Regional Innovation Monitor Plus 2016 · Regional Innovation Monitor Plus 2016 i Table of Contents Executive Summary 2! 1. Advanced Manufacturing: Industry 4.0 and Smart Systems 6!

www.technopolis-group.com

30 May 2016

Regional Innovation Monitor Plus 2016

Regional Innovation Report

Central Denmark Region (Industry 4.0 and Smart Systems)

To the European Commission

Internal Market, Industry, Entrepreneurship and SMEs Directorate-General

Directorate F – Innovation and Advanced Manufacturing

www.technopolis-group.com

Regional Innovation Monitor Plus 2016

Regional Innovation Report

Central Denmark Region (Industry 4.0 and Smart Systems)

technopolis |group| in cooperation with

Jesper Villadsen, Stig Yding Sørensen and Benita Kidmose Rytz

Danish Technological Institute

Regional Innovation Monitor Plus 2016 i

Table of Contents Executive Summary 2 1. Advanced Manufacturing: Industry 4.0 and Smart Systems 6

1.1 Overview of performance and trends 6 1.2 Business sector perspective 9 1.3 Scientific research potential 11 1.4 Role of intermediary institutions 12 1.5 Developing skills for the future 12 1.6 Major investment projects 13 1.7 International cooperation 14 1.8 Policy support and delivery mechanisms 15 1.9 Good practice cases 16 1.10 Leveraging the existing potential 20

2. Regional Innovation Performance Trends, Governance and Instruments 22 2.1 Recent trends in innovation performance and identified challenges 22 2.2 Institutional framework and set-up 25 2.3 Regional innovation policy mix – Industry 4.0 26 2.4 Appraisal of regional innovation policies 27 2.5 Policy good practice 29 2.6 Possible future orientations and opportunities 32

Appendix A Bibliography 33 Appendix B Stakeholders consulted 34

Table of Figures Figure 1: Employment Index – Central Denmark Region – Persons employed ............. 6 Figure 2: Share of total GVA from selected sectors (NACE10) – CDR ........................... 7 Figure 3: Percentage of High Technology Manufacturing jobs of Total Manufacture ... 8 Figure 4: Patents taken per million of active population .............................................. 23 Figure 5: Share of active population employed in Science and Tech (left) and IT-skilled employment within industries (right) - percentages ..................................................... 24 Figure 6: The Industrial Star – Five characteristics of successful Danish manufacturing companies ....................................................................................................................... 30

Regional Innovation Monitor Plus 2016 ii

List of Tables Table 1: Regional innovation support measures (horizontal layers) ............................. 26 Table 2: Innovation Policy fit (horizontal layers) .......................................................... 28 Table 3: Results of fact-based evaluation of policy measures ....................................... 29

Regional Innovation Monitor Plus 2016 1

PREFACE In the context of the growth and investment package set out in the Investment Plan of the European Commission, the Regional Innovation Monitor Plus (RIM Plus) provides a unique platform for sharing knowledge and knowhow on major innovation and in-dustrial policy trends in in some 200 regions across the EU20 Member States.

Launched in 2010, the Regional Innovation Monitor aimed at supporting sharing of intelligence on innovation policies across EU regions. Building on the experiences gained and results obtained during the period 2010-2012, RIM Plus 2013-2014 pro-vided practical guidance to regions on how to use the collected information via a net-work of regional experts. Since 2014, RIM Plus has introduced a thematic focus on advanced manufacturing.

RIM Plus 2015-2016 evolved from general monitoring of innovation policies towards establishing a more thematic focus in selected areas to contribute to improving the competitiveness of European regions.

Particularly, through its activities and in close cooperation with the regional stake-holders and other relevant initiatives RIM Plus aims to:

• contribute to the development of new and open spaces of collaboration and ex-change on advanced manufacturing, each with a clearly defined thematic focus;

• play an enabling role in providing evidence-based information on specific themes and bringing in an outside perspective from other regions;

• map out regional practices in support of advanced manufacturing and relevant pilot/demo projects and work towards involving the relevant stakeholders;

• provide easy access and a comparative overview of regional innovation policies and relevant actions in the field of advanced manufacturing; and

• share the lessons learned with European Commission services to feed into the preparation of future programmes.

The main aim of the 30 regional reports is to provide a description and analysis of developments in the advanced manufacturing area with a clearly defined thematic focus on regional innovation policy, taking into account the specific context of the region as well as general trends. All regional innovation reports are produced in a standardised way using a common methodological and conceptual framework to allow for horizontal analysis with a view to preparing the Final EU Regional Innovation Monitor Plus report.

European Commission official responsible for the project is Mr Alberto Licciardello ([email protected]).

Stig Yding Sørensen ([email protected]), Benita Kidmose Rytz ([email protected]), and Jesper Villadsen ([email protected]) prepared the pre-sent report. The contents and views expressed in this report do not necessarily reflect the opinions or policies of the regions, Member States or the European Commission.

The copyright of the document belongs to the European Commission. Neither the Eu-ropean Commission nor any person acting on its behalf, may be held responsible for the use to which information contained in this document may be put, or for any errors which, despite careful preparation and checking, may appear.

Further information:

https://ec.europa.eu/growth/tools-databases/regional-innovation-monitor


Executive Summary 1. Advanced Manufacturing: Industry 4.0 and Smart Systems

The world is beginning to see an industrial movement that some people have termed the Industry 4.0 revolution. Activities related to this include increased automation and digitisation in manufacturing companies, and these activities can also be observed in companies operating in the Central Denmark Region (CDR). A formalised strategy for assisting companies in grasping the advantages of the new industrial movement has yet to be formalised at the national and regional level. However, firms, research insti-tutions, GTS - Advanced Technology Group and other intermediary organisations in the region are all involved in the Industry 4.0 agenda. Currently, large companies drive much of the development, with smaller companies in the value chain adjusting to the large companies’ increasing demands for automated or digitised solutions.

CDR accounts for about 20% of the total Danish gross domestic product (GDP). A third of its active companies are engaged in manufacturing. Manufacturing serves as an important regional and national base for export and value creation. Two thirds of all exports originating in the region come from industrial manufacturing, which is well above the country average of about half of all exports. CDR is widely recognised as the country’s manufacturing base. Thus, the region has a strong basis for developing fur-ther into a strong region for Advanced Manufacturing Systems.

The company structure in CDR is divided into a group of large, knowledge-intensive original equipment manufacturers (OEMs) that serve global markets, several tier 1 and 2 suppliers that are more orientated towards markets in their immediate geographical context, and then a large base of SMEs that are mainly oriented towards the domestic market. The SME group consists of many small manufacturers serving niche markets with highly customised goods. They often supply large international OEMs operating in the region or in relative geographical closeness.

As previously stated, these actors recognise the importance of advanced manufactur-ing and Industry 4.0, but the majority of them still have not formulated a comprehen-sive strategy or an action plan that specifically targets Industry 4.0. Harvesting the potential of increased automation and digitalised manufacturing still relies heavily on large OEMs and their demands of similar developments from their SME suppliers.

Private sector companies, research institutions and public governance bodies in CDR have identified the main challenges for this specific area of advanced manufacturing to contribute to the future of industry in CDR. The main challenges fall into the following three categories:

• Challenge 1: Slow digitisation pace in many manufacturing companies

Most CDR manufacturers agree that digitisation and automation can prove to be valu-able tools to address challenges such as high wages, charges and taxes.1 However, there is still significant potential to be grasped by exploring the efficiency and com-mercial gains associated with automation and digitisation. The speed and efficiency with which Danish manufacturing industries have been able to digitise their opera-

1 See ‘Strategy & opportunities for the Industry - 2013’ (https://www.rm.dk/regional-udvikling/statistik-og-analyse/det-midtjyske-vakstlag/resultater)


tions within certain parts of their value chains, especially in relation to their advanced manufacturing operations, can be improved.

• Challenge 2: Difficulties for SME tier 1-2 suppliers to internationalise their activities and be part of international value chains

The company structure in CDR (and the rest of Denmark) consists of a large number of SMEs that struggle to internationalise their activities. Despite employing competent levels of human capital and managing increasingly productive assets, only about 6% of all Danish firms are exporters, a number that could be significantly higher. In CDR advanced SME manufacturers lack appropriate channels to integrate properly into international advanced manufacturing value chains.

• Challenge 3: Shortage of skilled, specialised workforce adapted to the requirements of advanced manufacturing

The third challenge concerns the growing importance of specialised, skilled labour in the manufacturing companies in the region. Because of the increased focus on auto-mation and specialisation many job functions have changed. A highly skilled, special-ised workforce is the foundation for a successful advanced manufacturing industry in the region. However, a quarter of all firms that have recently recruited report difficul-ties when recruiting highly skilled specialists.

While the national trend in industrial employment shows an increasing share of high-tech jobs - as low-tech jobs are steadily outsourced - developments in CDR only show a stable to mildly negative development in the share of positions within high-tech manu-facturing. This suggests that the CDR has not been able to combat the threat of out-sourcing by increasingly investing in high-tech manufacturing to the same degree as can observed at the national level.

