowledge needed for this leading role? (Sabel, 2004). This uncertainty is the main reason why administration and politics need to be prepared to listen to entrepreneurs, researchers and citizens in order to identify priorities and facilitate the emergence and growth of new activities.

In addition to the principal-agent problem, a set of rationales for EDP concern the presence of externalities or market failures that prevents well-informed selection of priorities and an efficient allocation of resources (OECD, 2013) and, consequently, the emerging trends for regional economic growth. These are grouped as follows:

  • Information externalities: both the government and the industry have imperfect information on their own;
  • Co-ordination externalities: entrepreneurial individuals that are well-placed to explore and identify new activities often will not have sufficient connections to marketing and financing sources, reducing their incentives to enter in the process; likewise, "discovery" opportunities may be constrained due to the large-scale investments required by some projects, and in particular by the spillovers that are specific to knowledge driven investments.
  • Incomplete appropriability of knowledge that lead to externalities creating a difference between the private and the social marginal return of any new knowledge being generated, which could lead, under perfect competition, to under-investment in innovation activities (WIPO, 2009). The discovery of pertinent specialisation domains may have a high social marginal return (development of the region's economy), but the entrepreneur who makes this initial discovery will only be able to capture a very limited part of this social value because other entrepreneurs will swiftly move into the identified domain ("first-mover disadvantage");
  • Regulatory failures: inadequate regulation impeding or limit the private activity of the existing entrepreneurs.
References

R. Hausmann and D. Rodrik, "Economic Development as Self-Discovery", Journal of Development Economics, vol.72, December 2003, 603-633.
OECD 2013, Innovation Driven-Growth in Regions, OECD Publishing.

What policies can encourage EDP?

It has been argued that successful smart specialisation dynamics are rooted in an EDP. But the emphasis on the EDP as the main process for generating information to identify the limited set of research and innovation priorities required in a RIS3 means that the public intervention that is required is not about telling Member States and EU regions what to do, but about helping entrepreneurs to discover what to do.

Typology of policy instruments to encourage EDP
Policy objective Market failure addressed Main agents involved Tools

To avoid ill-informed policy decision

To increase knowledge spillovers

Information externalities

Entrepreneurial actors*

The remainder of society

Public Administration

  • Creating platforms and mechanism to facilitate -intra and -iter regional interactions
  • Providing key information about emerging technological and commercial opportunities
  • Providing incentives to involve non-traditional actors
To learn about costs and opportunities and engage in strategic coordination Coordination externalities

Entrepreneurial actors*

The remainder of society

  • Networks & associations
  • Cluster policies
  • Technologies banks
  • Public-private partnerships
  • Sectoral platforms
  • SME support organisations
  • Demonstration projects, technology extension services
To reward entrepreneurs who discover new domains Incomplete appropriability

Entrepreneurial actors*

The remainder of society

  • Prizes for inventions and discoveries (e.g. government-funded research)
  • IPRs
To incentive entrepreneurial actors to engage in innovative activities regulatory failures

Entrepreneurial actors*

The remainder of society

  • Innovation for public sector innovation (e.g. Innovation-oriented procurement)
  • Fiscal incentives
  • Public web consultations
  • Regional workshop
  • Innovation vouchers
  • Internationalisation support services

How does the EDP affect S3 strategies?

The EDP is a "conceptual pillar" of Smart Specialisation (Capello, 2014). This bottom-up approach in priority-setting is crucial to understand the main feature that distinguishes S3 approaches from innovation strategies of the past. EDP reconciles the idea that policies take things in hand by shaping the regional system through priority-setting and the idea that market processes are central in producing information about the best domains for future priorities. More importantly, it does so in a non-prescriptive, bottom-up fashion, where no individual player is supposed to have a priori preferential access to knowledge about future opportunities/developments, and it is through the interaction of all sides that such identification emerges.

References

Capello, R. (2014). Smart Specialisation Strategy and the New EU Cohesion Policy Reform: Introductory Remarks. Scienze Regionali, 13 (1), 5–14.

Foray, R. and Rainoldi, A. (2013) "Smart specialisation programmes and implementation" S3 Policy Brief 02/2013

Stakeholders

The EDP should involve a wide variety of stakeholders within local societies but also within different tiers of governments. Three types or classes of actors are proposed in this paper as essential for any EDP:

  • Entrepreneurial agents (Coffano and Foray, 2014):
    Who assume the most privileged position in ED process as the sources of the "entrepreneurial knowledge" as the foundation upon which RIS3 are developed (Foray et al. 2011). Entrepreneurial agents assume any number of forms (e.g. firms, higher education institutions, public research institutes, independent innovators). Each actor inevitably possesses insights, perspectives and knowledge that are derived from their unique experiences and positioning relative to the market and other actors, all of which may be usefully combined and related to develop a comprehensive knowledge base used to inform the RIS3.
  • Policy makers and the leaders of the S3 strategy tasked with leading the S3 effort.
    Their responsibilities are two-fold. First, the entrepreneurial knowledge embodied in and possessed by the various relevant actors must be integrated. Once this knowledge integration has commenced, the focus then must shift to its synthesis and processing. Policy makers are indeed active in the ED process and hold considerable responsibility, but is not their position to consciously "pick-and-choose" stakeholders, as doing so would undermine the bottom-up, grassroots nature of EP process and the RIS3 more broadly (Iacobucci, 2014). The emphasis on ED as a decentralised and bottom-up process of producing information about potential priorities should not result in narrowing the scope of policy intervention. However, this role is quite distinct and rather more nuanced than what has been previously adopted in traditional industrial policy approaches.
  • The remainder of society:
    EDP also requires the active involvement of the broader society for two specific reasons. First, no actor is omniscient and the more inclusive the process of knowledge collection, the more comprehensive the knowledge base at the disposal of policy makers. Second, and more importantly, broad societal engagement contributes to the local ownership of the process and the strategy more broadly. This local ownership is critical for the smart specialization strategy as a whole as it provides a sense of involvement and empowerment and contributes to retain the place-based, contextually tailored bottom-up character of EDP.
References

Rodriguez-Pose, A. & Wilkie C. (2015) "Institutions and the Entrepreneurial Discovery Porcess for Smart Specialisation (forthcoming).

Coffano, M., & Foray, D. (2014). The Centrality of Entrepreneurial Discovery in Building and Implementing a Smart Specialisation Strategy. Scienze Regionali, 13 (1), 33–50.

Martínez-López, D. and Palazuelos-Martínez, M. "Breaking with the past in smart specialisation: A new model of selection of business stakeholders within the entrepreneurial process of discovery". S3 Working Paper 04/2014

Sörvik J. , Rakhmatullin R. and Palazuelos Martínez, M. "Preliminary report on KETs priorities declared by regions in the context of their work on Research and Innovation Strategies for Smart Specialisation (RIS3)".
S3 Working Paper 01/2014

Source: Own elaboration based on Foray

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