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Telecommunications and Socio-Economic Development Edited by S. Macdonald and G. Madden 1998 Elsevier Science B.V. CHAPTER I Telecommunications Infrastructure and Invention, Innovation, and Diffusion Processes Sandra Braman College of Communication, University of Alabama, USA Introduction 13 As the nascent sub-field of the economics of information has developed, the concom- itant expansion of the analytical lens has in tum permitted identification of more and more types of significant relationships between the development of the information infrastructure and the practices and processes of innovation. Historically, economists examining innovation have focused on the question of whether innovation occurred in a systematic effort at factor replacement or was simply the random result of genius. More recently, economists have fretted about the structural encouragement of innovation and experiments with organizational form. While all of these forces remain, the logics of induced innovation and inspiration still apply, and structural and organizational tinkering can indeed make innovation processes more successful, or cheaper, or faster. None of them, alone, has proven adequate to explain innovation in ways sufficient for current decision-making needs. This suggests the need for a multi-causal perspective, the mining of additional logics, and consideration of ways in which historically important forces may be operating in different ways in today's environment. In moving towards a multi-causal perspective, those studying innovation join others in the social sciences coming to acknowledge that any single phenomenon or process occurs as the result of interactions among a variety of forces, an approach known as theoretical pluralism. The particular way in which those forces come together is always unique to the time and place, the specific historical conjuncture. Among newly significant forces in today's environment are avoidance, reduction, or transfer of risk; manipulation of transparency; and the generation of new resources through attention to those made available in the increasingly important domain of what Scazzieri (1993) has termed the virtual, meaning those materials and processes of which we can conceive but which do not yet exist, though they become available for use through human effort in programming and other forms of invention. Capital, the factors of production, and transactions function differently from how they have been understood to have functioned historically.
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Page 1: Telecommunications Infrastructure and Invention ...people.tamu.edu/~Braman/bramanpdfs/49_telecomminfrastructure.pdf · Telecommunications Infrastructure and Invention, Innovation,

Telecommunications and Socio-Economic Development Edited by S. Macdonald and G. Madden 1998 Elsevier Science B.V.

CHAPTER I

Telecommunications Infrastructure and Invention, Innovation, and Diffusion Processes

Sandra Braman

College of Communication, University of Alabama, USA

Introduction

13

As the nascent sub-field of the economics of information has developed, the concom­itant expansion of the analytical lens has in tum permitted identification of more and more types of significant relationships between the development of the information infrastructure and the practices and processes of innovation. Historically, economists examining innovation have focused on the question of whether innovation occurred in a systematic effort at factor replacement or was simply the random result of genius. More recently, economists have fretted about the structural encouragement of innovation and experiments with organizational form. While all of these forces remain, the logics of induced innovation and inspiration still apply, and structural and organizational tinkering can indeed make innovation processes more successful, or cheaper, or faster. None of them, alone, has proven adequate to explain innovation in ways sufficient for current decision-making needs. This suggests the need for a multi-causal perspective, the mining of additional logics, and consideration of ways in which historically important forces may be operating in different ways in today's environment.

In moving towards a multi-causal perspective, those studying innovation join others in the social sciences coming to acknowledge that any single phenomenon or process occurs as the result of interactions among a variety of forces, an approach known as theoretical pluralism. The particular way in which those forces come together is always unique to the time and place, the specific historical conjuncture. Among newly significant forces in today's environment are avoidance, reduction, or transfer of risk; manipulation of transparency; and the generation of new resources through attention to those made available in the increasingly important domain of what Scazzieri (1993) has termed the virtual, meaning those materials and processes of which we can conceive but which do not yet exist, though they become available for use through human effort in programming and other forms of invention. Capital, the factors of production, and transactions function differently from how they have been understood to have functioned historically.

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The information infrastructure (today, the global telecommunications network) has played and plays a significant role in stimulating and supporting innovation processes, though its contributions have not yet been fully appreciated nor deeply explored. This chapter examines the range of ways in which innovation processes are understood economically through the lens of the specific roles played by the information infra­structure, with the goal of providing a picture that may be useful to decision-makers in the public or private sectors seeking to generate environments conducive to innovation.