2. Regional innovation performance trends, governance and instruments

In 2012 review of Danish regions by the OECD, CDR showed an excellent innovation performance, and the regional innovation policy, based on inclusive and evidence based growth forums, was equally well evaluated. However, in this study, we have identified the following challenges in relation to innovation policy practices. The chal-lenges are based on an amalgamation of recommendations by external actors2 and interviews with regional experts:

• Challenge 1: Deepening regional smart specialisation

The 2012 OECD review pointed out that regional smart specialisation is an area where innovation policy can be continuously improved. The review generally praised the innovation policy conducted by and with the help from the regional government and highlighted areas that the region could improve. The region has increased its partici-pation in cross-regional cluster strategy processes and greater attention has been paid to ensuring that the policy mix promoted in the region matches the absorption capaci-ty of prioritised sectors. Despite this type of good performance, the region still identi-fies a need for further improving smart specialisation by focusing on increasing the level of international firm and research connections as well as efforts to ensure that

2 The innovation policy challenges are based on recommendations for the region by the OECD, the admin-istration’s own analyses, a number of external analyses (predominantly the REG:LAB publications cited in this report), and lastly, through interviews with regional experts (see list of stakeholders consulted).


the region's innovation policy pays sufficient attention to commercialisation and ad-dresses non-STI forms of innovation.

• Challenge 2: Securing economic growth through the dissemination of high research performance

A focused set of research initiatives from a number of leading actors, such as DAMRC (Danish Advanced Manufacturing Research Center), has had an important impact on the innovative capabilities of firms in CDR. The patenting activity has increased sub-stantially in recent years. CDR has developed its patenting base from a level corre-sponding to the national average to a level well above the national and EU28 levels. In recent years, research and development have focused on strengthening the regional industrial base. The challenge in the coming years will be efficient dissemination of these new technologies so that companies can make even better use of this knowledge.

• Challenge 3: Harvesting advanced manufacturing potential from high employment in science and technology and high levels of IT speciali-sation

CDR has high levels of employment in the science and technology areas as well as a relatively high degree of IT employment in the industrial sector. This shows a good potential for increasing the digitisation and data utilisation in the region's manufac-turing companies. For companies in CDR the challenge is to harvest this potential effectively for an efficient transition to new and improved business models of future manufacturing.

3. Future actions and opportunities

Along with the challenges, we have identified a number of future actions and opportu-nities in this study, which we have presented in the following paragraphs.

With regard to Advanced Manufacturing: Industry 4.0

• Further integrating operations between ecosystems of smart SME manufacturers and large regionally based global OEMs

Industry 4.0 is as an opportunity for manufacturers that are large enough to sustain comprehensive integration in increasingly digital and automated global value chains, but also for SME manufacturers that manage to play a role in these increasingly digit-ised and automated value chains. John Johansen, a professor at Aalborg University and an industrial expert, predicts that the critical mass for successful integration in global value chains will shift, weakening the possibilities for integration for small, less globally oriented manufacturers.

However, there are possibilities for the small companies, which represent the majority of companies in CDR. The integration of small advanced manufacturing companies into the ecosystems of the large OEMs would allow specialised companies indirect access to global markets. This could lead to increased formation of ecosystems consist-ing of SME manufacturers and large OEMs, with the latter being capable of engaging in and tapping into the potential that these SMEs represent.


• Securing a high-skilled workforce adapted to advanced manufacturing conditions

Industry 4.0 and advanced manufacturing require human capital and competences that are in line with future manufacturing. One in four manufacturers in CDR reports that it is a challenge to find employees with the specialised skills that they require. The CDR administration mentions lack of skilled machine operators, tool and plastic mak-ers, skilled CNC (Computer Numerical Control) operators and production planning officers, etc.

There is general agreement that the future development of industrial employment will see less demand for unskilled professionals, a slight increase in the demand for skilled professionals, and a substantial increase in the demand for individuals holding a ter-tiary education. To ensure that the skill needs of the regions’ manufacturers are met in the future, CDR would benefit from further integrating these competences into educa-tion and training programmes targeting manufacturing.

With regard to innovation policy

• Shifting innovation policies from a supply side to an increasingly de-mand-driven orientation

An efficient tool for increasing the extent of policy impact would be to increasingly accommodate the industrial and entrepreneurial demand for support when targeting industrial support measures, while still operating within the confines of an efficient industrial policy and conforming to market conditions.

Actors in the CDR industrial ecosystem (REG:LAB 2013) agree that further integrating the needs and commercial challenges facing manufacturing companies and the orien-tation of public/private research programmes would help ensure that the future poten-tial of manufacturing in CDR (increasing knowledge content and complexity of manu-factured goods, mass customisation and decentralised manufacturing) would be properly addressed.

• Focusing future innovation policy more intently on reaping the bene-fits from digitisation and automation

Numerous experts3 from the CDR administration are also confident that the current structural challenges for the regional industry base – if left unchanged – will harm the regional competitiveness of small, less internationalised manufacturing companies. Digitisation of value and supply chains is increasingly taking place. This implies that to sustain and increase the competitiveness of the SME manufacturing companies in CDR, they will increasingly depend on the integration of IT and data usage in manu-factured goods.

Analyses from the CDR administration (CDR 2013, p.8) point towards increased fu-ture focus on developing the necessary skills and competences to support automation and increased digitisation of manufacturing.

3 Interviews with Chief consultant, Regional Development, Niels Dahl & Professor John Johansen


1. Advanced Manufacturing: Industry 4.0 and Smart Systems

1.1 Overview of performance and trends

The Central Denmark Region (CDR) accounts for about 20% of the total Danish GDP. Second only to the Capital Region in Denmark, the GDP per capita in 2013 was EUR 40,800, roughly 10% lower than the country average. This represents almost no rela-tive change since 2010.

CDR has a strong industrial tradition and it is home to some of the leading Danish manufacturing companies. It is the largest geographical region in Denmark, so alt-hough there are notable differences in population density and sectorial structure across the region, the region hosts almost a quarter of the total Danish workforce.

Out of a total population of 1.2m, the region employed roughly 616,000 individuals in the 3rd quarter of 2015 serving as an important base for export and value creation. The manufacturing sector in the region employs around three out of ten employed workers in the private sector and accounts for a little more than 61% of total exports in the region. In comparison, the country average is about 50%. The share of employ-ment in manufacturing has dropped from 20% of total employment in 2007 to about 16% in 2015, closely following the country average (as shown in Figure 1.).

Figure 1: Employment Index – Central Denmark Region – Persons employed

Rem.: Graph shows employment by num. of people, in Central Denmark Region

(CDR) vs. Country level employment, in manuf. and total employment (in-dex 100 = 2007k1)

Source: Statistics Denmark, 2015

The share of overall employment in manufacturing has been steadily decreasing in most high-income countries during the last decades. However, for CDR the employ-ment level in manufacturing seems to have stabilised since the financial crisis. Expec-tations from the CDR administration is that efforts to revitalise manufacturing through, for instance, an increased level of advanced manufacturing and increased global integration will contribute to increasing the industrial employment level (CDR 2015).

Although there has been a heavy outflow of labour in the past (which has now stabi-lised), the CDR manufacturing companies have been able to improve their productivi-ty and value added significantly (see Figure 2).

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Manufacturing -‐ DK Manufacturing -‐ CDR

Total Employment -‐ DK Total Employment -‐ CDR


Figure 2: Share of total GVA from selected sectors (NACE10) – CDR

Rem. 2013 levels for Inf. & Communication omitted due to lack of available data.Source: Cen-tral Denmark Region, Eurostat 2015

CDR is strong in sectors such as the textile, furniture and wood industry, foodstuff, energy and clean-tech manufacturing as well as ICT. These sectoral activities have a strong east-west division, where the eastern strengths tend to carry a greater knowledge content with their manufactured goods. Locating businesses close to Aar-hus, Denmark's second largest city, provides the added benefit of increased exposure to internationalisation in business and human skill sets, which reveals itself in the sectoral strengths of eastern and western CDR.

Interviews with the CDR administration tell us that especially the western part of the region, where Herning is the largest city, is increasingly looking towards improving its established position in advanced manufacturing.

Industry 4.0 trends impacting Central Denmark

Private sector companies, research institutions and public governance bodies in the region have identified a number of challenges for this specific area of advanced manu-facturing to contribute to the future of industry in CDR. We present the main chal-lenges below.

Manufacturing firms in CDR do not reap enough of the potential benefits provided by automating and digitising their manufacturing operations. Most manufacturers in Central Denmark agree that digitisation and automation can prove to be valuable tools


for addressing challenges such as high wages, charges and taxes4. However, there are still significant potential to be tapped by exploring the efficiency and commercial gains associated with them.

The second challenge is the low degree of internationalisation of SME manufacturing companies, and subsequent increased integration for SMEs in advanced manufactur-ing value chains. The company structure in CDR (and the rest of Denmark) comprises of a large number of SMEs struggling to internationalise their activities. Despite em-ploying competent levels of human capital and managing increasingly productive as-sets, only about 6% of all Danish firms are exporters5, a number that could be signifi-cantly higher. In CDR advanced SME manufacturers lack appropriate channels to integrate properly into international advanced manufacturing value chains.

The third challenge concerns the growing importance of specialised, skilled labour in the region's manufacturing companies. Figure 1.1 shows that industrial employment has sustained a substantial decrease since the financial crisis, but now seems to be somewhat stabilized.

