TOWARD A NETWORK TOPOLOGY OF ENTERPRISE TRANSFORMATION AND

TOWARD A NETWORK TOPOLOGY OF ENTERPRISE TRANSFORMATION AND INNOVATION Takis Damaskopoulos INSEAD Transforming Enterprise US Department of Commerce Washington DC. January 28, 2003

Central argument… Innovation is not something happening “inside” enterprises but rather at the network interfaces of enterprises with the business, regulatory and institutional environment within which enterprises operate. Innovation is a function of complex interdependencies among highly skilled labor operating within and across knowledge-creating organizations that are nurtured and supported by dynamic and flexible institutional structures. It is the dynamic interdependence of this set of conditions that is increasingly the source of innovation. For ICT to be able to diffuse throughout the whole economy, thus enhancing productivity growth, business enterprises and the institutions and culture of society need to undergo substantial change. This is why the agenda of research on the dynamics of enterprise transformation and innovation, business competitiveness and economic growth needs to be expanded beyond the level of the enterprise. It needs to be built around the dynamic interrelationships between technological transformations, enterprises’ organizational knowledge-creating capabilities, and public institutions.

1. ICT, knowledge and innovation Innovation is driven by: New knowledge Highly educated, motivated and autonomous labour Entrepreneurship Innovation involves three elements: Complexity and differential temporal rhythms Networks Organizational forms

2. Organizational dimensions of enterprise transformation: the “network enterprise” The process of innovation, especially as this applies to organizational and market performance, is increasingly becoming a function of open-source networks of cooperation. The “network enterprise” 1. process, not task 2. flat hierarchy / greater employee autonomy 3. educated workforce / ongoing training 4. team management / knowledge flow 5. rewards / remuneration from team performance 6. measurement of performance based on maximization of customers / suppliers contact and customer satisfaction 7. networks of alliances to gain new knowledge

3. Institutional dimensions of enterprise transformation: “clusters of innovation” “Clusters of innovation”: organizational, social and institutional matrices that underpin accelerated paces of technological uptake, organizational knowledge creation and their deployment for innovation. These matrices incorporate specific sets of relationships of production and management, embedded in social and institutional structures that support a culture of entrepreneurship and encourage the development of new business processes geared to innovation. The key in the competitive position of “clusters of innovation” is their ability to generate synergy, that is, the added value that results not from the cumulative economic impact of the critical elements present in the cluster but from their interaction in a way that fosters innovation.

In lieu of a conclusion… While there is abundant evidence of structural changes that sustain trends toward globalization of economic processes this does not mean that the comparative difference among localities is disappearing. On the contrary, one of the key issues in the growing importance of locality has to do with the modalities and patterns of learning that are implicated in the complex interactions between global and local processes. The distinctive elements that make up the social and economic fabric of regions – their economic structures, patterns of social and political relations, cultural makeup – are themselves critical in shaping emerging patterns of economic development and organizational forms. Hence a key determinant of a locality’s economic trajectory is the extent to which its social institutions can function as frameworks enabling responses to the challenges of the new competitive environment.