An Analysis of Innovation Network Performance on the Palm Oil Industry in North Sumatera
AN ANALYSIS OF INNOVATION NETWORK
PERFORMANCE ON THE PALM OIL INDUSTRY IN NORTH
SUMATERA
DANANG KRISNA YUDHA
GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY
BOGOR
2015
DECLARATION
I hereby declare that the thesis entitled “An Analysis of Innovation
Network Performance on the Palm Oil Industry in North Sumatera” is my original
work produced through the guidance of my academic advisors and that to the best
of my knowledge. This thesis also presented for the award of a degree in The
University of Adelaide as a double degree program between Bogor Agricultural
University and The University of Adelaide. All of the incorporated material
originated from other published or unpublished papers are stated clearly in the text
as well as in the bibliography.
I hereby delegate the copyright of my paper to the Bogor Agricultural
University.
Bogor, July 2015
Danang Krisna Yudha
NRP. F351137151
SUMMARY
DANANG KRISNA YUDHA, 2015. An Analysis of Innovation Network
Performance on the Palm Oil Industry in North Sumatera. Supervised by AJI
HERMAWAN, Chairman and MACHFUD, Member of Advisory Committee.
Indonesia and Malaysia shared 85% of global palm oil production by weight
in 2013, according to United States Department of Agriculture (USDA, 2014).
Indonesia overtook Malaysia as the biggest producer of palm oil and reached a
total production of 30 million tons in 2014 (Ministry of Agriculture, 2015).
Although Indonesia became the leading country in the production of palm oil,
most of this commodity are exported as Crude Palm Oil (CPO) and Crude Palm
Kernel Oil (CKPO) to Europe, China and India, so the value added going to
another country. Therefore, the government wants to resolve this problem by
increasing the added value of palm oil products.
Innovation is the key factor to increase the added value of palm oil products.
Indonesian government set North Sumatera as a center of palm oil industry and
encourage the growth of innovation in this region. Advances in innovation are
considered as the main factor that affect the regional competitiveness and become
the key factor for increasing national economic growth. Moreover, collaboration
between government, universities and firms are important to produce the expected
innovation.
This paper assess the effectiveness of network among actors on the palm oil
industry in North Sumatera. A Social Network Analysis (SNA) was carried out to
determine the structure and performance of this network. The result show that the
government play insignificant role in this industry, while research institutions
have more influence. Moreover, this study also identify the barriers which inhibit
the collaboration among actors. This study use interpretive analysis based on the
interviews to recommend some action plan, which are intended to improve the
network.
Keywords: palm oil industry, social network analysis, interpretive analysis
RINGKASAN
DANANG KRISNA YUDHA, 2015. Analisa Kinerja Jaringan Inovasi pada
Industri Kelapa Sawit di Sumatera Utara. Dibimbing oleh AJI HERMAWAN,
Ketua dan MACHFUD, Anggota dari Komisis Pembimbing).
Indonesia dan Malaysia menghasilkan 85 % dari produksi minyak sawit
global pada tahun 2013, menurut Departemen Pertanian Amerika Serikat ( USDA,
2014). Indonesia mengambil alih posisi Malaysia sebagai produsen terbesar
minyak sawit dan mencapai total produksi sebesar 29,3 juta ton pada tahun 2014
(Kementerian Pertanian, 2015). Meskipun Indonesia menjadi negara unggulan
dalam produksi kelapa sawit, sebagian besar komoditas ini diekspor sebagai
Crude Palm Oil (CPO) dan Crude Palm Kernel Oil (CKPO) ke Eropa, China dan
India, sehingga nilai tambah komoditi ini menjadi milik negara lain . Oleh karena
itu, pemerintah ingin mengatasi permasalahan ini dengan cara meningkatkan nilai
tambah dari produk kelapa sawit.
Inovasi menjadi faktor kunci untuk meningkatkan nilai tambah dari produk
kelapa sawit. Pemerintah Indonesia menetapkan Sumatera Utara sebagai pusat
industri kelapa sawit untuk mendorong pertumbuhan inovasi di wilayah ini.
Kemajuan dalam inovasi dianggap sebagai faktor utama yang mempengaruhi daya
saing daerah dan menjadi faktor kunci untuk meningkatkan pertumbuhan ekonomi
nasional. Selain itu , kolaborasi antara pemerintah, universitas dan perusahaan
merupakan faktor penting dalam menghasilkan inovasi yang diharapkan.
Makalah ini menilai efektivitas jaringan antar pelaku industri kelapa sawit di
Sumatera Utara. Sebuah Analisis Jaringan Sosial (SNA) dilakukan untuk
menentukan struktur dan kinerja jaringan ini. Hasil penelitian menunjukkan
bahwa pemerintah memiliki peran yang kurang signifikan dalam industri ini,
sementara lembaga penelitian memiliki pengaruh yang lebih kuat. Lebih jauh lagi,
penelitian ini mengidentifikasi hambatan dalam membangun kolaborasi antara
pelaku. Penelitian ini menggunakan analisis interpretatif berdasarkan wawancara
untuk merekomendasikan beberapa rencana aksi, yang dimaksudkan untuk
meningkatkan kinerja jaringan.
Kata kunci: industry kelapa sawit, analisa jaringan sosial, analisa interpretatif
Copyright ©2015, by Bogor Agricultural University
All Right Reserved
1. No part or all of this thesis excerpted without inclusion or mentioning the
sources
a. Excerption only for research and education use, writing for scientific papers,
reporting, critical writing or reviewing of a problem
b. Excerption does not inflict a financial loss in the proper interest of Bogor
Agricultural University
2. No part or all of this thesis may be transmitted and reproduced in any form
without a written permission from Bogor Agricultural University
AN ANALYSIS OF INNOVATION NETWORK
PERFORMANCE ON THE PALM OIL INDUSTRY IN NORTH
SUMATERA
DANANG KRISNA YUDHA
Thesis
Submitted to the Graduate School in Partial
Fulfillment of Master Of Science
Degree In
Agroindustrial Technology
GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY
BOGOR
2015
External Examiner: Prof. Dr. Ir. Erliza Hambali, M.Si
Thesis Title
: An Analysis of Innovation Network Performance on
the Palm Oil Industry in North Sumatera
Name
: Danang Krisna Yudha
Registration Number
: F 351137151
Study Program
: Agroindustrial Technology
Approved
Advisory Committee
Dr. Ir. Aji Hermawan, MM
Chairman
Prof. Dr. Ir. Machfud, MS
Member
Agreed
Coordinator of Program
Agroindustrial Technology
Dean of Graduate School
Prof. Dr. Ir. Machfud, MS
Dr. Ir Dahrul Syah, MSc. Agr
Examination Date: 11th June, 2015
Submission Date:
ACKNOWLEDGEMENTS
Praise and gratitude to Allah Subhanahu wa Ta’ala, because of Him, the writer
can complete this thesis as a requirement to get a Master Degree in Bogor
Agricultural University (IPB). The title of the thesis is An Analysis of Innovation
Network Performance on the Palm oil Industry in North Sumatera.
The writer want to say thank you, especially for Dr. Aji Hermawan as a
chairman of the advisory committee, Prof. Machfud as an advisory committee
member, and Dr Wendy Lindsay as an advisor from University of Adelaide whose
gave positive criticisms and guidance to shape the outlook of this thesis. Special
thanks for Dr. Barry Elsey and Ms. Amina Omarova from The University of Adelaide
for their guidance in writing this thesis. They teach me how to write the thesis with a
good structure.
I also would like to express gratitude to all the respondents who have taken
their time to conduct an interview with the author. Special thanks to Mr. Deny
Mulyawan from PT. Perkebunan Nusantara III, Mr. Anshori Nasution from IOPRI
and Mrs. Ida Yani Pane who took time to meet me in the middle of his/her work. My
gratitude to DR. Listyani Wijayanti for the courage and motivation. I also thank Prof
Erliza Hambali for her suggestion to reshape my thesis and Mr. Dahlius and Mrs.
Dhiah Nuraini who also my colleagues in Ministry of Industry. I also offer my thanks
for Mr. Fadhil who gave me new perspective of the palm oil industry.
In this acknowledgment, I want to take my time for expressing my love to my
wife, Ajeng and my son, Hirzan who acoompany me in Adelaide and provide the
biggest support. I also want to thank my father, mother, brother and sister who
continuously to give their support, both in the difficult and good period. Last but not
the least, I want to show my gratitude to my friends, namely Karim, Tri, Benny,
Andar, Farda, Iwan, Nur Aini, Dwi, Syarifa, Aditya, Dickie, Ahmad Rudh, Koko,
Nuni, Anin, and Yani for their moral support especially when we all lived in Adelaide.
Bogor, July 2015
Danang Krisna Yudha
TABLE OF CONTENT
LIST OF TABLE
LIST OF FIGURE
LIST OF APPENDIX
i
ii
ii
CHAPTER 1. INTRODUCTION
1.1. Introduction
1.2. Statement of Problem
1.3. Background and Need
1.4. Purpose of the Study
1.5. Reserach Questions
1.6. Significance to Field
1.7. Limitation
1
1
1
2
2
3
3
3
CHAPTER 2. LITERATURE REVIEW
2.1. Innovation in the Palm Oil Industry
2.2. Assessing the Innovation Network Performance
2.2.1. Network Theory
2.2.2. Social Network Analysis (SNA)
2.3. Collaborative Innovation Strategy
2.3.1. Triple Helix Model as an Analytical Tool for Innovation
Collaboration
2.4. Summary
4
4
6
6
7
9
10
11
CHAPTER 3. METHOD
3.1. Introduction
3.2. Settings
3.3. Participants
3.4. Measurement Instrument
3.5. Procedure
3.6. Data Analysis
3.3. Summary
12
12
12
12
12
13
13
13
CHAPTER 4. RESULTS AND DISCUSSION
3.1. Collaborative Research Activities
3.2. Innovation Network Performance
3.3. Barriers
3.4. Action Plan and Policy Strategy
3.3. Summary
14
14
16
19
22
24
CHAPTER 5. CONCLUSION
3.1. Summary
3.2. Recommendation
3.3. Implication
25
25
25
25
BIBLIOGRAPHY
AUTOBIOGRAPHY
26
31
LIST OF TABLE
2.1. Network Terminology
3.1. Profile of Participants
3.2. Research Stages
4.1. Centrality
7
12
13
18
LIST OF FIGURE
2.1. Palm Oil Industrial Tree
2.2. Interaction Model Between Actors
2.3. Triple Helix Model
4.1. Network Visualization of the Palm Oil Industry
4.2. Relation Among Actors
5
9
11
17
20
LIST OF APPENDIX
Appendix 1. List of Questions
Appendix 2. Matrix for SNA
28
29
1 INTRODUCTION
1.1. Introduction
At the current time, Indonesia is the world's largest producer of palm oil,
namely around 29,3 million tons in 2014 (Ministry of Agriculture of Republic
Indonesia, 2015) and the industry has been the economy's most valuable
agricultural export sector for the last century. Although Indonesia become the
leading country in the production of palm oil, most of this commodity is exported
as Crude Palm Oil (CPO) and Crude Palm Kernel Oil (CKPO), which are
categorised as semi-products with low added value. This condition encouraged the
government to develop palm oil downstream products and set North Sumatera as a
center of the downstream palm oil industry (Ministry of Industry Decree No. 13
Year 2010).
