Towards next generation PPP models - insights from an agency perspective

Abstract

The innovation systems approach has inspired innovation policies and funding agencies around the world. However, globalization and the changing nature of innovation bring new challenges for innovation policies and prorgrams. In addition, the increasing urgency and complexity of societal challenges is also calling for new approaches. This paper identifies some emerging ‘next generation’ Public Private Partnership program models in Finland and Sweden and analyzes to what degree they are aligned with theoretical insights on new types of socio-economic failures.

Full text

Version 27.2.2017
Towards next generation PPP models – insights from an agency perspective1
Christopher Palmberg (Program Development Manager, Ph.D., Tekes) & Sylvia Schwaag Serger (Executive
Director International Strategy and Networks, Vinnova, and Adjunct Professor Research Policy, School of
Economics, Lund University)
The paper was prepared for a workshop organised by the Ministry of Economic Affairs and Employment, Tekes, the Finnish Funding Agency for
Innovation and Sitra, the Finnish Innovation Fund in 2016 on "Industrial growth policy for new growth areas and entrepreneurial ecosystems"
1 Introduction ............................................................................................................................................... 2
1.1 Background ........................................................................................................................................ 2
1.2 Aims and structure ............................................................................................................................ 3
2 Globalization and new modes of innovation as challenges for PPP programs ......................................... 3
2.1 Changing global innovation landscape .............................................................................................. 3
2.2 Grand challenges and market opportunities ..................................................................................... 4
2.3 Sweden and Finland in this changing context ................................................................................... 5
3 Towards new frameworks for innovation policy ....................................................................................... 6
3.1 From R&D to system of innovation policies ...................................................................................... 6
3.2 Managing complex transitions .......................................................................................................... 8
3.3 An analytical framework for PPP program alignments ................................................................... 10
4 Exemplifying insights from next generation PPP programs in Sweden and Finland ............................... 12
4.1 The case of Sweden, the SIO and UDI programs ............................................................................. 12
4.2 The case of Finland, SUUNTA and the BioNets program ................................................................. 14
4.3 Analysis of emerging next generation PPP programs in Sweden and Finland ................................ 18
5 Conclusions .............................................................................................................................................. 21
1 We are indebted to Lennart Stenberg, Tuomo Alasoini, Tuula Savola and Timo Hämäläinen for insightful comments
on earlier versions of this paper. All arguments and interpretations expressed in this paper remain our own personal
ones.

1 Introduction
1.1 Background
The innovation systems approach has been very successful in inspiring innovation policies and funding
agencies around the world. The approach was originally applied in the Nordic and European context based
on earlier analysis of the Japanese post-war model of industrialization (Lundvall, 1992; Nelson, 1993).
Thereafter, the approach spread globally through work at the OECD and other think thanks.
Key features of this innovation system approach include the idea that knowledge transfer should be
supported in a systematic way and that the state can play an important role by, among other things,
facilitating public-private-partnerships (PPP)
2
. The role of science-technology-industry collaboration has
been at the core of many subsequent PPP- models such as the center of excellence SHOK program in
Finland, the sector programs in Sweden and other European countries (e.g. the Spitzenkluster program in
Germany, the COMET programs in Austria, and the TKI programs in the Netherlands) (TAFTIE, 2016).
However, while these basic insights of an innovation system approach still hold, globalization and the
changing nature of innovation bring new challenges for PPP programming. In addition, the increasing
urgency and complexity of societal challenges is also calling for new approaches.
Innovation policy in many OECD countries is reacting to these challenges for traditional PPP models. For
example, the need for broad-based policies that can address societal challenges is acknowledged.
Structural reforms, as well as new policy instrument development, are also taking place in order to facilitate
better cross-ministerial coordination, incentivize the research system to respond more directly to societal
needs, or even grand challenges, and enable new types pf PPP models to develop. Typical to broad-based
policies is their emphasis on supporting transitions towards renewable energy, smarter cities, electric
vehicles, digitalization of healthcare etc. through a more versatile mix of funding and other policy
instruments that influence innovation both from the supply and demand side (Kuhlman & Rip, 2014).
Theoretical frameworks are also emerging that can help in policy design, perhaps most significantly those
that relate to socio-economic transitions, transition management, adaptive governance and evolutionary
targeting (see e.g. van der Berg et al.,2011, Loorbach & Rotmans,2010), Weber & Rohracher,2012, Karo &
Kattel, 2016). Nonetheless, our claim is that new PPP program models that actually address some of the
new types of failures that arise due to these changing trends and policy ambitions still are rare.
Furthermore, where they do exist, their impact – and transformative ability – is often hampered by a
variety factors regarding governance, policy coordination, reflexivity and scalability, among other things. In
other words, the impression is that PPP program practices lag behind real-life trends and challenges that
we currently are witnessing, and that they may not yet be addressing some of the new types of failures
these trends gives rise to. This viewpoint is also very much in line with Mazzucato (2016) and her
argumentation that the state should not only be perceived as passive corrector of market failure but rather
as an entrepreneurial partner with a broader range of roles in stimulating innovation.
2
PPP programs is a broad term that captures a range of different types of public policy programs. We define
traditional PPP programs as cooperation programs on selected technology areas or sectors often between industry,
academia and/or research institutes with public funding support. Later on in this paper we provide new
interpretations of PPP programs based on recent developments and theoretical contributions.

1.2 Aims and structure
This paper will take an RDI policy agency perspective on the trends and theoretical insights that are
challenging PPP program model design. It will identify emerging ‘next generation’ PPP program models that
are responding to some of the trends highlighted above, and discussed in greater length in section 2, and
analyze to what degree they are aligned with theoretical insights on new types of socio-economic failures
that the trends give rise to. Specifically, the paper addresses the following research questions:
1. Which trends and developments in the global landscape are the most challenging for PPP programing
at the national level?
2. Which types of new PPP program models are emerging in response to these trends and developments,
to what degree and how are they addressing new types of socio-economic failures beyond pure market
failures?
The paper will draw on years of joint practical experience and first impressions from emerging PPP program
models especially in Sweden and Finland, with the aim of deepening and expanding the analysis also to
some other European countries in future research. It will complement the innovation system perspective
with new insights from the literature on transitions, transition and niche management, and evolutionary
theory, as a possible way forward for policy-making in a complex global world where societal challenges are
increasingly wicked and urgent but also create major new global market openings.
The paper is structured as follows. Section 2 discusses some ongoing trends that are creating new
challenges but also opportunities for innovation policies and PPP programming. These trends mainly relate
to globalization and digitalization, as well as societal challenges in areas of common concern to all such as
climate change, resources constraints, and healthcare. The trends provide incentives for new modes of
innovation and they pave the way for entry of many new types of actors that should also be relevant for
PPP programs. Section 3 then considers how these trends have been reflected in the evolution of
frameworks for innovation policy, and by extension in PPP programming. The section also reviews some key
theoretical concepts that are useful for defining, identifying and analyzing next generation PPP programs.
In section 4 we move on to identify and briefly analyze some emerging PPP program models in Finland and
Sweden which, based on our analysis, could be reasonably good examples of such next generation PPP
programs. Finally, in section 5 we conclude with a synthesizing discussion and by highlighting some future
research needs and challenges.
2 Globalization and new modes of innovation as challenges for PPP programs
2.1 Changing global innovation landscape
In recent decades the global innovation landscape has changed dramatically. Research and innovation are
now generated by a wider range of countries, regions and actors than maybe ever before. As described by
Athreye and Cantwell (2016):
“…the rapid globalization of S&T since the 1990s has been both remarkable and also
something of a puzzle… First, the speed (…) is unprecedented. Second, the direction (…) marks
a distinct break from past trends because it has encompassed some fast-growing urban

