Thinking Big - Systemic Innovation

30.01.2013 Blog

Transforming whole systems has never been more important. Youth unemployment, poverty, addictions, crime and criminalisation, low levels of educational attainment amongst vulnerable groups and homelessness remain significant challenges for communities across Europe. New challenges have also emerged: migration has put pressure on community cohesion; an ageing population is placing significant demands on already stretched health and care services, as well as public and personal budgets; new lifestyles have brought with them problems of obesity and chronic disease such as diabetes and potentially the most alarming is climate change, which is expected to have devastating effects on agricultural production, human health, food and water security and lead to more and more regular climate disasters. 

These challenges can not be solved by individual social innovations; new social enterprises and new products and services alone cannot effect the change that is so urgently needed.  Instead, what is required is profound innovation in the way that services are designed and delivered. In the case of climate change, innovation is needed in every part of the economy - from design and processing to distribution and consumption. We will need to cut energy use, conserve what is used through recycling and re-use and avoid production where possible rather than expanding it. This requires systemic innovation.

But what exactly is systemic innovation?

In order to understand the concept of systemic innovation we need to explain what is meant by the term ‘system’.  Russell Ackoff, systems thinker and organisational theorist, defines a system as a set of two of more elements where the behaviour of each element has an effect on the behaviour of the whole, and where the behaviour of the elements and their effects on the whole are interdependent.  A defining feature of systems is that changes in one part affect other parts. As Geoff Mulgan explains in his latest paper on the subject, systemic innovation therefore describes a set of interconnected innovations, where each is dependent on the other, with innovation both in the parts of the system and in the ways that they interact.

Systemic innovation is often required for the full value of radical innovations to be realised. For example, for the invention of the car to transform the nature of transport, a whole raft of complementary innovations in terms of products and services (petrol stations, driving schools, road traffic management and so on) and regulations were necessary. And indeed, until these were in place, cars remained less efficient than carriages and poorly diffused.

This idea of complementarity is well covered in the literature. Indeed, the term ‘systemic innovation’ was first used within the business field to describe a class of innovations that required specialised and complementary assets for their successful commercialisation. In this sense they were defined in contradistinction to autonomous innovations, namely those which can be developed independently of other innovations. Chesbrough and Teece, for example, defined systemic innovation as those “whose benefits can be realized only in conjunction with related, complementary innovations”.   More recently, systemic innovation has been defined by Maula as “innovations that require significant adjustments in other parts of the business system they are embedded in”.

Much of this literature focuses on how the process of systemic innovation should be managed and whether it can be managed by a single firm by integrating complementary innovations both vertically and horizontally or whether it is best achieved through markets.  Some have argued that integrating strategies are ineffective because even the largest firms will lack the resources and capabilities to create the complementary innovations that are necessary for systemic innovation. Maula and Chesbrough, for example, have argued that systemic innovation requires (or is best suited) to open models of innovation management: “In systemic innovation processes, firms need to coordinate as well with producers of complementary products and in many cases even with the direct competitors to ensure the viability of the innovation, rather than coordinating solely with suppliers and customers as is frequently the case in closed innovation models.”  Consequently, there is a significant role for networks and new forms of collaboration in driving systemic change.

Most of this literature is focused on systemic innovation in a business context; very few writers have looked beyond the boundaries of business or technology to explore systemic innovation in a social context. Even Clayton Christensen’s work on disruptive innovation in the context of America’s healthcare system, in which he explores not only the role of new technologies and business models but also regulatory reforms, fails to explore the role of social movements, public attitudes and behaviour change in creating and embedding systemic change.  

In the social sphere, systemic innovation involves the fundamental transformation of the systems of society on which we all depend – such as healthcare, housing, education or energy. It is rarely achieved through a single organisation or sector; and more often involves a complex interaction of public policy and reforms to legislation, changes to business cultures and practices as well as shifts in consumer attitudes and behaviour. Since systems exist at different levels, a systemic approach of this nature might apply to a single town, region or a whole country.  Examples of systemic innovation include the creation of welfare states in the last century, to more recent developments in housing (for example eco-towns such as Vauban in Germany) in education (for example holistic early years’ provision in Reggio Emilia in Italy) in health (such as the North Karelia Project) and ICT (with the proliferation of high speed broadband and mobile phone technology, which have led to innumerable social benefits). 

Since systemic change is rarely effected by single groups or institutions (in fact it often requires involvement across all four sectors – business, government, civil society organisations and households) it tends to be much slower and harder to achieve than individual social innovations. Change in complex systems is particularly hard to achieve because it requires changes in mentalities, structures and processes. Systems are also slow to shift because they tend to be optimised around their current forms and powerful interests combine with personal relationships to maintain the status quo.

However, if we are to tackle some of the pressing social challenges of today, we will need a broader understanding of what systemic change is, how it takes place and how it can be orchestrated.  In particular, we will need to take a cross sectoral approach, looking at the public, private and third sectors to see how public policy, business cultures and practices, social movements and consumer attitudes and behaviours interact and interconnect to effect systemic innovation.

For more information on systemic innovation and how to make it happen look at NESTA's latest discussion paper here.