In an attempt to increase the value added of palm oil products, innovation
plays important roles. Innovation is required to develop 23 downstream products
of palm oil, as stated in government policy, and then bring those products to
domestic or global market. However, the innovation process, from invention to
commercialization, can be inhibited if the network between research institution,
government and businesses is not managed properly. In the palm oil industry,
many inventions which were produced by research institutions cannot fulfill the
demand of the palm oil industry and failed to enter the market. Furthermore, lack
of government support weaken the industry's desire to cooperate with research
institutions. This condition lead to poor performance of innovation in downstream
palm oil industry which causes many companies prefer to search innovation from
external sources.
This study assess the effectiveness of network among actors that affect the
innovation performance on the palm oil industry in North Sumatera. Collaboration
between actors become an important factor in creating innovation. Moreover, this
research identify the barriers which influence the network. The purpose of this
study is to propose an action plan and policy design to improve the network
among actors, which in turn will improve the innovation performance and
enhance the development of downstream palm oil industry in North Sumatera.
1.2. Statement of the Problem
In North Sumatra, there are three types of institutions that carry out
innovation activities in the downstream palm oil industry, namely business,
government and research institution. These institution, which can be referred to as
actors, have been cooperating and sharing resources in order to create innovation.
However, many invention cannot be implemented in the industry because it is
produced only to meet the academic interest. Furthermore, unclear government
policies make the industry and research institution are reluctant to establish
collaborative research.
It indicates that the current network among actors in developing innovation
is not effective. Even farther, the cooperation between actors is less structured and
less organised. It is not clear who is the leading institution in this network and this
partnership seems to run without the coordination and monitoring. This condition
2
should be addressed in order to improve the innovation performance in the palm
oil industry.
1.3. Background and Need
Innovation as described by Schumpeter (1947) is a process to create an
invention and commercialize it. An invention could be called as innovation with
the first commercial transaction and acceptance of the market. The innovation
process is defined as the combined activities leading to new marketable products,
methods and /or new systems (Burgelman, et al. 2006). In palm oil industry,
innovation is important to support the government program by developing new
technology or new downstream products of palm oil which can lead to a new
business. More importantly, innovation will support the development of new
products with higher value than CPO and CKPO. Many theories show that
innovation has big impact on science/technology and economic growth. De Groot,
Nijkamp and Acs (2001) argue that technological innovation has long been a
concern in an effort to create opportunities for economic growth in the region. A
region that has excelled in the development of new technologies or implementing
the existing technology in economic activity have indicated a better competitive
advantage.
A number of studies (Basiron 2002; Barlow, Zen and Gondowarsito, 2003;
Dou, 2009) concluded that the chances of development of the Indonesian palm oil
industry is still very open, especially because of the availability and suitability of
land and supported by appropriate policies and strategies. The government set
North Sumatera as a center of downstream palm oil industry because of its
abundance of raw material and build palm oil industrial cluster in this region.
Moreover, Pratama (2014) defined 3 major factors which affect the development
of palm oil downstream industry, namely infrastructure, innovation and
networking among actors. It indicates that innovation has a big impact on the
development of the downstream palm oil industry.
Furthermore, collaboration is an important part of the innovation process,
especially in developing countries such as Indonesia, which has a low research
budget. The government, enterprises and research institutions interact and
cooperate in generating innovation. Teece (1992) and Baum et al (2000) suggest
that collaboration enables business to access complementary assets, technology,
human resource and learning capabilities, thus boosting the company innovation
performance. Usually government became the leading institution of this
collaboration and provide the funding, while research institutions have the
resources (human resource and research facilities).
1.4. Purpose of the Study
The purpose of this study is to identify the innovation activities which is
conducted by each actors and then assess the innovation network performance in
the palm oil industry in North Sumatera. After knowing the performance of the
network in the industry, the next step is to investigate any obstacles in the
cooperation between actors. Finally, the outcomes of this research is to create an
action plan and policy design for how to manage the network among actors, in
3
order to enhance the innovation network performance of the palm oil industry in
North Sumatera.
1.5. Research Questions (RQ’s)
This study has several research questions to be answered, as follows:
1. What kind of innovation activities are being conducted by each actor of the
palm oil industry in North Sumatera?
2. How effective is the network among actors of the palm oil industry in North
Sumatera?
3. What are the barriers for establishing collaboration between actors of the palm
oil industry in North Sumatera?
4. What factors could be developed in the future to improve the network among
actors of the palm oil industry in North Sumatera?.
1.6. Significance to the Field
There are several contributions of this research, as follows:
a. On policy, this research may provide new perspective for local and central
government about how to develop downstream palm oil industry. In addition,
this research provide a recommendation about how to build collaboration
among the actors involved.
b. From an academic point of view, this study may contribute to solve the
problems of networking by identifying the barriers of collaboration.
c. In addition, this research assess the network performance of the palm oil
industry in North Sumatera which may be useful for firms or other parties.
1.7. Limitation
This research has limitation on the data collected from interview. There are
nine participants consisting of three researcher, one industrial practitioner, three
people from government and two people from business. This data may not cover
and represent all of the population which means it cannot be generalized for all
palm oil industry. However, this research focus more on the barriers of
collaboration in palm oil industry. It is very important given the fact that
collaboration is key factor in developing innovation. Moreover, the action plan
and policy design may become the guidance for further development of
downstream palm oil industry.
4
2 LITERATURE REVIEW
2.1. Innovation in the Palm Oil Industry
The government through the Ministry of Industry plans to develop palm oil
downstream products with the hope of increasing the value added of CPO and
CKPO. The price of CPO and CKPO in 2014 was USD 818,4 per ton, very low
compared to the price of its downstream products (GAPKI, 2015). In fact, CPO
and CKPO can be used as raw material for several derivative product, namely
food products (including cooking oil, margarine and shortening) and
oleochemicals (fatty acids, fatty alcohol and glycerin). Moreover, palm oil is the
major raw material for biodiesel industry and become more important for the
sustainability of energy in Indonesia. In figure 2.1 (page.5), it illustrates twenty
three downstream products that will be developed by the Indonesian government.
In order to support the development of downstream palm oil industry, the
government issued two main policies. The first policy listed on Ministry of
Industry Decree No. 13 Year 2010 which includes the palm oil industry roadmap
and long term strategy 2011-2025. In this regulation, the government set North
Sumatera as a center for the downstream palm oil industry. Moreover, the
government also established palm oil industrial cluster in North Sumatera as a
special economic zone with various facilities and incentive to the industry. The
other policy declared by government is joint regulation between Ministry of
Research and Technology and Ministry of State Affairs No. 36 Year 2012 about
regional innovation system. The policy focuses on developing a leading
commodity for each province, for example palm oil for North Sumatera province.
It indicates that North Sumatera is important region for the development of
downstream palm oil industry.
North Sumatra is one of the palm oil producer in the country's. CPO
production in North Sumatera reached 7.3 million tons from more than 60
companies which operating in this region (Investment Coordination Board, 2012).
In this region, there are at least two major institutions that have a variety of
research and patent namely the Indonesia Oil Palm Research Institution (IOPRI)
and the Center of Innovation (PIKS). PPKS was founded in 2002, consist of three
research institutes in Medan, Marihat and Bandar Kuala. This institution has been
conducted several research on innovation related to palm oil industry. IOPRI
vision is to become an international research institution that is capable of being a
center of innovation for the palm oil industry. IOPRI has gained international
recognition through its scientific publication and research contribution.
Meanwhile, PIKS is a research institute that is established to accelerate the growth
of downstream palm oil industry through innovation. This institution was
established to support the development of the palm oil industrial cluster in Sei
Mangkei, North Sumatra. The main function of this institution is to produce
innovation and research related to the downstream palm oil industry. In addition,
the institute has a goal to increase the capacity of downstream palm oil industry
through training, instrument calibration and certification
5
Figure 2.1. Palm Oil Industrial Tree
Source : GAPKI (2015)
Nowadays, innovation is considered to be one of the most important issue in
business strategy and management. Many theories show that innovation has big
impact on science/technology and economic growth. Advances in technological
innovation are considered as the main factor that affect the competitiveness of
firms, industries and become the key factor for increasing national economic
growth and wealth (Porter 2008). Both Marshall (2004) and Simon (1971) state
that, directly or indirectly, knowledge affect economic activity and economic
activity also changes the knowledge, and it takes place in a constant round of
change.
6
Innovation become important factor in accelerating the development of
downstream palm oil industry. As stated by Schumpeter (1938), there are five
form of innovation, namely (1) new products ;(2) new methods of production;(3)
new markets;(4) new sources of raw material;and (5) new organisations. In palm
oil industry, “new products” means the development of twenty three downstream
palm oil products which is listed on Ministry of Industry Decree No. 13 Year
2010. The innovation activities in the palm oil industry is expected to generate
new products that address the needs of consumers. The innovators can add special
attributes on downstream product of palm oil which can solve the customer
problems. One of the main concern of consumers is the health issues of palm oil
products and the innovators can try to solve this problem. This will affect the
competitiveness of Indonesian palm oil products in the global market. Meanwhile,
“new methods” is generated to increase the productivity and efficiency of the
industry. With the increased performance of the industry, the costs will be smaller
and it will boost up the competitive advantage of the industry. Furthermore,
innovation in downstream products can bring new markets for domestic industry
so that the value-added of palm oil products can be increased.
