Balancing Exploration and Exploitation: Connecting Micro and Macro (BEECO)

The project addresses a core challenge of the Norwegian economy when it comes to restructuring: moving beyond reliance on petroleum income by climbing along existing value chains into higher value-added products, and at the same time using existing strengths to create new products, export industries, clusters, and value chains. Based on the Smart Specialization theory of entrepreneurial discoveries, the scoping paper will use the conceptual framework and preliminary empirical findings from this project to suggest a research strategy to be implemented by a future center supporting the Norwegian Research Council. This future research beyond the scope of the project is expected to enable the Norwegian Research Council to play a pro-active role in an experimental approach to innovation-driven restructuring of the Norwegian economy. The Norwegian Research Council should be able to discover and address tensions between innovation strategies in the business sector and national-level policymaking. It must be able to team up with and support entrepreneurs and firms exploring new, so far unused and unexplored opportunities in the economy. This means that the Norwegian Research Council should be able to act based on an in-depth, empirically grounded understanding of the forces which prevent firms from discovering and exploiting new opportunities and lock them into short-term strategies of exploiting existing markets. In this respect, a key area of further research in continuation of this project is the analysis of the hidden potential of the Norwegian economy, given its current strengths, applying new methods and insights developed by evolutionary economists like Foray and others. In this way, the Norwegian Research Council will be enabled to develop a forward-looking strategy in partnership with private sector entrepreneurs who search for new opportunities.

The Norwegian economy is based on processing of raw materials, with reliance on exploitation rather than exploration of new opportunities. This reduces the ability to respond to global market challenges by creating new industries based on existing strengths. A solution for restructuring the economy through research and innovation (R&I) is Smart Specialisation based on Entrepreneurial Development Processes, or EDP. EDP means to focus on exploration of new growth opportunities and investments in emerging rather than mature markets, through diversification. The relation between exploration and exploitation is complex, not just at the macro (policy) level, but also at the micro level (firms). These conflicting yet complementary activities compete for attention and resources. Exploitation crowds out exploration and vice versa. Although this dilemma is experienced by both policymakers and entrepreneurs, these still see each other's activities as black boxes, making it difficult for them to exert joint efforts. Since the macro level of R&I policies and the micro level of industrial actors are co-evolving, their decisions on exploration or exploitation influence each other. The central challenge in restructuring the Norwegian economy is to achieve a better coordination between the micro and macro (policy) levels, allowing for stronger emphasis on exploration through partnerships between policy makers, entrepreneurs, and researchers. Using a mixed-method design across levels, including (i) explorative case studies at major industrial actors and entrepreneurial start-ups, (ii) interviews and desk stop studies, and (iii) focus group dialogue, the project will create an analytical framework for co-evolution of policies and industries, increasing the capacity of the Norwegian economy to diversify through a sustainable emphasis on exploration. This framework will indicate the direction for future research, to be done through a broader study, and policy experiments in the area