While the national trend in industrial employment shows an increasing share of high-tech jobs - as low-tech jobs are steadily outsourced - developments in CDR only show a stable to mildly negative development in the share of positions within high-tech manu-facturing. This suggests that the CDR has not been able to combat the threat of out-sourcing by increasingly investing in high-tech manufacturing to the same degree as can observed at the national level (see Figure 3). The regional government's own anal-yses show that industrial employment has decreased in all manufacturing sectors (be-sides machinery) since 2000.

Figure 3: Percentage of High Technology Manufacturing jobs of Total Manufacture

Source: Eurostat

Figure 3 shows that the CDR has a relatively low share of high-tech manufacture com-pared to the national level. However, according to the latest numbers from Eurostat, the level of business R&D investment and patent activities are comparatively higher than the national level, and substantially higher than the EU28 average (Eurostat; rd_e_gerdreg).

4 See ‘Strategy & opportunities for the Industry - 2013’ at https://www.rm.dk/regional-udvikling/statistik-og-analyse/det-midtjyske-vakstlag/resultater/ 5 Interview, Regional Development Director, Lars Vilbrad

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2008 2009 2010 2011 2012 2013 2014

Denmark Central Denmark


Regional signature

The challenges facing political and private sector decision makers are generally similar to the ones observed at national level, with a few exceptions. As recently pointed out by a number of international studies and previously documented in earlier RIM Plus publications, CDR is one of the regions in Europe that is particularly strong when it comes to Advanced Manufacturing Systems (RIM Plus, 2014). Furthermore, regional experts recognise the region as the centre for advanced manufacturing in Denmark.

The trends that can be observed in CDR can also be observed at the national level and are relevant for other regions as well. Slow pace of digitisation within firms, a low rate of internationalisation among small economic actors, and securing an efficient match between the supply of labour with the labour demand of businesses are recurring themes at national level6 as well as in other regions.

These challenges and trends, as well as the relative large share of value added originat-ing in the CDR manufacturing sector mean that advanced manufacturing and smart industry is more closely integrated within this regions’ growth and development pro-gramme as can be seen the following sections of the report. These trends - although generally prominent in the region - are particularly pronounced in the western part of CDR.

1.2 Business sector perspective CDR is home to many manufacturing companies and industrial exporters. This puts an efficient industrial action plan at the core of the supportive platform for companies starting to see the potential in digitisation and automation in and around the region.

The company structure in CDR, comprising some 55,000 companies, is divided into a very narrow group of large, knowledge-intensive OEMs serving global markets; a number of tier 1 and 2 suppliers, which are more orientated towards markets within their immediate geographical context; and, finally, a very large base of SMEs that are mainly oriented towards the domestic market. The SME group consists of many small manufacturers serving niche markets with highly customised goods. They often supply large international OEMs operating within the region or within relative geographical closeness.

The eastern part of the region, with Aarhus as the main city, is a growth centre in a regional and a national context, and the important subsectors here (e.g. wind power) are generally characterised by being knowledge-intensive. Many companies in the eastern part of the region have already evolved from being exclusively industrial com-panies to service and trade-related companies. The main focus for these companies has largely been to integrate in global value chains and adding value further down-stream in the value chain instead of contributing in early assembly phases.

The western part of the region traditionally housed most of the national leather and textile industries. These industry structures have been dismantled slowly since the 1980s due to global competition from low-cost countries. Globalisation has changed these industries. Some companies did not survive, while others changed their struc-ture from being a classical in-house manufacturing company to becoming successful

6 For more information on the national agenda, see the latest growth initiative by the Danish government: ‘Vækst 2015” (Growth 2015)


and agile designers and distributors7, substantially altering their integration with global value chains to pre- and post-manufacturing services.

Globalisation has challenged the manufacturing sector of CDR substantially, and many of the surviving companies have reconfigured their business models considerably to accommodate the new paradigm of domestic manufacturers. Investments in advanced manufacturing, digitisation, increased customer integration and automating certain parts of the value chain have been the preferred instruments for dealing with these new realities (CDR 2013).

Global leaders and smart followers

Compared to the other Danish regions, CDR has the biggest international manufactur-ing industry. The general company structure in the regions’ manufacturing sector re-sembles that of the overall national structure. There is a small base of large OEMs, which enjoy global leadership in focused markets, and a large base of SMEs that are either smart followers, closely linked with larger OEMs, or small innovative enterpris-es.8

With respect to OEMs, the region is home Vestas Wind System, the only global energy company dedicated exclusively to wind power, and food producers Danish Crown, Arla Foods and Lantmännen. All companies are currently investing heavily in technologies and processes under the Industry 4.0 umbrella.

The wind power hub situated in and around the eastern parts of the region is a good example of the 'ecosystem' around large OEMs and small local manufacturers that characterises competitive companies in the industry.

According to quarterly polls9, about half of all manufacturing companies in the region expect increasing sales the coming year, and the number is even higher for large firms, which are expecting to hire more employees in the coming year. The number of firms expecting decreasing sales has dropped from 54% in 2009 to just about 20% in 2014.

Main competitors and opportunities

Wind energy and biomass are - as previously mentioned - two areas where the CDR enjoys very strong competitive advantages and areas where companies operate on leading global competitive platforms. Vestas Wind Systems enjoys the position of be-ing the global market leader of wind turbine manufacturers, enjoying 11.6% of the global market, rivaled by companies such as German Siemens (9.5%), Chinese Gold-wind (9.0%), and US giant General Electric (8.7%).

Within foodstuff, the CDR based dairy producer Arla Foods, still enjoys the position as the seventh largest dairy producer in the world. Swiss based Nestlé, and French pro-ducers Lactalis and Danone, still enjoy the top 3 global positions, measured by turno-ver.

7 Interview, Prof. John Johansen 8 Interview, Chief consultant, Regional Development, Niels Dahl 9 See the regional growth analysis at http://www.rm.dk/siteassets/regional-udvikling/analyser-og-publika tioner/vakstlag/rm18---2013-februar/rm18-konjunkturer-2013-03-03.pdf


Increasing levels of global competition has been the general picture throughout the region, and the situation has had an impact on the structure of the regional manufac-turing base. The 2010 regional business development strategy, put it the following way:

“In the CDR we see that, just like other regions in the western economy, the entire world has become our competitors, and that new high growth nations offer manufac-turing conditions, so well founded, that we need to sustain constant improvement, in order to maintain our high levels of welfare and competitiveness. Outsourcing, and increasing demands for technology and human capital have brought substantial changes to the company structure within the CDR, where jobs and entire industries have changed.”(Growth Forum CDR, 2010, p.6)

Though this statement was formulated in the aftermath of the global financial crisis of 2007-8, and the structural developments have stabilised since then, the general feeling from regional experts is that international competition is only going to increase.

Relevant start-ups

Besides being the national hub for advanced manufacturing, CDR houses a number of high-growth start-ups (so called gazelles). For instance, Cetrea is a company that de-livers logistical solutions for hospitals. Its services initially began as a prototype devel-oped at Aarhus University. Twinca A/S, another example, is a company that specialis-es in fodder machinery for mink production and has completely revitalised its business model to incorporate digital solutions in the design and manufacturing phases of its production.

According to regional experts10, there is a tendency that companies are not utilising big data well enough. For instance, the food industry has been gathering excessive amounts of data for the last 15 years, but the industry lacks the ability to focus on data interpretation and usage to reap these potentials. Start-ups within the region are in-creasingly filling that role and offering the required innovative measures necessary in order to reap the benefits of these new business models.

1.3 Scientific research potential

Currently there is no coordinated or comprehensive Industry 4.0 research programme in the region, but much of the current research has clear linkages to Industry 4.0. The two most important research institutions in the region are Aarhus University and VIA University College.

Aarhus University houses the national research centre for environment and energy, and the national centre for agriculture and foodstuff. The university also houses MADALGO, the Center for Massive Data Algorithms, which is dedicated to research fostering accessibility to massive amounts of high quality data and the use of it via computation. This research is very much in line with the challenges for large compa-nies of not being able to exploit big data well enough. The centre is a collaboration between researchers at Aarhus University, the Max-Planck-Institute for Informat-ics and Goethe-University Frankfurt am Main in Germany and the Massachusetts Institute of Technology (MIT) in the US.

Aarhus University also has an efficient engineering department. The Mechanical and Materials Engineering Department is currently involved with the wind power industry

10 Interview, Consultant, Regional Development, Jesper Algren


in developing mobile machining cells for decentralised manufacture of wind turbines. The InnoMill project shows potential to save billions in manufacturing costs, severely boosting the competitiveness of the regional wind power base.

At VIA University College research and development focus has been prioritised for issues relating to management, innovation, entrepreneurship and globalisation of business. The output has been to create skilled business navigators for advanced man-ufacture in global value chains.

1.4 Role of intermediary institutions

In addition to research institutions, the role of intermediary institutions is an im-portant part of the innovation ecosystem of advanced manufacturing. In this regard, the GTS institutes and the Danish Centre for Advanced Materials Research play im-portant roles as intermediary institutions in the Industry 4.0 context.

