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A CRE8TV Project Deliverable
DEL: 1.0.7(R)
Report and recommendations on the development of harmonised methodologies and data to Map and Measure the CCIs, their Innovativeness, and connections on the wider economy
[FINAL REPORT]
Bruce Tether and Mickael Benaim
Manchester Institute of Innovation Research and Manchester Business School
Work Package # and Title
1.0: Developing a Harmonised Approach to the Mapping and Measuring the CCIs, their Innovations, and Connections to the Wider Economy
Activity Type RTD
Task Task 1.3: We will produce a report with recommendations concerning the development of a harmonised approach to the analysis of the size and structure of the CCIs, their dynamics and wider engagement. We will then host a workshop at which our recommendations will be discussed with senior members of statistical offices and other relevant stakeholders. Following this, the report will be revised to take account of issues raised, before the publication of a final report on these matters.
Deliverable DEL: 1.0.7(R)
Acknowledgements: Support from the 7th European Framework Program (Grant Agreement no. 320203) is gratefully acknowledged.
This Version: May, 2016
Please note, as no issues were raised in connection with the draft version of this report, this final version is the same as the draft report (i.e., DEL 1.0.5 and DEL 1.07 are the same)
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Contents
1 Introduction 3
2 Identifying the Creative Industries 4
3 Innovations in, and the Innovativeness of, the Creative Industries 15
4 Connections between the Creative Industries and the Wider Economy 23
5 Summary of Recommendations 26
References 27
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1. Introduction
The purpose of this report is to highlight and summarise what we have learnt about “mapping and measuring” the creative (and cultural) industries (CCIs), measuring innovation in the creative (and cultural) activities, especially through creativity and design, and understanding the linkages – especially for innovation -‐ between the creative (and cultural industries) and the wider economy.
As discussed below, the creative and cultural industries can be considered to be two overlapping sets of industries. For simplicity, and because our focus in the CRE8TV.EU project has been on the creative industries, and on the relationship between creative industries / activities and innovation, the primary focus of this report is on the creative industries.
The report is structured as follows.
In section 2 we discuss the definition and identification of the creative industries. We also comment on how this approach could be extended to identify the ‘cultural industries’ and therefore how these two sets of industries could be combined to identify the ‘creative and cultural industries’.
In section 3 we discuss the measurement of innovation through creativity and design. This includes a discussion of innovation outputs and innovation inputs.
In section 4 we discuss the linkages – especially for and through innovation -‐ between the creative industries and the wider economy.
In section 5 we summarise our recommendations
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2 Identifying the Creative (and Cultural) Industries For policy making purposes, groups or aggregations of industries are sometimes identified, including ‘high-‐technology’ industries, which are those with a particularly high reliance on R&D, and ‘knowledge intensive’ industries, which are those with a particularly high dependence on knowledge workers (which normally means graduates as a share of their total workforce).
The ‘creative industries’ are those that depend heavily on ‘creativity’. The ‘creative industries’ were first identified as a distinct set of activities in Australia, and shortly thereafter in the UK, where (in 1998) UK government’s Department for Media, Culture and Sport (DCMS) initially identified 13 “sectors” as constituting the “Creative Industries”. These sectors were:
Advertising Fashion Software Architecture Film and Video Television and Radio Art and antiques Music Video & Computer Games Crafts Performing Arts Design Publishing
Note that the UK identified these as ‘creative Industries’, rather than ‘creative and cultural Industries’. A first challenge to any process of harmonized measurement is agreement as to what is to be included. In general, the UK and other northern European countries (including Germany, Sweden and Finland) have tended to follow the UK in placing emphasis on ‘creativity’, rather than ‘culture’, whereas southern European countries (including Italy and Spain) have been tended to place greater emphasis on culture over creativity; this matters because it leads to differences in the activities that are included: food and tourism, for example, may be considered to be cultural ‘industries’, but not “creative industries”; whereas IT services are considered ‘creative’ but not cultural.
The European Commission’s Green Paper of 2010 (pp. 5-‐6) distinguished between the two:
"Cultural industries" are those industries producing and distributing goods or services which at the time they are developed are considered to have a specific attribute, use or purpose which embodies or conveys cultural expressions, irrespective of the commercial value they may have. Besides the traditional arts sectors (performing arts, visual arts, cultural heritage – including the public sector), they include film, DVD and video, television and radio, video games, new media, music, books and press.
"Creative industries" are those industries which use culture as an input and have a cultural dimension, although their outputs are mainly functional. They include architecture and design, which integrate creative elements into wider processes, as well as subsectors such as graphic design, fashion design or advertising.
Ideally, ‘cultural’ and ‘creative’ industries should be defined by first developing measures of cultural content in the output of the industry, or creativity and/or cultural content of their processes, or their reliance on cultural content as an input. In practice this is difficult and has not been done. For practical purposes, most approaches to identifying ‘creative industries’ have essentially followed the DCMS approach based on identifying a set of industries, usually as defined by Standard Industrial Classification (SIC) codes, which are to be included.
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Another consideration is that the aggregate grouping of “Creative (and Cultural) Industries” should carry sufficient weight to be considered significant. Indeed, one of the motivations for creating this grouping is that each ‘creative industry’ (such as architecture or advertising) is, by itself, and in terms of its direct economic contribution, typically rather small.
However, controversy arises in relation to which industries to include, and which to exclude. This is shown by the UK’s experience. Figure 1 shows that the “Creative Industries” (as defined in the UK) were growing in terms of Gross Value Added and as a share of the UK economy from the late 1990s until the late 2000s, then, in 2008, their apparent contribution declined substantially, and by roughly half, from around 6% of the UK economy to around 3%. The reason for this was not however an implosion of the ‘creative industries’; it was instead due to the decision to remove the information technology (IT) sectors from the classification. In effect, it shows that the IT sectors account for roughly half of the ‘creative industries’ as they had been defined.
