Supporting digital innovation: how European ICT ecosystems can spark a new impetus in the Eastern Neighbourhood

In the past months, the EU4Digital Facility ICT Innovation team has been focusing its efforts to promote a common legislative framework in the Eastern Partnership region that would favour ICT innovation, based on EU norms and best practices.

Working towards this objective, the EU4Digital Facility identified the major gaps between the EU and Eastern Neighbourhood and elaborated national policy recommendations and action plans for their implementation for each partner country according to the following specific policy areas selected by each country:

• Intellectual property rights management for digital innovations (Armenia)
• New organisational forms for supporting ICT Innovation (Azerbaijan)
• Digital innovation SMEs’ access to finance (Georgia, Ukraine)
• ICT innovation ecosystems for start-ups and scale-ups (Moldova)
• Digitising industry (digital transformation of SMEs in traditional sectors) (Belarus)

The policy recommendations and action plans are based on an analysis of the EU practices in each respective policy area. 

This article provides an overview of the EU best practices in the area of New organisational forms for supporting ICT Innovation, selected as a priority policy area in Azerbaijan, but with a particular resonance for the whole region.

Ecosystems for digital innovations are those formed by people, start-ups and companies, and various types of organisations interacting as a system to create and support digital innovations. The goal of such an ecosystem is to enable a high level of productivity by innovative companies through the delivery of certain required services. New organisational forms are a logical step in the development of such ecosystems. 

Policy for the development of innovation ecosystems draws from the understanding that the main sources of productivity in the ecosystems are the quality of links (networking), the quality of the ecosystem actors (competencies and skills), and the quality of institutions (quality of regulation and framework conditions for innovations in the country).

Beyond classic technology parks, business incubators and technology transfer offices, there are various other organisational forms that can support digital innovations. While these are well-established in the EU, they barely register in the Eastern Neighbourhood countries. The following key types of new organisational forms, which provide a better fit to deliver the necessary services in the innovation ecosystem, operate in the EU in support of ICT innovation:

• Innovative clusters
• Accelerators
• Competence centres
• Digital innovation hubs
• Private-Public Partnership-based projects (‘federated’ projects with multiple stakeholders).

Innovative clusters

According to the European Commission’s industrial cluster policy, clusters are forms of economic cooperation of specialised enterprises – often SMEs – and other related supporting actors, including investors, universities and research centres. 

Innovative clusters are usually defined as “groups of firms, related economic actors, and institutions that are located near each other and have reached sufficient scale to develop specialised expertise, services, resources, suppliers and skills”.

Modern cluster policies aim to establish a favourable business ecosystem for innovation and entrepreneurship, in which new winners can emerge and support the development of new industrial value chains and ‘emerging industries’. To do this, modern cluster policies follow a systemic approach that combines different policies, programmes and instruments – not only supporting networking activities and setting up cluster organisations that manage networking and provide support services to SMEs, but also developing the smart specialisation strategies that are built considering sectoral, geographical and policy patterns.

Cluster initiatives are organised efforts to support the competitiveness of a cluster. They consist of practical actions related to the capacity of these clusters to self-organise and proactively shape the future of the cluster. They usually follow a bottom-up approach, are implemented through a competitive process, and are often managed by specialised SME intermediaries, such as cluster organisations, which are legal entities that support the strengthening of collaboration, networking and learning in innovation clusters by providing specialised and customised business support services to stimulate innovation activities, especially in SMEs. 

Cluster organisations play a crucial role in assisting the government to identify the competitive advantages and related innovation opportunities of a particular region in order to develop its smart specialisation strategy, followed by joint roadmapsand aligning investment agendas. Smart specialisation was included in the EU Cohesion Policy 2014-2020 as an ‘ex ante conditionality for European Structural and Investment Fund support’. All EU Member States and regions had to develop National and Regional Research and Innovation Strategies for Smart Specialisation.

Because of the power of networks in cluster development, there are many projects and initiatives linking clusters with each other. For example, the European Cluster Collaboration Platform (ECCP) or the European Cluster Observatory.

