Innovativeness of Innovation

Abstract

The Master's programme Industrial Ecology is jointly organised by Leiden University and Delft University of Technology. The horticulture sector in the Netherlands is facing economic difficulties, which have become more severe since the crisis of 2008. The innovation strategies the growers select to stimulate their organizations, are identified as part of the problem. The dominant presence of some innovation strategies, mainly cost-reducing and volume-increasing strategies, bring down the cost price of products, but fail to bring the organizations prolonged benefits. Due to mechanisms in the market, the financial benefits are of short duration: the product prices drop when the innovation spreads quickly in the sector and the organizations sell their products for even lower prices as a result of the fierce price competition central to ‘cost leadership’ segments. Other innovation strategies, aimed at increasing the value of products or extending the activities are less popular in the sector, despite their potential to counteract the downward spiraling prices. This thesis explores the innovation practices in the Westland horticulture sector to obtain an understanding on how these patterns in innovation emerge and are maintained. It shows how the dominant use of cost-reducing and volume-increase innovations can be explained from a social perspective. Is it therefore not the innovation itself that is studied, but the innovation practice of growers. Insights are provided on the ways growers innovate, how they make decisions, deal with institutions (rules, norms and shared strategies) and come to an investment. The hypothesis supporting this approach is that the organizations and innovation practices are socially embedded, and can be studies as such. The central subject of this study is the effects social institutions have on innovation practices in the Westland. To study this relation between the institutions and individuals, the bathtub model of Coleman on social action is used. The model provides in this thesis the frame to study innovation practices at the interaction of macro-level (system) and micro-level (individual), addressing the questions 'how social institutions affect individual growers?', 'how do individuals assimilate institutional power when deciding on investments?', and 'how can system-level patterns and dynamics be explained as the emergent result of actions and interactions of individuals?' Ethnographic fieldwork was used to obtain an understanding on innovation in the sector. The use of participatory observation, interviews and group discussions provided insights on innovation practices, producing a rich body of data on the actors studied. The use of ethnography has the special benefit of gaining an inside-perspective in the sector, studying both patterns in practices, as well as variation and exceptions amongst growers. Explanations on social action are based on social mechanisms, clarifying patterns in the data with existing theory, which is called ‘grounded theory’ in social science. The set-up of the methodologies suits the exploratory approach of this research on social institutions and innovation practices in the sector, placing innovation in the horticulture sector in a new daylight. A second objective was to complete the analysis so that the results can be used to underpin an agent-based model of grower society and horticulture ecosystem development. The MAIA model is used for this purpose, using its metamodel to describe the system. The study on institutions revealed that several formal institutions and informal institutions support innovation practices based on cost-reduction and volume-increase, providing thereby social explanations on the dominance of those innovation strategies. Several important organizations were identified, being the bank, the EU, the municipality, LTO Glaskracht, and sales organizations. The exploration on the impact of the formal institutions involving horticulture organizations (as contracts, regulations and official agreements) revealed that the set of institutions have a substantial impact on the type of innovations used. The regulations of the NMA forbids production and price agreements, thereby creating barriers for the grower community to develop self-organizing mechanisms to counteract the supply chain imbalances and harmful low prices. The prohibition to develop joined strategies, makes it hard for growers to jointly address price fluctuations and supply chain issues; the institutions stimulate the fierce competition on cost prices of horticulture organizations instead. The regulations of the municipality do not prioritize innovation strategies, but do prescribe regulations on safety, environment, energy and water use, etc. These regulations are in general aimed at the physical greenhouse, prescribing adaptations to the processes of greenhouses. Growers may have to spend their money to comply with (new) regulations, leaving less for other purposes, as marketing and product-extension. Some other formal institutions are written in contracts, as in the case of a loan from the bank or GMO subsidy from the EU. The study showed that growers are trading off options, in which the availability of financial means is a central element. A grower may: a) not apply for finances, thereby staying free from those contracts, or b) apply for finances - having more financial means, but agreeing to rules stated by the organization. Either of these decisions may have a huge impact, as even the smallest differences between organizations and in cost prices may distinguish an organization’s success from failure. The pressure resulting from the fierce competition on cost price intensifies the power these institutions have on them. In the case of GMO, a grower receives the subsidy when he invests in a (mainly physical) novelty, accepting that he has to sell via one of the larger sales cooperations, abandoning all individual marketing strategies. In the case of the bank, loans are only given for assets, that function as premises to the bank in case the organization cannot pay back the loan. LTO Glaskracht acknowledges the need for marketing, but since the organization is a union, the wish of the mass is taken as the input for lobbying activities. This means in practice, that the message may be quite conservative – or at least not explicitly supporting the innovative frontrunners. An important finding in the study, is that many actors and organizations recognize the problems