Figure 1 – The Economic Contribution of the Creative Industries before and after redefinition
Source: NESTA, based on ONS data
Whether or not to include the IT sectors became a matter of considerable controversy in the UK. They are creative in the sense of being oriented to routinely generating new solutions, but they are not (in general and with obvious exceptions including computer games) creative in an expressive or artistic sense. This debate led to the ‘creative intensities’ approach which was developed by NESTA (Bakhshi et al., 2013) as a way to consider more rigorously which industries should (and should not) be included in the ‘creative industries. We outline this approach below.
2.1 The Creative Intensities Approach to identifying the ‘Creative Industries’ The ‘creative intensities’ approach to identifying the ‘creative industries’ applies a logical, reasoned approach to determining what to include and what to exclude. Moreover, the methodology relies on existing data (including coding structures and surveys), including the existing “standard occupational classification” (SOC) and labour force surveys which utilise this, and the existing “standard industrial classification” (SIC), and classification of firms within business registers to industries on this basis.
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The creative intensities approach begins with the occupational classification of workers. As such, it considers that workers provide the key inputs into each industry. The aim is to identify ‘creative occupations’, which are defined as “a role within the creative process that brings cognitive skills to bear to bring about differentiation to yield either novel or significantly enhanced products whose final form is not fully specified in advance”. To do so, it applies five tests, which are outlined in Box 1.1
Box 1: The Five Tests Used to Identify Creative Occupations
To identify ‘creative occupations’, each occupation was subjected to a set of five tests, intended to determine whether or not they are “creative” (Bakhshi et al., 2013, p. 24).
-‐ Novel process – does the role most commonly solve a problem or achieve a goal, even one that has been established by others, in novel ways? Even if a well-‐defined process exists which can realised a solution, is creativity exhibited at many stages of that process?
-‐ Mechanisation resistant – The very fact that the defining feature of the creative industries is their use of a specialised labour force show that the creative labour force contributes something for which there is no mechanical substitute.
-‐ Non-‐repetitiveness or non-‐uniform function. Does the transformation which the occupation effects likely vary each time it is created because of the interplay of factors, skills, creative impulse and learning?
-‐ Creative contribution to the value chain. Is the outcome of the occupation novel or creative irrespective of the context in which it is produced; one such context being the industry (and its standard classification) of the organisational unit that hosts or employs the role?
-‐ Interpretation, not mere transformation. Doe the role do more than merely ‘shift’ the service or artefacts form or place or time?
Occupations that passed at least four of the five tests were considered to be creative. “The creative economy” defined as all people employed in these creative occupations. Note that we discuss these criteria, and some issues arising with regard to them, extensively in Tether and Benaim (2014).
The next step in the methodology is to identify ‘creative intensity’ of each industry, which is the aggregate number of workers in creative occupations as a share of total employment in the industry in question. Ideally, industries are defined at a high degree of disaggregation (i.e., using 4-‐digit SIC codes). This matters because the creative intensities of neighbouring industries within the SIC structure can have very different ‘creative intensities’. For instance, because architects are considered to be a ‘creative occupation’ whereas engineers are not, the creative intensity of the 4-‐digit industry (SIC71.11) ‘Architectural activities’, is much higher than that intensity of its neighbouring 4-‐digit industry (SIC71.12) ‘Engineering activities and related technical consultancy”. Because SIC 71.12 is much larger than SIC71.11, when these 4-‐digit industries are combined together into a 3-‐digit industry (71.1), the ‘creative intensity’ of this is much closer to 71.12 than to 71.11.
NESTA’s study revealed that, at least for the UK, the ‘creative intensity’ of some industries was markedly higher than that of others, and that (according to this measure) the distribution of
1 Note that the use of the term “novel or significantly enhanced” connects to the concept of innovation, as laid out in the OECD’s Oslo Manual and as a deployed in the Community Innovation Surveys.
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industries by ‘creative intensity’ was bi-‐modal (See Figure 2). Most industries have low creative intensities (i.e., the proportion of people engaged in creative occupations is typically a small share of the total workforce), whereas in other industries the share of the workforce in creative occupations is substantial, at over 30%. On the basis of this, NESTA classified as ‘creative industries’ those industries with relatively high creative intensities
Figure 2: Using “Creative Intensity” to identify Creative Industries
(Source: Bakhshi et al., 2013, page 32).
One of the interesting findings arising from this analysis is that large numbers of people are engaged in creative occupations in industries with low creative intensities – i.e., in industries other than the creative industries.
Before adopting the methodology and resulting classification as an official approach, the UK Government undertook a consultation exercise, which led to the inclusion of two activities – libraries and archive activities (SIC 91.01) and museum activities (SIC 91.02) that it considers ‘creative industries’ even though their creative intensities are below the 30% threshold. The industries now identified as in the UK as the ‘creative industries’ are identified in Table 1 below.