However, many inventions which is produced by research institution failed
to enter economic system because of several factors, such as lack of collaboration,
stagnation on government policy (Schepers 2013), limited funding and failure to
identify market demand (Chiesa & Frattini 2011). This study will explore the
network among actors and assess the effectiveness of the current research
collaboration in the palm oil industry. Research and Development (R&D)
partnership is becoming more familiar in the creation of innovation, along with
the increasing complexity of technology. It could be used to access additional
technology and market knowledge, to co-develop standards, to create a minimum
(critical) size for a project, and to share innovations costs and risks (Hagedoorn
1993)
2.2. Assessing Innovation Network Performance with Social Network
Analysis
2.2.1. Network Theory
A network is a set of nodes connected by a set of ties (see table 2.1). The
nodes can be anything whether it is a persons/individuals, teams, organizations,
concepts, patents, etc (Coulon, 2005). In social terminology, a network could
become a capital for a person/organisations. Burt (1997) define 4 attributes on
social network in his study which are roles, emotional closeness, duration and
frequency. Based on his findings, people who has more contact in his/her “pocket”
will eventually get benefits, for example early promotion. It is quite reasonable,
considering the people who have extensive networks will easily get the
information and knowledge so that they can adapt well in any conditions. In
organisation level, company which has wider network, either with government or
research institutions, will gain an access to innovation or incentives. The
organization Some usual way in building the network is doing intensive contact
with the other party, exchanging important information and build trust. It is
7
important for evolving organization to manage their networking in order to
withstand any challenges in the future.
Table 2.1. Network Terminology
Network Analysis
Terms
Node
Tie/Edge
Definitions
The basic elements of a network
A set of two nodes. Ties can be
dichotomous (unweighted) or
weighted/valued, directed or not
(undirected)
Directed Tie
An ordered set of two nodes, i.e., with
an initial/sources and a
terminal/destination node
Network
A set of nodes connected by a set of
ties
Valued Network
A network whose ties/edges are
associated with a measure of
magnitude or strength
Ego
A node which receives particular focus
Alters
The set of nodes that has ties with the
ego but not including the ego itself
Network Size
The total number of nodes of a
network
Relational Data
The set of ties of a network
Sources: Coulon, 2005
. In the case of palm oil industry, the nodes are organizations, consist of
government, research institution and business. The network connect all
stakeholders and relay the information and knowledge which is important in the
creation of innovation. Furthermore, Rodgers (1962) emphasize the importance of
network in technology diffusion. The new technology will be spread quickly
among actors through the existing network. More importantly, the existing
network will help a new technology to be accepted by the community (lowering
the resistance of new technology). That’s why, it is essential to manage the
effective network among actors in the palm oil industry.
Actor
Latour (1992) define actors as “entities that do things”. The entities in his
perception is, either a human or non-human, which has the character and ability to
do some action. In innovation activities, an actor would need the help of other
parties to create a new technology/product. This cooperation will form a network
and they will share the resources to achieve common goals.
2.2.2. Social Network Analysis as Analitycal Tools to Assess Innovation Network
Performance
Performance is known to be a complex concept, especially concerning
its measurement. It should be assessed by performance indicators, instruments
8
used to measure what criterion is being used, and it should be included in the
performance measurement system (Provan & Kenis 2008). The indicator of
innovation network performance, they called it “determinants of innovation
network”. Those determinants consist of two main indicators which are shapes of
network and connectedness of members. The shapes of network focused on
number of researcher, level of research expenditure, and the quality of output.
Meanwhile, the connectedness of members is represented by the intensity of
communication (tacit and explicit knowledge), form of communication, amount of
communication, and diversity of competencies and knowledge. The performace of
a network can be measured by using social network analysis as a tool.
Social Network Analysis (SNA) views social relationship in terms of
network theory, consisting of nodes, representing individual actors within the
network, and ties which represent relationships between the individuals actors
(Freeman, 2004). Social network analysis is based on assumptions about the
importance of the relationship between nodes that interact include theory, models,
and applications expressed by the concepts of relational or process analysis.
Network analysis is not done individually, but with an entity consisting of
individuals and relationships that exist between them. (Wasserman & Faust, 2008).
According to Hanneman and Riddle (2005), social network analysis is a technique
for studying the relationships or social relations among members in a group.
Meanwhile, other theories stated that social network analysis is a process of
learning and understanding of the network (formal and informal) in certain fields
(Schelhas and Cerveny, 2002).
Some measurements to quantify the role and influence of actors in the
network are as follows (Hanneman and Riddle, 2005) :
1. Degree of centrality, the degree of the presence and position of an actor in a
social networking. This can be categorised into two types, which are: 1) In
degree is the ability of actors to relate to an actor; and 2) Out Degree is an
actor's ability to relate to other actors in the network.
2. Closeness centrality, shows the extent to which the information can be spread
in the network and measures the distance between the actors in the network.
Dissemination of information easily demonstrate with high proximity value
3. Betweeness centrality, shows how strong an actor can become a facilitator
between other actors in the network. An actor with a high betweeness value
has the ability to convey information to actors who are not directly connected
with them.
Overall, SNA calculate the tie strength which is important in assessing the
overall degree of connectivity of members in an environment and the likelihood
thatinformation will flow from one member to another (Haythornwaite,
1996). It means, this analysis will reveal whether the knowledge and information
distribute and spread quickly among members. Information and knowledge are
important factor for developing innovation in any aspects, includes downstream
palm oil products. This attribute is very important to assess the effectiveness of
network in the palm oil industry.
9
2.3. Collaborative Innovation Activities
Innovation activities has been divided into three major categorise which are
internal , external and cooperation (Veugelers 1997). The internal innovation is an
activity that conducted using internal resources and capabilities of a company,
while external innovation can be interpreted as an access to knowledge and
technology through licensing, hiring external researchers or outsourcing (Arora &
Gambardella 1990). However, many companies realise that the process to produce
a knowledge or technology is very complex and it would be costly for them to
conduct it by themselves. Therefore, companies tend to build cooperation with
external parties, such as universities, research institutes, government and other
companies.
This condition also occurs in the palm oil industry in North Sumatra. The
influence of institutions outside the region of North Sumatera cannot be denied.
For example, the research policy is strongly influenced by the central
governments, in this case they are the Ministry of Industry (MoI) and the Agency
for the Assessment and Application of Technology (BPPT). This study considers
the influence of other actors outside of North Sumatra in order to draw a complete
picture of palm oil industry in North Sumatera.
Based on the theories above, innovation can be greatly affected by the
interaction among actors. Interaction between actors is not inevitable because of
the innovation process that requires a lot of resources and budget, with high risk
and unpredictable environment/market. This condition also applies on the palm oil
industry in North Sumatera. That’s why, many actors in palm oil business
established cooperation because they cannot generate innovation by themselves.
In many regional innovation systems, academic institutions, research centers, the
government and firms cooperate with each other to make innovation effective.
They share information, infrastructure, human skill, capital and many other
components in order to make exact innovation. Zhao, Song, Zhu, Peng, and Cai
(2013) illustrated a model of interaction model between actors (Figure 2).
Figure 2.2. Interaction Model Between Actors
10
For further discussion, (Cooke & Morgan 1994) introduced “the network
paradigm” and emphasized that an effective network should consist of:
a. Information sharing, the willingness of each actor of a network to share their
information.
b. Trust, the willingness to place faith on other actors.
c. Learning, an awareness that knowledge and technology should be obtained
through a learning process.
d. Partnership, an awareness of cooperation and building relationships
e. Decentralism, the realisation that centralised data or information without
sharing is not effective
2.3.1. Triple Helix Model as Analytical Tools for Innovation System
Lenger (2008) stated that university and research institution play big role,
especially for providing qualified researcher and produced locally adopted
research. Meanwhile, the government can support the industry by providing
substancial resources or infrastructure, namely incentive and energy sources. On
the other hand, the readiness of business actors to adopt research results is
very important. Many big oil palm enterprise such as SMART, Unilever,
Lonsum and Sampoerna Agro have established their own R&D stations in order
to enhance technology development, strengthen the competitiveness and build
cooperation with SME’s (Liwang, Daryanto, Gumbira-Sáid, & Nuryartono, 2009).
One of the models which are developed based on the interaction between
actors is a Triple Helix Model. This model provides an illustration of the
cooperation between universities, industry and government in the creation of
innovation or technology. The technology is expected to encourage national and
regional development (Etzkowitz & Leydesdorff, 2000). In further discussion, has
been studied about how the ideal interaction between university, industry and
government. In the beginning, the government considered a central figure in
innovation activities with its policy and budget (Figure 3(a)). But over time,
(Etzkowitz & Klofsten, 2005) argued that the most appropriate model is that each
actor has equal status and have close interaction/ intersect (Figure 3(c)) .
Moreover, Brannback, Carsrud, Krueger Jr, and Elfving (2008) adapted the theory
and illustrates the the configuration of academic, business and government in
figure 3.
11
Figure 2.3 Triple Helix Model
2.4. Summary
Based on those theory above, this research will assess the performance of
innovation network on the palm oil industry in North Sumatera. It will focus on
information sharing and communication between actors in order to create an
innovation. Moreover, this study identify the barriers of collaboration which is
important to design action plan and policy strategy.
12
3 METHOD
3.1. Introduction
The research assess the effectiveness of network among actor that affect the
innovation performance on the palm oil industry in North Sumatera. Moreover,
this study will identify the barriers which influence the network. The purpose of
this study is to propose an action plan and policy recommendation to improve the
network among actors, which in turn will improve the innovation performance
and enhance the development of downstream palm oil industry in North Sumatera.
3.2. Setting
This study conducted in palm oil industry which is located in North
Sumatera. Based on Ministerial Regulation No. 13 Year 2010, North Sumatera is
selected as a center of downstream palm oil industry, alongside Riau Province and
East Kalimantan. This region has approximately 60 palm oil firms, several
research institution and one industrial cluster which allows the interaction
between industry players in generating innovation.
3.3. Participants
This research used purposive sampling since it is focused on the actors who
have experience and expertise on downstream palm oil industry. Each of
participants represent three category which are academic, business and
government (table 3.1).