The discussion distinguishes between the contributions of telecommunications to innovation processes at three stages: invention (the creative processes of invention itself), innovation (the bringing of an invention to practical and affordable production), and diffusion (the distribution of an innovation to a population, and the use by that population of that innovation). It also uses as a basic assumption the concept of the filiere electronique, the notion introduced in the mid-1980s in Europe that analysis of the information infrastructure must include examination of the activities of those organizations that exist in and through the net as well as the telecommunications lines themselves. This is a focus on what Petrella (1989) would call the technological matrix rather than individual technologies. While the relationships between the development of innovations in the information infrastructure and other types of innovation processes interact, the former are more widely discussed; thus the emphasis here is on the latter.

Invention

Today's information infrastructure facilitates invention both through its effects on interpersonal and group relations (stimulation through interdisciplinary contact and expansion of the range of motivations for innovation) and through the new types of materials and processes it makes available (through use of generic technologies and virtual materials and processes). The emergence of the theories and concepts of network economics to cope with the new ways in which the economy is functioning as a consequence of the use of new information technologies brings the social and technological influences on innovation together in new arguments for the value of sharing intellectual property rights.

Stimulation through interdisciplinary contact

Among the reasons the printing press served as a stimulus to the enormous growth in knowledge of the last few hundred years was the fact that its development and use brought together types of actors and, therefore, of knowledge previously isolated from each other. This encouraged and enabled the cross-fertilization of ideas, perspectives, and needs that play such an important role in innovation processes (Eisenstein, 1979). Development of the telecommunications infrastructure has played a similar role, especially in the 1990s but with notable examples decades earlier. The result has been stimulation of innovation both in areas dealing with information creation, processing,

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distribution, and use, and in other areas as well. One example of the corporate recognition of the value of such cross-disciplinary activity is the practice of leading research and development organization Xerox Pare, which links up artists with engineers to work together over years solving problems presented by artists seeking to realize things they have imagined. Upon completion, artists keep the works of art produced, and Xerox Pare keeps the intellectual property rights to any materials or processes invented.

This interdisciplinarity is a characteristic of the infrastructure itself. Since the appearance and widespread diffusion of e-mail and then the web, today's information infrastructure also stimulates interdisciplinarity and the invention that may follow through its provision of cyberspace as a place in which people of different backgrounds, training, ways of thinking, and physical locations can meet to discussed shared matters of interest. Thus, today's information infrastructure shares with print the bringing together of different types of knowledge in its very creation, but differs in the degree to which its use is social rather than individual.

Expansion of range of motivations for invention

A number of motivations for invention and innovation processes have been identified. Mokyr (1990) neatly synthesizes and clearly presents the most influential schools of thought. Some innovations are driven by sheer aesthetic concerns, the desire to discover elegant solutions to problems. Often invention derives from the need to solve a technical problem. Much has been made of the role of the military in providing the impetus to certain kinds of innovations. The argument that innovations develop as part of the effort to replace expensive factors of production with less expensive alternatives is known as the Habakkuk thesis. McLuhan (1964) claimed that technological innovation is always biologically defensive, as the central nervous system responds to changes in stimuli offered by the external environment. Sheer play, the ludic motive, drives some inventors (Stone, 1995).

Path dependency in innovation occurs both when one development enables another, and when one development requires others in order for a larger system to function (King and Anderson, 1995). Brousseau and Rallet in Chapter 15 identify three ways in which the use of a new technology generates additional innovation: the implementation process itself generates new technologies as bottlenecks are identified; the use of technologies helps identify coordination failures by putting additional stress on a system; and there is classical learning by using. Today, two additional motives for invention and innovation have been identified: risk avoidance and responses to transparency.

Risk Risk arose as an economic problem in the 1920s when Frank Knight claimed that true profit comes from uncertainty (Babe, 1995), arguably launching the beginning of the subfield of the economics of information. By the 1960s, Machlup found risk so important that it comprised three of his original 17 categories of a taxonomy of the

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economics of information and knowledge; for Machlup risk played a role in individual choice, institutional activity, and specific phenomena; in the functioning of markets; and, in the form of risk aversion, as a factor in entrepreneurship and profit. In some areas, such as finance, risk avoidance is key to the innovations of the 1990s. Innovations in organizational form, notably the growth in the formation of alliances, are efforts to reduce risk that rely heavily upon the t~lecommunications infrastructure in order to operate.