The GTS Institutes of Denmark - which include the Alexandra Institute, Bioneer, DBI, Delta, DFM, DHI, Danish Technological Institute and Force Technology - have in-creased focus on the Industry 4.0 agenda. These institutes serve as integrators of state-of-the-art technological development, i.e. robotics and additive manufacturing, and industry players, acting as catalysts between technological development and industrial application. For instance, Danish Technological Institute performs additive manufac-turing operations for actors such as high-end racing car manufacturer Zenvo Automo-tive and world-class pick-up production (the kind used on record players) by manufac-turer Ortofon.

Danish Advanced Manufacturing Research Center (DAMRC) is an initiative created in 2009 by a Danish machine and metal manufacturer and the regional growth and busi-ness centre in Herning, co-funded by a multitude of regional and national actors, and inspired by the AMRC in Sheffield, UK. This initiative addresses the need for manufac-turers in Central Denmark to access recent knowledge and research on specific indus-tries and techniques within advanced manufacturing, such as laser welding. The list of founding partners involved in the initiative include a number of leading international research institutions, such as Boeing, Vestas, Danish Aerotech, CenSec, Terma, the regional government, Kyocera, Multicut, and others.

The centre has a physical laboratory in which different tests are conducted. The labor-atory is capable of handling a variety of different metals and advanced materials. DAMRC is now exclusively funded by the industry itself. This means that the region no longer provides funding support as the centre has become financially sustainable.

1.5 Developing skills for the future

In 2011, the regional government, in collaboration with consultancies SkanKomp and New Insight A/S, conducted an analysis (CDR 2013, p.78) on the future need for com-petences in the CDR. The analysis confirmed earlier projections about the declining need for unskilled labour. Industrial production in Denmark will have a constant changing position in global value chains. The Danish industry will increasingly involve less manual manufacturing, and will instead focus increasingly on integrating services


and goods11. It is also expected that the future of industrial manufacturing will involve fewer and more specialised companies.

Manufacturers in the region have stated that securing the availability of specialised, skilled workers in certain areas has been challenging in later years. The demand for skilled machine operators, tool and plastic makers, skilled CNC operators and produc-tion planning officers, etc. has increased during the last few years according to 120 regional manufacturers.

In general, the labour force is highly skilled, educated and plentiful, but bottlenecks occur within isolated skill sets. The SkanKomp analysis conducted in 2013 concluded that 57% of all manufacturers looked for skilled workers in job applications in 2012, and 24% of these found it challenging to match the skill set they required with the available labour pool.

1.6 Major investment projects

A cross-industrial innovation initiative including major industrial players under the Confederation of Danish Industry (DI) was launched in 2013 in an effort to stop the growing tendency of offshoring manufacturing operations from Denmark. The MADE initiative (Manufacturing Academy Denmark) includes a large number major research institutions and companies from the manufacturing industry, among them several players from the CDR. The initiative is financed by mixed public-private sector funds amounting to DKK 183.5m (EUR 24.4m) from 2014 to 2019.

MADE is a national investment project. Many of the major research institutions, such as Aarhus University, are involved in carrying out research under the MADE umbrella, for instance, through focused PhDs. The initiative offers a variety of work packages and access to state-of-the-art research for members of the initiative and thus gives access to valuable knowledge for manufacturing companies.

MADE member companies with less than 250 employees can apply for demonstration projects, which provide economic and knowledge support over a period of six to eight months. The company may apply for support worth DKK 92,000 (EUR 12,250). The companies can choose to focus on strengthening the existing management systems, demonstrating new technologies, or a combination of these. The requirement for sup-port is that the project lies within the boundaries of the nine production themes that MADE operates within:

• Rapid product development

• Modular manufacturing for decentralised production

• 3D print and new manufacturing processes

• Model-based development of supply chains

• Digitisation of supply chains

• Lifelong product-adaptation

• The future paradigm of production

• Hyper-flexible automation

• Sensors and quality control.

11 Interview, Prof. John Johansen


1.7 International cooperation

DAMRC (see section 1.4) was established in connection with a research agreement between Aarhus University and international research institutions such as Sheffield University. The aim is to integrate fully the co-funded research into the research de-partment at Aarhus University with a view to international technological development in advanced manufacturing processes.

The major international initiative in Central Denmark is GLOBALmidt. The initiative is run by the regional government and is a development programme co-sponsored by EU Structural Funds. It is designed to create a sustainable platform for long-term in-ternational growth in CDR and focuses increasingly on bridging the gap between Dan-ish manufacturers and the advanced manufacturing regions in the southern part of Germany.

The programme partners are SMEs and entrepreneurs with knowledge resources spe-cifically designed to improve international competitiveness of SME manufacturers. In connection with the regional Growth Forums’ SME efforts, the goal of this investment is to gather local, regional, national and international actors in a new and connected export advisory effort, thereby increasing the level of internationalisation.

The goal is to identify and increase the level of cooperation with international actors, advisors and networks on foreign markets. Furthermore, the design of the programme fosters an increase in the number of regional actors engaged in international research and development programmes, and supports intercultural understanding. This aims at improving the conditions for integrating skilled foreign labour into regional labour pools.

Through GLOBALmidt companies can participate in joint export ventures; receive tailored advice when first initiating export activities; and gain access to international networks of foreign buyers, competences on internationalisation activities, etc.

In terms of international cooperation agreements, the region is not involved in any agreements supporting Industry 4.0.


1.8 Policy support and delivery mechanisms

Industry 4.0 as such is not described in the regional growth strategy. However, in the regional support policies and several delivery mechanisms, concepts, technologies and developments related to Industry 4.0 are highly integrated.

Industry 4.0 is particularly significant in two areas of the strategy. The first area con-cerns the vision of a ‘Smart Industry’ cluster. As manufacturing in the region has changed dramatically, smart manufacturing is becoming increasingly important. It is an area where policy must address critical challenges for it to have a sustainable inte-gration in the industrial structure of Central Denmark.

“Industry 4.0 and the aspects that come with it, is something that is very im-portant to the Central Denmark Region. Right now we are working on estab-lishing a new business cluster for digitisation and general strengthening of the industrial ICT platform. There is also an innovation programme for smart in-dustries, especially within foodstuff, with an estimated budget of DKK 70m.” Niels Dahl, Chief Consultant

Another element in the recently published regional strategy is increased focus on the market of southern Germany, where the region is looking to establish partnerships between Aarhus University and German research institutions (such as the Fraunhofer Institute or the Max Planck Institute). In the future export support measures – both regional and national – will increasingly focus on assisting Danish manufacturers in exporting to the southern parts of Germany.

As for policy support measures focusing on Industry 4.0, one initiative stands out. The ‘Manufacturing the Future’ initiative is a comprehensive, well-funded regional initia-tive targeting the future development of advanced manufacturing in central Denmark. This initiative will be discussed in further detail in the following sub-sections.

The measure is very comprehensive, utilising several instruments available to the re-gional government. Many regional actors have worked together to formulate the policy measure that has to do with the importance of designing manufacturing of the future, but also with the fact that the formulation of regional strengths is increasingly becom-ing an inclusive process.

Oversight and accountability

The Office for Regional Development manages a number of performance contracts with operators of the various policy initiatives. The European Structural Funds typical-ly co-finances these initiatives. In these cases the Regional Growth Forum oversees these activities, and the National Audit Office and the Danish Business Authority su-pervise the activities to assess the legality of policy measures co-financed through the European Structural Funds12.

In Denmark the general governance structure of the regional business development is defined by law and is thus the same for all regions. The central actor for regional busi-ness policies in Denmark is the Danish Growth Council, which must be consulted re-garding regional business development strategies. There are six regional growth fo-rums – one for each region in Denmark. The Growth Forum for the Central Denmark Region is one of the growth forums. The growth forums define a strategy for regional

12 Interview, Chief Consultant, Niels Dahl


business development, monitor regional and local growth conditions, recommend co-financing to the regions and recommend structural assistance. The growth forums bring together representatives of the business community, knowledge and educational establishments, the labour market parties and local and regional authorities.

The Central Denmark Growth Forum’s secretariat is part of the administration of CDR. The secretariat administers projects on innovation, knowledge-building, new technologies, and tourism under the strategic priorities of the Growth Forum. Its busi-ness development activities are financed by the Regional Council’s business develop-ment funds and externally by EU Structural Funds, national schemes and contribu-tions from project partners.

At the national level the Growth Forums have contributed to the national strategies for innovation, such as the INNO+ process, which will be a platform for inspiration for and prioritisation of strategic investments in innovation. INNO+ is part the Danish government’s work on an innovation strategy for Denmark. This means that there is a clear link between the innovation strategies in the regions and the national innovation strategies. The OECD evaluated the governance structure positively in 2012 ((OECD, 2012, p.158).

1.9 Good practice cases

Companies in the CDR are increasingly becoming aware of the potential benefits asso-ciated with advanced manufacturing and increased digitisation in their manufacturing operations. The following two cases are examples of companies in the region that have recently undergone a transformation from relatively traditional manufacturing to ad-vanced manufacturing, using a systemic approach to data generation and implementa-tion. The two cases are based on previous interactions with their company CEOs. While the effects in both cases have not been quantified, both CEOs report a positive impact in terms of increase in turnover.