Table 3.1. Profile of Participants
No
1
2
3
4
5
6
7
8
9
Participants
Institution
Position
Respondent 1
M. Ansori Nasution,
ST, M.Sc
Ir. Dahlius
Ir. Deny Mulyawan,
MT
Respondent 2
Research Institution A3
Researcher
Indonesian Oil Palm Research Institution
Researcher
Sei Mangkei Center of Innovation
Head of Institution
PT. Perkebunan Nusantara III
Regional Manager
Enterprise B2
Operational Manager
Fadhil Hasan
Ir. Dhiah Nuraini,
M.Si
Ir. Ida Yani Pane, MT
Dr. Listyani
Wijayanti
Indonesian Palm Oil Association
Executive Director
Ministry of Industry
Deputy Director
Local Government of North Sumatera
Agency of the Assessment and Application of
Technology
Head of Department
Deputy of the Institution
3.4. Measuremet Instruments
The study utilised two measurement methods, namely: 1) SNA approach to
determine the network performance; 2) coding and themes based on interview.
For quantitative analysis, this research used UCINET as analytical tools to assess
the network performance.
13
3.5. Procedure
In this research, interview became the main sources of data while
observation and legal documents provide some additional information. The
participants will be interview for 15-30 minutes to answer all the research
questions. In order to assess the network performance, the data about cooperation
among actor was collected from documents and interviews.
Table 3.2. Research Stages
Research Questions
What kind of innovation
activities are being conducted
by each actors on palm oil
industry in North Sumatera?
Stage
Identification of the role
and innovation activities
conducted by each actors
Sources
1. Interview with
the participants
2. Documentation
and Report
Data Analysis
Descriptive
analysis
How effective is the network
among actors on palm oil
industry in North Sumatera?
Assessment of the current
network among actors on
the palm oil industry in
North Sumatera
1. Interview with
the participants
2. Documentation
and Report
Social Network
Analysis
What are the barriers for
establishing collaboration
between actors on palm oil
industry in North Sumatera?
Identification of barriers
that inhibit the
collaboration among
actors
Interview with the
participants
Descriptive
Analysis and
Interpretive
Analysis
What activities/program could
be develop in the future to
improve the network among
actors on palm oil industry in
North Sumatera?
Create action plan and
policy recommendation
based on factors for
improvement
Interview with the
participants
Descriptive
Analysis and
Interpretive
Analysis
3.6. Data Analysis
The data analysis can be divided into three part as illustrates in table 3.2,
namely:
1. Descriptive analysis will be used to map the role of each actors and its
working program.
2. This study using SNA to assess the network among actors
3. Explore the barriers and factors for improvement with interpretive analysis.
3.7. Summary
The study used mixed method research design to answer the research questions.
Social Network Analysis was used to determine the network performance while
interviews are used to explore the barriers and factors that affect collaboration.
Those findings was the basis for creating the action plan and policy
recommendation
.
14
4 RESULTS AND DISCUSSION
North Sumatra has around 60 companies engaged in the oil palm industry,
both multinational companies and small medium enterprises. In general,
multinational companies have their own R & D division to conduct innovation
activities, while small and medium industries rely more on government funding
and research from outside the company. In some studies, the need for cooperation
between governments, research institutes and companies is enormous, especially
in developing countries. It is encouraged by the fact that they can share the
resources through collaboration and lowering the cost of innovation.
This study uses a case study approach in nine institutions which represent
government, academic and business. Although it does not cover the entire palm
oil industry in North Sumatra, the interviews which was conducted on each of the
actors allow a deeper understanding of what is actually happening in the industry.
4.1. Collaborative Innovation Activities
It has been widely recognized that innovation affects the performance of an
enterprise. The ability to generate new products or new technologies has become
the driving force to ensure the sustainability of the company in the increasingly
fierce competition. It also has a great influence on the economic growth of an
enterprise (Baumol 2002). Learning from successful companies, many of them
paid great attention to innovation by allocating funds for innovation activities.
Hashi and Stojčić (2013) investigate whether failure in optimizing innovation and
limited research funds causes low competitiveness of European industry, so that
they lagged behind competitors in the global market. The results showed that
investment in innovation activities have a positive influence on the performance
of innovation, which in turn enhance the competitive advantage of companies.
In North Sumatera, palm oil enterprises has the tendency to build
cooperation with another actors in order to create an innovation. The companies
collaborate with research institution with the purpose to gain new knowledge and
technology. Meanwhile, SBRC and PIKS have a connection with the government
(e.g. Ministry of Industry and BPPT) and they conducted research collaboration
on palm oil products. In fact, most of the actors in this study already has a
cooperation with another parties. Overall, the collaborative innovation activities
conducted by actors can be described as follow:
1.
Academic/Research Institution
University or research institute is responsible for the creation of knowledge
and technology through a series of research activities. It is possible because
research institution has the resources to support those activities, such as laboratory
equipment and human resources. Currently, research institutes has conduct more
research on upstream products, for example about breeding, fertilizers and
plantation management. Anshori (IOPRI) stated that:
"IOPRI have credible research division and has resulted in many innovations
and patents related to the palm oil industry. We conduct research activities, both in
upstream and downstream industry, using palm oil as a raw material. Research can be
15
divided into process technology, product technology, design new equipment and
utilization of industrial waste. However, our research in the downstream palm oil
industry is still very low and we continuously strive to improve our efforts to produce
innovation on downstream palm oil products. IOPRI has the motivation to expand its
focus on downstream palm oil industry, but we need the support from government
and the industry. The reason why IOPRI has not conduct a research in downstream
product is limited funds and low demand from business”.
Another obstacle that inhibit the growth of innovation in downstream palm
oil industry is dual function of research institution. In addition to research
activities, the existing research institutes also provide services to the industry, in
the form of training or product testing. The problem occur when the demand of
product testing is very high, which cause the institution can not maintain its focus.
Moreover, a lot of research in Indonesia only conducted to fullfill the academic
interest, without thinking of the demand of industry. Results from these studies
will be extremely difficult to implement by the palm oil industry.
2.
Business
The majority of companies in North Sumatra has a R&D division which has
a function to produces innovation, either new products or new methods. The
innovation is intended to increase the profit through sales of new products or
production efficiency. PT. Perkebunan Nusantara III and Venture B3 establish
collaboration with research institutes such as IOPRI and SBRC. The companies
and research institutions will discuss about the research topic and the funding will
fully or partially covered by the company. In this type of cooperation, the
company propose research topics which are relevant to their problems, and then
the study will be carried out by the research institute.
3.
Government
The government in collaborative innovation activity has a role in providing
research funding. Funds could be allocated for research activities or the
procurement of machinery and equipment. It is important because the business
usually reluctant to allocate budget on research activities. There is no guarantee of
success and the cost of innovation will be financial burden for the company.
Morover, Ida Yani Pane (Local Government) emphasized about the role of
government as a facilitator:
“Local government provide a support for the implementation of central
government policies, namely regional innovation systems and industrial
clusters. We tried to make a cooperation with companies and research
institutions and the governor issued a regulation to support the growth of
innovation in North Sumatera. One of the roles of government is to facilitate
the cooperation between research institutions and companies, especially in
the palm oil industry”
The main roles of government is to design policies that support the
development of innovation in the palm oil industry. Ministry of Industry has a
policy about industrial cluster which is equipped with the infrastructure and
incentives. Meanwhile, the local government of North Sumatra also has a policy
of regional innovation systems. The problem arise when central and local
government did not have regular coordination about those two policies.
16
Interaction among actors in palm oil industry
Etzkowitz (2003) claims that triple helix interactions can originate from
varying institutional arrangements which can be set in three broad categories. The
first is the statist model which features a strong governmental control over
academia and industry. The second is the laissez-faire model in which industry,
academia and government are set apart from each other with minimal interactions.
The third model which many studies has consider as the ideal model, consists of
hybrid organizations in which each institutional sphere maintains its identity and
main mission, while also taking the role of the other.
Based on the interview, the existing collaboration model in palm oil industry
is the laissez-faire model. The model has equal roles between the government,
businesses and universities. (Lei et al. 2012) argue that this model arises because
of the desire to reduce the role of government, which is considered to inhibit the
creativity of the lower level (research institutes or companies). However, this
model show the contact between the three types of actors is very thin. Each of
these actors behave as if they are waiting for others to take the initiative, which
means none of the institutions take action to start a collaboration and become a
coordinator. This result in the low cooperation in generating innovation in the
palm oil industry.
Moreover, the hybrid model offer a more flexible and suitable solution for
the palm oil industry. This model allow each actors to engage close contact with a
clear concept of cooperation. Trust shown by the exchange of information and
knowledge between the actors. More importantly, every actor can help or even
take on the role of other actors if necessary. For example, the industry can take on
the role of funding which has been the domain of government, so that the problem
of financing is not always become the bottle neck of collaboration. Dzisah and
Etzkowitz (2009) illustrates that the dynamic of Triple helix Model consist of
three things which are (1) the equal position and clear roles of academics,
government and businesses; (2) the cooperation among three actors; and the
helices taking each other roles. In conclusion, the actors should consider to adapt
the hybrid model of triple helix with the purpose to enhance the collaboration.
4.2. Innovation Network Performance
The effectiveness of the network data analysis can be done using social
network analysis. This method is used to determine the segmentation,
connectedness and distribution of a network. In the palm oil industry, there are
three principal actors: academic, business and government. This study assess the
network among nine institution, namely:
1.
2.
3.
4.
5.
6.
7.
8.
Indonesian Oil Palm Research Institution (A1);
Sei Mangkei Center of Innovation (A2);
Bogor Agriculture University (A3);
PT. Perkebunan Nusantara III (B1);
PT. Unilever Oleochemical Indonesia (B2);
Indonesian Palm Oil Association (B3);
Ministry of Industry (G1);
Agency of the Assessment and Application of Technology (G2);
17
9. and Local Government of North Sumatera (G3).
