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Achieving Regional Progress Together – Cooperative Innovation Ecosystems

A response to disruptive developments and complex challenges in the SME sector

In times of turmoil, there is an opportunity for SMEs organized into cooperatives to respond to complex challenges by finding solutions together, especially by harnessing the power and creativity of the community. The cooperative pioneer Friedrich Wilhelm Raiffeisen once said, “What one cannot achieve alone, many can.” In keeping with this concept, joint entrepreneurial action engenders a sense of identity and motivation, which in turn can fuel momentum that becomes self-perpetuating. In this article for TRANSFER magazine, Steinbeis Entrepreneur Professor Dr. Tobias Popovic and business expert Professor Dr. Thomas Baumgärtler explain how SMEs, politics, and society in general stand to benefit from this principle.

After a decade of sustained economic growth, albeit combined with rising national debt, both the federal, state, and local governments of Germany as well as business enterprises currently face new and complex challenges. For many regional economies and SMEs, those challenges were already complex before the coronavirus pandemic. They also placed a huge burden on them. The current business environment is marked by weak economic growth (or even decline), high inflation, geopolitical risks, skills shortages, a transition to alternative energy sources, and increasing government regulation. There are also already-known changes affecting the business environment of SMEs – such as increasing competition from new business models, and disruptive technologies leading to new competition. At the same time, an growing number of customers and suppliers now want more sustainable products and manufacturing processes. As for the workforce, employees expect more flexible working hours and work arrangements. Developments on a local and regional level are mostly adverse, with an aging population, strained public finances, the exodus of downtown businesses, and intensifying urbanization.

Crises harbor risks – and opportunities

Businesses and regional governments face challenging economic conditions, and in the medium to long term it is to be assumed that both groups of stakeholders must expect structural change and financial cuts. Potentially, however, situations of crisis are sometimes accompanied by a general rethink among politicians, the business community, and the public at large. When the going gets tough, there is a tendency for people to pull together, lend greater importance to community spirit, and place emphasis on cohesion. This can also have an impact on future forms of collaboration. In addition, occasional shortages of everyday essentials during the pandemic highlighted our dependence on international corporations and the worldwide networks of value chains and supply chains, in what is now a world of global proportions. And then there are location factors on a regional and local level, especially those impacting rural areas, which are becoming less appealing due to inadequate infrastructure (roads, railways, internet), increasing energy prices, and tax burdens. As a result, given the sometimes disruptive nature of these developments, it is hardly surprising that people are calling for more emphasis on regional, cooperative, and sustainable value creation. It is against this backdrop that decision-makers in business and politics now face a number of questions:

  • What can be done to establish an innovative, creative, and agile approach to corporate and regional development?
  • What is the best way to ensure value creation is permanently established within regional economic cycles?
  • Are there ways to engage in sustainable production on a regional level?
  • Given the increasing pace of digital transformation, can established business models be reinvented and made future-ready?
  • What is the best way to address succession issues, which for many SMEs are becoming more pressing?
  • Will the existing model even require fundamental realignment?
  • How should regional networks and cooperative concepts be set up and exploited to enable companies to collaborate effectively on a local level?

Learning from the past – shaping the future

Asking if there are sustainable ways to address these issues on a regional level inevitably brings us to cooperative forms of business, which not only place emphasis on people and the innovative capabilities of communities, but also offer meaning and orientation, especially in times of crisis. The cooperative model can thus act as a compass for politics, business, and society. In the past, sweeping change was usually associated with disruptive developments. Change can also bring about economic and social innovations, however. Even in the mid-19th century – the heyday of Friedrich Wilhelm Raiffeisen and Hermann Schulze-Delitzsch, the founding fathers of cooperatives – there were extreme environmental, social, and economic challenges, threatening the very survival of impoverished sections of society. For the man to whom today’s “banks of the people” now owe their name (Volksbanken-Raiffeisenbanken), this was reason enough to enter new realms and introduce the cooperative model and its underlying principles at a regional level. Raiffeisen’s response to a whole slew of complex challenges was a social innovation, the impact of which was entirely positive.

Empowering citizens to help themselves

In keeping with the concept of self-sufficiency, cooperatives offer ways for all groups within society to help themselves as entrepreneurs. For example, people can engage in old and new activities not – or only insufficiently – pursued by the state. Unlike in Raiffeisen’s day, however, these days needs are met through joint projects supported by their members, for example in areas such as housing, transportation, and energy. Mobilizing members of the public and allowing people to become actively involved unleashes the potential to innovate in a broad range of areas. Those affected become those involved – or even joint business owners.