Transparency The goal of transparency, which had moved to the center of the agenda in a variety of policy issues areas by the mid-1980s from trade to defense, provides a stimulus to innovation that is both positive and negative. The concept is applied in telecommun­ications in a number of ways. It is used to refer to the provision of the same types and quality of services to all customers and types of customers. The term appears elsewhere in regulatory language referring to the sharing of information about formal and informal rules regarding a service, from general legal principles to specific protocols. There is the transparency demanded as an exercise of power using the increased ability to surveil. Transparency has become a goal in the crafting of content that will successfully deliver a desired message though, as Baudrillard (1993) notes, transparency in content brings it closer to insignificance. Transparency is discussed by artists and cultural critics participating in creative activities made possible by the web, in this case referring both to the transparency of the medium itself, which permits expert users to focus on content alone, and to the ability of software to make it possible to move from place to place in cyberspace so effortlessly and seamlessly. Luhmann (1990) argues that self-transparency of a system becomes ever-more difficult or 'distant' with increasing differentiation.

While transparency is rife, its meaning differs. Notably, for example, while the reality of transparency in practice in international trade means extension of the use of single accounting and other systems globally, so that the movement from physical place to place means no change in information sought and received, artists and cultural critics emphasize the ability of the global telecommunications network to offer qualitatively different informational experience from place to place within cyberspace. Experi­entially, the latter interpretation differs radically from the former, though both are discussing transparency as experienced via the same network. The divergence of experience is one example of the general principle that contradictory effects of the use of a new information technology may be experienced simultaneously.

Transparency can also stimulate innovation in a negative way. In an area like telecommunications, where the boundaries of the domain in which it is recognized that transparency is important in order to serve the mandate of interconnection are constantly expanding, for example, innovation can provide a means of evasion. The length of time it takes for an evasion of the mandate for transparency to be experienced, recognized, challenged, and explored through legal routes is a long enough temporary monopoly to make it worthwhile to innovate, despite the relative ephemerality of the lead. More production can also be negatively stimulated through desire to evade surveillance

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directly and permanently through development of technologies not perceivable through existing surveillance mechanisms in the military (Braman, 1991). Transparency and risk interact because, as Goldfinger ( 1995) pointed out in a discussion of the global financial market, an increase in transparency may at the same time increase risks. Thus, in the military, in commercial law, and in private life, zones and periods of opacity are developing.

Sharing of intellectual property rights

The need to share intellectual property rights in order to develop new information technologies has plagued an economic and regulatory system devoted to keeping corporations and organizations isolated from each other since the late 19th century. Thus the history of the repeated use of antitrust law against corporations in the communications industry. From this perspective, it is a relief that network economics presents the argument that it is often more valuable to networked firms to share intellectual property rights than to hold them tightly to the chest.

Emergence of generic technologies

The invention process itself has been affected by the emergence of genenc, or meta-technologies, characterized by:

their role in enabling other technologies and processes (generic technologies bring virtual materials and processes into being); a focus on information (thus new information technologies and biotechnology are considered generic technologies); self-reflexivity or the use of a generic technology not only participates in a particular production chain, but also contributes to the overall reconceptualization of prod­uction processes and relationships; and the way in which they break down the historical linkage between specific inputs and particular outputs of processes. As digital information technologies permit fungible use of previously distinct communications media, for example, and biotechnology completely changes the structure of agricultural inputs and outputs.

Emergence of awareness of generic technologies and their multiplication does intensify battles over intellectual property rights because there is more to protect (higher investments are required in R&D). there are more actors against whom there is a need to protect, and the collaborative nature of much R&D on generic technologies requires more clearly specified intellectual property rights rules.

Availability of virtual materials and processes

New information technologies, as mentioned above, affect invention processes by making materials and processes that were virtual in the sense of being imaginable but not actual or accessible. This sense of the virtual is based on use of the concept by

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economist Scazzieri (1993). Often, virtual materials and processes are created through computer programming, or through manipulation of materials at the genetic, or molecular, level.