EU state aid rules and cluster support

Following the amendment of EU state aid rules for aid measures by Member States in support of research, development and innovation in 2014, state aid for clusters is now covered under the General Block Exemption Regulation (GBER). The legal framework provides a clear guidance for Member States for drafting their funding regulations for cluster support. The EU ‘Framework for State aid for research and development and innovation’ defines innovation clusters as “structures or organised groups of independent parties (such as innovative start-ups, small, medium and large enterprises, as well as research and knowledge dissemination organisations, non-for-profit organisations and other related economic actors) designed to stimulate innovative activity by promoting sharing of facilities and exchange of knowledge and expertise and by contributing effectively to knowledge transfer, networking, information dissemination and collaboration among the undertakings and other organisations in the cluster”. Under the new framework, state aid for innovation clusters can be granted if it “aims at tackling market failures linked with coordination problems hampering the development of clusters or limiting the interactions and knowledge flows within and between clusters. State aid could contribute to resolving this problem, first by supporting the investment in open and shared infrastructures for innovation clusters, and second by supporting, for no longer than 10 years, the operation of clusters for the enhancement of collaboration, networking and learning”.

Accelerators 

Accelerators are “fixed-term, cohort-based programmes that include seed investment, connections, sales, mentorship, educational components, and culminate in a public pitch event or demo day to accelerate growth.” (Susan Cohen, “What Do Accelerators Do? Insights from Incubators and Angels”) 

Digital accelerator

An example of a digital accelerator is the Accelerator at EIT Digital, assisting scale-ups to transit “from venture to a dominant industry player” in order to build a new generation of European industry players.

The EIT Digital Accelerator assists companies with: 

• Hands-on advice to define go-to-market strategy
• Customer targeting and segmentation
• Showcasing at international events
• Developing leads and making deals
• International access-to-market knowledge and ‘soft landing’ support
• Fundraising guidance, preparation and investor connections

Accelerator Assembly

The Accelerator Assembly is an industry-led network created by the European Commission that connects accelerators, entrepreneurs, and policy makers in order to support web start-ups across Europe. The organisation promotes web entrepreneurship by operating an online community to share knowledge and best practices, gathering research and evidence on web start-ups, and organising events and workshops.

European Innovation Council (EIC) Accelerator Pilot

The Enhanced European Innovation Council pilot (Enhanced EIC pilot) encourages for-profit companies to put forward their most innovative ideas with an EU dimension that cannot find financing on the market because of their high-risk character. Such start-ups and SMEs that are based in a Member State or in a Horizon 2020 Associated Country (including Armenia, Georgia, Moldova and Ukraine) can receive EU funding and support for breakthrough innovation projects with a market-creating potential.

The EIC Accelerator Pilot offers small and medium-sized businesses the following assistance:

• Business innovation grants
• Equity of up to €15 million per company
• Free business coaching

EU state aid rules and cluster support

Accelerators may be subject to regulation under the EU ‘Framework for State aid for research and development and innovation’ as long as they perform ‘innovation support services’ or ‘innovation advisory services’.

Competence centres

There is no common definition for competence centres (centres of excellence). They can be singular “repositories of knowledge and resource pools for multiple business areas” acting under a framework of an entity, and can act as “associations that are based on innovative cooperation between the public authorities, research and development institutions and enterprises” or as “a consortium of several research groups internationally recognised in their field of research”.

EU state aid rules and cluster support

Competence centres may be subject to regulation under the EU ‘Framework for State aid for research and development and innovation’ as long as they perform ‘innovation support services’ or ‘innovation advisory services’. They execute innovation projects and can be the base for the development of further organisational forms in support of innovation, i.e. digital innovation hubs.

Digital Innovation hubs

European Digital Innovation Hubs

Digital Innovation Hubs are one-stop-shops that help companies to become more competitive in their business/production processes, and products or services using digital technologies. They provide access to the latest knowledge, expertise and technology to support their customers with piloting and testing digital innovations. Digital innovation hubs (DIH) also provide business and financing support to implement these innovations, if needed. A DIH is a regional multi-partner cooperation including organisations like research and technology organisations (RTO), universities, industry associations, chambers of commerce, incubators/accelerators, development agencies and governments.

It is the European Commission’s ambition that all companies should have a DIH within their region, through which they should be able to access competences in order to digitise their organisations and activities. Furthermore, the provision of services by existing Hubs can be strengthened by the establishment of a pan-European network of DIHs. 