regions in countries (…) that, until very recently, have not engaged in activities near the
scientific frontier that depend on a substantial scientific infrastructure”. (p.75)
Technological developments have increased the global connectivity and flows of knowledge, data and
people while globalization has accelerated technological development underlining the mutually reinforcing
nature of the two phenomena (Archibugie and Iammarino, 1999). Significant increases in investments in
science and technology particularly in China, but also in other emerging countries, have shifted the global
distribution of knowledge and innovation resources in favor of Asia. Asia’s rise is confirmed further by the
fact that according to a survey by PWC (2015), in 2015 Asia was the number 1 destination for corporate
R&D spending, followed by North America and Europe, while in 2007 the order was reversed. Knowledge is
also generated to a larger extent in international collaboration, as can be seen, for example by the rise of
the share of international co-publications as a share of total scientific publications in many countries and
regions (see for example Vetenskapsrådet, 2016 and Royal Society, 2011). As a result, knowledge is
increasingly globally generated, dispersed and utilized.
A consequence of this changing global innovation landscape is that “[g]lobal competition for talent and
knowledge-based assets is on the rise” and innovation policies focus increasingly on the ability of countries
and regions to attract these resources (OECD, 2014, p.39). With greater globalisation and inter-dependence
in the fields of science, technology and innovation, national innovation policies increasingly seek to improve
domestic advantages in global value chains (GVCs) to attract their innovation-related activities (R&D,
design, etc.).
In addition to the changing global geography of knowledge, innovation processes are involving new actors,
processes and sectors. Policymakers are trying to drive and strengthen innovation in the public sector in
response to growing budgetary pressures and changing demands on healthcare, education and the general
provision of public goods and services. The growing importance of emerging markets is pushing companies
to focus more on frugal or reverse innovation – the latter being a phenomenon whereby companies first
develop products for developing countries and then adapt them to high-income countries. The rise of the
sharing economy, digitalization, crowd funding and open, social and demand-driven innovation are
changing the drivers of innovation and more generally the context in which it takes place. Innovation is no
longer mainly driven by scientific breakthroughs that are commercialized in large companies or high-tech
startups in highly developed countries. Instead we are witnessing the emergence of new innovation spaces,
but also new “sponsors of science” and new “knowledge production communities” (Kuhlmann and Rip,
2014, p.8).
2.2 Grand challenges and market opportunities
A further impetus to revisiting research and innovation programs is that innovation policy is driven by an
increasingly urgent need to address societal challenges, sometimes also referred to as ‘Grand Challenges’, a
term coined in the Lund Declaration adopted during Sweden’s Presidency of the European Union in 2009.
The declaration identified global warming and access to resources, energy, food and water, ageing
population, health, pandemics and security as key societal challenges and called for European research to
“move beyond current rigid thematic approaches” and instead focus on addressing these challenges.
3
Furthermore, the experience gained from running research and innovation programs has led to growing
realization and concern that technological progress or innovation do not automatically lead to workable
solutions to address climate change, pollution or ageing societies. We thus see a shift from innovation
3
https://www.vr.se/download/18.249c421a1504ad6d28144942/1444391884365/Lund_Declaration_2009.pdf

policy aimed at promoting innovation in general, and some might argue indiscriminately, as a means of
strengthening competitiveness and economic growth, towards an expectation that innovation and
innovation policies should lead to the development of solutions to identified problems or societal
challenges, sometimes also referred to as a more directional innovation policy.
The changes described above, in turn, require new approaches to designing, implementing and evaluating
research and innovation programs and policies. More specifically, they also require new PPP-models.
According to Kuhlman and Rip (2014), innovation policies and programs to address grand challenges
require “open-ended missions, and missions concerning the socio-economic system as a whole, even
inducing (or requiring) system transformation” (p.1). They require “tentative policy mixes”, “facilitating
system changes”, “demand-side and procurement policies”, “system-oriented strategic interventions”,
experimentation, “out-of-the-box approaches like new combinations of actors and alliances”, including for
example, NGOs and foundations (ibid, pp.4 and 10). Crucially, they also require a different role of
government, going beyond R&D programs and funding. Government is called upon to act as ‘orchestrator’,
‘creator’ or ‘enabler’ of “spaces for interaction towards innovation” (ibid, p.9). Finally, grand challenges call
for “open-ended initiatives” and “tentative governance” rather than master plans (ibid).
2.3 Sweden and Finland in this changing context
From an innovation system perspective, Finland and Sweden share a number of common features. They
have been two of the top countries in the OECD when it comes to R&D spending as a percentage of GDP
and they tend to rank at the very top in international innovation rankings (such as the European Innovation
Scoreboard or the Global Innovation Index). They both have a strong tradition of industry-academia
collaboration and PPP programs, though on the industry side, collaborations have been quite dominated by
large companies in both countries. Similarly, in both countries, a relatively small number of large companies
has accounted for a large share of both business R&D and total R&D (since in both countries corporate R&D
expenditure accounts for the lion’s share of total R&D expenditure), though this has been more
pronounced in the Finnish case with the dominance of Nokia. Both countries have had technology or
innovation agencies, Tekes and Vinnova, which have played important roles in channeling public funding for
research, development and innovation.
There are also some significant differences between the two countries. Research institutes have played a
bigger role in the Finnish research system than in Sweden, measured by research performed in the institute
sector. Finland has performed very well in the OECD Pisa rankings in the past decade(s), which seeks to
compare the quality of secondary education in different countries, while Sweden’s ranking has been rather
low. Finally, whereas Sweden has fared quite well since the global financial crisis in 2008, in terms of GDP
and unemployment, Finland’s economy has been hit comparatively hard. As a result, whereas public
expenditure on research and innovation has increased significantly in Sweden in the past decade,
particularly funding to universities, Finland has experienced stagnating or even shrinking expenditure, with
significant cuts in basic funding for research institutes and in Tekes’ budget while funding for universities
has stagnated (after having increased steadily for many years).
In response to the changes in the innovation landscape described above a number of reformulations in
both policy focus and initiatives has taken place in Sweden. Firstly, there is an increasing emphasis on
societal challenges in research and innovation programs, as illustrated, for example, in the Research Bill
presented by the Swedish government in November 2016, which is entitled ‘Knowledge in cooperation –

