State-owned companies innovate without being pushed
The Higher School of Economics, the RF Ministry of Economic Development, and the Russian Venture Company prepared an analytical report summarising the results of state-owned companies’ innovative development programmes (IDPs) in 2011–2013 and their future priorities, and describing innovation management mechanisms applied by these companies and leading international firms. Data sources included companies’ IDPs, reports, annual monitoring results, and a survey of state-owned companies’ management conducted by HSE ISSEK in 2014. According to most of the respondents, the government actions have already positively affected their companies, and by 2020, the effect will become even more pronounced.
 Report “Innovation Development Programmes of Russian State-Owned Companies: Interim Results and Priorities” (in Russian) |
“The government initiative to adopt innovative development programmes for companies with public participation has been repeatedly criticised by the expert community, frequently described as “pushing them to innovate”. However, the policy was partially justified by the historically developed paradigm such companies have to operate in: low competition, monopolistic positions in the market, and no economic incentives to innovate. In this situation, applying “artificial” tools such as IDPs to generate government-induced impact was in effect the only way to break the existing trends”, the report says.
The government has been implementing IDPs, currently the key tool to promote innovation in the largest companies, since 2011. These strategic development documents are adopted for 5-7 years and describe a set of measures aimed at designing, applying, and marketing new top-level technologies, innovative products and services, and steps to promote companies’ modernisation and technological development through radical improvement of production processes’ efficiency. Companies develop IDPs based on their business strategies, prospective demand, and national technological development priorities set by the national strategic planning system.
More than 60 companies that generate about 20% of the Russian GDP are implementing IDPs. These include the largest companies with public participation operating in mechanical engineering (such as Rostech, United Aircraft Corporation, Rocket and Space Corporation “Energia”), mining (Gazprom, Rosneft), infrastructure (Russian Railways, Russian Grids). Almost half of the companies operate in high-tech sectors and have obtained important future-oriented R&D results, including those funded with public money.
At the core of IDPs are innovative projects to develop and implement new technologies and products (services). The volumes and structure of funding provided under IDPs significantly vary depending on the sector of the economy. E.g., in high-tech companies, including the aerospace and shipbuilding sectors, the share of total revenues invested in IDPs is quite high, while most of the IDP-related expenditures go to R&D. On the other hand, in the mining and quarrying sector, energy, and infrastructural companies the share of revenues channelled into IDPs is much lower, and most of the programmes’ funds are spent on capital projects such as building new and upgrading existing production facilities where new technologies are applied.
R&D growth rate achieved by these companies in the course of IDP implementation (127% or 2,27 times in three years’ time) is about three times higher than the average for the economy (43%). However, even given the fast growth of R&D expenditures, the actual projects frequently haven’t been especially radical. According to the Ministry of Economic Development, about a third of the R&D expenditures’ growth in 2010–2013 was due to inclusion of traditionally applied activities to adjust existing in-house or borrowed designs. This primarily concerns mining and infrastructure companies. In the aerospace sector R&D expenditures include capital-intensive product design activities. Therefore increased R&D costs don’t always imply a proportional growth rate of knowledge creation and technology development.
IDP implementation resulted in much higher shares of innovative products of the companies’ total shipments: 27,1% in 2013 compared with 15,4% in 2011. In absolute terms, sales of innovative products and services during the period in question has almost tripled – from 250 to 736 billion roubles.
In three years of implementing IDPs, nominal productivity of all companies grew by 63% (by 36% excluding the mining sector). Assessment of real productivity growth (i.e. adjusted with deflator index) shows that during those three years, average revenue growth per worker for all companies was 23% (20% excluding the mining sector).
Most state-owned companies have established strong links with particular cohorts of relevant R&D organisations; therefore, the amount of R&D work they commission remains more or less stable. No significant increase in the number of contractors, or systematic involvement of new players was observed. The authors of the report note that certain state-owned companies began setting up extended S&T and innovation councils comprising external experts from universities and R&D organisations, as well as increased their participation in the work of technology platforms and innovative territorial clusters.State-owned companies’ orders is an important source of support for university R&D: by 2013, their amount increased by 35% compared with 2011. Close cooperation with universities takes place via joint projects to set up high-tech production lines (in accordance with the government regulation № 218). The most active players are organisations controlled by the Rostech Public Corporation. However, universities’ share of state-owned companies’ total R&D expenditures still remains insignificant. The companies’ strategy to establish long-term mutually profitable R&D partnerships with universities will probably bring results in the medium term.
According to the survey conducted by HSE ISSEK, state-owned companies’ representatives assess the government policy on adopting and implementing IDPs as more or less successful. However, the results will become tangible only after 5–7 years, and even then not in all these organisations by far.
When asked to name specific actual positive effects of the IDPs so far, the respondents first of all cited appointment of executives responsible for innovation activities. A significant proportion of companies have managed to achieve observable results in developing and applying innovations. At the same time, only in a third of the surveyed companies IDPs have affected their overall development strategy – which is evidence of IDPs’ having a positioning problem, i.e. lacking perceived importance in the existing corporate management paradigm.
By Elena Gutaruk, Mikhail Gershman, Mikhail Goland