Changes in the inventor and invention processes

Telecommunications infrastructure has also contributed to changes in the nature of the most economically important innovators and in the nature of the processes most widely used by those who successfully and repeatedly innovate. While historically the innovator was an individual working alone, today most technological innovation is carried out by large teams working with an institutional context, cooperative work enabled by telecommunications. And while historically invention processes were likely to be widely disparate and idiosyncratic to purticular individuals, today they have become systematized just like other industrial activities.

Innovation

It was recognized fairly early that infrastructural concerns were central for those interested in innovation. The telegraph, telephone, and steam locomotive critically stimulated innovation by opening markets and offering access to the resources needed to finance R&D and move inventions into the mass production phases of innovation. Along with investment in new types of production and distribution facilities came new organizational forms that also facilitated the ability of firms to capture large shares of national markets and to transform the high fixed costs of an innovative strategy into low unit costs (Lazonick, 1991). In addition, the telecommunications infrastructure has participated in and contributed to many of the ways in which innovation processes today tend to differ from those historically experienced, such as the merging of technical and narrative issues.

Expansion of markets and provision of capital

The relationship between innovation and expansion of markets and capital is entirely two-way. On the one hand, innovations in transportation and communications infra­structure so expanded markets for existing products that investment in such innovations was justified. In turn, it has long been understood that development or introduction of new products also expands the market and can lead to expansion of capital.

Appreciation of this aspect of the role of the information infrastructure vis a vis innovation was in place by the middle of the 19th century as governmental entities from the municipal through the national gave sanction to the formation of the corporate form in exchange for commitruents from those organizations to build infrastructure. Govern­ments were interested for a variety of reasons. Often corporations had the resources to build infrastructure when governments did not (Wittrock and Wagner, 1988). Corporate involvement in building of infrastructure and innovation processes served to disperse

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risk (Gerlach, 1992). And development of the infrastructure served innovations in the structure and processes of government that accompanied ideological innovations of the period (Smith, 1991).

Already by the late 19th century innovation was seen as a critical element of comparative advantage in the international environment. A statistical approach devel­oped by a Swiss naturalist to determine the relative 'scientific value' of different nations was used in the 1870s to identify the sociocultural factors believed to affect the development of new knowledge and its incorporation into useful innovations, including a nation's religion, class structure, language, type of government, library and other knowledge institutions (Crawford, 1992).

Today, both of the old arguments for an interest in innovation hold true. It still plays a role in the expansion of markets and capital. Certainly in the area of information and communication technologies, international competition for control over informational resources and the value added by the processing of those resources is keen. Innovation is also still seen as a way of building or sustaining a market domestically by multiplying the range of products to be consumed.

The loci of comparative advantage today, however, appear to have shifted. It was precisely in studies sponsored by the European Commission into the effects of the use of new information technologies, among others, that inequities remain at the regional and municipal level. Cities, rather than nation-states, are today the real loci of innovation processes and it is among cities more than nation-states that true issues of comparative advantage arise (Petrella, 1989; Dutton and Guthrie, 1991; Sassen, 1991 ), though improvement of the telecommunications infrastructure in one region can have a positive impact on another region.

The stuff of competition over comparative advantage issues has also changed. In addition to competing at the level of innovations themselves, there is competition over conceptualizing frameworks through which innovations and the intellectual property rights that pertain to them should be perceived as well as frameworks for the crafting of policy to guide the development of innovations and their uses (see Bruce et al., 1986).