as identified in this thesis, but at the same time, support the social institutions prioritizing process-aimed investments. Efforts to stimulate marketing and other non-process innovations are taken, but often as a side-projects, rather than reconsidering the more central institutions of organizations that are of large influence. After, the stories of five growers were used to explore innovation practices on individual level, providing more insights in the decision making processes. The stories show the variety of actors and strategies in the sector, by illustrating quite different organizations, growers and strategies. The ethnographic descriptions gave insights on the people involved in the greenhouses and innovation practices, portraying realistic actors. The study showed how choices are dependent on the personal believes, shared norms and strategies, incidents, and values of growers, and the way they deal with social institutions. The sections of the growers active in bulk products using mainly process-innovations, showed how their activities are supported by informal as well as formal institutions. In contrast, the growers managing greenhouses based on differentiation strategies, have to overcome more institutional difficulties. It tells us that the innovation practices are socially embedded, and in order to change innovation practices, growers have to deal with or overcome both formal as informal social institutions. Stated differently, new innovation practices based on value-increasing and activity-extending strategies, requires some level of social innovation, as new ideas, norms, practices and believes should be adopted – as the institutional contacts in general supports process-aimed innovation. The five stories showed how inviduals deal with these structures and arrive at investment decisions; some conform the norms and some displaying innovative ideas and actions. These activities were used in the the succeeding chapter to explain system phenomena. Three system dynamics identified as problematic were discussed: the process of homogenization of organizations, the occurrence of overproduction, the spiral of decreasing product values of bulk crops. With the use of transformative mechanisms, the emergence of the system phenomena from individual actions and interactions could be illuminated. The study showed that actions of individual growers are rational from their perspective, but altogether give rise to system patterns that are undesirable for all. The five categories of social errors (Immediate interest, Errors and self-defeating prophecy, Basic values and Ignorance) as discussed by Merton provided explanations on the occurrence of unintended outcomes of rational actors aiming for success. This provides us an insight on how system level problems can be understood, taking inividual action as the subject of study. Chapter seven showed that short-term benefits may override long-term benefits, as short-term requirements seem more urgent and are easier to understand and calculate, creating the error of immediate interest. The explanation of the error, implying the ´incorrect analysis of the problem or following habits that worked in the past but may not apply to the current situation’ relates well to the deeply embedded routines of growers to focus on production issues, not dealing with market concerns nowadays. The inability to set a higher price level without a self-governing mechanisms may lie in the tragedy of the commons, which is often defined as ‘the dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource, even when it is clear that it is not in anyone's long-term interest for this to happen’. The social mechanism in the tragedy of the commons does give a good explanation on the actions of individuals: the individuals are pursuing their own interest, following their independent rationality of their situation, altogether causing issues as macro level, as the increasingly lowering of product prices. Taking the just discussed approach, this thesis relates to several fields of science. First, it continued the ‘structure-agency’ debate, central to sociology, addressing the effects social institutions have on individuals. The Coleman bathtub model allowed to study the power that institutions have on people, as well as gives includes the freedom of individual choice. This study had the aim to present a balanced perspective on innovation practices in which both the individual as structures in the sector are included. Second, it addressed the social embedding of organizations, acknowledging the individuals actors and their decisions. This perspective on industries is relevant for the field of Industrial Ecology, as it reveals the social workings supporting organizations, materials flows, energy use and emissions. And third, it provided insights for the fields of cultural anthropology and modeling on how the methodologies of ethnographic fieldwork and agent-based modeling may be jointly used in a research project. A suggestion for further research is to take a closer look at the formal social institutions in the sector, and explore ways to improve the ‘rules of the game’ for innovation practices and sustainability improvements. Especially the social institutions observed by the EU (GMO subsidy) and the regulations by the NMA may provide an interesting subject, as their impact was described as very high in this study. A second suggestion for further research is on the effects of sustainability activities in perishable bulk products, as most crops in the horticulture sector. The issue seems to lie in that activities improving the efficiency of processes, and therewith reducing the environmental impact of products, do not increase the value of products, but rather reduces it. The mechanisms that are at work in agricultural sectors and cost-leadership segments, have the effect that the costs reduction through efficiency improvements lead automatically to lower prices. The more efficient produces products are worth less. Perhaps new marking innovations or supply chain adaptations may contribute to this matter. The last recommendation is to finalize the agent-based-model, after which it may be used to study the system dynamics. In specific, the comparison of the outcomes of the outcomes of the model and the social analysis on transformative mechanisms may be compares, studying the emergence of system phenomena with different methodologies. Further insights could be obtained on the combined use of ethnography and agent-based modeling.