SKOV A/S – Increased Use of Data Enabling New Business Models

The Danish company SKOV A/S has developed their products in a direction that gives them significant competitive advantages. Hence, the company is now capable of creat-ing new business models. This means that consumer service and output production has increased significantly.

SKOV A/S has existed for 35 years and is located in the Municipality of Skive. The company produces complete ventilation and product management systems for use by pig and poultry farms. The company develops and produces systems and components for ventilation, livestock house air cleaning and production control. SKOV is an indus-try leader on the international market for climate control and production monitoring of animal production. Today SKOV reaches 65 countries.

One reason for this is the company’s systematic use of data. Today, SKOV has 285 employees in the areas of production, sales, R&D and service. There are 65 employees in the R&D Department to strengthen the development and integration of data, etc. further. In addition, the systematic use of data has opened up the potential for new business models, which has resulted in increased sales activities in relation to system service and maintenance.

Data development in SKOV A/S

SKOV gathers a large amount of several types of data such as production data, eco-nomic data, sales data and data generated in the customers’ systems. In particular, the


data gathered from the company’s products located at the customers’ premises has been a major achievement. The company has used the data to develop new services and products, thus creating a new business model and improving its competitive ad-vantage.

Seven to eight years ago ventilation and product management systems were developed to gather different types of data from pig and poultry farms. The major pig and poultry manufacturers, who identified a need to improve the conditions for monitoring pro-duction and benchmarking across stables and farms, primarily drove this develop-ment. Based on this demand, SKOV developed systems that have the capability to gather data on fodder consumption, animal weight, water utility, temperature and humidity, etc. These different types of data make it possible to create intelligent pro-duction comparisons across stables and, furthermore, explore the opportunities for optimisation.

In recent years, SKOV has taken advantage of these types of data to increase the smart content of their output. To create an official data strategy was a management driven initiative. The management believed that it was necessary to develop and employ data to maintain a competitive market. Therefore, a product manager was appointed with the aim of developing the company’s data utility. The manager visited foreign custom-ers with the purpose of investigating their needs and demands. In particular, the product manager identified a large demand for intelligent and stable monitoring. Based on this demand, the system engineering team increased from one to 16 employ-ees – eight of them located in Denmark and eight in Malaysia. SKOV wanted to con-centrate their effort on providing and developing data based products.

This has had a major effect on the business since the company’s core products have changed from traditional components for farming equipment to production manage-ment and monitoring systems. SKOV is one of the leading companies when it comes to these types of systems. This gives the company a competitive advantage to become an influential actor on the global market.

Based on the increased data collection the company has developed new products and services in counselling and maintenance. Today, SKOV can assist its customers in situations where the customers themselves have identified a problem.

In the future, the aim is to become even more pro-active by setting up intelligent data monitoring systems that have the capacity to identify suboptimal areas in the produc-tion. This will give SKOV a clear indication of how to increase revenue from counsel-ling and maintenance services.

Additionally, data in relation to wear conditions of the ventilation and product man-agement systems may help SKOV to actively advise customers in terms of replacement and maintenance. This will prevent costly system failures for the customer, while opening up a new market opportunity for SKOV.

In the future, the next big challenge is to conceptualise the new database business models. First, it is necessary to have the right organisational set-up to respond to the problems identified by the customers. In this context, competences within data mining and statistical analysis are important as well. Second, these competences must be inte-grated into the overall business strategy. This requires the right type of employees who can understand both the technical and the business-related issues.


Gains and consequences

SKOV has experienced major competitive advantages thanks to the systematic use of data. The strategic use of data has resulted in a much better production adaptability, increasingly enabling the company to meet customer demand and product require-ments. This makes SKOV one of the world's leading suppliers of ventilation and prod-uct management systems for use on pig and poultry farms.

Until now the company has not been able to isolate the specific economic gains stem-ming from the data strategy. The CEO of the company believes that investments in data management must be viewed in a broader perspective. Even though many re-sources are spent on developing new technological data components, it is important to view the data components not as separate products but as enablers that make it possi-ble to provide efficient and integrated solutions to the customers.

Challenges

It has been a major challenge to overcome the high level of conservatism within the sector. In the beginning, a change of mentality was also required within SKOV itself. People needed to be convinced that data management is the future in the pig and poul-try production.

Moreover, the use of data challenged the company and customer’s existing IT infra-structure systems. In some customer locations broadband connections had not been installed. Today, all customers have an efficient Internet connection, which is a pre-requisite to fully utilise the potential of SKOV's products.

Advice and recommendations

To take advantage of big data and digitisation, both elements of Industry 4.0, it is im-portant for a company to formulate a clear data strategy that is supported by the top management. Management support and non-risk aversion are crucial when managing flaws and errors that - to a certain extent - are inevitable in such a development pro-cess.

SKOV has been willing to fail, and, fortunately, there have only been few uncertainty costs. SKOV has been able to test the product prototypes in collaboration with cus-tomers with a technological interest in being first movers on the market. This has re-sulted in a very effective feedback process between SKOV and its customers. Based on this feedback SKOV has developed final products that suit the demand of its customers well.

Brimas A/S – Digitalisation in Laser Welding Manufacture

Based on an effective data strategy, the Danish company Brimas A/S has improved several production and accounting processes. The strategy has contributed to long-term growth.

Brimas A/S was established in 1998 with the aim of producing stainless steel fittings for the boat industry. Today, Brimas A/S has 45 employees and is one of the leading companies within the area of laser cutting, welding and machining.

The company produces products and services for very different industries such as the offshore industry, the food industry and the pharmaceutical industry. The company has primarily focused on strengthening their position on the Danish market.


The Use of Data in Brimas A/S

When Brimas A/S invested in an Enterprise Resource Planning System (ERP system) in 2002, the company also focused on systematic data management. Over the years, the system has been developed and improved to automate parts of the company’s ad-ministrative processes such as written reminders.

In particular, the optimisation in relation to accounting has resulted in large adminis-trative savings. Part of the data strategy is to improve process optimisation and auto-mation at all levels of the organisation through systematic work and management. The data strategy prescribes that all information and data must be integrated into the sys-tems only once. This requires a high level of process optimisation. Furthermore, it implies that all employees are aware of and have the capability to address potential workflow irregularities. Both smiths and project managers follow a product develop-ment process from the beginning to the end, which is rather unusual compared to the traditional way of structuring assembly line work.

More specifically, the employees change working positions according to the produc-tion process. This structure makes it easier for the employees to recognise optimisa-tion opportunities because every employee is present during the whole production process. When an employee identifies improvement opportunities, a project group is established to analyse the identified issue and suggest potential solutions.

Such a project was launched with the aim of improving the CAD file system. When CAD files are sent to customers, small errors and changes may happen, which are of-ten first recognised very late in the manufacturing process. Production of flawed goods results in major costs for the company. Based on the development of a new clean-up component that automatically analyses the existing CAD files and identifies potential errors, the system can automatically correct the identified errors. Otherwise, the sys-tem sends a message to the project manager in charge.

The advantages of automation have been very positive. Therefore, further work on the use of data is expected to benefit the company. There is a major potential to investi-gate further how robots and automation may improve the welding and binding pro-cesses. Brimas will continue the development of digitisation and automation solutions in the future.

The challenge has been to incorporate digitisation and automation in the production process too, which primarily consists of production of highly specialised work pieces.

Gains and consequences

The process improvements enabled by intelligent use of data in the company have resulted in several positive results. Accounting costs have decreased to a major extent, while the development of the file system has resulted in significant savings in terms of working resources.

Additionally, the use of data makes it possible to enter into dialogue with the custom-ers to fulfil their expectations and requirements. Based on the existing data, the costs of producing a specialised subject are easily determined. Hence, these changes con-tribute to a high level of customer service.

Advice and recommendations

It is very costly to invest in new file systems, develop ERP systems and obtain external support. Therefore, it is very important to evaluate carefully the relevance of the sys-tems and to estimate to which extent the systems will contribute to the value creation


and growth in the future. This can be done through systematic dialogue on the possi-bilities of production optimisation with the company’s different suppliers. It is im-portant to include their input in potential areas of improvement. In addition, an im-portant task is to create a business case to present the total costs and future potential savings clearly in relation to the system investments.

1.10 Leveraging the existing potential

Based on the previous sections, the major challenges related to Industry 4.0 and ad-vanced manufacturing in CDR can be summarised as follows:

• Challenge 1: Slow digitisation pace in many manufacturing companies

Most manufacturers in Central Denmark agree that digitisation and automation can prove to be valuable tools for addressing challenges such as high wages, charges and taxes13. However, there is still significant potential to be grasped by exploring the effi-ciency and commercial gains associated with automation and digitisation. The speed and efficiency with which Danish manufacturing industries have been able to digitise their operations in certain parts of their value chain, especially in relation to their ad-vanced manufacturing operations, can be improved.

• Challenge 2: Difficulties for SME tier 1-2 suppliers to internationalise their activities and be part of international value chains

The company structure in CDR (and the rest of Denmark) consists of a large number of SMEs that struggle to internationalise their activities. Despite employing competent levels of human capital and managing increasingly productive assets, only about 6% of all Danish firms are exporters, a number that could be significantly higher14. In CDR advanced SME manufacturers lack appropriate channels to integrate properly into international advanced manufacturing value chains.