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Table 1: The Creative Industries, as currently defined in the UK2 Creative Industries Group SIC
(2007) Description Creative
Intensity Advertising & Marketing 70.21 Public relations and communication activities 59.3%
73.11 Advertising agencies 50.5% 73.12 Media representation 48.3%
Architecture 71.11 Architectural activities 61.5% Crafts 32.12 Manufacture of jewellery and related articles 56.2% Design* 74.10 Specialised design activities 62.1% Film, TV, video, radio and photography
59.11 Motion picture, video and TV programme production activities
56.4% 59.12 Motion picture, video and TV programme post-‐
production 59.13 Motion picture, video and TV programme
distribution 59.14 Motion picture projection activities 60.10 Radio broadcasting 62.7% 60.20 Television programme & broadcasting activities 53.5% 74.20 Photographic activities 77.8%
IT, Software and Computer Services
58.21 Publishing of computer games 43.1% 58.29 Other software publishing 40.8% 62.01 Computer programming activities 55.8% 62.02 Computer consultancy activities 32.8%
Publishing 58.11 Book publishing 49.9% 58.12 Publishing of directories and mailing lists 31.0% 58.13 Publishing of newspapers 48.8% 58.14 Publishing of journals and periodicals 58.3% 58.19 Other publishing activities 37.8% 74.30 Translation and interpretation activities 82.2%
Museums, galleries and libraries
91.01 Library and archive activities 23.8% 91.02 Museum activities 22.5%
Music, performing and visual arts
59.20 Sound recording and music publishing activities 54.1% 85.52 Cultural education 34.6% 90.01 Performing arts 78.8% 90.02 Support activities to performing arts 56.8% 90.03 Artistic creation 91.5% 90.04 Operation of arts facilities 38.4%
* Product, graphic and fashion design
2 Source: Table 9, in https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494927/Creative_Industries_Economic_Estimates_-‐_January_2016.pdf
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Figure 3: Employment in the Creative Industries and Creative Economy as a share of all UK jobs
Source: Figure 4, DCMS Creative Industries Economic Estimates, 2015.
Figure 4: Treemap showing the composition of the Creative Industries by gross value added in 2014, and the growth of these constituent industries by gross value added between 2008 and 2014
Source: Figure 2 in DCMS Creative Industries Economic Estimates, 2016.
Figure 3 shows that in the UK the creative industries (and creative economy) have been growing steadily as a share of the whole economy, with the creative industries now accounting for 5.6% of all jobs, while the creative economy accounts for around 8.5% of all jobs. Notable also is that the
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creative industries / creative economy continued to grow through and after the financial crisis of the late 2000s. Figure 4 shows the composition of the ‘creative industries’ by gross value added in 2014, and the various rates of growth of the constituent sectors. It is apparent that IT, software and computer services account for at least a third of these industries aggregate value added.
Recently, the ‘creative intensities’ approach has been has extended to other European countries (Nathan et al., 2015). Due to data limitations, this extension focused on six EU countries: France, Germany, The Netherlands, Sweden, Poland and the UK. Figure 5 shows the proportion of the workforce engaged in the creative economy and creative industries in each of these countries. Employment in the creative economy is given by the total height of the columns; employment in the creative industries is given by the height up to the red line. An interesting finding from this analysis is that in each country the number of people employed in creative occupations within the creative industries is roughly similar to the number of people employed in creative occupations outside the creative industries. For selected EU countries, Table 2 reports the total employment in the creative industries, in creative occupations, and in the creative economy, while Figures 6a, 6b and 6c show the distribution of industries by “creative intensities” in the UK, Germany and France respectively.
Figure 5: Employment in the Creative Industries and Creative Economy in Selected EU Countries
Source: Nathan et al., 2015. N.B. Data relates to 2012/2013 for Germany, and 2011 for others.
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Table 2: Employment in the Creative Industries and Creative Economy in selected EU countries
Employment in the Creative Industries
(A)
Employment in Creative Occupations outside the Creative Industries* (B)
Total employment in the Creative Economy
(A + B) Germany (2013) 2.28m (5.76%) 0.87m (2.19%) 3.14m (7.96%) France (2013) 1.41m (5.52%) 0.51m (2.02%) 1.92m (7.54%) Netherlands (2013) 0.59m (7.68%) 0.25m (3.21%) 0.83m (10.9%) Poland (2013) 0.58m (3.72%) 0.29m (1.89%) 0.87m (5.62%) Sweden (2013) 0.42m (8.88%) 0.14m (3.04%) 0.58m (11.9%) UK (2013) 2.34m (7.91%) 0.60m (2.02%) 2.94m (9.93%) * Embedded creative workers Source: Nathan et al., 2015
Figure 6a: Creative Intensities for Creative (Red) and Other Industries (Green): UK
Figure 6b: Creative Intensities for Creative (Red) and Other Industries (Green): Germany
Figure 6c: Creative Intensities for Creative (Red) and Other Industries (Green): France
Source: Nathan et al., 2015
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This analysis shows that, subject to data availability, the ‘creative intensities’ approach can be applied to identifying the ‘creative industries’ and the wider ‘creative economy’ on a consistent basis across European countries (and potentially beyond). It is also noteworthy that the distribution of industries by ‘creative intensity’ tends to be bimodal, and that the industries identified as having high creativity intensity in one country also tend to have a high creative intensity in other countries.
We recommend that the European Commission / Eurostat consider adopting of the creative intensities approach to identifying the ‘creative industries’ across the European Union.
The main reasons for this recommendation are that the approach makes clever and pragmatic use of existing data (classifications and surveys),3 and has several attractive and advantages features:
-‐ It is based on a clear and transparent, and relatively simple, methodology. -‐ The approach can be and has been applied in different countries where these data – which are
based on international standards -‐ are available (especially when occupational and industry data are available at high levels of disaggregation – i.e., at the 4-‐digit levels). Potentially, it can also be applied at the regional level, where data are available.
-‐ It is potentially dynamic – first, as the tasks undertaken by different occupations change they may become more or less creative (according to the five tests) and thus may become, or cease to be regarded as, ‘creative occupations’. This would lead to a change in the composition of the ‘creative economy’. Second, as the composition of employment in industries changes, so the ‘creative intensities’ of industries may change such that any particular industry may become, or cease to be regarded as, a ‘creative industry’.
-‐ The approach allows analysis at two levels – the creative economy which includes everyone engaged in creative occupations whether or not in the ‘creative industries’; and the creative industries which are those industries characterised by high creative intensities (and whose total employment includes people employed in non-‐creative occupations.