for society’s challenges and strengthened competitiveness’.
4
Innovation programs are also targeting new
actors and processes. Initiatives to promote innovation in the public sector and social innovation are
examples of this. While policy has traditionally identified and targeted research and commercialization of
research as universities’ key contribution to innovation, recently there has been increasing
acknowledgement of the importance of innovation and a focus on students as important innovation actors.
The establishment of the Swedish Innovation Council chaired by the Swedish Prime Minister signals a
growing attention to the governance of innovation policy. Finally, we also see a stronger emphasis on
demonstration activities, test beds and policy experimentation, as well as the demand side of innovation –
for example through innovation procurement.
In Finland, the establishment of the Strategic Research Council (SRC) at the Academy of Finland reflects a
growing focus on tackling societal or ‘grand’ challenges and on strengthening evidence-based policymaking
for system innovation or transition. The SRC funds multidisciplinary research projects on ‘real-world’
problems of clear policy relevance. Experimentation, an important element of system innovation and
transitions theory, has been identified an essential element of the Finnish government’s efforts to solve
complex societal problems and is one of five principal objectives for implementing Finland’s ‘Vision 2025’,
along with digitalization and deregulation. Experiments are encouraged at various levels of policymaking
with some strategic experiments, such as the one on basic income, based at the very highest level of
government, at the Prime Minister Office’s Experimental Unit. The recent relaunch of the Research and
Innovation Council as well as the pooling of analytical resources and research at the Government Policy
Analysis Unit at the Prime Minister’s Office, indicate a renewed interest in horizontal policy coordination
and strengthened governance of research and innovation policy.
Similarly to Sweden, Finnish innovation policy also gives more emphasis on demonstration activities, test
beds as well as the demand side of innovation e.g. through regulatory reform and programs that aim to
develop competencies and better prerequisites for innovative procurement in the public sector. However,
due to sluggish economic growth, the Finnish innovation policy seems to focus more on innovation-driven
exports for emerging global markets created by the new societal challenges. However, there are also new
initiatives to strengthen the link between societally-oriented research and innovation within companies
such as the Challenge Finland funding scheme by Tekes, the Finnish Funding Agency for Innovation. The
role of Sitra, an agile future-oriented public “think-and-do-tank” whose work currently focuses on system
innovations, should also be highlighted.
3 Towards new frameworks for innovation policy
3.1 From R&D to system of innovation policies
Innovation policies emerged from empirical findings after World War II that highlighted the significance of
science and technology for productivity, economic growth and prosperity. In the 1980s and early 1990s,
these findings were incorporated as an endogenous component in economic growth models. This replaced
the traditional view that scientific and technological change originated outside the economic system as
‘manna from heaven’. If science and technology indeed were endogenous and driven by economic factors,
44
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a logical follow-up question was what role should the state play in this context. This question was
addressed in seminal papers by Nelson (1959) where the focus was on market incentives for undertaking
research and development activities. Their important conclusion was that markets often fail to incentivize a
societally optimal level of R&D due to knowledge spillovers to competitors. However, these spillovers also
play a central role in escalating the effects of R&D beyond the growth of individual companies to the level
of whole nations.
During the 1980s and 1990s it became increasingly apparent that growth convergence between R&D
intensive countries was happening at a much slower pace than anticipated. This observation led many
scholars to re-examine the popular model of innovation that assumed relatively linear relationship between
R&D investments and economic growth. Schot and Steinmuller (2016) single out important findings from
the literature that also influenced policy thinking to a significant extent. First, R&D is not necessarily always
a public good but tends to be ‘sticky’ and accumulate in certain locations. Absorptive capabilities are also
needed to make economic use of R&D and these capabilities need to be systematically built throughout
networks. Finally, R&D is path-dependent and cumulative in the sense that structures and institutions
strongly influence both the direction and speed of technological change. Disruptive changes, such as the
transition to a fossil free economy, therefore also require fundamental structural and institutional change
throughout society.
Following these, and other, research findings more interactive models of innovation gained in popularity all
the way from the chain-linked model of innovation by Kline & Rosenberg (1986) to systems of innovation
literature by Freeman (1987), Lundvall (1992), Edquist (1997) and others. The system of innovation
literature has been especially influential for policy design and implementation, not the least in Finland and
Sweden. The system of innovation approach directed attention to various organizational and institutional
set-ups that advance learning and the flow of knowledge for innovation in countries. A central idea was
that some countries have more conducive organizational and institutional set-ups than others and
therefore are better at accumulating, transferring and making economic use of knowledge for innovation.
These differences were also considered as a reason for lack of growth convergence despite increasing R&D
intensities across many countries.
The systems of innovation literature complements market failures arguments as a rationale for innovation
policy by highlighting a broader view where R&D only is one contributor to innovation. The emphasis shifts
to various factors that facilitate the flow and absorption of knowledge and to the various other types of
‘system’ failures that are associated to these. These failures may relate institutional bottlenecks in the
shape of regulations, laws or taxation that block the advancement of technologies or the uptake of
innovations. They may also relate to lack of partnerships between different types of actors in regions or
countries and insufficiencies in infrastructures to support such partnerships, such as incubators, science
and technology parks, centres of excellence etc. The innovation system literature has also stressed the
importance of interactions between producers and users of innovations and factors that may hinder these
interactions. For example, Edquist (2000) and others have highlighted the potential of public procurement
as a demand-based policy instrument to boost innovation.
The system of innovation literature has evolved and expanded in various directions. An important
extension is that of the triple helix model (see Etzkowitz, 1993; Ranga and Etzkowitz, 2013). The triple helix
model provides a more granular view of interactions between the government and industry by focusing on
the different roles that universities can play in the system of innovation. It draws attention to the

shortcomings of the focus of the innovation systems approach on the interactions between actors but its
neglect of the capabilities and various roles that they may play in stimulating, or even hindering,
innovation.
Mazzucato (2015, 2016) provides an additional complement to the systems of innovation literature through
her attention on the ‘entrepreneurial state’. She argues that the state can have a much more multi-faceted
role in innovation systems beyond merely funding R&D. The state also plays an important role in “de-
risking” private sector activities in the diffusion and industrial uptake of innovations. It can show strong
leadership in creating new technological opportunities and markets through a more strategic and mission-
oriented role. This role can manifest itself in that the way that the state, and various government agencies,
define a challenge or problem to be solved by R&D, setting up standards for R&D activities to live up to, or
stimulate innovations through smarter regulations and public procurement. She suggests that these various
other roles of the government help in providing strategic direction for private sector R&D by providing
more a more favorable balance between risks and rewards as companies engage in uncertain R&D and
innovation.
3.2 Managing complex transitions
As we have suggested a better understanding of non-linear innovation processes and various system-level
failures have broadened the scope of PPP programs from a focus on university-industry R&D collaboration
towards models which more clearly also seek to facilitate interactions and collaboration between various
types of other actors. However, recently many scholars have argued along similar lines as Mazzucato (2015
& 2016) that this broadening may not be enough (see especially Weber & Rohracher, 2012, Schot and
Steinmuller, 2016). They claim that the underlying assumption of contemporary PPP models still is based on
a too linear assumption that R&D leads to innovation as long as system-level failures, such as regulations,
are addressed. Another point of concern relates to trends discussed in section 2 that are starting to
challenge innovation policy and contemporary PPP models in a major way. Globalization is challenging
traditional nationally oriented governance arrangements. Digitalization, in turn, is increasing complexity
and changing the nature of innovation in fundamental ways, e.g. by creating new types of platforms for
new types of partnerships. Finally, the increasing urgency of societal or ‘grand’ challenges is also calling for
new approaches both within policy and company strategy as they also open up major new markets.
Transition theory has emerged in response to the need to analytically grasp and act upon societal and
wicked challenges, especially to redirect sectors and whole societies onto an environmentally more
sustainable development path. Scholars in this tradition argue that the systems of innovation approach
mainly focuses on how to optimize the organizational and institutional systems that support innovation but
do not provide sufficient insights into how to handle this redirection, or transformation, of sectors and
whole societies. They propose the so-called multi-level perspective to stress that transitions require
changes at the level of the broader landscape for innovation, in the institutional and regulatory regimes of
sectors, as well as changes within the sectors themselves through entrepreneurial actors (see Figure 1)
(Geels, 2002). This multi-level perspective has been enriched further especially by the literature on
transition and strategic niche management. The former refers to ways in which policy can ‘manage’
transitions while the latter refers to how disruptive entrepreneurial ‘niches’ emerge and can be nurtured to
gradually overturn existing sectors and regimes.