Evolution of organizational form

Changes in organizational form made possible by the use of new information technol­ogies over the past 150 years have served the purposes of innovation. The very possibility of forming large organizations that could serve national markets, made possible by the telegraph and telephone, helped provide the capital and justification for innovation. By the late 19th century there was experimentation for the explicit purpose of supporting innovation. In Japan this meant the appearance offinancing techniques for innovative offspring of large families of enterprises (Gerlach, 1992). In the West this meant the first industrial research laboratories (Bowker, 1994), as well as experi­mentation with financing techniques as increasing numbers of organizations went public and reacted to antitrust law. The career managers who took over from entre­preneurial owners of corporations had the kind of organization-specific knowledge that

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made them ideally suited to planning long-term investment strategies such as those required by R&D programs (Lazonick, 1991). Innovation processes received a further boost in the 1920s as methodological and organizational developments combined in the first use of massive and systematic testing programs (Bowker, 1994). Coase's seminal work in the 1930s on the role of information flows in the firm turned the attention of both economists and managers to the specific value of innovations in information tech­nologies. The impact of innovations on organizational form is generally felt first at, to use military terms, the level of logistics (how to make things happen concretely), then of tactics (short-term planning in service of long-term goals), then of strategy (long-term goals), and only belatedly at the level of doctrine (general principles guiding the setting of long-term goals). Preiss!, in Chapter 13, provides a useful categorization and thorough listing of the variety of ways in which information technologies are used by organizations and have an impact on organizational form, while Newstead argues in Chapter 16 that in the 1990s very few managers are using new information technologies for strategic purposes. Madden and Savage in Chapter 4 note that calculations of the economic impact of telecommunications must include both carrier and content- their analysis of international trade in telecommunications in the Asia-Pacific region combines both exports in equipment and international telephony- despite the fact that neoclassical economic analytical approaches would not relate the two.

Today, interactions between innovation and the telecommunications infrastructure go two ways: the development of the net continues to facilitate the emergence of new types of organizational form while in turn those industries that are most focused on innovation- information technologies and biotechnology- are the most adventurous both in shaping organizational form and in developing new types of financial instru­ments to finance their activities.

Focusing on the other direction of causality, Brousseau and Rallett in Chapter IS argue that organizational determinism is as important as technological determinism in shaping the outcomes of interactions between information technologies and organ­izations. Their point is further emphasized by the distinction between isolated systems, systems linked through the general telecommunications network, and systems linked more synergistically and embodying coordination processes.

The merging of technical and narrative issues

The impact of the use of the net on narrative form has been well remarked, notably by Bolter (1990) and Joyce (1995). Another way in which the nature of innovation today has changed is in the merging of technical and narrative issues. Intellectual property rights depend upon the ability to describe; thus developments in intellectual property rights for biotechnology and new information technologies, including software, can be understood from the perspective of achieving ever-higher degrees of articulation of description via narrative, a matter of the evolution of narrative form.

A second narrative issue that arises when dealing with innovation is the problem of facticity. Claiming property rights in an innovation requires the fixing of that innovation

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in describable form. Sometimes, however, it is impossible to achieve because of the nature of the entity being described. Thus a barrier to development of intellectual property rights for biotechnology for a long time was the natural falsification of seeds (such as empty seed husks, which confound counting processes), falsification by mimicry across species, change that results to the phenotype from environmental impact, and genetic drift.

Changes in the state and state policy

The modern nation-state has been involved in stimulating, supporting, and shaping innovation processes since its emergence in the 15th century, when the new European states of the period appreciated what was to them the innovation of gunpowder and began to introduce the patent system as a means of protecting property rights in such innovations. This property rights system in turn became entrenched with the develop­ment of the mass production techniques used first for the purpose of manufacturing weapons for the state. Industrialization, in turn, triggered the building of the R&D system needed to guide the creation of military technology from the middle of the 19th century (De Landa, 1991; Mokyr, 1990). As innovation came increasingly to be used by the state to its own ends, legal protection was heightened and economic incentives strengthened. By the 1920s, national differences in intellectual property rights law were already significant to industrialists who often chose the locations for their firms based on identifying the nation with the patent law most favourable to their own endeavours (Bowker, 1994).

Innovations in the nature of the nation-state also interacted with the development of information and communication technologies. The move to greater and more sophist­icated use of statistics from 1850 meant that the state had an interest in the development of information processing technologies. The blossoming of the welfare state in the 1930s invited states to set up special agencies to pursue innovation, as they did under the stimulus of war during the 1940s. In the US this meant establishment of an Office of Scientific Research and Development, followed after World War II by the National Science Foundation and think tanks such as Rand (De Landa, 1991). By the close of World War II, the scale and complexity of what was required to support the military were so great that governments became committed to big science, forming what Eisenhower called the military-industrial complex. During this period the military itself became an entrepreneur in the area of innovation, financing research, supervising production methods, and aiding in dissemination of technology. Following the war, these approaches were institutionalized for peacetime use. Procurement by the govern­ment rather than direct involvement in R&D, however, became the dominant mode of stimulation of the emerging high-technology industries during the 1950s and 1960s (Branscomb, 1993).