In the first instance, the Commission / Eurostat may wish to adopt wholesale the approach developed in the UK. If so, we recommend that if done this should constitute only a provisional definition. Careful consideration of the underlying methodology is also desirable. In particular, the following are notable:
-‐ Following the ‘creative intensities’ approach, the definition of the ‘creative industries’ is essentially based on identifying ‘creative occupations’ which is achieved by applying the five tests set out above. A key question therefore is ‘are these the right tests?’ For instance, it is not clear that doing work that is typically varied and non-‐routine (which is common among senior managers) is ‘creative’ in the same sense as drawing on the imagination to create, manipulate and express ideas (i.e., being creative in a more artistic sense). To an extent it may also seem odd that engineers (and scientists) are excluded from the definition of ‘creative workers’ whereas senior managers are included. As these tests are the basis of the whole classification, they should be reviewed rather than simply adopted. Different tests may produce different results.
3 Including the Standard Occupational Classification, the Standard Industrial Classification and the labour force survey.
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-‐ Secondly, the classification relies on the standard occupational classification, and essentially assumes homogeneity within occupations. This is perhaps reasonable within the context of a single country, but more questionable internationally – in different countries different occupations may fulfil different functions, and have different extents of creativity. This could lead to national differences in the definition of ‘creative occupations’, which would undermine international comparisons. We therefore support the desire for a single definition applicable across Europe, but the various member states should be satisfied that the various ‘creative occupations’ identified are appropriate.
-‐ Thirdly, the distribution of ‘creative intensities’ by industry should be considered. In the UK (and following the steps outlined above), this has been found to have an attractive bimodal quality, such that while most industries have low creative intensities a minority have high creative intensities, which enables the essentially uncontroversial identification of this minority as ‘creative industries’. It is not clear that the same outcome will occur in other (or all) EU countries, as the structure of industries and the division of labour between them may differ significantly. This matter also requires careful investigation.
Using the creative intensities approach, both the creative economy and creative industries can be identified. But beyond this, we recommend that the Commission / Eurostat give consideration to further developments, including: 1. The identification of the ‘cultural economy and ‘cultural industries’. The creative intensities
approach has been developed on the basis of ‘creative occupations’ and without regard to cultural activities. The approach could however provide a model for the identification of the cultural economy and industries, first by setting out a set of tests to decide whether or not an occupation is cultural (which permits the identification of ‘the cultural economy’), and then using the identified ‘cultural occupations’ to calculate the ‘cultural intensity’ of various industries, leading to the identification of a set of ‘cultural industries’. These industries are likely to overlap with, but not entirely coincide with, the ‘creative industries’. Some industries will be both “creative and cultural”, others only “creative”, others only “cultural” and others neither.
2. Developing measures of creative (and cultural intensity) at the firm level. Until now, the ‘creative industries’ have been identified at the industry level, however this risks two types of error – firstly, highly creative firms outside of the creative industries are excluded. For example, the design intensive Italian kitchen products company Alessi is a creative firm in an ‘uncreative’ industry. Meanwhile there are likely to be firms assigned to the creative industries which are not creative. If occupational data is available at the level of the firm, it should be possible to identify creative firms as opposed to creative industries. This may well be advantageous, as these firms may have distinctive characteristics, such as their approach to innovation, and the nature of their innovative outputs. The identification of cultural firms is also potentially possible by extension.
3. Examine new ways of classifying firms by the nature of their activities and outputs. We have stated that among the advantages of the creative intensities approach is that it relies on existing data structures, including the ‘standard occupational classification’ and ‘standard industrial classification’. But these also classification schemes also have and impose limitations. The standard industrial classification essentially imposes a functional logic on the classification of products, and thereby industries. For example, manufacturers of lamps are classified to SIC 27.4: Manufacture of electric lighting equipment, but many if not most lamps are not simply
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functional products – many are style or design-‐intensive (See examples in Figure 7). Yet using the SIC codes it is not possible to separate ‘stylish’, ‘design-‐intensive’ lamps (or lamp manufacturers) from other ‘electric lighting equipment’ (manufacturers). Consideration could be given to the classification of outputs by firms and industries on the basis of their creative and/or cultural content, and to the potential benefit of undertaking such an exercise to the understanding of the contemporary EU economy, and the basis of its competitiveness.
This is of course much more easily said than done, as it raises questions about how information on the non-‐functional content of products can be collected. One possibility is to analyse the information that businesses reveal about themselves and their products through public communications, such as web-‐sites. Previous analysis has shown the firms active within the same SIC codes can be meaningfully re-‐categorised on the basis of their public communications (Pina and Tether, 2016)
Figure 7: Various lamps arising from a Google Images search
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3. Innovations in, and the Innovativeness of, the Creative Industries
In this section we discuss the measurement of innovation, both in terms of innovation outputs (new products, services, processes, etc.) and in terms of the activities that ‘drive’ innovation, especially in the context of the creative industries. In so far as innovation through creativity and design is not confined to the creative industries, our considerations also have wider significance.
2.1 Identifying Innovative Outputs – beyond Functional Novelty
Innovation is considered the key driver of economic development – it involves a process of “creative destruction” (Schumpeter, 1934), in which the new replaces the old. “Radical innovations” lead to major disruptive change, whereas “incremental innovations” provide marginal improvements. There are various types of innovation: Schumpeter identified five types: the introduction of new products; the introduction of new methods of production; the opening of new markets; the development of new sources of supply for raw materials or other inputs; and the creation of new market structures in an industry.