Figure 1. The multi-level perspective, builds on Geels (2002)
Transition management emerged out of evolutionary and complexity theory and was introduced as an
official government policy in the Netherlands especially in the area of climate change mitigation (Loorbach
& Rotmans, 2010). This policy scheme broke with dominant policy traditions and practices by creating
space for innovative policy experiment for transitions in Dutch regions. Transition management is should be
practiced in four major steps, all of which aim to foster experimentation and facilitate the emergence of
new niches by entrepreneurial activities of frontrunners. The first step is to structure the problem at hand,
define the challenge or socio-technical goal that is to be achieved. This should involve the setting-up of so-
called transition arenas to allow for experimental activities by the frontrunners, or companies and other
actors (e.g. regulators, consumers, civil society) whose aspirations are in line with transformational goals
and who can challenge the status-quo in a viable way.
The second step involves developing a joint agenda and roadmaps to achieve the socio-technical goals (for
example specificities in the transition to the bioeconomy). The third step is to engage in experimental
innovative activities in line with the road map to reach the goals. These experiments may be competing and
overlapping since the optimal way forward seldom is in sight. The experiments also start to mobilize and
self-organize a broader set of actors and stakeholders around specific transition pathways. Often these
emerging networks, or business ecosystems, may experience infighting and conflicts about the pace and
direction of changes. Transition management therefore also has to cater to conflict management and the
risks that transition processes may become hijacked by incumbent actors who wish to retain the status-
quo. The fourth step involves continuous monitoring and evaluation of transition experiments and
pathways to ensure reflexivity, openness and continuous adjustments. (Loorbach & Rotmans, 2010).
Strategic niche management complements transition management insights by highlighting the importance
of transition arenas for nurturing emerging niches and related ecosystems. Niches refer to those specific
economic and institutional contexts where transition experiments and pathways unfold and new
ecosystems emerge, gain strength and direction to challenge incumbents. Strategic niche management
does not equal to infant industry arguments. Rather, niche management requires flexibility for how
incentives are set, how regulations and other institutional barriers for emerging ecosystems may be
lowered, as well as how users or consumers better can start to engage and use new technologies as
solutions for socio-technical challenges and related markets. This may involve setting-up demonstration

plants and testing sites, it may involve temporary tax reliefs or regulatory flexibility for using new products
and services. It can also involve various new ways in engaging civil society in new ways to support early
adoption of emerging technologies (Schot & Geels, 2008, Schot & Steinmuller, 2016).
3.3 An analytical framework for PPP program alignments
The transition and niche management literature outlines rather different rationale and role for innovation
policies compared to traditional market failure theory, especially when the aim is to addresses grand
challenges and related market opportunities. Policies should continue to support R&D but also need to
address various non-R&D related failures that arise due to mismatching structures and suboptimal systems
of innovation in sectors and countries. The failures may also relate to lack of directionality and market
formation to support emerging niches, or business ecosystems, and changes at the regime level. The
literature reviewed above thereby also challenges traditional ways of thinking about PPP programs where
the focus mainly has been on supporting R&D through centers of excellence, industrial or regional clusters
etc. with the main purpose of connecting research with industrial needs.
An interesting question is whether and how innovation policies and agencies are reacting to the trends
discussed earlier in this paper as well as to emerging theoretical and empirical findings as they design or
redesign their PPP models. A recent report on experiences from the mutual PPP learning exercises within
the EU suggests that new types of PPP models are emerging but that they still are scarce and only starting
to address non-R&D related failures throughout innovation environments and systems across countries.
The report concludes by identifying some characteristics that such next generation PPP program models
should have in order to be aligned with the way that the world has changed (DG RTD – H2020 policy
Support Facility, March 2016):
“[next generation PPPs] represent a shift from short-term contracts with a relatively limited
scope to longer-term, horizontal commitments frequently to address strategic and challenge-
driven questions with a long-term vision connecting with governmental priorities. They are
horizontal multi-partner arrangements, often among otherwise competing partners, that have a
unifying goal. Unlike traditional project-based research and innovation programmes, where a
state agency defines a programme and contracts with researchers and companies to implement
the projects of which it is comprised, such PPPs involve sharing not only the act of programming
but also governance”.
In this paper we need a framework to capture more analytically key features of the emerging next
generation PPP models that we have identified in Sweden and Finland in order to discuss to what degree
they appear to be aligned with the trends and theoretical insights. Weber and Rohracher (2012) provide
such a framework in their important article on legitimizing innovation policies for transformative change.
Their framework amounts to a taxonomy of different types of failures that innovation policy, and by
extension PPP program models, should seek to address when the aim is to stimulate transitions of more
radical nature. The taxonomy is summarized in table 1. We will refer to it, and elaborate further,
throughout section 4 as the analytical framework for assessing the alignment of emerging PPP models in
Sweden and Finland.

Table 1. A taxonomy for assessing next generation PPP program models
At this point we wish to reiterate that the types of transitions that the literature mainly refers to in the
context of more sustainable development (e.g. the transition to the bioeconomy, smarter cities or
transport) often take decades to unfold. Further, the transitions require an interplay between various
policy- and other changes at the level of the broader landscape, institutional and regulative regime, and
entrepreneurial activities across firms, research groups and other stakeholders. Hence, a specific PPP
program can only have a limited role at a specific point in time in a broader transition, as an initiator for
entrepreneurial activities within new niches and perhaps also as an initiator for changes in the institutional
and regulative regime.
Further, when the taxonomy is applied one should also be considerate about these broader landscapes, the
institutional and regulatory set-up of countries and sectors, as well as entrepreneurial activities beyond
those that are contained within a specific PPP program. We refer to this taxonomy with these caveats in
mind. We propose that the taxonomy, at best, can highlight whether PPP programs that we use as
examples appear to be designed in a way that some of these non R&D-related failures may be addressed
more sufficiently compared to traditional PPP models. We can also highlight to some potential challenges
that the PPP programs are facing/may be facing in the future when they address these non R&D-related
failures. However, we cannot make any far-reaching judgement to date about the specific contributions of
the programs to broader transitions in Sweden and Finland to which they aim to contribute.
Returning to the taxonomy by Weber & Rohracher (2012), it distinguishes between market, structural
system and transformational system failures. Market failures refer to well-known informational
asymmetries, knowledge spillovers and cost externalities that may produce sub-optimal investments in
R&D. They constitute the backbone argument for RDI-oriented PPP programs and they will not be covered
in our analysis, and thus are also excluded from Table 1. Structural system failures refer to lack of
infrastructures, absence or excess of formal institutions such as laws, regulations or standards, social
norms, values and culture that can block innovation. They may relate to the absence of collaboration
between actors, or too tight and introvert collaboration that may lead to lock-in to incremental trajectories.
Structural system failures may also relate to lack of appropriate competences and resources at actor and
firm level that lead to an inability to adapt to changes and new opportunities.
Market and structural system failures are quite well understood and acknowledged in policy circles. It
seems fair to say that these understandings have, explicitly or implicitly, influenced PPP program design in
many countries. Transformational system failures are much fuzzier and have only recently entered the