• Challenge 3: Shortage of skilled, specialised workforce adapted to the requirements of advanced manufacturing

The third challenge concerns the growing importance of specialised, skilled labour in the manufacturing companies in the region. Due to the increased focus on automation and specialisation, many job functions have changed. While the majority of the re-gions’ eastern industries have largely been able to withstand the loss of industrial em-ployment, industrial firms in the western municipalities of CDR have reported heavy job losses.

A highly skilled specialised workforce is the foundation for a successful advanced manufacturing industry in the region. However, a quarter of all firms report difficul-ties when trying to recruit highly skilled labour. While low-tech jobs have been steadily outsourced to low labour cost countries in the past two decades, it seems that the share of high-tech manufacturing jobs has remained steady, suggesting a decline in these jobs as well.

13 See ‘Strategy & opportunities for the Industry - 2013’ at https://www.rm.dk/regional-udvikling/statistik-og-analyse/det-midtjyske-vakstlag/resultater/

14 Interview, Regional Development Director, Lars Vilbrad


Possible future orientations and possibilities for Industry 4.0 in the re-gion

• Further integrating operations between clusters of smart SME manu-facturers and large regionally based global OEMs

Industry 4.0 will present itself as an opportunity for those manufacturers large enough to sustain comprehensive integration within increasingly digital and automated global value chains. John Johansen, a professor at Aalborg University and an industrial ex-pert, predicts that the critical mass for successful integration in global value chains will shift, weakening the possibilities for successful integration of small, less globally present manufacturers.

Clusters of small, more advanced manufacturing actors would allow specialisation in a group of actors, allowing clusters to reach the necessary external economies of scale required for manufacturing to compete at a global level. This could lead to increased formation of clusters of SME manufacturers with large OEMs capable of engaging and tapping the potential that these networks present.

• Securing a high-skilled workforce adapted to advanced manufacturing conditions

The age of Industry 4.0 and advanced manufacturing requires human capital and competences that are in line with the future realities of manufacturing. One in four manufacturers in CDR reports that finding specialised human skill sets attuned to their requirements presents a challenge. Skilled machine operators, tool and plastic makers, skilled Computer Numerical Control operators and production planning offic-ers are among the professions mentioned by the CDR administration.

To complement the natural mobility in these labour pools as well as the generally rec-ognised truth that the need for unskilled labour will drop drastically in the years to come, the region would benefit from further integrating these competences into edu-cation and training programmes targeting manufacture in the future.

Opportunities for cooperation across European regions

The development of an industrial infrastructure able to capture the potential benefits from Industry 4.0 requires a comprehensive effort. The development requires not only cooperation among competing firms in the private sector, but also the necessary public support and inter-regional engagement.

Building a complex value network able to produce and distribute products in value chains enabled by Industry 4.0 requires cooperation and coordination between large groups of competitors. These cross-industry and cross-value chain interactions will need a harmonised approach in order for it to succeed. The establishment and use of standards that allow quick and effortless transmission of large quantities of data, is a solid opportunity for cooperation across Europe.

Advanced manufacturing also raises a variety of legal questions including employee supervision, product liability and intellectual property, which could effectively be han-dled within the EU framework. If an autonomous manufacturing system that links different value networks produces a defective or dangerous product, how should the courts determine who in the network is responsible? If a customer requests an indi-vidualised product, who owns the intellectual property (IP) rights to the design?


2. Regional Innovation Performance Trends, Governance and In-struments

2.1 Recent trends in innovation performance and identified challenges

In general, the strengths and focus areas of the regional growth and industrial policy have largely been sustained since CDR was created by the structural reform of the administrative regions of Denmark in 2007. The division of the strategic focus areas into ‘vertical’ sectors and ‘horizontal’ clusters is a remnant of the initial development of the innovation and growth strategy created, among others, with inspiration from the British and Swedish innovation models. The strategy has been adjusted along the way to accommodate two new areas, i.e. smart industry and the creative cluster.

Most recently the OECD revised and evaluated the performance of the regional inno-vation system in 2012. The revision underlined a clear distinction between 1st (before 2009) and 2nd (2010 and onwards) generation regional policy development. The revi-sion was generally positive, and the OECD had the following recommendations for further development, which have subsequently been included in the regional strategy (see Box 1).

Box 1: Key OECD recommendations for CDR regional strategies, 2012

• Achieve greater clarity concerning the growth bottlenecks and growth expectations in different settings

o Use more creative approaches than tourism if economic growth is de-sired in peripheral areas; to capitalise on innovation in public services to address other growth barriers (social services; education, e.g., high school dropouts, labour market, e.g., to promote living in peripheral ar-eas).

• Achieve the level of international best practices for smart special-isation as currently defined, adjustments include efforts to:

o Promote next generation cluster policy approaches (cross-border and cross-cluster) with greater communication and branding on interna-tional positioning of prioritised niches (including using peer reviews).

o Cultivate a strategy and project development process that helps trigger new ideas with greater private and civil society engagement (e.g., ad hoc working groups including the 'unusual' suspects, openness to good ideas in non-prioritised sectors).

o Build critical mass through greater linkages with other Danish regions and national priorities as well as international firm and research con-nections.

o Ensure that the policy mix promoted in each region matches the absorp-tion capacity of the prioritised sectors, pays sufficient attention to com-mercialisation, and addresses non-STI forms of innovation.

• Strengthen the most relevant innovation system actors and rela-tions:

o Endeavour with national government to prevent actor or programme proliferation as is common with 'one-problem, one-solution' instru-ments.

o Develop functional mappings of innovation actors relevant for regional (and national) systems, highlighting the areas for improvement by ac-


tor, including universities.

• Develop and attract regionally needed skills to meet current and future labour shortages:

o Low-skilled workers: improving ways to vocational and technical train-ing and integration of immigrants.

o High-skilled workers: through attractiveness, international recruitment, and more tailored university programmes.

• Use policy intelligence and learning to complement existing pro-ject selection and evaluation mechanisms (including with national government, which is facilitated by greater harmonisation of pro-gramme data across regions).

Source: OECD, 2012

In general, the regional innovation performance is very strong together with the inno-vative performance of firms and research institutions. For instance, a large number of patents are taken out in CDR compared to the rest of Denmark and EU28 (see Figure 4).

Figure 4: Patents taken per million of active population

Source: Eurostat 2015

Central Denmark has a very high level of patenting activity per million of its active population, and 2011 saw a patent output more than 25% higher than the country av-erage, and more than twice the level of the EU28 average.

Compared to the rest of Denmark, CDR has a relatively high percentage of IT-skilled employment within the industry. Moreover, the share of the active population em-ployed in science and technology in the region is on par with the rest of Denmark and is considerably higher than the EU28 average (see Figure 5).

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Figure 5: Share of active population employed in Science and Tech (left) and IT-skilled employment within industries (right) - percentages

Source: Eurostat, 2015 (left), Statistics Denmark, 2013 (right)

The strong research performance documented by patent data from CDR along with the relative high level of employment within science and technology, and the relatively high degree of IT employment within the industrial sector, show a strong base for fur-ther digitisation and automation in the industry.

Together with the relative high degree of GVA output from manufacturing in the re-gion, these numbers show a unique opportunity to drive the development of automa-tion and digitisation in the regions’ industrial structure as we move slowly towards Industry 4.0. However, at the present, a consolidated Industry 4.0 practice cannot be identified as an isolated element in the regional strategy, and it is more or less frag-mented within different efforts.

• Challenge 1: Deepening smart specialisation in the region

The 2012 OECD review pointed out that regional smart specialisation is an area where innovation policy can be continuously improved. In general, the review praised the regional innovation policy conducted by and with help from the regional government, but also highlighted areas the region could improve. The region has increased its par-ticipation in cross-regional cluster strategy processes and greater attention has been paid to ensuring that the policy mix promoted in the region matches the absorption capacity of prioritised sectors. Despite this type of good performance, the region still identifies a need for further improving smart specialisation by focusing on increasing the level of international firm and research connections and efforts to ensure that the innovation policy pays sufficient attention to commercialisation and addresses non-STI forms of innovation.

• Challenge 2: Securing economic growth through the diffusion of high research performance

A focused set of research initiatives from a number of leading actors has had a tre-mendous impact on the innovative capabilities of firms in CDR. Patenting activity has increased substantially. In recent years, CDR has developed its patenting base from a level corresponding to the national average to a level well above the national and EU28 levels. In the last few years, research and development have focused considera-

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bly on strengthening the regional industrial base. The challenge in the coming years will be efficient dissemination of these new technologies so that companies can make even better use of this knowledge.

• Challenge 3: Harvesting advanced manufacturing potential from high employment in science and technology and high levels of IT specialisa-tion

CDR sees high levels of employment within science and technology, and a relatively high degree of IT employment in the industrial sector. This shows a good potential for increasing the digitisation and data utilisation in manufacturing companies. For com-panies in CDR the challenge is to harvest this potential effectively for an efficient tran-sition to new and improved business models of future manufacturing.

2.2 Institutional framework and set-up

CDR’s innovation policies fall into two categories: the regional industrial policy and the internal innovation strategy.