The Eurostat/OECD “Oslo Manual” (3rd edition, 2005), which is the internationally recognised manual for collecting and interpreting innovation data, defines innovation as:
146. An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations.
Three features of this definition are notable. First, that innovation can take different forms (product, process, marketing method, organisational method, organisation or relations); second that innovations need to be implemented; third that innovations are new or significantly improved. Of these, the most problematic in our view is the conceptualisation of “significantly improved”. Para 160 and 161 of the Oslo Manual state that:
160. Significant improvements to existing products can occur through changes in materials, components and other characteristics that enhance performance. The introduction of ABS braking, GPS (Global Positioning System) navigational systems, or other subsystem improvements in cars is an example of a product innovation consisting of partial changes or additions to one of a number of integrated technical subsystems. The use of breathable fabrics in clothing is an example of a product innovation involving the use of new materials that improves the performance of the product. (Emphasis added)
161. Product innovations in services can include significant improvements in how they are provided (for example, in terms of their efficiency or speed), the addition of new functions or characteristics to existing services, or the introduction of entirely new services. Examples are significant improvements in Internet banking services, such as greatly improved speed and ease of use, or the addition of home pick-‐up and drop-‐off services that improve customer access for rental cars. Providing on-‐site rather than remote management contact points for outsourced services is an example of an improvement in service quality. (Emphasis added)
The conceptualisation of improvement here is essentially framed in terms of (objective) functional performance and efficiency. This is made clear in the next paragraph, which discusses design:
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162. Design is an integral part of the development and implementation of product innovations. However, design changes that do not involve a significant change in a product’s functional characteristics or intended uses are not product innovations. However, they can be marketing innovations, as discussed below. Routine upgrades or regular seasonal changes are also not product innovations. (Emphasis added)
….
169. A marketing innovation is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. (Emphasis added)
170. Marketing innovations are aimed at better addressing customer needs, opening up new markets, or newly positioning a firm’s product on the market, with the objective of increasing the firm’s sales.
…
172. Marketing innovations include significant changes in product design that are part of a new marketing concept. Product design changes here refer to changes in product form and appearance that do not alter the product’s functional or user characteristics. … An example of a marketing innovation in product design is the implementation of a significant change in the design of a furniture line to give it a new look and broaden its appeal. Innovations in product design can also include the introduction of significant changes in the form, appearance or taste of food or beverage products, such as the introduction of new flavours for a food product in order to target a new customer segment. … (Emphasis added)
The Oslo Manual forms the basis of the harmonised Community Innovation Survey (CIS) which is used to monitor the extent of innovation in EU Member States and across the Union as a whole. The question on Marketing Innovation implemented in the CIS is reported in Box 2 below.
Box 2: The Marketing Innovation question from the Harmonised CIS Survey Questionnaire, 2012
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In the context of the creative activities and the creative industries there are some problems with the conceptualisation of “product innovation” as defined by the Oslo Manual and as implemented in the CIS.4
Firstly, a ‘new product’ in the creative industries may not be innovative. The creative industries include publishing, film and music activities. These routinely introduce new products – such as new books, new films, and new music recordings. While new, many of these products are not innovative.
Secondly, firms may develop highly creative variants of their ‘products’ that are not innovations. Where firms produce bespoke outputs, such as advertising campaigns or architectural and other designs, these are not normally considered innovations. Instead, no matter how creative (inventive or innovative) any particular campaign, the ‘product’ of the advertising agency is advertising – so this is not an innovation. An advertising agency would have to introduce a new service – such as a market research service – for this to be considered an innovation.
Thirdly, while a “significant change in product design” is recognised as an innovation, the requirement discussed above that a ‘product innovation’ involves a significant change in a product’s functional characteristics and/or intended uses is problematic as it imposes a narrow functionalist view of innovation. Also problematic is the labelling of these ‘innovations’ as “marketing innovations”. For instance, following this approach Apple’s iPod was not a ‘product innovation’ but was a ‘marketing innovation’, as its functional characteristics and intended uses were fundamentally the same as existing MP3 players; it is doubtful that a manager at Apple responding to the questionnaire would recognise the iPod as a ‘marketing’ instead of a ‘product innovation’. Indeed, Galindo-‐Rueda and Millot (2015, pg. 24) report that cognitive testing with firms finds that the concept of marketing innovations is “not widely accepted”. We recommend that the ambiguity in the definition of product innovation as incorporated into the Oslo Manual be resolved. This could be achieved by changing the definition of ‘product innovation’ to include its appearance (or aesthetics), and to ask subsidiary questions about the nature of the changes involved.
Product innovation could, we suggest, be defined as:
A product innovation is the introduction of a good or service that is new or significantly changed with respect to its characteristics or intended uses. This includes new or significant changes to technical specifications, components and materials, incorporated software, product form or appearance, and user friendliness.
Subsidiary questions could then follow, asking about whether this involved changes to:
The functional characteristics of the product (i.e., what it does)
The user interface
The product’s form or appearance
[etc.]
4 Note that in most countries the CIS is also administered to businesses with at least 10 employees. It therefore excluded micro-‐businesses, but the great majority of firms in the creative industries are micro businesses.
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Aside from the narrow, functional conceptualisation ‘product innovation’, another problem is the borderline between process and organisational innovations, which the Oslo Manual recognises as frequently problematic, with many innovations contain aspects of both (para. 195). Ultimately, this can lead to rather uncreative businesses being identified as innovative, while highly creative firms are not innovators. In our view this makes it all the more important to identify engagement in creative activities that are related to innovation, even if indirectly and not immediately.
Box 3: Innovation Activities question from Harmonised CIS Survey Questionnaire, 2012
2.2 Creative Activities and (the Management of) Innovation: R&D and Beyond
While creative activities are not necessarily innovative, or dependent on innovation, innovation activities, and especially those that are oriented to new to the market or new to the world innovations, involve ‘creative activities’. The ‘Oslo Manual’ does not however identify creative activities. Instead, it discusses innovation activities, defining these as:
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149. Innovation activities are all scientific, technological, organisational, financial and commercial steps which actually, or are intended to, lead to the implementation of innovations. Some innovation activities are themselves innovative, others are not novel activities but are necessary for the implementation of innovations. Innovation activities also include R&D that is not directly related to the development of a specific innovation.
Box 3 shows the questions that are asked about these innovation activities (particularly in relation to product and process innovation) in the Community Innovation Survey.