There are two core competencies in particular that impact the innovative potential of this cooperative model. One is the ability to harness the creative power of members and develop sustainable solutions in the face of permanent changes in society, the market, and the business environment. The other is so-called hub competence, which leads to the creation of platforms for regional networks to be formed. To find solutions to different problems, it is necessary to bring together different interest groups (or stakeholders) and organize them according to specific topics. The aim of such networks is not only to develop viable solutions, but also to implement those solutions together.

For almost two centuries, cooperatives have convincingly demonstrated that this is precisely where they succeed on a regional level, even in challenging environments or under difficult conditions. SMEs in particular stand to benefit in the long term from collaborative alliances thanks to the cooperative principles of self-help, self-responsibility, and self-administration. They can also evolve into dynamic innovation ecosystems.

SME hubs provide a basis for innovation ecosystems

Regional innovation ecosystems are a major opportunity for cooperatives – despite (or perhaps because of) the manifold challenges described above. With their ability to forge networks and the new digital possibilities they offer, they can bring together a variety of local stakeholders – such as customers, public administration departments, research institutions, and cooperative members – through digital platforms. Since the purpose of a cooperative is to directly support its members (Section 1, German Cooperatives Act), decisions are always made in the interests and to the benefit of participating companies. For SMEs, this not least applies to company succession.

The IfM institute for SME research predicts that roughly 200,000 medium-sized businesses will need to find new succession arrangements by 2026. Keeping things running as an ongoing concern – in ways that also allow staff to participate in the business – can be an interesting, albeit previously overlooked option, especially if there is no apparent solution among family members or other owners. Compared to the alternatives, such as turning to the financial markets (for private equity or IPOs), this offers a whole variety of advantages – especially for SMEs. Medium-sized enterprises organized into cooperatives can also function as network hubs. Not only do they tend to enjoy long-standing relationships with local groups of customers, they also understand the needs, interests, and capabilities of their customers, their roots traditionally extend deep into the region, and they are usually extremely well accepted in politics and society. Such SME hubs, which can also be organized along cooperative lines, can provide a basis for initiating local innovation ecosystems.

A methodological basis for this is offered by the research design of transdisciplinary living labs. The aim of these living labs is to develop tangible, implementable solutions to challenges both on a regional level and in corporate environments. A number of universities have already had experience with this research design, now allowing them to act as partners and providers of know-how in helping to develop innovation ecosystems. This also makes it possible to incorporate research findings into concepts, from a variety of scientific disciplines. Ideally, allowing groups of stakeholders to work creatively alongside one another results in new products and services, new business models, company startups, new jobs in preparation for times to come, and other innovative services.

The key success factors of regional innovation ecosystems

To establish successful innovation ecosystems and deliver benefit to regions and companies in the long term, the following factors are particularly important:

  • Development of a holistic system for the specific local or regional environment (relevant “elements of the ecosystem”)
  • Adaptations to the regulatory environment to match the needs of citizens and relevant players/stakeholders
  • Easing of bureaucratic hurdles and participation incentives
  • Acquisition of investors, for example supported by tax concessions, state subsidies, or both
  • Close collaboration and networking between stakeholders (with the involvement of scientific partners)
  • Development of a culture of innovation, entrepreneurship, and risk; encouragement to accept failure and engage in open and lively communication
  • Early sharing of successes in order to win over other, previously uninvolved stakeholders

One successful example of this is the region around Vancouver, which has developed into one of the world’s leading innovation ecosystems. A variety of successful innovations are being collaboratively developed and introduced in a variety of areas in the city, all with sustainability in mind. The so-called sustainable economy has become an engine of economic growth in Vancouver. In parallel to this transformation toward a more sustainable economy and society – as well as structural changes that come with that – thousands of jobs have been created. Aside from local stakeholders, a number of SME cooperatives are also involved in the initiative, functioning as active partners in local innovation processes. These developments could be groundbreaking for a variety of regions in Germany.

Cooperative enterprises in Germany

Registered cooperatives in Germany are a legal form of enterprise that is particularly well suited to collaboration between SMEs. SMEs from all kinds of industries and sectors work together in cooperatives, for example to secure advantageous buying terms together or share costs. Cooperatives facilitate knowledge-sharing, organize joint activities in markets, or introduce seals of quality together. Cooperatives are often recommended to medium-sized companies, because when different parties form a community, they benefit from economies of scale without having to sacrifice their independence and flexibility. Because the corporate constitution of such cooperatives is based on grassroots democratic principles (or governance), cooperation is guaranteed to take place on an equal footing.


Prof. Dr. Tobias Popovic (author)
Steinbeis Entrepreneur
Steinbeis Transfer Center Sustainable Finance and Management (Stuttgart)

Stuttgart Technology University of Applied Sciences
Business & Economics

Prof. Dr. Thomas Baumgärtler (author)
Associate Dean
Hochschule Offenburg (Gengenbach)