Innovation is now considered central to the competitiveness of nations and regions besides making an obvious difference to their social well-being and prosperity. From Abu Dhabi to Zambia, governments are shoring up their efforts to encourage local economic agents to become more innovative.
Innovation is crucial because it allows firms and organisations to create new value. Very often, however, policymakers focus too much on the capacity of local firms to create new knowledge and harness it in the local economy rather than on their capacity to create new value per se.
The overemphasis on locally-produced and locally-applied innovations goes against the obvious reality that most value is created by the adoption of innovation and its exploitation on a global scale. Most of us are engaged in economic activities that utilise technological and organisational innovations developed by other organisations originating from more than one firm, region or country.
The efficacy of knowledge use in economies is therefore more critical than the capacity to create new knowledge and innovations per se. Consequently, what policymakers need to do is pay more attention to the capacity of the economic agents in their economies to access, attract, and diffuse innovation from elsewhere and apply them wherever new value can be created.
Thus, two years ago the author of this piece together with a team of researchers in the UK developed the so-called Innovation Adoption Index for the benefit of the National Endowment for Science Technology and the Arts (Nesta). The index focused on five key capacities that are critical for the use of innovation to create new value — these are the capacities to access, anchor, diffuse, create and exploit knowledge.
A modified version of the index was reproduced recently by the author in collaboration with the International Organisation for Knowledge Economy and Enterprise Development (Iked) and the Statistics Centre Abu Dhabi (Scad) to measure the innovation-adoption capacity in Abu Dhabi and select natural resource-rich economies (Australia, Canada, Finland, New Zealand, Norway, and Sweden) for the benefit of the General Secretariat of the Executive Council.
On the capacity to access knowledge needed by firms to create value, Abu Dhabi is ranked in seventh position. The ranking is based on the mean average for the following metrics: advanced producer service network connectivity, student outward mobility, internet usage (per 100 persons), and exports of high-tech products as percentage of GDP. An exception is the high level of outward student mobility that Abu Dhabi enjoys.
However, some of the data used to measure this capacity was outdated for lack of more recent inputs and it is believed that, on the whole, Abu Dhabi's capacity to access international knowledge has improved with the increased presence of international companies operating in the emirate.
The countries with highest capabilities for accessing international knowledge among the seven economies were Sweden and Norway.
The second capacity for value-creation in an economy is the ability of economic agents in an economy to anchor knowledge. Anchoring implies the capacity to attract and domesticate knowledge through foreign investment and/or highly skilled professionals. As expected, Abu Dhabi performs well in terms of its knowledge-anchoring capacity, and is ranked only behind Canada.
The Nordic countries do not perform well in terms of knowledge anchoring, with relatively low levels of FDI and highly skilled migrants.
Australia, Abu Dhabi and Canada, however, were open to skilled migrant professionals as sources for knowledge access and knowledge anchoring.
The third capacity for value creation according to the Innovation Adoption Index is knowledge diffusion. This is the capacity of an economy to absorb new knowledge on a wider scale. In this respect, Abu Dhabi's overall knowledge diffusion scores suffer due to its relatively under-skilled workforce.
The fourth capacity measured in the innovation adoption index is the capacity to exploit knowledge. Due to a lack of available data, the Knowledge Exploitation Index was based on the mean average of the standardised value of only one metric: the proportion of Innovation Active Enterprises. Data for this indicator became available only after Scad successfully initiated and administrated the first ever Community Innovation Survey (CIS) in the GCC region. Using this metric, Abu Dhabi comes in sixth position in terms of knowledge exploitation, above New Zealand, and only slightly below Sweden, while Canada leads the way by some distance, followed by Norway and Finland.
The fifth capacity is the capacity to create knowledge, which was not included in the current Abu Dhabi version of the Innovation Adoption Index for two reasons: the greater emphasis on creating value on the basis of knowledge acquired from elsewhere and the lack of data on knowledge creation outside formal research and development activities.
In the overall composite Innovation Adoption Index, which is based on the mean average of the four sub-composite indices, Abu Dhabi is ranked sixth, one position above New Zealand. Canada is ranked first and Australia second, followed by the Nordic countries. The index shows that Abu Dhabi is highly reliant upon an innovation model based on the anchoring of overseas knowledge through the attraction of foreign talent and foreign knowledge institutions.
As the director of the newly-launched Innovation and Policy Initiative at Insead Abu Dhabi I now plan to both improve and expand the indicators for the Innovation Adoption Index in order to apply it on a greater number of countries. This tested model is better suited to allow policymakers monitor actual performance of their economies in terms of their readiness to create value.
Dr Sami Mahroum is an innovation policy specialist and senior researcher at INSEAD Abu Dhabi and the Director of INSEAD's Innovation and Policy Initiative.