Very notable, in both the Manual and the Community Innovation Survey (CIS) questionnaire, is the prominence given to R&D, including both internal and acquired R&D. Also notable is that equal prominence is not given to other sources of creativity, such as design. For while design is included, it is confined to the shape or appearance of goods or services; design as a process of discovering user needs is not explicitly identified – such activities should presumably be included in the miscellaneous “other” category.5
Despite this prominence of R&D, in most European countries, the majority of innovation active firms responding to the CIS do not report engaging in R&D (see Table 3), even on an occasional basis; at the extreme, in Bulgaria only 11% of firms reported having engaged in R&D. While some firms may have bought in their innovations – outsourcing the creativity or inventive effort required to innovate – the source(s) of creativity for innovation remain unidentified for many.
Table 3: Proportion of innovation active firms engaged in R&D according to the CIS of 2012
SI 78% SE 64% AT 51% ES 43% EL 34% FI 75% BE 57% DE 48% RS 41% PL 31% NL 73% HR 56% LU 47% TR 41% RO 25% NO 71% DK 55% CZ 47% MT 39% LV 24% FR 65% EE 54% SK 44% IT 37% CY 23% IE 64% HU 51% LT 43% PT 35% BG 11% Source: Eurostat.
Interestingly, the recent Innobarometer of 2015 (European Commission, 2015) that follows a different methodology finds that among firms in EU countries design activities (not included in R&D) are slightly more widely engaged in than are R&D activities (see Figures 8 and 9).6
5 With respect to expenditures, the CIS asks respondents how much their firm spent on: In-‐house R&D; External R&D; The acquisition of machinery, equipment, software and buildings; The acquisition of existing knowledge from other enterprises or organisations; All other activities including design, training, marketing and other relevant activities. 6 Aside from asking about the extent of investment in design, the 2015 Innobarometer also asked about the positioning of design within the firm. Similar to the Danish Innovation Survey of 2010, design could be: a central element in the company’s strategy (13% gave this answer); an integral but not a central element of development work in the company (18%); be used as a last finish, enhancing the appearance and attractiveness of the final product (14%); the company could not work systematically with design (16%); design could not be used in the company (38%); or a ‘don’t know ‘ answer provided (1%). Analysis of the micro-‐data has found that: 1. The propensity to introduce product or service innovations increases as design becomes more central to the firm. This finding remains even after controlling for other factors, such as engaging in R&D; 2. The share of turnover due to innovations increases with the centrality of design in the firm; 3. The extent of investment in design is less important than the centrality of design for share of turnover due to innovations.
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This begs the question whether the Community Innovation Survey may be over-‐reporting (and thus exaggerating) the true extent to which firms are engaging in R&D (especially as defined in the recently revised version of the OECD’s Frascati Manual – OECD, 2015), while at the same time under-‐reporting the significance of other forms of creative or inventive effort, such as design.
Figure 8: Innobarometer 2015: Firms reporting investing in design of products and services
(Source European Commission, 2015)
Figure 9: Innobarometer 2015: Firms in selected countries investing in Design and in R&D
(Source: derived from data reported in European Commission, 2015)
Significantly, paragraph 102 of the Oslo Manual recognises that in order to innovate, firms need to engage in “creative activities”, it can source innovations externally, or it can develop innovations in collaboration with external partners:
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102. There are two main options open to a firm that wants to change its products, capabilities or production, marketing and organisational systems. It can invest in creative activities to develop innovations in house, either alone or in conjunction with external partners, or it can adopt innovations developed by other firms or institutions as part of a diffusion process. … Both the creation and adoption of innovations can involve either intensive learning and interaction with other actors, or minimal external linkages [Emphasis added].
However, while several “innovation activities” are recognised (in chapter 6) as contributing to innovation, the Manual presents no information on how innovations are developed and little information is provided about the content of these activities.
For example, while para 12 states that firms may allocate large amounts of resources to market research, this activity is not discussed in the Manual.7 ‘Design’, however, is discussed in the Oslo Manual. The term arises several times, and is discussed specifically in section 2.4:
2.4. Design
344. The term product design, as used in the definition of marketing innovations, refers to the form and appearance of products and not their technical specifications or other user or functional characteristics. However, design activities may be understood by enterprises in more general terms, as an integral part of the development and implementation of product or process innovations, as described in Section 2.2.3 of this chapter. The categorisation of design activities will thus depend on the type of innovation they are related to.
345. All design activities for the development and implementation of product innovations (including work on form and appearance) and of process innovations should be included either in R&D or in other preparations for product and process innovations.
346. Work related to changes in product design that are marketing innovations (and not product innovations, i.e. where the functional characteristics or intended uses of the product in question are not significantly improved) should be included in Preparations for marketing innovations.
Within Section 2.2.3 on “Other preparations for product and process innovation”, there is a paragraph on design, which states:
334. Design can include a wide range of activities aimed at planning and designing procedures, technical specifications and other user and functional characteristics for new products and processes. Among them are initial preparations for the planning of new products or processes, and work on their design and implementation, including adjustments and further changes. Also included is industrial design, … which involves the planning of technical specifications for new products and processes. Some elements of industrial design should be included as R&D … if they are required for R&D.
Thus, while the Manual recognises that “design is an integral part of the development and implementation of product innovations” (para 162), design is divided between activities subsumed
7 Save for para 337 which states that “Market preparation for product innovations can include preliminary market research, market tests and launch advertising for new or significantly improved goods and services.”
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into R&D, activities related to the appearance of products, and activities included in the miscellaneous “other preparation activities”.
This is likely to dampen the significance of design, which contrasts with the findings of Galindo-‐Rueda and Millot (2015, pg. 25) who report that in cognitive testing design activities were considered among the important. However, it should also be noted that some respondents considered the concept of design vague and sought clarification.