policy discussion also at such fora as the EC, World Bank, UNEP and OECD. These failures relate to lack of
shared vision regarding the goal and direction of the transition process, inability to coordinate change
agents in transitions, insufficient regulations, standards and other institutions to guide the change, lack of
targeted funding for innovation and demonstrations to support new and experimental pathways. The
failures may relate to lack of understanding of user needs, absence of orienting and stimulating signals
from public demand (including public procurement) and lack of demand-articulating competences. They
may also related to poor coordination across different policy domains and executive branches of
government, between regional and national policies, or between national and transnational policies (for
example related to lead market initiatives at the EU level). Finally, transformational system failures may
relate to the inability of agencies and other PPP stakeholders to monitor, anticipate, and involve all relevant
actors. A lack of this this type of openness and reflexivity can hinder self-organization, experimentation and
can lead to the exclusion of change agents that bring radically new ideas and challenge incumbent players.
4 Exemplifying insights from next generation PPP programs in Sweden and
Finland
4.1 The case of Sweden, the SIO and UDI programs
In recent years, the Swedish government agency for innovation, Vinnova, has launched two programs that
could be argued to exemplify next generation PPP-models. Common to both of these models is that they
seek to tackle societal challenges and to promote transformative change or system innovation. The first is
the program called ‘Challenge-Driven Innovation-Societal Challenges as Opportunities for Growth’ launched
in 2011, also referred to as ‘UDI’ (short for ‘Utmaningsdriven innovation’. The other is the ‘Strategic
Innovation Area Program’ also referred to as SIO, launched in 2012.
For the UDI program, based on a consultation process with a wide range of stakeholders, Vinnova identified
four areas of societal challenges “in which Sweden has good prospects of leading the field with new
innovations”: future healthcare, competitive industries, sustainable attractive cities and information society
(Vinnova 2016, p.7).
Vinnova sets out the following principles that should govern the evaluation criteria for project selection
within the program:
• ”Be based on a critical need in society and the business sector, which can clearly be associated with
organisations or equivalents that own the needs
• Result in innovations that combine international business potential and social benefit,
• Build on collaboration between actors in value chains that involve users, customers and other
relevant stakeholders in the process,
• Further develop and utilise infrastructures for innovation that both promote the integration of
systems (information, communication, standards, transport) and create an opportunity to test
innovations under market conditions,
• Include a systemic approach – addressing the whole of the innovations system, not just the parts,
• Promote and stimulate collaboration and interaction between the actors needed for successful
utilisation,
• Pursue development of new opportunities that the market itself is not developing.” (Vinnova 2016,
p.6)

A stage-gate approach is applied with three stages in which Vinnova’s contribution as a proportion of the
total budget decreases while its contribution in absolute figures grows (see Figure), as projects move closer
to the testing and implementation phase. The number of projects funded decreases while the size or scale
of the individual projects increases. Overall, the approach is to start broad and sharpen the criteria along
the way. However, it is not necessary for project to have received funding in stages 1 and/or 2 to receive
funding in stages 2 and/or 3.
Figure 1: Vinnova's stage-gate approach in the UDI program
Between 2011 and December 2016, Vinnova had allocated slightly over 1 bn SEK (around 110 m Euros) to
UDI projects. In 2016, there were 221 ongoing UDI projects in total.
The SIO program was formally created in response to a formal task assigned to Vinnova, the Swedish
Energy Agency and the Swedish Research Council for Sustainable Development (Formas) by the Swedish
government in 2012 to identify and support strategic innovation areas. However, prior to the formal
assignment Vinnova had already developed precursor initiatives. Thus, the development of the SIO
program can be said to have been the result of an iterative process between the Ministries of Enterprise
and Research and Education and Vinnova. The purpose of the initiative is “to create conditions for
strengthened international competitiveness and sustainable solutions to global societal challenges”
(Vinnova, 2013, p.3). Specific goals are to renew Sweden’s innovative strength in a number of strategic
areas, to develop new value chains and to strengthen cross-sectoral competence, knowledge, technology
and service development (ibid).
An important feature of the SIO program was that the selection of the strategic areas was bas based on a
bottom-up process. As described by the OECD:
“Critically, however, the Bill also stated that it was not up to government to decide which
areas were deemed strategic. Rather, this should be decided through establishing bottom-up
processes allowing the innovation actors themselves to define priority areas, with
government facilitating the process and establishing a framework of selection criteria
reflecting societal challenges, high scientific quality, collaboration, cross-disciplinarity and co-
financing. These criteria were also expected to govern the choice of activities conducted

within these areas, with the community itself responsible for proposing and, importantly,
managing the activities”. (OECD, 2016, p.108).
In the first phase and to identify areas which could be deemed ‘strategic’, innovation actors were invited to
formulate ‘Strategic Innovation Agendas’. The purpose of this step was to encourage actors to work
together to define common visions, objectives and strategies in areas of their own choosing. Vinnova
offered seed funding to actors to work together in this process.
In the second phase, consortia were invited to submit applications for funding of SIO programs. Funding for
them is initially provided for three years, “with the possibility of renewal for a maximum of nine further
years based on review processes every three years” (OECD, 2016, p109). Thus, a further key characteristic is
the long-term horizon of the program.
As of December 2016, there were a total of 16 SIO programs. Between 2013 and 2016, the total public
budget for the SIO initiative amounted to around 1.1 bn SEK (roughly 120 m Euros). Between 2017 and
2024, around 600 m SEK (ca. 62 m Euros) annually have been budgeted for the initiative. Many of the large
Swedish-based companies are involved in one or several of the SIO programs.
Table 2. The SIO programs
Programs
Program Office
Lightweight materials
Swerea
Metallic materials
Jernkontoret (Swedish Steel Producers’ Association)
Mining and metal extraction
Luleå University
Production 2030
Teknikföretagen (Association of Swedish Engineering
Industries)
Process industrial IT and automation
SICS Swedish ICT
Aeronautics
Svensk Flyg (Swedish Air Transport Society)
Graphene
Chalmers
ICT electronic components and systems
Acreo Swedish ICT
Internet of things
Uppsalas University
Bio-innovation
Skogsindustrieran (Swedish Forest Industry Federation)
Life Sciences
Lund University
Automated transport systems
Lindholmen Science Park
Resource and waste management
SP Technical Research Institute of Sweden
Smart built environment
IQ Samhällsbyggnad (Swedish Centre for Innovation and
Quality in the Built Environment)
Medtech
KTH
Future transport infrastructure
KTH
In 2016, UDI and SIO together accounted for roughly one third of Vinnova’s total program budget, with
their share expected to increase to roughly one half in the coming years. Thus, these two programs account
for a significant part of Vinnova’s total portfolio.
4.2 The case of Finland, SUUNTA and the BioNets program
In Finland the need for transformative change, and system innovation, has also been high on the policy
agenda in recent years. However, there are fewer examples of new PPP programs launched on a similar