The European Institute of Innovation and Technology (EIT) Innovation Hubs

The EIT’s network of highly dynamic EIT Innovation Hubs was developed to enable national and cross-border EU collaboration, and offer the benefits of regional ecosystems, partners’ facilities, factories, and classrooms for joint programmes and projects.

The Innovation Hubs focus on developing innovative products, services and training in a specific area, taking targeted actions to help overcome key challenges in that field. 

Key functions of all Innovation Hubs: 

• Connectivity: they provide a physical space for interaction within the local ecosystem;
• Knowledge management: they function as points for knowledge exchange;
• Activity management: they act as a centre for many activities.

DIHNET.EU online community platform for Digital Innovation Hubs

The DIHNET.EU project enables the coordination of European, national and regional initiatives directly supporting digital transformation and Digital Innovation Hubs. The project aims to create a sustainable pan-European network of networks, with a focus on regional DIHs by developing a set of tools and boosting the collaboration of the different DIH networks, DIHs and other key DIH stakeholders in Europe. The DIHNET.EU Community has developed an online community platform for DIHs and allows DIHs to meet, exchange, discuss and identify which of their missing expertise can be found in other DIHs across the EU.

Digital Innovation Hubs catalogue

The Digital Innovation Hubs catalogue is a “yellow pages” of Digital Innovation Hubs. The information provided about each entry is based on self-declaration. Currently all the entries in the catalogue are being verified as long as they comply with a set of criteria.

Private-Public Partnership-based projects (‘federated’ projects with multiple stakeholders)

The Digitising Industry strategy stresses that in order to put in operation the key technologies, consolidation of efforts of multiple stakeholders within federated projects is needed, and these projects need to be operated via the mechanism of public private partnerships. For this purpose, the EU has established Public-Private Partnerships (PPPs) and a Joint Undertaking in key digital technologies such as 5G, big data, High Performance Computing, cybersecurity, photonics, robotics and electronic components and systems. A mechanism of Public Private Partnerships provides a legal structure to pool financial, human and infrastructure resources and to gather critical mass and scale of research and innovation needed to address critical societal challenges and major EU policy objectives.

Regulation

To encourage research and innovation, the Treaty on the Functioning of the European Union (TFEU) includes two articles which have been used as a legal basis for establishing public-private and public-public partnerships in research and innovation. 

• Article 187 TFEU covers public-private partnerships, typically involving the EU, industrial association(s) and other partners. These partnerships are managed by legal entities called joint undertakings which are responsible for implementing the research agenda in the area they cover.
• Article 185 TFEU covers public-public partnerships, with participation of the EU in research and development programmes undertaken by several EU countries.

All PPP set-ups qualify – as far as they fall within the EC Treaty – as public contracts or concessions. There are two main types of public-private partnerships, according to the Public-Private Partnerships and Community Law on Public Procurement and Concessions:

• Institutionalised public private partnerships held jointly by both a public and a private partner in order to perform public services. 
• The award of concessions – contractual Public-Private partnerships – based on a contractual arrangement between the Commission and industry partners. 

Next steps

The full report developed by the EU4Digital ICT Innovation team on the EU best practices in the area of New organisational forms for supporting ICT Innovation was used to develop the gap analysis framework for Azerbaijan; on the basis of the gap analysis, the EU4Digital ICT Innovation team elaborated policy recommendations and a policy implementation action plan for Azerbaijan, which have been aligned with national counterparts. The action plan identifies six key recommendations with concrete action steps and considerations for implementation or intervention. The action plan can be used as a basis for further activities and possible independent joint projects involving national stakeholders. Further activities by the EU4Digital Facility (training, study visits, networking events, promotion activities, etc.) will support the interested stakeholders in their further activities on overcoming the gaps.

Adopting EU best practices in this way will help to boost the development of a mature ICT innovation and start-up ecosystem with well-functioning support organisations in the Eastern Partnership countries.

Ultimately, a common legislative framework will enable Azerbaijan to benefit from the EU Digital Single Market, and to exchange and develop new innovative ideas with counterparts from EU member states.

The policy recommendations and national policy implementation action plan for Azerbaijan can be downloaded from the EU4Digital library here.