The vision of the regional industrial policy is that “in 2025, CDR is an attractive and sustainable growth region” (CDR, 2015, p.10). The priorities of the regional industrial policy are formulated in the Business Development Strategy 2015-2025 for CDR. The strategy primarily focuses on four strong sectors (sectoral layers) in the region:

1. Energy and Environment: CDR's businesses account for 67% of Danish indus-trial exports in the energy and environment sectors;

2. Foodstuff: CDR accounts for 55% of Danish foodstuff exports;

3. Welfare Innovation with a strong growth potential; and

4. Tourism, which is also expected to have a strong growth potential.

These sectors play, or have the potential to play, an important role in CDR’s economy even in the region’s remoter areas.

In addition, there are three other (horizontal layers) areas, which are not related to a specific sector. They are:

5. Innovation and Business Development;

6. Entrepreneurship; and

7. Education and Skill Development.

The first and last layers are particularly important areas in securing the future devel-opment of advanced manufacturing and Industry 4.0 in the region. Innovation activi-ties are primarily concentrated in the sectoral layer in a few large framework projects involving businesses, research and public sector partners.

Within the Advanced Manufacturing umbrella, a programme on 'The Future of Manu-facturing Business Models' has run in different formats since 2013. This comprehen-sive programme aims at supporting the transition towards an advanced manufacturing sector and increased adaptation of the associated business models. We examine the programme in further detail in sections 2.3-2.5.

Digitalisation has also recently joined the innovation policy agenda, and a new initia-tive on big data utilisation is a planned activity for the next two years ending in 2018. The initiative is in line with the national government's Growth Initiative and will serve


as a cornerstone for increasing companies’ knowledge and utilisation of the known Industry 4.0 phenomena (Internet of Things (IoT), big data, etc.)

Box 2 - High importance of innovation and integration of evaluation to develop the regional strategy, Central Denmark Region

Source: RIM Plus Central Denmark Region Regional Innovation Report, 2014

2.3 Regional innovation policy mix – Industry 4.0

As stated above, CDR has not developed a comprehensive and isolated strategy on Industry 4.0. Rather, the innovation efforts regarding this theme should be seen as an integral part of the region's existing policy mix. Table 1 shows a list of recent innova-tion initiatives provided by the regional government that all share similarities in rela-tion to the Industry 4.0 agenda.

Table 1: Regional innovation support measures (horizontal layers)

Title Duration Policy

priorities

Budg-et

(mil-lion

DKK)

Organisation responsible

More infor-mation

Manufacturing the Future 1 2013-14

The future of industrial busi-ness models

The future image of industry

Growth in SME´s

-

Central Den-mark Region [Administrative unit]

http://www.viauc.dk/hoejskoler/tmh/virksom-he-der/Sider/industrielle-forretningsmodel-ler.aspx

Manufacturing the Future 2

(replaces Manufacturing

2015 The future of industrial busi-ness models

5.4 Central Den-mark Region [Administrative

http://www.viauc.dk/hoejskoler/tmh/virksom-he-der/Sider/industriel

For the Central Denmark region, the region’s Growth Forum is the key ac-tor for developing and implementing innovation policy measures, while on the central level, the Danish Growth Council is responsible for ensuring coherence between national and regional growth efforts. The Danish Minis-try of Business and Growth and the region collaborate in producing an an-nual evaluation of the regional strategy. The Growth Forums are responsible for innovation policy initiatives and projects, but implementation of these measures is under responsibility of further actors like, for instance, research institutions or public partners. Similarly, the Growth Forum oversees monitoring and evaluation of the initiatives, that are generally performed by external partners. Each individual innovation project is subject to monitoring, though the whole innovation policy mix has not been evaluated yet. In order to closely interlink national and regional business development policies and thus to improve the overall regional innovation policy, a partnership agreement between the Danish Ministry of business and Growth and the Central Den-mark Growth Forum was adopted. This agreement is evaluated annually; and it is envisaged that the evaluation will be an integral part of the effort to further develop the regional strategy.


Title Duration Policy

priorities

Budg-et

(mil-lion

DKK)

Organisation responsible

More infor-mation

the Future 1 from 2013-2014)

The future image of industry

Growth in SME's

unit] le-forretningsmodel-ler.aspx

Growth Pro-gramme for SMEs in Man-ufacturing

2016-2018 Growth in SME Manufacturers

50.8 (3 from Growth Forum Central Den-mark)

Growth House Central Den-mark and addi-tional partners

Homepage not yet published

Knowledge Network for Manufacturers

In Develop-ment, ex-pected in 2016

Knowledge col-laboration be-tween SME´s and knowledge institu-tions

7-10 Central Den-mark Region

Homepage not yet published

Innovative use of Big Data 2016 - 2018 Digitalisation

9 + co-financ-ing

[Currently seek-ing operator]

http://www.rm.dk/regional-udvi-kling/digitalisering/big-data/

Rethink Busi-ness: Focused, Integrated Value Chain– design for optimum use of resources

2016 - 2018 Circular Economy n/a Central Den-mark Region

http://rethinkbusiness.dk

Remarks: Budget values in million DKK

2.4 Appraisal of regional innovation policies Adequacy and fit of regional innovation policies

The scope and scale of the regional innovation policy mix appear very much to be in line with the identified challenges. At a general level, CDR considers the above measures to be adequate when addressing the challenges identified by private and public actors15, and the challenges considered in section 2.1.

Some initiatives target specific challenges, such as how the knowledge networks be-tween SME manufacturers and research institutions target the specific challenges of disseminating the research results of the region’s research institutions and leading companies, while other initiatives have a more general application, both in terms of addressing challenges and in its sectoral application.

15 Interview Regional Development Director, Lars Vilbrad


Table 2: Innovation Policy fit (horizontal layers)

Identified Industry 4.0 Innovation Challenge Regional Measure

Lack of smart specialisation Manufacturing the Future

Economic growth through the dissemination of high research performance

Knowledge Networks for Manufacturers

Manufacturing the Future

Harvest advanced manufacturing potential from high employment in science and tech-nology and high levels of IT specialisation in CDR industries

Innovative use of Big Data

Growth Programme for SMEs in Manu-facturing


Unrelated challenges to Industry 4.0 ReThink Business (Circular Economy)

The challenges highlighted by the OECD in 2012 generally relate to the organisation and formulation procedures of individual policies rather than the efficiency of these. The evaluation seems to have initiated a slight shift in the intra-regional and national-regional levels of coordination, where regional initiatives now increasingly incorporate vocalised challenges of regional companies while exerting support measures coordi-nated with the national agenda in the ministries.

The evidence-based principles that now lie behind a number of these listed initiatives (such as ‘Manufacturing the Future’) are coordinated with several outside actors, both private and public, and are in line with the priorities of regional firms and national government (see section 2.5).

Evaluation, monitoring and assessments of innovation performance

In terms of framework conditions to promote the establishment of new business and entrepreneurial activities, Denmark ranks well globally. Generally, Denmark is posi-tioned in the top 10 economies in listings such as the World Bank’s Doing Business Report or the World Economic Forum’s Global Competitiveness Report. The 2012 OECD review also evaluated the factual output of the innovation system in Central Denmark positively, citing especially the system’s engagement with the Energy & En-vironment sector.

“In terms of renewable energy patents [the CDR] performs well on the global scene, with [the CDR] being the third ranked region globally in terms of volume of renewable energy patents. There are both linkages across [Danish] regions for wind energy and distinctly different niches.” (OECD, 2012, p.28-30)

About the regions policies directed towards the food sector, the OECD had the follow-ing comments:

“The region contains some of the biggest food-related activities and firms in Denmark, along with several scientific and research actors. The region supports the development of clusters and networks in the food sector, and promotes knowledge transfer, training, research and innovation activities in food-related areas.” (Ibid.)


The latest fact-based assessment by the Danish Business Authority evaluated the re-gional governments’ performance in the seven policy areas shown below. It showed that a total of 2,796 jobs were created by projects in 2007 – 2009; there was an in-crease in turnover of DKK 4.1bn; while the numbers from 2010-2011 where 3,521 jobs and DKK 1bn (so far) in increased turnover.

Table 3: Results of fact-based evaluation of policy measures

Number of created jobs

(man years) Created increase in turn-

over (mil. DKK)

Projects from 2007

- 2009

Projects from 2010 -

2011

Projects from 2007

- 2009

Projects from 2010 -

2011

Energy & Environment - n/a - n/a Foodstuff 203 n/a 255 n/a Welfare Innovation 104 n/a - no projects Tourism 105 374 - 72 Innovation and Business Development 2,043 347 2,546 454 Entrepreneurship 341 169 1,159 43 Education and competence building - 2,631 150 453

Total 2,796 3,521 4,110 1,022

Source: Central Denmark, 2015

Synergies between national and regional innovation support measures

As mentioned in the section on adequacy and fit of regional innovation policies, coor-dination between the regional and national levels in the Danish growth and innovation eco-system is running smoothly. CDR's regional innovation strategy used to be re-garded as too top-down in its approach. However, in later years, there has been in-creased feedback between regional good practice and national growth ambitions ac-cording to interviews with regional experts.

This is especially true for the ‘Manufacturing the Future’ initiative whose evidence-based principles, targeted and comprehensive package design, and individually tai-lored content have inspired the incorporation of similar principles in national growth packages and other similar regional initiatives that have been ‘regionalised’ to fit the identified strengths and weaknesses of the region in question.