Based on the calculation, the overall tie strength (connectivity) of the
network is 0.271 while the overall density (distribution) is 0.389. It means that
both the tie strength and the density of this network are weak. Tie strength
represent frequency, reciprocity, emotional intensity and intimacy of a
relationship, as stated by Granovetter (1973). A strong network requires high
frequency of contacts (Lin et al, 1978), confirmation from both sides/ reciprocity
(F
PERFORMANCE ON THE PALM OIL INDUSTRY IN NORTH
SUMATERA
DANANG KRISNA YUDHA
GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY
BOGOR
2015
DECLARATION
I hereby declare that the thesis entitled “An Analysis of Innovation
Network Performance on the Palm Oil Industry in North Sumatera” is my original
work produced through the guidance of my academic advisors and that to the best
of my knowledge. This thesis also presented for the award of a degree in The
University of Adelaide as a double degree program between Bogor Agricultural
University and The University of Adelaide. All of the incorporated material
originated from other published or unpublished papers are stated clearly in the text
as well as in the bibliography.
I hereby delegate the copyright of my paper to the Bogor Agricultural
University.
Bogor, July 2015
Danang Krisna Yudha
NRP. F351137151
SUMMARY
DANANG KRISNA YUDHA, 2015. An Analysis of Innovation Network
Performance on the Palm Oil Industry in North Sumatera. Supervised by AJI
HERMAWAN, Chairman and MACHFUD, Member of Advisory Committee.
Indonesia and Malaysia shared 85% of global palm oil production by weight
in 2013, according to United States Department of Agriculture (USDA, 2014).
Indonesia overtook Malaysia as the biggest producer of palm oil and reached a
total production of 30 million tons in 2014 (Ministry of Agriculture, 2015).
Although Indonesia became the leading country in the production of palm oil,
most of this commodity are exported as Crude Palm Oil (CPO) and Crude Palm
Kernel Oil (CKPO) to Europe, China and India, so the value added going to
another country. Therefore, the government wants to resolve this problem by
increasing the added value of palm oil products.
Innovation is the key factor to increase the added value of palm oil products.
Indonesian government set North Sumatera as a center of palm oil industry and
encourage the growth of innovation in this region. Advances in innovation are
considered as the main factor that affect the regional competitiveness and become
the key factor for increasing national economic growth. Moreover, collaboration
between government, universities and firms are important to produce the expected
innovation.
This paper assess the effectiveness of network among actors on the palm oil
industry in North Sumatera. A Social Network Analysis (SNA) was carried out to
determine the structure and performance of this network. The result show that the
government play insignificant role in this industry, while research institutions
have more influence. Moreover, this study also identify the barriers which inhibit
the collaboration among actors. This study use interpretive analysis based on the
interviews to recommend some action plan, which are intended to improve the
network.
Keywords: palm oil industry, social network analysis, interpretive analysis
RINGKASAN
DANANG KRISNA YUDHA, 2015. Analisa Kinerja Jaringan Inovasi pada
Industri Kelapa Sawit di Sumatera Utara. Dibimbing oleh AJI HERMAWAN,
Ketua dan MACHFUD, Anggota dari Komisis Pembimbing).
Indonesia dan Malaysia menghasilkan 85 % dari produksi minyak sawit
global pada tahun 2013, menurut Departemen Pertanian Amerika Serikat ( USDA,
2014). Indonesia mengambil alih posisi Malaysia sebagai produsen terbesar
minyak sawit dan mencapai total produksi sebesar 29,3 juta ton pada tahun 2014
(Kementerian Pertanian, 2015). Meskipun Indonesia menjadi negara unggulan
dalam produksi kelapa sawit, sebagian besar komoditas ini diekspor sebagai
Crude Palm Oil (CPO) dan Crude Palm Kernel Oil (CKPO) ke Eropa, China dan
India, sehingga nilai tambah komoditi ini menjadi milik negara lain . Oleh karena
itu, pemerintah ingin mengatasi permasalahan ini dengan cara meningkatkan nilai
tambah dari produk kelapa sawit.
Inovasi menjadi faktor kunci untuk meningkatkan nilai tambah dari produk
kelapa sawit. Pemerintah Indonesia menetapkan Sumatera Utara sebagai pusat
industri kelapa sawit untuk mendorong pertumbuhan inovasi di wilayah ini.
Kemajuan dalam inovasi dianggap sebagai faktor utama yang mempengaruhi daya
saing daerah dan menjadi faktor kunci untuk meningkatkan pertumbuhan ekonomi
nasional. Selain itu , kolaborasi antara pemerintah, universitas dan perusahaan
merupakan faktor penting dalam menghasilkan inovasi yang diharapkan.
Makalah ini menilai efektivitas jaringan antar pelaku industri kelapa sawit di
Sumatera Utara. Sebuah Analisis Jaringan Sosial (SNA) dilakukan untuk
menentukan struktur dan kinerja jaringan ini. Hasil penelitian menunjukkan
bahwa pemerintah memiliki peran yang kurang signifikan dalam industri ini,
sementara lembaga penelitian memiliki pengaruh yang lebih kuat. Lebih jauh lagi,
penelitian ini mengidentifikasi hambatan dalam membangun kolaborasi antara
pelaku. Penelitian ini menggunakan analisis interpretatif berdasarkan wawancara
untuk merekomendasikan beberapa rencana aksi, yang dimaksudkan untuk
meningkatkan kinerja jaringan.
Kata kunci: industry kelapa sawit, analisa jaringan sosial, analisa interpretatif
Copyright ©2015, by Bogor Agricultural University
All Right Reserved
1. No part or all of this thesis excerpted without inclusion or mentioning the
sources
a. Excerption only for research and education use, writing for scientific papers,
reporting, critical writing or reviewing of a problem
b. Excerption does not inflict a financial loss in the proper interest of Bogor
Agricultural University
2. No part or all of this thesis may be transmitted and reproduced in any form
without a written permission from Bogor Agricultural University
AN ANALYSIS OF INNOVATION NETWORK
PERFORMANCE ON THE PALM OIL INDUSTRY IN NORTH
SUMATERA
DANANG KRISNA YUDHA
Thesis
Submitted to the Graduate School in Partial
Fulfillment of Master Of Science
Degree In
Agroindustrial Technology
GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY
BOGOR
2015
External Examiner: Prof. Dr. Ir. Erliza Hambali, M.Si
Thesis Title
: An Analysis of Innovation Network Performance on
the Palm Oil Industry in North Sumatera
Name
: Danang Krisna Yudha
Registration Number
: F 351137151
Study Program
: Agroindustrial Technology
Approved
Advisory Committee
Dr. Ir. Aji Hermawan, MM
Chairman
Prof. Dr. Ir. Machfud, MS
Member
Agreed
Coordinator of Program
Agroindustrial Technology
Dean of Graduate School
Prof. Dr. Ir. Machfud, MS
Dr. Ir Dahrul Syah, MSc. Agr
Examination Date: 11th June, 2015
Submission Date:
ACKNOWLEDGEMENTS
Praise and gratitude to Allah Subhanahu wa Ta’ala, because of Him, the writer
can complete this thesis as a requirement to get a Master Degree in Bogor
Agricultural University (IPB). The title of the thesis is An Analysis of Innovation
Network Performance on the Palm oil Industry in North Sumatera.
The writer want to say thank you, especially for Dr. Aji Hermawan as a
chairman of the advisory committee, Prof. Machfud as an advisory committee
member, and Dr Wendy Lindsay as an advisor from University of Adelaide whose
gave positive criticisms and guidance to shape the outlook of this thesis. Special
thanks for Dr. Barry Elsey and Ms. Amina Omarova from The University of Adelaide
for their guidance in writing this thesis. They teach me how to write the thesis with a
good structure.
I also would like to express gratitude to all the respondents who have taken
their time to conduct an interview with the author. Special thanks to Mr. Deny
Mulyawan from PT. Perkebunan Nusantara III, Mr. Anshori Nasution from IOPRI
and Mrs. Ida Yani Pane who took time to meet me in the middle of his/her work. My
gratitude to DR. Listyani Wijayanti for the courage and motivation. I also thank Prof
Erliza Hambali for her suggestion to reshape my thesis and Mr. Dahlius and Mrs.
Dhiah Nuraini who also my colleagues in Ministry of Industry. I also offer my thanks
for Mr. Fadhil who gave me new perspective of the palm oil industry.
In this acknowledgment, I want to take my time for expressing my love to my
wife, Ajeng and my son, Hirzan who acoompany me in Adelaide and provide the
biggest support. I also want to thank my father, mother, brother and sister who
continuously to give their support, both in the difficult and good period. Last but not
the least, I want to show my gratitude to my friends, namely Karim, Tri, Benny,
Andar, Farda, Iwan, Nur Aini, Dwi, Syarifa, Aditya, Dickie, Ahmad Rudh, Koko,
Nuni, Anin, and Yani for their moral support especially when we all lived in Adelaide.
Bogor, July 2015
Danang Krisna Yudha
TABLE OF CONTENT
LIST OF TABLE
LIST OF FIGURE
LIST OF APPENDIX
i
ii
ii
CHAPTER 1. INTRODUCTION
1.1. Introduction
1.2. Statement of Problem
1.3. Background and Need
1.4. Purpose of the Study
1.5. Reserach Questions
1.6. Significance to Field
1.7. Limitation
1
1
1
2
2
3
3
3
CHAPTER 2. LITERATURE REVIEW
2.1. Innovation in the Palm Oil Industry
2.2. Assessing the Innovation Network Performance
2.2.1. Network Theory
2.2.2. Social Network Analysis (SNA)
2.3. Collaborative Innovation Strategy
2.3.1. Triple Helix Model as an Analytical Tool for Innovation
Collaboration
2.4. Summary
4
4
6
6
7
9
10
11
CHAPTER 3. METHOD
3.1. Introduction
3.2. Settings
3.3. Participants
3.4. Measurement Instrument
3.5. Procedure
3.6. Data Analysis
3.3. Summary
12
12
12
12
12
13
13
13
CHAPTER 4. RESULTS AND DISCUSSION
3.1. Collaborative Research Activities
3.2. Innovation Network Performance
3.3. Barriers
3.4. Action Plan and Policy Strategy
3.3. Summary
14
14
16
19
22
24
CHAPTER 5. CONCLUSION
3.1. Summary
3.2. Recommendation
3.3. Implication
25
25
25
25
BIBLIOGRAPHY
AUTOBIOGRAPHY
26
31
LIST OF TABLE
2.1. Network Terminology
3.1. Profile of Participants
3.2. Research Stages
4.1. Centrality
7
12
13
18
LIST OF FIGURE
2.1. Palm Oil Industrial Tree
2.2. Interaction Model Between Actors
2.3. Triple Helix Model
4.1. Network Visualization of the Palm Oil Industry
4.2. Relation Among Actors
5
9
11
17
20
LIST OF APPENDIX
Appendix 1. List of Questions
Appendix 2. Matrix for SNA
28
29
1 INTRODUCTION
1.1. Introduction
At the current time, Indonesia is the world's largest producer of palm oil,
namely around 29,3 million tons in 2014 (Ministry of Agriculture of Republic
Indonesia, 2015) and the industry has been the economy's most valuable
agricultural export sector for the last century. Although Indonesia become the
leading country in the production of palm oil, most of this commodity is exported
as Crude Palm Oil (CPO) and Crude Palm Kernel Oil (CKPO), which are
categorised as semi-products with low added value. This condition encouraged the
government to develop palm oil downstream products and set North Sumatera as a
center of the downstream palm oil industry (Ministry of Industry Decree No. 13
Year 2010).