scale and scope as the SIO and UDI programs in Sweden and which would explicitly focus on addressing
specific grand challenges or transitions. Transformative change pressure stem mainly from a need to renew
traditional sectors in the wake of the globalization, offshoring and the decline of Nokia’s mobile
telecommunications business. The clearest references to grand challenges in science policies have been
made in relation to the newly established Strategic Research Council at the Academy of Finland. In
innovation policy, grand challenges and related transitions are also often highlighted, albeit from the
viewpoint of the global market opportunities that they can create.
The Center of Excellence (SHOK) program has perhaps been the prime example of a traditional Finnish PPP
model that aims to link research to industrial needs through jointly defined strategic research agendas and
some degree of shared governance between the funders and coordinators of the programs. The SHOK
program was launched in 2008 but came to an abrupt end in 2016 due to government decision that was
based on critical evaluations of the SHOK programs as well as the need to cut public expenditures
(Lähteenmäki et al, 2013). Since 2008 the RDI program portfolio of the main innovation policy agency,
Tekes – the Finnish Funding Agency for Innovation, has evolved from technology- or sector-specific
programs towards programs that are more cross-cutting by nature and explicitly aim for transformative
change e.g. related to the bioeconomy, digitalization, transport and healthcare. These programs have
involved a larger set of actors beyond research organizations and companies and thus have some
characteristics of next generation PPP programs as described in section 3 of this paper. They have also
promoted the development of various test beds for system innovations to address grand challenges and
related market opportunities. Examples of some of these recent cross-cutting programs are presented in
table 3.
Table 3. Some recent examples of Tekes next generation PPP programs, Tekes funding shares are indicative
for those programs that still are running
Program
Aims and activities
Green Growth, 2011-
1015, 40 Meuro
Support transition to green growth by promoting new partnerships,
consolidation of key stakeholders, R&D and demonstration projects
Electric Vechicles System,
2011-2015, 35 Meuro
Support the development of electrical vechicles ecosystem, testbeds and
standardization, R&D and demonstration projects
Bits of Health, 2014-2018,
50 Meuro
Support customer-centered new digital healthcare innovations, develop new
partnerships, engage in challenge-oriented match-making with health care
providers and investors abroad
Witty City, 2013-2017, 40
Meuro
Support the transition to smarter cities through enabling testing and piloting
of new innovative solutions and services, focus on ICT enabled solutions,
new partnerships between research, companies and cities
5th Gear, 2014-2019, 50
Meuro
Support the shift towards next generation wireless data communications,
develop test beds and new cross-industrial partnerships for new innovations
and services
Cutbacks of RDI funding and the SHOK program, combined with structural reform of the research sector as
well the increasing globalization and broadening nature of innovation, have fueled a discussion about the
need and nature of next generation PPP program models. One important starting point for this discussion
dates back to 2013 when the main innovation policy agencies (Academy of Finland, Tekes, Sitra, Finnvera,
and Finpro) decided to join forces to develop a joint strategy for the development of new growth areas and
ecosystems, the so-called SUUNTA strategy. The aim of this strategy work was to shift the focus of

innovation policy implementation beyond individual projects and companies towards the joint facilitation
of the emergence of new business ecosystems in promising areas of economic activity in Finland.
At Tekes the SUUNTA strategy has implicitly been implemented in a range of recent programs. For example,
the Green Growth embarked on an ambitious path to stimulate new partnerships across value chains in
various industries to develop circular economy competencies also for global growth markets. The Witty
City-program promotes ecosystems and new types of partnerships related to the application of ICT
solutions for the transition toward smarter cities. The Bits of Health-program wishes to enable new
business ecosystems related to digital health care solutions. The 5th Gear-program seeks to nurture
testbeds and new business ecosystems at research and industry interfaces related to next generation
telecommunications standards. The SUUNTA strategy has therefore already had some impact on moving
Tekes RDI program activities beyond market failure arguments to also address ‘system failures’ related to
new partnerships across sectors, as well as the broader institutional regime in so far as these programs also
are influencing the regulatory environment for digitalization, healthcare, public procurement etc. They are
also addressing some ‘transformational failures’ by contributing to defining strategic directions and shared
visions, to some policy coordination (for example related to the realization of smarter cities), as well as to
the articulation of demand and lead markets e.g. by providing strategic intelligence and market
information.
Perhaps the best recent example of a next generation PPP program model at Tekes is the BioNets program,
launched in 2016 to facilitate the emergence of new partnerships and ecosystems to develop new higher
value-added biomass-based products. The BioNets program is a pilot program model that came out of the
SUUNTA strategy work. The program model was developed during 2015 and launched in Autumn that same
year through a three-stage approach. During the first stage a call was opened to fund the development of
strategic visions and roadmaps on how Finland could accelerate the transition to the bioeconomy so that
specific global market needs could be targeted with new biomass-based processes or products. The aim of
this call was also to identify intermediating actors who would have the credibility, competencies and
incentives to orchestrate business ecosystems towards realizing the vision through the roadmaps. Emphasis
was on recognizing business opportunities in which Finnish companies could have a competitive edge. This
first stage call contributed to several expressions of interest and eventually resulted in seventeen roadmap
and orchestration applications. Of these applications six roadmaps and orchestrators were funded with the
tasks to elaborate further on the roadmaps, visions and governance models for orchestration in
collaboration with participating companies that are part of the emerging ecosystems. Elaborations
continued during Spring 2016 in collaboration between the orchestrators, Tekes and other the other
innovation policy agencies through joint workshops and bilateral meetings.
The second stage call was opened in late Spring 2016 with closure in early Autumn 2016. This second stage
was to fund the orchestrators for implementing the roadmaps and visions in collaboration with key
companies and other actors of the emerging ecosystem in the respective business areas. The funding
covers various innovation-promoting activities other than traditional R&D projects. These activities are
intended to strengthen cross-sectoral interactions and partnerships throughout the ecosystem and beyond,
cater to institutional and regulatory bottlenecks that may inhibit the development of the business areas, to
manage changes and conflicts, to strengthen further, and communicate, the joint vision, to articulate
market needs and demands, as well as to ensure that the emerging ecosystems remain agile, open to new
actors and also develop in line with the intended roadmaps. This second stage call resulted in the final
selection of four ecosystems, respective roadmaps and orchestrators as displayed in Table 4. The total

funding ranges from 200,000 to 600,000 euros per orchestrator. However, these volumes will likely
increase significantly in coming years as the ecosystems start to initiate larger strategic R&D projects and
other activities beyond mere orchestration that requires public funding from Tekes or other agencies.
Table 4. The four BioNets ecosystems and orchestrators
Ecosystem
Objectives
New cellulose and fibre products,
orchestrated by CLIC Innovation
in collaboration with participating
companies and other
organisations that belong to the
ecosystem
To turn expertise in wood fibre based textiles and composite
materials into international business. Finnish companies have
world leading know-how in creating methods that enable the
manufacture of textiles and composites from wood fibres. The
ecosystem interlinks expertise in this area with the piloting
required for market entry, and creates the tools that start-ups
need to drive their business forward. In addition to fibre and
technology suppliers, the ecosystem includes end users that
process fibre materials into consumer products.
Lignin ecosystem, orchestrated
by Pöyry Management Consulting
in collaboration with participating
companies and other
organisations that belong to the
ecosystem
To bring Finnish players in the industry together to co-create a
globally unique lignin ecosystem that connects technology
suppliers, existing and potential producers, and refiners into a
single network. In addition to the core network consisting of
Finnish players, the ecosystem will also feature a large number of
potential end user companies worldwide, representing sectors
such as the chemical, forestry, mechanical engineering, coating,
biofuel and aircraft industries.
Packaging Valley, orchestrated by
Pöyry Management Consulting in
collaboration with participating
companies and other
organisations that belong to the
ecosystem
To create a novel and globally unique packaging ecosystem to
guarantee that a regenerated and competitive packaging industry
is retained in Finland. "Packaging Valley" provides an
environment in which the Finnish forestry industry, the packaging
industry, innovative SMEs, Internet of Things enterprises,
software developers and security software suppliers can work
together to promote digital packaging and materials
development.
Nutrient recycling, orchestrated
by Baltic Sea Action Group in
collaboration with participating
companies and other
organisations that belong to the
ecosystem
To achieve a breakthrough in nutrient recycling, create new
Finnish business in the international markets, and increase the
value of the nutrient recycling business. Business spearheads
include future fertilizers, nutrient recycling and biogas
innovations. Products and service concepts within this ecosystem
are seeking to meet global demand arising from nutrient
recycling.
The BioNets program model marks a departure from previous Tekes programs since the topics were
identified bottom-up through roadmap suggestions by actors in the field rather than through consultations
with ministries, pre-identified companies, research- and other stakeholders. The BioNets program initially,
during the first stages, funds roadmaps and orchestration rather than R&D projects and thus has a stronger
facilitating role to support self-organization in the field. R&D projects will become more prevalent once the
ecosystems have fine-tuned their roadmaps and identified areas where major new competencies and
demonstration activities are needed. Governance of activities is shared between Tekes and the
orchestrators as opposed to previous program models where overall steering and coordination primarily
has resided at Tekes although externally sourced program coordinators also often have been used.