2.5 Policy good practice

There are a number of learning points that can be identified from this regional practice of industrial policy development and implementation.


CDR's ‘Manufacturing the Future’ initiative is a comprehensive industrial policy pack-age. The initiative is based on regional policy practices, a consolidated and integrated organisation of regional competences, and an updated and evidence-based knowledge structure of the strengths and weaknesses of the regional industrial base. Its main strength is the inclusive and participatory process by which regional actors can con-tribute to processes under the initiative, thereby ensuring that the initiative meets stakeholder needs as well as possible.


The initiative is partly based on research undertaken by REG:LAB, a non-profit organ-isation whose mission statement it is to strengthen knowledge and competences in regional development. A large number of key industrial players are members of REG:LAB. Its research – as well as other key regional actors (CDR 2013) – has identi-fied five unique characteristics of successful manufacturers in CDR (see Figure 6).

Figure 6: The Industrial Star – Five characteristics of successful Danish manufacturing companies

Source: Adapted from REG:LAB, 2012

These five basic principles lie behind the general concept of the ‘Manufacturing the Future’ programme and serve as guidance for industrial players entering the pro-gramme. Based on the ‘industrial star’, 'Manufacturing the Future' was developed based on a number of qualitative industry cases, which substantiated and operational-ised the ‘star’ to fit the regional and sub-sectoral context (CDR, 2013).

“Modern successful manufacturers do not only work with one thing, one cor-ner of the star, they are multidisciplinary, operating at many levels and capa-ble of calibrating their business model to continuously stay competitive in their market. It can be small efforts like securing online sales channels, or more comprehensive progressions – like making the transition to manufacturing in-to the Industry 4.0 paradigm” (Niels Dahl, Regional Development)

The ‘Manufacturing the Future’ initiative has been active in two different formats since it was developed in 2012. In its current form the initiative encompasses three different activities or areas, where companies can develop new manufacturing business models oriented towards the international market, develop and strengthen buyer/supplier constellations, etc. Companies entering the programme are initially offered a 20-hour screening with a specialised consultant to evaluate potential gains and identify the specific needs of the company. Subsequently, a panel evaluation with the Confedera-tion of Danish Industries is initiated following a business model pitch from the

Holistic Business Concept

Trimmed Production

Strong and integrated development organisation

Specialisation Client developing relations


applicant. This provides the company with further specialised consultation and partic-ipation in workshops and networks.

Targeted focus

‘Manufacturing the Future’ is aimed at companies with 5 to 250 employees. The first generation initiative revolved around three subareas:

Area 1: Future industry business models

The goal of these activities is that more manufacturing companies launch strategy and skill building courses. The aim of these courses is to achieve corporate growth poten-tial through direct and indirect exports.

The area includes three activities:

• Initial guidance to identify the growth potential for manufacturers entering the programme.

• Strategy workshops, which include base camps with the participation of several companies. The base camps serve to prepare the companies for an individual strategy workshop.

• Growth groups and development as established in the specific themes and de-pending on corporate demand (networks).

Area 2: Future industry-incubators

Projects under Area 2 will examine and develop concepts for knowledge flow between business support system, knowledge institutions and educational and research institu-tions and set up cooperation agreements between the parties. The aim is to improve growing conditions for manufacturing companies.

The initiative includes support for the following activities:

• research and knowledge;

• technology and process;

• training and intelligent financing;

• physical environments and synergies; and

• business development and marketing.

The target group is SME manufacturers and production entrepreneurs.

Area 3: The image of industry

This area focuses on supporting and strengthening the overall public appeal of the manufacturing industry, partly to profile and promote job and career opportunities within the sector.

Key learning points

The key learning points of the ‘Manufacturing the Future’ initiative are that industrial policy has to be categorised as a comprehensive concept based on a mix of two com-plementary approaches. A top-down approach based on factual evidence and research on real industry or sectoral challenges and potentials, and a tailored bottom-up ap-proach using the need of individual corporate actors to tailor the structure of their individual support programmes within the themes characterised by the top-down ap-proach.


The Danish Ministry for Business and Growth's recent nation-wide industrial policy measure 'Growth Lift' (Vækstløft) was inspired by the model used in ‘Manufacturing the Future’.

2.6 Possible future orientations and opportunities

Several actors16 agree on the need for innovation and industrial policies. They also agree that the current policies are efficient. The same applies to regionally based inno-vation policy decision-makers. The following areas are future possibilities and orienta-tions that are reasonable directions for the regional innovation policy in CDR. The identified areas are the result of interviews with academic and regional experts, multi-ple publications listed in Appendix B, as well as the prior investigations in paragraphs 2.1 – 2.5:

• Shifting innovation policies from a supply side to an increasingly de-mand-driven orientation

An efficient tool for increasing the size of policy impact would increasingly be to ac-commodate the industrial and entrepreneurial demand for support when targeting industrial support measures while still operating within the confines of an efficient industrial policy and conforming to market conditions.

Actors within the regional industrial ecosystem (REG:LAB, 2013) in CDR agree that further integrating the needs and commercial challenges facing manufacturing com-panies and the orientation of public/private research programmes would help to en-sure that the future potential of manufacturing in CDR (increasing knowledge content and complexity of manufactured goods, mass customisation and decentralised manu-facturing) would be properly addressed.

• Focusing innovation policy in the years to come more intensely on reaping the benefits from digitisation and automation

Numerous experts17 from the regional government are also confident that the current structural challenges for the regional industry base - if left unmediated - will harm the regional competitiveness of small, less internationalised manufacturing companies. Increased digitisation of value and supply chains is increasingly taking place, which implies that sustaining and increasing the competitiveness of the SME manufacturing base in CDR will increasingly depend on the integration of IT and data usage in manu-factured goods.

16 Interview with Chief consultant, Regional Development, Niels Dahl & Professor John Johansen 17 Interview with Chief consultant, Regional Development, Niels Dahl & Professor John Johansen


Appendix A Bibliography

1. Johansen, John (2010) Manufacturing 2025, Five Future Scenarios for Danish Manufacturing Companies: Available at: http://vbn.aau.dk/da/publications/manufacturing-2025(17fcb3af-4f3d-4364-be8d-4273d607e82f)/export.html

2. Johansen, John (2013) Danish Production in Global Value Chains (Danish: Dansk Proudktion i Globale Værdikæder). Available in Danish at: http://vbn.aau.dk/files/77887820/Dansk_produktion_i_globale_v_rdik_der.pdf

3. Regional Development, Central Denmark Region (2013) THEME: The Region Through Outsiders’ Eyes, Regional Development Magazine, Vol. 15, pp.4-7. Avail-able at: https://www.rm.dk/siteassets/regional-udvikling/publikationer/dialog/dialog-15/w__802-dialog_uk-15.pdf

4. OECD (2012), OECD Reviews of Regional Innovation: Central and Southern Denmark 2012, OECD Publishing. http://dx.doi.org/10.1787/9789264178748-en

5. REG:LAB (2013) Manufacturing Denmark (Danish: Fremtidens Industri i Dan-mark), publication only available in Danish at http://www.reglab.dk/media/40734/genoptryk_industri_web_02.pdf

6. Regional Innovation Monitor Plus (2015) Thematic Paper 1: Mapping advanced manufacturing networks and exploring new business opportunities, available at: https://ec.europa.eu/growth/tools-databases/regional-innovation-moni-tor/sites/default/files/report/RIM%20Plus_Mapping%20Advanced%20Manufacturing%20Networks_Thematic%20Paper.pdf

7. Central Denmark Region (2013) The Industry in Central Denmark, available in Danish at: https://www.rm.dk/siteassets/regional-udvikling/analyser-og-publikationer/industrien-i-region-midtjylland.pdf

8. REG:LAB (2012) The Future of Industry in Denmark, Available in Danish at: http://www.reglab.dk/log-ind.aspx?msg=protected

9. Central Denmark Region (2015) Fact-based monitoring and evaluation of focus areas of Growth Forum Central Denmark, available in Danish at: https://www.rm.dk/siteassets/regional-udvikling/analyser-og-publikationer/effektmaling/effektmaling_midtjylland_efterar_2015.pdf

10. Growth Forum CDR (2010) A globally competitive region - a business develop-ment strategy 2010-2020, available only in Danish at: https://www.aarhus.dk/~/media/ eDoc/C/1/2/C125711F0048D96EC12577A700309A03attach2.pdf

11. REN21 (2015) Renewables 2015 - Global Status Report, available at: http://www.ren21.net/wp-content/uploads/2015/07/GSR2015_KeyFindings_lowres.pdf

12. OECD (2012) OECD Reviews of Regional Innovation: Central and Southern Denmark 2012, OECD Publishing, available at: http://dx.doi.org/10.1787/97892641 78748-en


Appendix B Stakeholders consulted

1. John Johansen, Professor, Ph.d., Aalborg University (26 November 2015).

2. Niels Dahl, Chief consultant, Regional Development, Central Denmark Region (01 December 2015).

3. Jesper Arndahl, Development Consultant, Central Denmark Region (1 December 2015).

4. Lars Vilbrad, Regional Director, Regional Development Council, Central Denmark Region (3 December 2015).

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