Recent studies have also shown that as design becomes more central to the strategy of the firm, its impact on innovation tends to increase.8 Design appears to complement investments in R&D in more technologically oriented sectors, and to be an important independent driver of innovation in ‘low tech’ sectors, including services.
Therefore, while recognising that this will involve challenges of definition,9 we recommend that other sources of creativity (or inventiveness) for innovation – and especially design – be included alongside and on an equal footing to R&D in the Community Innovation Surveys.
Beyond the inclusion of design, we note that while there are several mentions of the creation of new knowledge, particularly through R&D,10 in the Oslo Manual, there is no essentially discussion as to how new knowledge relates to, or is integrated into, innovative products, processes, marketing initiatives or organisational structures. We therefore call for greater attention to be paid to how innovation is managed, and how the management of innovation varies between contexts. It is notable that the third edition of the Oslo Manual was the first to discuss the economics of innovation, and the manual may benefit from incorporating developments in the understanding of innovation management. We therefore recommend that consideration be given to the incorporation of a chapter on innovation management into the revised Oslo Manual.
8 The Danish version of the 2010 CIS contained questions about the role and positioning of design in Danish firms. This ranged from firms now working with design systematically, through design being used as a last finish (for product appearance or styling), to design being an integrated but not determining element and design being a central and determining element. Galindo-‐Rueda and Millot (2015, page 33) report: “Controlling for size and sector, firms using design as an integrated element tend to have on average a statistically significant 9.1% higher employment growth rate, a 18.7% higher value added growth rate and 10.4% productivity growth rate than their “non-‐integrated design” counterparts.” They further report that “these results are very robust to the addition of extra controls that account for the existence of R&D activity within the company and even the reporting of innovation outcomes. Also notable is that in the complete specification used to describe the productivity growth performance of Danish firms, only the coefficient on design use remains statistically significant.” (page 34). Furthermore, firms that used of design were significantly more likely to use all of the methods to obtain knowledge on user/customer needs (an effect that remained after firm characteristics such as size, sector and R&D are controlled for). Commenting on these findings, Galindo-‐Rueda and Millot (2015, p. 35) remark: “The strength of these results is quite remarkable … [providing] an indication of the very robust positive relationship between use of design and the economic performance of firms, at least in the case of Denmark.” They caution however that the results are associative and should not be read to infer causal effects from design to performance. (ibid) 9 Design is considered by some to be difficult to define. Interestingly, however, among those responding to to Innobarometer survey the share of firms saying they “don’t know” whether they invested in design is generally low, being greatest in Denmark (12%) followed by the UK and Portugal (both at 11%). 10 Which the Oslo Manual defines in accordance with the Frascati Manual: “Research and experimental development (R&D) comprises creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications”.
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4. Connections between the Creative Industries and the Wider Economy
In this section we consider some of the inter-‐connections – especially in terms of creativity and innovation -‐ between the creative industries and the wider economy.
Before doing so, we need to appreciate:
1. Creative activities, firms and industries are not necessarily innovative.
2. Not all creative activities are undertaken within the creative industries. A substantial share of creative activities – at least as measured by people engaged in creative occupations – is ‘embedded’ in the wider economy.
3. That overall the creative economy – which is the sum of the creative industries and people working in creative occupations in the wider economy -‐ is growing, both in absolute terms and as a share of the whole economy. This implies that the creative content of work, and resulting goods and services, is increasing.
4. Overall, the creative industries are growing, both absolutely and as a share of the creative economy. This implies there is increasing specialising in creative activities, and that the benefits to be undertaking these activities apart from ‘un-‐creative’ activities are increasing. This further implies the growth and development of markets for creative activities and outputs.
5. Demand is changing, shifting away from products that are standardised (and mass produced) -‐ “one size fits all” that are characteristic of an industrial economy. Instead, there is growing demand for more customised, and at the extreme bespoke, products and services.
6. There is also an increasing blurring of production and consumption, especially in some creative goods and services. Experiences are, for example, generally co-‐produced by the consumer and the producer/provider. More generally, ‘consumers’ are moving away from being passive recipients or adopters of products and services, including innovative products and services, as developed by commercial providers. They are often active in developing their own solutions, and may be the source of creativity that commercial providers exploit to develop innovative products.
The interconnections between ‘creative industries’ (and creative firms) and the wider economy are also undoubtedly complex. Partly, this is because the creative industries – while sharing the characteristics of being highly dependent on creative work practices – are also highly heterogeneous. Some, such as the crafts sector, produce tangible products (even if heavily laden with symbolic content), while other, such as film and music produce intangible products and experiences, while others still, such as museums and libraries concern the provision of facilities rather than the development of products. Another dimension of variation is that some, such as architecture and advertising, are primarily the providers of intermediate outputs to other businesses, whereas others, such a publishers and broadcasters, directly engage with final consumers.
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Indeed, it may be more sensible to consider the inter-‐connections between the creative industries and the wider economy on an industry-‐by-‐industry basis, rather than as a whole. However, taken as a whole, and from an innovation perspective, we might be especially interested in:
1. The ‘importation’ of innovations, technologies and techniques from the wider economy into the creative industries. To what extent, for example, is innovation in the creative industries enabled by new or advanced technologies?
2. To what extent do the ‘products’ of the creative industries ‘exported’ to the wider economy enable organisations in the wider economy to innovate, or how to innovate more effectively?
3. Whether the approaches to innovation engaged in by the creative industries tend to differ from those in the wider economy and the extent to which these are now diffusing into the wider economy?