In an attempt to increase the value added of palm oil products, innovation
plays important roles. Innovation is required to develop 23 downstream products
of palm oil, as stated in government policy, and then bring those products to
domestic or global market. However, the innovation process, from invention to
commercialization, can be inhibited if the network between research institution,
government and businesses is not managed properly. In the palm oil industry,
many inventions which were produced by research institutions cannot fulfill the
demand of the palm oil industry and failed to enter the market. Furthermore, lack
of government support weaken the industry's desire to cooperate with research
institutions. This condition lead to poor performance of innovation in downstream
palm oil industry which causes many companies prefer to search innovation from
external sources.
This study assess the effectiveness of network among actors that affect the
innovation performance on the palm oil industry in North Sumatera. Collaboration
between actors become an important factor in creating innovation. Moreover, this
research identify the barriers which influence the network. The purpose of this
study is to propose an action plan and policy design to improve the network
among actors, which in turn will improve the innovation performance and
enhance the development of downstream palm oil industry in North Sumatera.
1.2. Statement of the Problem
In North Sumatra, there are three types of institutions that carry out
innovation activities in the downstream palm oil industry, namely business,
government and research institution. These institution, which can be referred to as
actors, have been cooperating and sharing resources in order to create innovation.
However, many invention cannot be implemented in the industry because it is
produced only to meet the academic interest. Furthermore, unclear government
policies make the industry and research institution are reluctant to establish
collaborative research.
It indicates that the current network among actors in developing innovation
is not effective. Even farther, the cooperation between actors is less structured and
less organised. It is not clear who is the leading institution in this network and this
partnership seems to run without the coordination and monitoring. This condition
2
should be addressed in order to improve the innovation performance in the palm
oil industry.
1.3. Background and Need
Innovation as described by Schumpeter (1947) is a process to create an
invention and commercialize it. An invention could be called as innovation with
the first commercial transaction and acceptance of the market. The innovation
process is defined as the combined activities leading to new marketable products,
methods and /or new systems (Burgelman, et al. 2006). In palm oil industry,
innovation is important to support the government program by developing new
technology or new downstream products of palm oil which can lead to a new
business. More importantly, innovation will support the development of new
products with higher value than CPO and CKPO. Many theories show that
innovation has big impact on science/technology and economic growth. De Groot,
Nijkamp and Acs (2001) argue that technological innovation has long been a
concern in an effort to create opportunities for economic growth in the region. A
region that has excelled in the development of new technologies or implementing
the existing technology in economic activity have indicated a better competitive
advantage.
A number of studies (Basiron 2002; Barlow, Zen and Gondowarsito, 2003;
Dou, 2009) concluded that the chances of development of the Indonesian palm oil
industry is still very open, especially because of the availability and suitability of
land and supported by appropriate policies and strategies. The government set
North Sumatera as a center of downstream palm oil industry because of its
abundance of raw material and build palm oil industrial cluster in this region.
Moreover, Pratama (2014) defined 3 major factors which affect the development
of palm oil downstream industry, namely infrastructure, innovation and
networking among actors. It indicates that innovation has a big impact on the
development of the downstream palm oil industry.
Furthermore, collaboration is an important part of the innovation process,
especially in developing countries such as Indonesia, which has a low research
budget. The government, enterprises and research institutions interact and
cooperate in generating innovation. Teece (1992) and Baum et al (2000) suggest
that collaboration enables business to access complementary assets, technology,
human resource and learning capabilities, thus boosting the company innovation
performance. Usually government became the leading institution of this
collaboration and provide the funding, while research institutions have the
resources (human resource and research facilities).
1.4. Purpose of the Study
The purpose of this study is to identify the innovation activities which is
conducted by each actors and then assess the innovation network performance in
the palm oil industry in North Sumatera. After knowing the performance of the
network in the industry, the next step is to investigate any obstacles in the
cooperation between actors. Finally, the outcomes of this research is to create an
action plan and policy design for how to manage the network among actors, in
3
order to enhance the innovation network performance of the palm oil industry in
North Sumatera.
1.5. Research Questions (RQ’s)
This study has several research questions to be answered, as follows:
1. What kind of innovation activities are being conducted by each actor of the
palm oil industry in North Sumatera?
2. How effective is the network among actors of the palm oil industry in North
Sumatera?
3. What are the barriers for establishing collaboration between actors of the palm
oil industry in North Sumatera?
4. What factors could be developed in the future to improve the network among
actors of the palm oil industry in North Sumatera?.
1.6. Significance to the Field
There are several contributions of this research, as follows:
a. On policy, this research may provide new perspective for local and central
government about how to develop downstream palm oil industry. In addition,
this research provide a recommendation about how to build collaboration
among the actors involved.
b. From an academic point of view, this study may contribute to solve the
problems of networking by identifying the barriers of collaboration.
c. In addition, this research assess the network performance of the palm oil
industry in North Sumatera which may be useful for firms or other parties.
1.7. Limitation
This research has limitation on the data collected from interview. There are
nine participants consisting of three researcher, one industrial practitioner, three
people from government and two people from business. This data may not cover
and represent all of the population which means it cannot be generalized for all
palm oil industry. However, this research focus more on the barriers of
collaboration in palm oil industry. It is very important given the fact that
collaboration is key factor in developing innovation. Moreover, the action plan
and policy design may become the guidance for further development of
downstream palm oil industry.
4
2 LITERATURE REVIEW
2.1. Innovation in the Palm Oil Industry
The government through the Ministry of Industry plans to develop palm oil
downstream products with the hope of increasing the value added of CPO and
CKPO. The price of CPO and CKPO in 2014 was USD 818,4 per ton, very low
compared to the price of its downstream products (GAPKI, 2015). In fact, CPO
and CKPO can be used as raw material for several derivative product, namely
food products (including cooking oil, margarine and shortening) and
oleochemicals (fatty acids, fatty alcohol and glycerin). Moreover, palm oil is the
major raw material for biodiesel industry and become more important for the
sustainability of energy in Indonesia. In figure 2.1 (page.5), it illustrates twenty
three downstream products that will be developed by the Indonesian government.
In order to support the development of downstream palm oil industry, the
government issued two main policies. The first policy listed on Ministry of
Industry Decree No. 13 Year 2010 which includes the palm oil industry roadmap
and long term strategy 2011-2025. In this regulation, the government set North
Sumatera as a center for the downstream palm oil industry. Moreover, the
government also established palm oil industrial cluster in North Sumatera as a
special economic zone with various facilities and incentive to the industry. The
other policy declared by government is joint regulation between Ministry of
Research and Technology and Ministry of State Affairs No. 36 Year 2012 about
regional innovation system. The policy focuses on developing a leading
commodity for each province, for example palm oil for North Sumatera province.
It indicates that North Sumatera is important region for the development of
downstream palm oil industry.
North Sumatra is one of the palm oil producer in the country's. CPO
production in North Sumatera reached 7.3 million tons from more than 60
companies which operating in this region (Investment Coordination Board, 2012).
In this region, there are at least two major institutions that have a variety of
research and patent namely the Indonesia Oil Palm Research Institution (IOPRI)
and the Center of Innovation (PIKS). PPKS was founded in 2002, consist of three
research institutes in Medan, Marihat and Bandar Kuala. This institution has been
conducted several research on innovation related to palm oil industry. IOPRI
vision is to become an international research institution that is capable of being a
center of innovation for the palm oil industry. IOPRI has gained international
recognition through its scientific publication and research contribution.
Meanwhile, PIKS is a research institute that is established to accelerate the growth
of downstream palm oil industry through innovation. This institution was
established to support the development of the palm oil industrial cluster in Sei
Mangkei, North Sumatra. The main function of this institution is to produce
innovation and research related to the downstream palm oil industry. In addition,
the institute has a goal to increase the capacity of downstream palm oil industry
through training, instrument calibration and certification
5
Figure 2.1. Palm Oil Industrial Tree
Source : GAPKI (2015)
Nowadays, innovation is considered to be one of the most important issue in
business strategy and management. Many theories show that innovation has big
impact on science/technology and economic growth. Advances in technological
innovation are considered as the main factor that affect the competitiveness of
firms, industries and become the key factor for increasing national economic
growth and wealth (Porter 2008). Both Marshall (2004) and Simon (1971) state
that, directly or indirectly, knowledge affect economic activity and economic
activity also changes the knowledge, and it takes place in a constant round of
change.
6
Innovation become important factor in accelerating the development of
downstream palm oil industry. As stated by Schumpeter (1938), there are five
form of innovation, namely (1) new products ;(2) new methods of production;(3)
new markets;(4) new sources of raw material;and (5) new organisations. In palm
oil industry, “new products” means the development of twenty three downstream
palm oil products which is listed on Ministry of Industry Decree No. 13 Year
2010. The innovation activities in the palm oil industry is expected to generate
new products that address the needs of consumers. The innovators can add special
attributes on downstream product of palm oil which can solve the customer
problems. One of the main concern of consumers is the health issues of palm oil
products and the innovators can try to solve this problem. This will affect the
competitiveness of Indonesian palm oil products in the global market. Meanwhile,
“new methods” is generated to increase the productivity and efficiency of the
industry. With the increased performance of the industry, the costs will be smaller
and it will boost up the competitive advantage of the industry. Furthermore,
innovation in downstream products can bring new markets for domestic industry
so that the value-added of palm oil products can be increased.