An interesting feature of the BioNets program is also that a reference groups has been set up that consists
of representatives from the main innovation policy agencies, including a few ministries, to achieve a better
overall coordination at different levels of the system. The model is also intended to incentivize the
orchestrators and partners to actively contribute to the ideation of new policy initiatives (e.g. match-
making with other investors, hackathons, innovation competitions, international collaboration, export
promotion) in the third stage, including R&D consortia and demonstration applications to cater to the
needs for new capabilities and technologies in companies. This is to ensure that the roadmaps are
implemented to their full extent as the ecosystems evolve over time. All orchestrators are private sector
organizations while e.g. city administrations, university- or public research organizations were not
considered to be the optimal orchestrators in this pilot phase. These types of public sector organizations
were deemed to lack incentives and business models to support business ecosystem orchestration.
Even though these are still early days the BioNets pilot program has gained positive attention and appears
to have succeeded in its’ initial phases to activate and build new partnerships in the bioeconomy area.
There are also signs of fruitful cross-fertilization between different disciplines, technologies and sectors.
This PPP program model is also spreading to other Tekes focus areas and initial insights are utilized for
further discussions on next generation PPP model in Finland. Meanwhile, the latest phase in the evolution
of Tekes RDI program portfolio relates to intensified collaboration with Finpro, the Finnish export
promotion agency that also engages in invest-in promotion. This collaboration opens up new avenues for
promoting ecosystems and transformative change in different sectors through an even broader mix of
policy instruments.
4.3 Analysis of emerging next generation PPP programs in Sweden and Finland
In this section, we examine to what extent the three programs, namely SIO and CDI in Sweden and BioNets
in Finland, appear to be designed in a way that some of the non R&D-related system and transformational
failures can be addressed in the context of the broader transitions that they aim to contribute to. We do
this while acknowledging that specific PPP programs, such as these, only can have a limited role in
promoting transitions. We make some references to other complementary policies and institutional
contexts in Sweden and Finland, but leave further elaborations and deeper and more holistic analysis for
future research. Our main contribution is therefore to provide some ideas for the further design and
implementation of next generation PPP programs. We can also highlight some missing elements that need
to be addressed by complementary policies, agencies or other stakeholders.
The transformative ambition is expressed clearly in Vinnova’s description of its CDI Program.
“Vinnova’s vision is that challenge-driven innovation is a vital, unique component of the
Swedish growth and innovation engine. The greenlighted projects are of international
eminence and develop sustainable solutions to tackle key societal challenges. The projects
are visionary, challenge existing mental models and target systemic issues. These issues are
characterised by a transnational character that requires a multidisciplinary approach. The
results will lead to a more sustainable society.” (Vinnova, 2016. p.3)
In its review of Sweden’s innovation policy in 2016, the OECD underlined that Vinnova’s SIO program
constituted a significant new departure from previous PPP programs:
“One key point that should be stressed at this stage is the revolutionary nature of this whole
process compared to historical practice within VINNOVA. Conventional practice had been for

government/VINNOVA to designate priority areas on a much more top-down basis, albeit one
involving more restricted and informal consultation with key stakeholders. The most radical
change involved the transfer of managerial responsibility for the SIPs to the program
participants themselves, albeit with VINNOVA (and the other agencies involved) retaining the
final say over which activities received funding”. (OECD, 2016, p.109)
The analysis is based on the taxonomy of non-R&D related failures that the literature on systems of
innovations and transitions has identified as important for promoting transitions and systems innovations
of a more disruptive nature (see Table 1). Thus, we refer to structural system failures related to the
institutional environment, interactions, change and conflict management, as well as transformational
failures related to directionality, demand articulation, policy coordination, reflexivity and openness.
Interactions: In all three programs there is a clear ambition to promote new interactions and partnerships
across sectors, disciplines and actors. The CDI program involves a broad range of stakeholders in a
structured process to formulate priority areas while the SIO and BioNets programs encourage actors from
different industries, disciplines and sectors to work together in formulating strategic visions, agendas and
roadmaps. Based on initial impressions and evaluations it seems that all three programs indeed have been
able to activate new types of interactions and partnerships, even in areas that are relatively established
(e.g. the bioeconomy as well as engineering in the case of Sweden). Nonetheless, the programs are so far
less explicit in their efforts and approaches to overcome path dependencies and lock-ins in sub-optimal
interaction.
Directionality: All three programs exhibit some degree of directionality. The BioNets program is perhaps
most directed with its focus on the bio-economy and specific global market opportunities as defined by the
strategic agendas in the context of the bioeconomy transition, followed by the CDI program which has
identified four priority areas.
5
The SIO program can be argued to be directional in the sense that their
strategic agendas identify societal challenges as an overall guiding principle but refrain from pointing out
specific challenges. However, while providing some directionality at a rather overarching level (with the
exception of BioNets), there is also an emphasis on bottom-up processes in all three programs, within the
framework of both societal or grand challenges and market opportunities and industrial renewal (especially
in the BioNets program). Thus, the emphasis is clearly on actor-identified and driven areas and initiatives as
opposed to top-down steering and priority-setting.
Demand articulation: This is especially evident in the CDI program. The CDI program has a strong focus on
involving ‘problem owners’ and other users or relevant stakeholders – such as municipalities, patient
organizations, healthcare providers etc. – as active partners in the projects. According to Vinnova’s
homepage, “co-creation [between users/customers and providers of solutions] is a critical success factor”.
6
The OECD views the orientation towards societal challenges of innovation programs – present particularly
in the CDI and SIO programs – as a market creating tool:
5
The description of possible challenges have, however, only served as guidance and not to exclude other ideas within
the broad areas. The crucial aspect of the CDI program is rather to require that some societal challenge should be the
starting point for each project, contribution to its solution the objective of the projects and the active engagement of
problem owners mandatory.
6
http://www.vinnova.se/en/Our-acitivities/Cross-borde-co-operation/Challenge-driven-Innovation/Challenge-driven-
Innovation/