Throughout the 20th century those involved in building, maintaining, rnnning, and regulating the telecommunications infrastructure were deeply involved in these inter­actions between the nation-state and innovation practices, whether in the private or

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public sector. In the US, AT&T for most of the century managed the leading laboratory for R&D in telecommunications (Bell Labs), provided infrastructure to specifications provided by the military, organized research labs dedicated to other types of questions (such as Livermore, a laboratory for R&D in nuclear physics), and served as a diffusion instrument for management techniques.

Increase in the proportion of radical innovations

In the perspective on innovation drawn by Nguyen and Phan in Chapter 17, a radical innovation is one the use of which ultimately leads to the fundamental transformation of what had been the dominant design. From this perspective, it can be argued that radical innovations are appearing more frequently today as a consequence of the constantly increasing speed of the innovation cycle and because of the extremity of the types of innovations made possible through the use of generic technologies such as those in telecommunications.

Diffusion

The role of the telecommunications infrastructure in the diffusion of innovations may seem the most obvious and is probably the most discussed. As Preiss! notes in Chapter 13, however, there is still insufficient data about information technology diffusion, implementation, and impacts at the company and industry levels, and, as Bowles aud Maddock observe in Chapter 2, almost no information on the structural side. Relatively little attention has been paid to the role that the use of the telecommunications infrastructure has played in making consumers and users of innovations more active participants in innovation processes, or to the importance of attending to the diffusion of ideas as well as of things.

The role of the consumer

The consumer is becoming more important in diffusion processes in several different ways. In a formal and explicit way, consumers are being brought into conversation very early in and throughout R&D processes, providing specifications, identifying cons­traints, and offering ideals of what they would like. What had in the past been described as 'adaptations' of innovations by users during the diffusion process has now come to be recognized as continued innovation. In a related vein, what had in the past been understood as one-time innovation processes are now understood to be continuous.

Understanding innovation as continued and continuous gives a much larger role to users throughout and it is here that the telecommunications infrastructure has been so important, for entirely new forms of collaboration, known as computer-supported cooperative work, have become one of the fastest growing and most exciting uses of the Internet. In Chapter 14, Isckia discusses the importance of the trend of such uses of 'groupware', arguing that this use of the new information technologies outweighs in importance the use of those technologies for simple information transmission.

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Diffusion of content as well as carrier

Analysis of diffusion of new information technologies and the content they carry has affected diffusion theory and practice by drawing attention to the fact that almost all diffusion research focused on innovations that were objects, not on those that were ideas. Thorough analysis of the diffusion of telecommunications innovations will include study of the diffusion of the ideas that infrastructure carries. Indeed, separating the diffusion of ideas from the diffusion of things makes it clear that some adaptation or reinvention that takes place during the diffusion process comes from gaps between the arrival of objects and ideas about those objects in a particular society.

Conclusions

Most work on the economic effects of telecommunications has focused simply on whether or not there is growth in economic activity following improvement of an infrastructure. A review of its roles in stimulating and enabling innovation, however, shows that this is a significant, albeit more indirect, way in which telecommunications has a significant influence on the economic activity. There are two types of these indirect influences. Matters such as facilitating cooperative invention processes require lengthening the time line and increasing the number of steps through which the relationship between telecommunications and economic activity should be understood. Factors such as the merging of narrative and technical issues concern more subtle facets of the relationships between the practices of invention and innovation and other social forces in the environment.

Hopefully this introduction to the wide range of ways in which telecommunications stimulates or enables innovation will also contribute to the development of multi-causal explanations for understanding innovation processes. For the policy-maker or organ­izational decision-maker, it may help identify blockages where possibilities opened up by the use of telecommunications in one area are restricted by a failure to take advantage of what telecommunications offers to innovation practices and processes in others.

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