However, many inventions which is produced by research institution failed
to enter economic system because of several factors, such as lack of collaboration,
stagnation on government policy (Schepers 2013), limited funding and failure to
identify market demand (Chiesa & Frattini 2011). This study will explore the
network among actors and assess the effectiveness of the current research
collaboration in the palm oil industry. Research and Development (R&D)
partnership is becoming more familiar in the creation of innovation, along with
the increasing complexity of technology. It could be used to access additional
technology and market knowledge, to co-develop standards, to create a minimum
(critical) size for a project, and to share innovations costs and risks (Hagedoorn
1993)
2.2. Assessing Innovation Network Performance with Social Network
Analysis
2.2.1. Network Theory
A network is a set of nodes connected by a set of ties (see table 2.1). The
nodes can be anything whether it is a persons/individuals, teams, organizations,
concepts, patents, etc (Coulon, 2005). In social terminology, a network could
become a capital for a person/organisations. Burt (1997) define 4 attributes on
social network in his study which are roles, emotional closeness, duration and
frequency. Based on his findings, people who has more contact in his/her “pocket”
will eventually get benefits, for example early promotion. It is quite reasonable,
considering the people who have extensive networks will easily get the
information and knowledge so that they can adapt well in any conditions. In
organisation level, company which has wider network, either with government or
research institutions, will gain an access to innovation or incentives. The
organization Some usual way in building the network is doing intensive contact
with the other party, exchanging important information and build trust. It is
7
important for evolving organization to manage their networking in order to
withstand any challenges in the future.
Table 2.1. Network Terminology
Network Analysis
Terms
Node
Tie/Edge
Definitions
The basic elements of a network
A set of two nodes. Ties can be
dichotomous (unweighted) or
weighted/valued, directed or not
(undirected)
Directed Tie
An ordered set of two nodes, i.e., with
an initial/sources and a
terminal/destination node
Network
A set of nodes connected by a set of
ties
Valued Network
A network whose ties/edges are
associated with a measure of
magnitude or strength
Ego
A node which receives particular focus
Alters
The set of nodes that has ties with the
ego but not including the ego itself
Network Size
The total number of nodes of a
network
Relational Data
The set of ties of a network
Sources: Coulon, 2005
. In the case of palm oil industry, the nodes are organizations, consist of
government, research institution and business. The network connect all
stakeholders and relay the information and knowledge which is important in the
creation of innovation. Furthermore, Rodgers (1962) emphasize the importance of
network in technology diffusion. The new technology will be spread quickly
among actors through the existing network. More importantly, the existing
network will help a new technology to be accepted by the community (lowering
the resistance of new technology). That’s why, it is essential to manage the
effective network among actors in the palm oil industry.
Actor
Latour (1992) define actors as “entities that do things”. The entities in his
perception is, either a human or non-human, which has the character and ability to
do some action. In innovation activities, an actor would need the help of other
parties to create a new technology/product. This cooperation will form a network
and they will share the resources to achieve common goals.
2.2.2. Social Network Analysis as Analitycal Tools to Assess Innovation Network
Performance
Performance is known to be a complex concept, especially concerning
its measurement. It should be assessed by performance indicators, instruments
8
used to measure what criterion is being used, and it should be included in the
performance measurement system (Provan & Kenis 2008). The indicator of
innovation network performance, they called it “determinants of innovation
network”. Those determinants consist of two main indicators which are shapes of
network and connectedness of members. The shapes of network focused on
number of researcher, level of research expenditure, and the quality of output.
Meanwhile, the connectedness of members is represented by the intensity of
communication (tacit and explicit knowledge), form of communication, amount of
communication, and diversity of competencies and knowledge. The performace of
a network can be measured by using social network analysis as a tool.
Social Network Analysis (SNA) views social relationship in terms of
network theory, consisting of nodes, representing individual actors within the
network, and ties which represent relationships between the individuals actors
(Freeman, 2004). Social network analysis is based on assumptions about the
importance of the relationship between nodes that interact include theory, models,
and applications expressed by the concepts of relational or process analysis.
Network analysis is not done individually, but with an entity consisting of
individuals and relationships that exist between them. (Wasserman & Faust, 2008).
According to Hanneman and Riddle (2005), social network analysis is a technique
for studying the relationships or social relations among members in a group.
Meanwhile, other theories stated that social network analysis is a process of
learning and understanding of the network (formal and informal) in certain fields
(Schelhas and Cerveny, 2002).
Some measurements to quantify the role and influence of actors in the
network are as follows (Hanneman and Riddle, 2005) :
1. Degree of centrality, the degree of the presence and position of an actor in a
social networking. This can be categorised into two types, which are: 1) In
degree is the ability of actors to relate to an actor; and 2) Out Degree is an
actor's ability to relate to other actors in the network.
2. Closeness centrality, shows the extent to which the information can be spread
in the network and measures the distance between the actors in the network.
Dissemination of information easily demonstrate with high proximity value
3. Betweeness centrality, shows how strong an actor can become a facilitator
between other actors in the network. An actor with a high betweeness value
has the ability to convey information to actors who are not directly connected
with them.
Overall, SNA calculate the tie strength which is important in assessing the
overall degree of connectivity of members in an environment and the likelihood
thatinformation will flow from one member to another (Haythornwaite,
1996). It means, this analysis will reveal whether the knowledge and information
distribute and spread quickly among members. Information and knowledge are
important factor for developing innovation in any aspects, includes downstream
palm oil products. This attribute is very important to assess the effectiveness of
network in the palm oil industry.
9
2.3. Collaborative Innovation Activities
Innovation activities has been divided into three major categorise which are
internal , external and cooperation (Veugelers 1997). The internal innovation is an
activity that conducted using internal resources and capabilities of a company,
while external innovation can be interpreted as an access to knowledge and
technology through licensing, hiring external researchers or outsourcing (Arora &
Gambardella 1990). However, many companies realise that the process to produce
a knowledge or technology is very complex and it would be costly for them to
conduct it by themselves. Therefore, companies tend to build cooperation with
external parties, such as universities, research institutes, government and other
companies.
This condition also occurs in the palm oil industry in North Sumatra. The
influence of institutions outside the region of North Sumatera cannot be denied.
For example, the research policy is strongly influenced by the central
governments, in this case they are the Ministry of Industry (MoI) and the Agency
for the Assessment and Application of Technology (BPPT). This study considers
the influence of other actors outside of North Sumatra in order to draw a complete
picture of palm oil industry in North Sumatera.
Based on the theories above, innovation can be greatly affected by the
interaction among actors. Interaction between actors is not inevitable because of
the innovation process that requires a lot of resources and budget, with high risk
and unpredictable environment/market. This condition also applies on the palm oil
industry in North Sumatera. That’s why, many actors in palm oil business
established cooperation because they cannot generate innovation by themselves.
In many regional innovation systems, academic institutions, research centers, the
government and firms cooperate with each other to make innovation effective.
They share information, infrastructure, human skill, capital and many other
components in order to make exact innovation. Zhao, Song, Zhu, Peng, and Cai
(2013) illustrated a model of interaction model between actors (Figure 2).
Figure 2.2. Interaction Model Between Actors
10
For further discussion, (Cooke & Morgan 1994) introduced “the network
paradigm” and emphasized that an effective network should consist of:
a. Information sharing, the willingness of each actor of a network to share their
information.
b. Trust, the willingness to place faith on other actors.
c. Learning, an awareness that knowledge and technology should be obtained
through a learning process.
d. Partnership, an awareness of cooperation and building relationships
e. Decentralism, the realisation that centralised data or information without
sharing is not effective
2.3.1. Triple Helix Model as Analytical Tools for Innovation System
Lenger (2008) stated that university and research institution play big role,
especially for providing qualified researcher and produced locally adopted
research. Meanwhile, the government can support the industry by providing
substancial resources or infrastructure, namely incentive and energy sources. On
the other hand, the readiness of business actors to adopt research results is
very important. Many big oil palm enterprise such as SMART, Unilever,
Lonsum and Sampoerna Agro have established their own R&D stations in order
to enhance technology development, strengthen the competitiveness and build
cooperation with SME’s (Liwang, Daryanto, Gumbira-Sáid, & Nuryartono, 2009).
One of the models which are developed based on the interaction between
actors is a Triple Helix Model. This model provides an illustration of the
cooperation between universities, industry and government in the creation of
innovation or technology. The technology is expected to encourage national and
regional development (Etzkowitz & Leydesdorff, 2000). In further discussion, has
been studied about how the ideal interaction between university, industry and
government. In the beginning, the government considered a central figure in
innovation activities with its policy and budget (Figure 3(a)). But over time,
(Etzkowitz & Klofsten, 2005) argued that the most appropriate model is that each
actor has equal status and have close interaction/ intersect (Figure 3(c)) .
Moreover, Brannback, Carsrud, Krueger Jr, and Elfving (2008) adapted the theory
and illustrates the the configuration of academic, business and government in
figure 3.
11
Figure 2.3 Triple Helix Model
2.4. Summary
Based on those theory above, this research will assess the performance of
innovation network on the palm oil industry in North Sumatera. It will focus on
information sharing and communication between actors in order to create an
innovation. Moreover, this study identify the barriers of collaboration which is
important to design action plan and policy strategy.
12
3 METHOD
3.1. Introduction
The research assess the effectiveness of network among actor that affect the
innovation performance on the palm oil industry in North Sumatera. Moreover,
this study will identify the barriers which influence the network. The purpose of
this study is to propose an action plan and policy recommendation to improve the
network among actors, which in turn will improve the innovation performance
and enhance the development of downstream palm oil industry in North Sumatera.
3.2. Setting
This study conducted in palm oil industry which is located in North
Sumatera. Based on Ministerial Regulation No. 13 Year 2010, North Sumatera is
selected as a center of downstream palm oil industry, alongside Riau Province and
East Kalimantan. This region has approximately 60 palm oil firms, several
research institution and one industrial cluster which allows the interaction
between industry players in generating innovation.
3.3. Participants
This research used purposive sampling since it is focused on the actors who
have experience and expertise on downstream palm oil industry. Each of
participants represent three category which are academic, business and
government (table 3.1).