“The 2012 Research and Innovation Bill bases the rationale for an initiative such as the SIO in
terms of the generally accepted view that innovation can both underpin the search for
solutions to global challenges and create future growth markets in these areas. More
specifically, it recognises that interaction and collaboration between diverse sets of
innovation actors is key to developing a healthy innovation ecosystem.” (OECD 2016, p.108)
However, aside from the orientation of innovation efforts towards societal challenges, one could argue that
market-creating elements – such as innovative public procurement – are not very pronounced in the
programs examined, largely because they are beyond the remit of the agencies running the programs. The
relevance of demand-side policies, such as public innovative public procurement, for promoting transitions
should be highlighted further and become an integrated part of next generation PPP programs.
Elements of reflexivity and openness can be found in all three programs. Openness is emphasized by Tekes
for the BioNets program even though it is challenging to find a balance between openness and
confidentiality in strategic R&D projects of companies. Vinnova also underlines the importance of openness
(to new partners) in both its SIO and CDI programs and is currently looking into developing indicators that
can measure the degree to which new actors are continuously involved in the SIO programs. Early
evaluations and continuous monitoring are integral elements of both the BioNetS and SIO programs, with
the expressed intention to enable learning to sustain agility and continuous program adjustment.
Overall, therefore, the new PPPs can be shown to promote new interactions, partnerships and approaches.
They have elements of directionality and demand articulation is addressed by emphasizing (and sometime
requiring) the involvement of users, customers and/or ‘problem owners’. Openness is clearly identified as
important and desirable and there is a striving for reflexivity in the form of early evaluation and monitoring
which are intended to enable learning and program adjustment. However, it is not yet clear to what extent
these new initiatives will achieve the desired outcomes in terms of openness, reflexivity but also in terms of
effectively counteracting path dependency and lock-ins to suboptimal interaction. Also, demand
articulation in terms of market creating activities, for example in the form of public procurement, are not
integral parts of the programs.
A serious challenge shared not only by the three programs exemplified in this paper, but by many other
national PPP programs as well, is that they are just that – national. In spite of a general acknowledgement
of the global nature of innovation, they often fail effectively to integrate an international or global
dimension or element into their programs. In fact, they may introduce a bias in favor of national
collaborations or partnerships over international linkages. One reason for this is that it national
government agencies often cannot or will not provide funding to international partners. The lack of
internationalization was pointed out, for example, in the evaluation of the Finnish SHOKs (Strategic Centers
for Science, Technology and Innovation) (Lähteenmäki et al 2013), an earlier high-profile PPP-program
model. An evaluation of the first generation of SIO program also reached a similar conclusion (Isaksson and
Palmberg 2016).
Furthermore, there are a number of key components of addressing system and especially transformational
failures that these exemplified PPP programs do not seem to address. These relate to the institutional
environment (including regulatory conditions) and other framework conditions, change and conflict
management (e.g. how to deal with ‘incumbents’ and the ‘losers’ of socio-economic transitions), policy
coordination and governance. In many cases, the absence of elements to address these types of failures
can be explained by the fact that the agencies responsible for these programs do not have the tools nor the

mandate to address these issues. Often, they are also beyond the remit of the ministries that these
agencies report to. Thus, whereas Tekes and Vinnova are under the authority of the Ministry of
Employment and the Economy and the Ministry of Enterprise, respectively, many regulatory and legal
changes that might be necessary to enable transformative change (eg. labor laws, competition regulation,
product registration regulations, intellectual property laws, state aid rules) fall under the responsibility of
other ministries or their agencies
Policy coordination, which requires coordination across ministries, agencies and stakeholders, is especially
important for creating niches or spaces for policy experimentation and managing conflicts, including
mediation and compensation – between ministries, between regions, between agencies, or more generally
between ‘winners’ and ‘losers’ of transformative change that might arise as a result of disruptive change.
Failures to achieve policy coordination may therefore also inhibit the emergence of new ecosystems that
eventually could challenge the current regime and speed up transitions. An interesting example is the
bioeconomy, where the experimental use of biomass for new applications often is held back by
incumbents, regulations or other barriers. Finally, there are few systemic mechanisms for upscaling
successful solutions e.g. in goods and services offered by or provided to the public sectors (e.g.
disseminating good practices from one municipality or region to another).
In conclusion, while the design and implementation of the new PPP programs analyzed here reflect a
recognition of the need to adapt PPPs to be able to address grand challenges and related global market
opportunities, and enable changes in socio-technical regimes, for several reasons, they currently fall short
of effectively addressing the issues that our analytical framework highlights as important. This is partially
because these new programs and approaches require new or different models, actors and competencies.
They also require a form of and room for experimentation and risk-taking that goes against the basic views
of how government agencies should operate. But perhaps most importantly, key issues (eg. regulatory
changes and upscaling) are beyond the remit of innovation agencies. They require higher-level policy
coordination, leadership and political will.
In both Sweden and Finland, a number of initiatives are under way which could address some of these
issues, thus complementing the new PPP programs and boosting their role in addressing transitions. These
include the launching, or relaunching, of national innovation councils, the Strategic Research Council and
the strengthening of analytical and experimental functions at the Prime Minister’s Office in Finland, the
launching of new test-beds and demonstration facilities in Finland, Innovation Platforms and the Strategic
Cooperation Programs in Sweden. However, it is too early to tell whether – together with the new PPP
programs – they will be able to tackle the system and transformational failures identified in the literature
and respond to market opportunities that grand challenges create globally.
5 Conclusions
In this paper we have shown that advances innovation and transition theory combined with the increasing
urgency of societal or grand challenges, and a changing global knowledge and innovation landscape,
converge to put new demands on innovation policy instruments. In response, technology and innovation
funding agencies are developing new models and programs for public-private partnerships (PPP).
We apply an analytical framework based on system of innovation and transition theory to these new PPP
programs to assess to what extent they are likely to be able to address the systemic and transformational

failures identified in the literature. We find that new PPP programs are emerging with clear ambitions both
to tackle societal challenges and realize related global market opportunities, as well as drive industrial
renewal. Furthermore, some of these programs have clearly expressed ambitions to address systemic and
transformational failures. In particular, we see clear elements of promoting new and different interactions,
demand articulation, reflexivity and openness and directionality. Regarding the latter, preliminary insights
suggest that the programs have new approaches in place to better facilitate emergence and self-
organization from the bottom-up, while at the same time encompassing a certain amount of overall
directionality (e.g. articulating societal challenges and/or related market needs). This is in contrast with an
innovation system approach that has tended to superimpose structures and top-down planning on bottom-
up activities. However, an important issue is how a public RDI funder – and by extension, the government -
can ensure sufficient control and steering, as well as which types of incentive structures should be created
for a good balance between self-organization and policy steering.
We identify two key challenges facing these new PPP programs. Firstly, the new programs and approaches
require new competencies, models and actors. Secondly, many of the determinants of whether the PPP
programs eventually lead to concrete, competitive and scalable solutions to societal challenges for global
markets are beyond the remit of technology and innovation agencies. Ultimately, a key question for
policymaking which goes beyond the operations of such agencies is how to enable the creation of spaces
for experimentation and learning (e.g. in the sense of unlearning of existing practices) and thus for niches
or arenas for new cross-sectoral ecosystems and disruptive innovations. Finally, internationalization still
poses a challenge to many national PPP programs due to the national jurisdiction of the agencies that fund
the programs.
One conclusion from our attempt to apply an analytical framework to existing programs and practice is that
many of the terms identified in theory are revealed as being too ‘hazy’ to be useful for practical policy and
program design. Thus, for example, there is a need to clarify what is meant by directionality, particularly
the level and focus of directionality (sector, challenge, policy area, impact logic). The literature also
underlines the importance of combining directionality with bottom-up approaches. Here, again,
policymaking could benefit from a more ambitious discussion regarding what balance between bottom-up
and top-down elements to strive for in designing PPPs. Further, ‘reflexivity’ is a good objective but it’s
realization, in turn, depends on the availability of impact logic frameworks and indicators that also apply to
transition processes and all the complexities involved. Thus, we find that the world is a little more complex
and requires a more nuanced theoretical discussion on issues such as directionality, reflexivity, interactions
and openness to be useful to those seeking to design PPPs that might effectively address system and
transformational failures.

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