Unfortunately none of these questions are readily answered, even though it is evident the new technologies, especially those associated with digital technologies of production and distribution are impacting massively on (some of) the creative industries. New technologies enable to production of music, or of films, at much lower cost of equipment than previously, while distribution (especially via the internet) is now potentially free or very low cost. This has had massive impact on business models, and on the flow of resources within the value chains of these industries. Other industries, such as advertising, architecture and design, which are also making use of new technologies and which are using new technologies to reorganise production are also being impacted. And one of the reasons why at least some of the creative industries are particularly important is that they are often early adopters of new technologies and techniques, stimulating their origination and production, which is the necessary first step for their later wider diffusion. Meanwhile other creative industries are technological laggards. It is difficult to innovate in performing arts without losing the essential quality of these activities. And while innovation tends to drive prices down (for given quality), activities such as the performing arts suffer what Baumol and Bowen (1966) identified as a cost disease: due to their labour intensity, their costs increase faster than general inflation.
Meanwhile, at least some of the creative industries are at the forefront of innovation in terms of being originators or creators of new technologies and techniques, and other forms of innovation, such as pioneering new organisational forms. For ‘the creative industries’ includes the IT, computers services and software sector, which is among the most productive of innovations, and/or of inputs needed by clients in order to develop their own innovations.
In this context, a significant problems with the current approach to measuring innovation – essentially through the Community Innovation Surveys (based on the Oslo Manual) – is that while businesses are asked whether or not they have developed and implemented innovations which are sold to others, no information is gathered on the nature of the demand or of the customer. Furthermore, no distinction is made between new products that are developed for general release and those developed specifically for one client or for clients/customers in particular industries.11 Yet especially where innovations are client specific, the client is also an innovator. To gain a better
11 And related to this, no distinction is made between innovations which are funded by the developer for general release, and innovations which are either directly, or effectively, paid for by particular clients.
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understanding of these flows of innovations between providers and clients – including between the creative industries and the wider economy -‐ we recommend that consideration be given to including questions about the intended market for innovations, including whether they were client specific, and oriented to particular industries.12
Beyond this, we know little about how ideas and innovative approaches developed in the creative industries are diffusing elsewhere, yet it appears that this is the case. Two examples are pertinent. First, agile software development techniques were initially developed in the software industry as a more creative and fluid alternative to the predominant ‘waterfall’ methods, but agile techniques are now diffusing into the wider economy. Similarly, ‘design thinking’ was initially developed in design consultancies (in collaboration with art and design schools), but is now diffusing into the wider economy, and especially among service sector businesses: these patterns of diffusion of interesting and powerful but difficult to trace.
Another interesting form of interaction between the ‘creative industries’ and the wider economy is the flow of people. It has been shown that roughly similar numbers of people are employed in creative occupations outside of the creative industries as are employed within them. This raises interesting questions as to the extent of churn, with individuals engaged in the same or similar roles moving into and out of the creative industries, and whether this churn is beneficial to the diffusion of ideas and techniques between the creative industries and wider economy.
The growth of the creative industries is also interesting because it is related to the growth in markets for intangibles, and ideas. This in turn is related to the effectiveness of contractual relationships and the allocation of property rights, including intellectual property rights. In the context of the creative industries, copyrights, design rights and trademarks are more significant than patents for technologies.
Overall, mapping and measuring the inter-‐connections between the creative industries and the wider economy is both very interesting and very difficult to do, especially in relation to innovation and the early diffusion of technologies and intangibles. While the inter-‐connections are likely to be widespread, we recommend being clear about the purpose of these investigations into how the creative industries inter-‐link with the wider economy, and suggest that studies on these links may be more effectively undertaken on an industry-‐by-‐industry basis, or by focusing on particular activities or contexts.
12 A second problem is that significant contributions to innovation especially by project based firms such as advertising agencies or architecture and design consultancies may be being missed because highly novel solutions may not be regarded as a “new service”. This leads to a problem of unattributed inputs to innovation, or of “hidden innovation” by project based firms.
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5 Summary of Recommendations
In this report, we have made ten recommendations:
1. We recommend that the European Commission / Eurostat consider adopting of the creative intensities approach to identifying the ‘creative industries’ across the European Union. [See page 12 for the discussion related to this].
2. If the Commission / Eurostat choose to initially adopt wholesale the ‘creative intensities’ approach developed in the UK, we recommend that this should constitute only a provisional definition of the creative industries. [See page 12 for the discussion related to this].
3. We recommend that the Commission / Eurostat give consideration to further developments to applying the ‘intensities’ methodology to the identification of the ‘cultural economy and ‘cultural industries’. [See page 13 for the discussion related to this].
4. We recommend that the Commission / Eurostat give consideration to developing measures of creative (and cultural) intensity at the firm level. [See page 13 for the discussion related to this].
5. We recommend that the Commission / Eurostat give consideration to examining new ways of classifying firms by the nature of their activities and outputs that is not confined to the function of their products or services. [See page 13 for the discussion related to this].
6. We recommend that the ambiguity in the definition of product innovation, as incorporated into the Oslo Manual, be resolved such that this does not continue to discriminate in favour of functional novelty. [See page 17 for the discussion related to this]
7. We recommend that other sources of creativity (or inventiveness) for innovation – and especially design – be included alongside and on an equal footing to R&D in the Community Innovation Surveys. [See page 22 for the discussion related to this].
8. In order to better inform statisticians and policy makers of the changing nature of innovation and its management, we recommend that consideration be given to the incorporation of a chapter on innovation management into the revised Oslo Manual. [See page 22 for the discussion related to this].
9. To gain a better understanding of these flows of innovations between providers and clients – including between the creative industries and the wider economy -‐ we recommend that consideration be given to including questions about the intended market for innovations, including whether they were client specific, and oriented to particular industries. [See page 25 for the discussion related to this].
10. We recognise that mapping the interconnections between the creative industries and wider economy is very difficult, and therefore recommend that the purpose of these investigations be clearly defined and suggest that such studies may be more effectively undertaken on an industry-‐by-‐industry basis, or by focusing on particular activities or contexts, rather than on a whole economy basis. [See page 25 for the discussion related to this].
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