Table 3.1. Profile of Participants
No
1
2
3
4
5
6
7
8
9
Participants
Institution
Position
Respondent 1
M. Ansori Nasution,
ST, M.Sc
Ir. Dahlius
Ir. Deny Mulyawan,
MT
Respondent 2
Research Institution A3
Researcher
Indonesian Oil Palm Research Institution
Researcher
Sei Mangkei Center of Innovation
Head of Institution
PT. Perkebunan Nusantara III
Regional Manager
Enterprise B2
Operational Manager
Fadhil Hasan
Ir. Dhiah Nuraini,
M.Si
Ir. Ida Yani Pane, MT
Dr. Listyani
Wijayanti
Indonesian Palm Oil Association
Executive Director
Ministry of Industry
Deputy Director
Local Government of North Sumatera
Agency of the Assessment and Application of
Technology
Head of Department
Deputy of the Institution
3.4. Measuremet Instruments
The study utilised two measurement methods, namely: 1) SNA approach to
determine the network performance; 2) coding and themes based on interview.
For quantitative analysis, this research used UCINET as analytical tools to assess
the network performance.
13
3.5. Procedure
In this research, interview became the main sources of data while
observation and legal documents provide some additional information. The
participants will be interview for 15-30 minutes to answer all the research
questions. In order to assess the network performance, the data about cooperation
among actor was collected from documents and interviews.
Table 3.2. Research Stages
Research Questions
What kind of innovation
activities are being conducted
by each actors on palm oil
industry in North Sumatera?
Stage
Identification of the role
and innovation activities
conducted by each actors
Sources
1. Interview with
the participants
2. Documentation
and Report
Data Analysis
Descriptive
analysis
How effective is the network
among actors on palm oil
industry in North Sumatera?
Assessment of the current
network among actors on
the palm oil industry in
North Sumatera
1. Interview with
the participants
2. Documentation
and Report
Social Network
Analysis
What are the barriers for
establishing collaboration
between actors on palm oil
industry in North Sumatera?
Identification of barriers
that inhibit the
collaboration among
actors
Interview with the
participants
Descriptive
Analysis and
Interpretive
Analysis
What activities/program could
be develop in the future to
improve the network among
actors on palm oil industry in
North Sumatera?
Create action plan and
policy recommendation
based on factors for
improvement
Interview with the
participants
Descriptive
Analysis and
Interpretive
Analysis
3.6. Data Analysis
The data analysis can be divided into three part as illustrates in table 3.2,
namely:
1. Descriptive analysis will be used to map the role of each actors and its
working program.
2. This study using SNA to assess the network among actors
3. Explore the barriers and factors for improvement with interpretive analysis.
3.7. Summary
The study used mixed method research design to answer the research questions.
Social Network Analysis was used to determine the network performance while
interviews are used to explore the barriers and factors that affect collaboration.
Those findings was the basis for creating the action plan and policy
recommendation
.
14
4 RESULTS AND DISCUSSION
North Sumatra has around 60 companies engaged in the oil palm industry,
both multinational companies and small medium enterprises. In general,
multinational companies have their own R & D division to conduct innovation
activities, while small and medium industries rely more on government funding
and research from outside the company. In some studies, the need for cooperation
between governments, research institutes and companies is enormous, especially
in developing countries. It is encouraged by the fact that they can share the
resources through collaboration and lowering the cost of innovation.
This study uses a case study approach in nine institutions which represent
government, academic and business. Although it does not cover the entire palm
oil industry in North Sumatra, the interviews which was conducted on each of the
actors allow a deeper understanding of what is actually happening in the industry.
4.1. Collaborative Innovation Activities
It has been widely recognized that innovation affects the performance of an
enterprise. The ability to generate new products or new technologies has become
the driving force to ensure the sustainability of the company in the increasingly
fierce competition. It also has a great influence on the economic growth of an
enterprise (Baumol 2002). Learning from successful companies, many of them
paid great attention to innovation by allocating funds for innovation activities.
Hashi and Stojčić (2013) investigate whether failure in optimizing innovation and
limited research funds causes low competitiveness of European industry, so that
they lagged behind competitors in the global market. The results showed that
investment in innovation activities have a positive influence on the performance
of innovation, which in turn enhance the competitive advantage of companies.
In North Sumatera, palm oil enterprises has the tendency to build
cooperation with another actors in order to create an innovation. The companies
collaborate with research institution with the purpose to gain new knowledge and
technology. Meanwhile, SBRC and PIKS have a connection with the government
(e.g. Ministry of Industry and BPPT) and they conducted research collaboration
on palm oil products. In fact, most of the actors in this study already has a
cooperation with another parties. Overall, the collaborative innovation activities
conducted by actors can be described as follow:
1.
Academic/Research Institution
University or research institute is responsible for the creation of knowledge
and technology through a series of research activities. It is possible because
research institution has the resources to support those activities, such as laboratory
equipment and human resources. Currently, research institutes has conduct more
research on upstream products, for example about breeding, fertilizers and
plantation management. Anshori (IOPRI) stated that:
"IOPRI have credible research division and has resulted in many innovations
and patents related to the palm oil industry. We conduct research activities, both in
upstream and downstream industry, using palm oil as a raw material. Research can be
15
divided into process technology, product technology, design new equipment and
utilization of industrial waste. However, our research in the downstream palm oil
industry is still very low and we continuously strive to improve our efforts to produce
innovation on downstream palm oil products. IOPRI has the motivation to expand its
focus on downstream palm oil industry, but we need the support from government
and the industry. The reason why IOPRI has not conduct a research in downstream
product is limited funds and low demand from business”.
Another obstacle that inhibit the growth of innovation in downstream palm
oil industry is dual function of research institution. In addition to research
activities, the existing research institutes also provide services to the industry, in
the form of training or product testing. The problem occur when the demand of
product testing is very high, which cause the institution can not maintain its focus.
Moreover, a lot of research in Indonesia only conducted to fullfill the academic
interest, without thinking of the demand of industry. Results from these studies
will be extremely difficult to implement by the palm oil industry.
2.
Business
The majority of companies in North Sumatra has a R&D division which has
a function to produces innovation, either new products or new methods. The
innovation is intended to increase the profit through sales of new products or
production efficiency. PT. Perkebunan Nusantara III and Venture B3 establish
collaboration with research institutes such as IOPRI and SBRC. The companies
and research institutions will discuss about the research topic and the funding will
fully or partially covered by the company. In this type of cooperation, the
company propose research topics which are relevant to their problems, and then
the study will be carried out by the research institute.
3.
Government
The government in collaborative innovation activity has a role in providing
research funding. Funds could be allocated for research activities or the
procurement of machinery and equipment. It is important because the business
usually reluctant to allocate budget on research activities. There is no guarantee of
success and the cost of innovation will be financial burden for the company.
Morover, Ida Yani Pane (Local Government) emphasized about the role of
government as a facilitator:
“Local government provide a support for the implementation of central
government policies, namely regional innovation systems and industrial
clusters. We tried to make a cooperation with companies and research
institutions and the governor issued a regulation to support the growth of
innovation in North Sumatera. One of the roles of government is to facilitate
the cooperation between research institutions and companies, especially in
the palm oil industry”
The main roles of government is to design policies that support the
development of innovation in the palm oil industry. Ministry of Industry has a
policy about industrial cluster which is equipped with the infrastructure and
incentives. Meanwhile, the local government of North Sumatra also has a policy
of regional innovation systems. The problem arise when central and local
government did not have regular coordination about those two policies.
16
Interaction among actors in palm oil industry
Etzkowitz (2003) claims that triple helix interactions can originate from
varying institutional arrangements which can be set in three broad categories. The
first is the statist model which features a strong governmental control over
academia and industry. The second is the laissez-faire model in which industry,
academia and government are set apart from each other with minimal interactions.
The third model which many studies has consider as the ideal model, consists of
hybrid organizations in which each institutional sphere maintains its identity and
main mission, while also taking the role of the other.
Based on the interview, the existing collaboration model in palm oil industry
is the laissez-faire model. The model has equal roles between the government,
businesses and universities. (Lei et al. 2012) argue that this model arises because
of the desire to reduce the role of government, which is considered to inhibit the
creativity of the lower level (research institutes or companies). However, this
model show the contact between the three types of actors is very thin. Each of
these actors behave as if they are waiting for others to take the initiative, which
means none of the institutions take action to start a collaboration and become a
coordinator. This result in the low cooperation in generating innovation in the
palm oil industry.
Moreover, the hybrid model offer a more flexible and suitable solution for
the palm oil industry. This model allow each actors to engage close contact with a
clear concept of cooperation. Trust shown by the exchange of information and
knowledge between the actors. More importantly, every actor can help or even
take on the role of other actors if necessary. For example, the industry can take on
the role of funding which has been the domain of government, so that the problem
of financing is not always become the bottle neck of collaboration. Dzisah and
Etzkowitz (2009) illustrates that the dynamic of Triple helix Model consist of
three things which are (1) the equal position and clear roles of academics,
government and businesses; (2) the cooperation among three actors; and the
helices taking each other roles. In conclusion, the actors should consider to adapt
the hybrid model of triple helix with the purpose to enhance the collaboration.
4.2. Innovation Network Performance
The effectiveness of the network data analysis can be done using social
network analysis. This method is used to determine the segmentation,
connectedness and distribution of a network. In the palm oil industry, there are
three principal actors: academic, business and government. This study assess the
network among nine institution, namely:
1.
2.
3.
4.
5.
6.
7.
8.
Indonesian Oil Palm Research Institution (A1);
Sei Mangkei Center of Innovation (A2);
Bogor Agriculture University (A3);
PT. Perkebunan Nusantara III (B1);
PT. Unilever Oleochemical Indonesia (B2);
Indonesian Palm Oil Association (B3);
Ministry of Industry (G1);
Agency of the Assessment and Application of Technology (G2);
17
9. and Local Government of North Sumatera (G3).
Based on the calculation, the overall tie strength (connectivity) of the
network is 0.271 while the overall density (distribution) is 0.389. It means that
both the tie strength and the density of this network are weak. Tie strength
represent frequency, reciprocity, emotional intensity and intimacy of a
relationship, as stated by Granovetter (1973). A strong network requires high
frequency of contacts (Lin et al, 1978), confirmation from both sides/ reciprocity
(F